GLOBAL TELESYSTEMS GROUP INC
S-1/A, 1997-11-19
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>   1
 
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1997
    
 
   
                                                      REGISTRATION NO. 333-38579
    
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ---------------------
   
                                AMENDMENT NO. 1
    
   
                                       TO
    
                                    FORM S-1
 
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                             ---------------------
                         GLOBAL TELESYSTEMS GROUP, INC.
               (Exact name of registrant as specified in charter)
 
<TABLE>
<C>                              <C>                              <C>
            DELAWARE
  (State or other jurisdiction                 4813                          94-3068423
      of incorporation or          (Primary Standard Industrial           (I.R.S. Employer
          organization)            Classification Code Number)         Identification Number)
</TABLE>
 
                             ---------------------
                              1751 PINNACLE DRIVE
                           NORTH TOWER -- 12TH FLOOR
                                MCLEAN, VA 22102
                                 (703) 918-4500
              (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)
                             ---------------------
                               WILLIAM H. SEIPPEL
                              1751 PINNACLE DRIVE
                           NORTH TOWER -- 12TH FLOOR
                                MCLEAN, VA 22102
                                 (703) 918-4558
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)
                             ---------------------
                                   Copies to:
 
<TABLE>
<C>                                              <C>
            DAVID J. BEVERIDGE, ESQ.                           JAMES J. CLARK, ESQ.
              SHEARMAN & STERLING                            CAHILL GORDON & REINDEL
              599 LEXINGTON AVENUE                                80 PINE STREET
            NEW YORK, NEW YORK 10022                         NEW YORK, NEW YORK 10005
</TABLE>
 
                             ---------------------
     APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
 
   
     If the securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.  [ ]
    
 
     If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.  [ ]
 
     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.  [ ]
- ---------------------.
 
     If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering.  [ ]
- ---------------------.
 
   
     If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box.  [ ]
    
 
     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>   2
 
                                EXPLANATORY NOTE
 
     This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten public offering in the United States and
Canada of           shares (the "U.S. Prospectus"), and one to be used in a
concurrent underwritten public offering outside the United States and Canada of
          shares (the "International Prospectus"). The two prospectuses are
identical except for the front and back cover pages and the section entitled
"Underwriting." The form of U.S. Prospectus is included herein and is followed
by the alternate pages to be used in the International Prospectus. Each of the
alternate pages for the International Prospectus included herein is labeled
"International Prospectus -- Alternate Page." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b)
under the Securities Act of 1933.
<PAGE>   3
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
                             SUBJECT TO COMPLETION
   
                 PRELIMINARY PROSPECTUS DATED NOVEMBER 19, 1997
    
PROSPECTUS
                                             SHARES
                         GLOBAL TELESYSTEMS GROUP, INC.
                                  COMMON STOCK
[GLOBAL TELESYSTEMS GROUP, INC. LOGO]
                             ---------------------
 
   
     All of the shares of Common Stock, par value $.10 per share (the "Common
Stock"), offered hereby are being offered by Global TeleSystems Group, Inc. (the
"Company"). Of the           shares of Common Stock offered hereby,
shares are being offered in the United States and Canada (the "U.S. Offering")
and        shares are being offered outside the United States and Canada (the
"International Offering" and, together with the U.S. Offering, the "Offerings").
The initial offering price per share and the underwriting discount per share
will be identical for both Offerings. See "Underwriting."
    
 
   
     Prior to the Offerings, there has been no public market for the Common
Stock. The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol "GTSG".
Application will be made for listing of the Common Stock on the Amsterdam Stock
Exchange.
    
 
     SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
                             ---------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                               CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
=============================================================================================================
                                           PRICE TO               UNDERWRITING             PROCEEDS TO
                                            PUBLIC                DISCOUNT(1)               COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S>                                <C>                      <C>                      <C>
Per Share.........................            $                        $                        $
- -------------------------------------------------------------------------------------------------------------
Total(3)..........................            $                        $                        $
=============================================================================================================
</TABLE>
 
(1) The Company has agreed to indemnify the several Underwriters (as defined
    herein) against certain liabilities, including liabilities under the
    Securities Act of 1933, as amended (the "Securities Act"). See
    "Underwriting."
 
(2) Before deducting expenses payable by the Company estimated to be
    $          .
 
(3) The Company has granted to the U.S. Underwriters and the International
    Managers options, exercisable within 30 days of the date hereof, to purchase
    up to an additional        and        additional shares of Common Stock,
    respectively, solely to cover over-allotments, if any. See "Underwriting."
    If such options are exercised in full, the total Price to Public,
    Underwriting Discount and Proceeds to the Company will be $          ,
    $          and $          , respectively.
                             ---------------------
 
            MERRILL LYNCH & CO. IS THE BOOKRUNNER OF THE OFFERINGS.
                             ---------------------
 
<TABLE>
<S>                                        <C>
            GLOBAL COORDINATOR                       CO-GLOBAL COORDINATOR
           MERRILL LYNCH & CO.                           UBS SECURITIES
</TABLE>
 
                             ---------------------
 
     The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about             , 1997.
                             ---------------------
 
MERRILL LYNCH & CO.  DONALDSON, LUFKIN & JENRETTE
                                                   SECURITIES CORPORATION
 
UBS SECURITIES
                                LEHMAN BROTHERS
                                                                     FURMAN SELZ
                             ---------------------
 
               The date of this Prospectus is             , 1997.
<PAGE>   4
 
                              [INSIDE FRONT COVER]
 
                                 [PHOTOGRAPHS]
 
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
 
                                       ii
<PAGE>   5
 
                             AVAILABLE INFORMATION
 
     The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-1 (as amended, the "Registration Statement") of
which this Prospectus is a part under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are summaries of the material terms of
such contract, agreement or other document. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit. The Registration Statement (including the
exhibits and schedules thereto) may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission (the
"Commission") at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington,
D.C. 20549 and will also be available for inspection and copying at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street (Suite
1400), Chicago, Illinois 60661. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
 
     Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy and
information statements and other information with the Commission. Such reports,
proxy and information statements and other information can be inspected and
copied at the addresses set forth above. The Company intends to furnish its
stockholders with annual reports containing consolidated financial statements
audited by its independent accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
 
               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
     Any statements that express, or involve discussions as to, expectations,
beliefs, plans, objectives, assumptions or future events or performance (often,
but not always, through the use of words or phrases such as "will likely
result," "are expected to," "will continue," "is anticipated," "estimated,"
"intends," "plans," "projection" and "outlook") are not historical facts and may
be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Accordingly,
any such statements are qualified in their entirety by reference to, and are
accompanied by, the factors discussed throughout this Prospectus, and
particularly in the risk factors set forth herein under "Risk Factors." Among
the key factors that have a direct bearing on the Company's results of
operations are the potential risk of delay in implementing the Company's
business plan; the political, economic and legal aspects of the markets in which
the Company operates; competition and the Company's need for additional
substantial financing. These and other factors are discussed herein under "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus.
 
     The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Company made by or on behalf of the Company, and investors, therefore, should
not place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the Company's business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
 
                             ---------------------
 
     Russia On Line(TM) is a trademark of the Company.
 
                                       iii
<PAGE>   6
 
                                    SUMMARY
 
   
     The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus
(this "Prospectus"). Unless otherwise indicated, (i) the term "GTS" or the
"Company" refers to Global TeleSystems Group, Inc. (and, when appropriate, to
its predecessor) and its subsidiaries, (ii) references to the number of shares
of common stock outstanding after the Offerings assume the Underwriters'
over-allotment option has not been exercised, (iii) the information in this
Prospectus gives effect to the amendment of the Company's certificate of
incorporation effected in November 1997 (subject to stockholder approval) to
increase the Company's authorized capital stock to 145,000,000 shares
(135,000,000 shares of common stock authorized; 10,000,000 shares of preferred
stock authorized) and to increase the par value per share of common stock to
$0.10, and (iv) the information in this Prospectus gives effect to a 3-for-2
stock split of the common stock effected in November 1997 (subject to
stockholder approval). See "Exhibit A -- Glossary of Telecommunications Industry
Terms" for definitions of acronyms and technical telecommunications terms used
in this Prospectus.
    
 
                                  THE COMPANY
 
   
     GTS is a provider of a broad range of telecommunications services to
businesses, other telecommunications service providers and consumers in Russia
and the Commonwealth of Independent States ("CIS"), Central Europe and Asia.
Through its subsidiary Hermes Europe Railtel B.V. ("H.E.R."), GTS is developing,
and operating the initial segment of, a pan-European high capacity fiber optic
network that is designed to interconnect a majority of the largest Western and
Central European cities and to transport international voice, data and
multimedia/image traffic for other carriers throughout Western and Central
Europe. GTS's strategy to develop its businesses generally has been to establish
joint ventures with a strong local partner or partners while maintaining a
significant degree of operational control. The Company's business activities
consist of the ownership and operation of (i) international long distance
businesses, which operate through international gateways that provide
international switching services and transmission capacity, (ii) local access
networks, which provide local telephone service, (iii) cellular networks, which
provide wireless telecommunications services, (iv) a domestic long distance
business, (v) data networks and (vi) carriers' carrier networks, which provide
high volume transmission capacity to other carriers.
    
 
   
     In Russia and the CIS, GTS's objective is to become the premier alternative
telecommunications operator. To attain its objective, the Company has partnered
with regional telephone companies and with Rostelecom, the national long
distance carrier in Russia. The Company currently operates in 23 oblasts
(regions) and the city of Moscow in Russia, as well as in 11 additional cities
in the CIS, and believes it is well-positioned to become the leading independent
telecommunications service provider in Russia. These businesses include: (i) EDN
Sovintel ("Sovintel"), which provides Moscow, and recently St. Petersburg, with
international long distance and local telephone services and access to the major
domestic long distance carriers; (ii) TeleCommunications of Moscow ("TCM"),
which provides local access services in Moscow; (iii) TeleRoss (as defined
herein), which provides domestic long distance services in fourteen cities in
Russia, including Moscow, as well as Very Small Aperture Terminal ("VSAT")
service to customers outside its primary long distance satellite network; (iv)
Sovam Teleport ("Sovam"), which provides data services, including high-speed
data transmission, electronic mail, Internet access services, as well as Russia
On Line, the first Russian language internet service; and (v) the Company's
cellular operations ("GTS Cellular"), which operate cellular networks in twelve
regions in Russia and also in Kiev, Ukraine, with licenses covering regions with
an aggregate population of approximately 25 million people at the end of 1996.
Whenever practical, GTS's businesses integrate and co-market their service
offerings in Russia and the CIS, utilizing TeleRoss as the domestic long
distance provider, Sovintel as the international gateway, TCM and GTS Cellular
for local access, and Sovam as the data communications and Internet access
network for business applications and on-line services. Together, GTS's Russian
and CIS ventures carried 202.5 million and 179.3 million minutes of traffic for
the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively, and had approximately 27,600 customers, including approximately
13,500 cellular subscribers, as of June 30, 1997. See "Business -- Russia and
the CIS."
    
                                        1
<PAGE>   7
 
   
     In Western Europe, GTS seeks to position itself as the leading independent
carriers' carrier through the development of two ventures, H.E.R. and GTS-Monaco
Access S.A.M. ("GTS-Monaco Access"). H.E.R. is developing an approximately
17,000 kilometer pan-European high capacity fiber optic network designed to
interconnect a majority of the largest Western and Central European cities.
H.E.R. is currently operating over an approximately 240-kilometer portion of the
network linking Brussels and Amsterdam. H.E.R. expects to roll out full
telecommunications transport service over approximately 2,600 kilometers of
fiber optic cable linking the cities of London, Rotterdam, Amsterdam, Antwerp,
Brussels, Paris, Dusseldorf, and Frankfurt (the "initial five country network")
in the second quarter of 1998 and the 17,000 kilometer network to be operational
during the year 2000. H.E.R. objective is to become the leading pan-European
carriers' carrier by providing centrally managed cross-border telecommunications
transmission capacity to telecommunications companies including traditional
Public Telecommunications Operators ("PTOs") and new entrants, such as
alternative carriers, global consortia of telecommunications operators,
international carriers, Internet backbone networks, resellers, value added
networks and other service providers ("New Entrants"). GTS-Monaco Access
operates an international gateway in Monaco in partnership with, and utilizing
the existing gateway infrastructure of, the Principality of Monaco and provides
advanced transit and routing of international calls to other telecommunications
operators. Through its H.E.R. and GTS-Monaco Access ventures, GTS is building a
new network for transporting voice, data and multimedia/image traffic for other
carriers throughout Western Europe and for worldwide international voice, data
and multimedia/image traffic that either originates or terminates in, or
transits through, Western Europe. See "Business -- Western Europe."
    
 
   
     In Central Europe, GTS's objective is to become one of the leading
alternative telecommunications providers in the region. GTS currently provides
private data communications services to governmental and commercial customers in
Hungary and the Czech Republic. In the Czech Republic, the Company also provides
outgoing international voice services. Through its subsidiary GTS-Hungary Ltd.
("GTS-Hungary"), GTS operates a VSAT network in Hungary, which GTS believes is
the largest VSAT network in Central Europe as measured by number of VSAT sites.
In addition, through its subsidiary, Magyarorszag Szemlyhivo Koncesszios
Reszvenytarsasig ("Eurohivo") GTS operates a national paging network in Hungary
and, through its subsidiary GTS CzechNet spol. s r.o. ("CzechNet"), operates an
international gateway and a data services network in Prague and the Czech
Republic. During 1996, GTS's ventures in the Czech Republic carried
approximately 1.6 million minutes of international long distance voice and data
traffic. GTS's strategy is to expand its service offerings as the regulatory
environment permits, leveraging its existing VSAT and international gateway
infrastructure where possible and providing a broad range of services to its
target markets.
    
 
   
     In Asia, GTS's objective is to become an established and diversified
telecommunications provider in China and India. In China, GTS participates in
ventures which provide technical, operational, financial, engineering and other
services to two VSAT networks and a planned cellular network. In India, the
Company's venture carries international traffic for certain multinational
corporations. Although GTS does not currently own or operate significant
telecommunications assets in Asia, GTS seeks to leverage its position in these
countries to capitalize on opportunities that arise as the Chinese and Indian
telecommunications markets develop.
    
                                        2
<PAGE>   8
 
     The following table sets forth certain information for the principal
ventures through which the Company conducts its business:
 
   
<TABLE>
<CAPTION>
                                     COUNTRY/REGION       GTS                                  PRINCIPAL
           COMPANY NAME              OF OPERATIONS     OWNERSHIP           PARTNERS             BUSINESS
           ------------              --------------   ------------    -------------------  ------------------
<S>                                  <C>              <C>             <C>                  <C>
CIS
  Sovintel.........................  Russia                 50%       Rostelecom           International Long
                                                                                             Distance; Local
                                                                                             Access
  TCM..............................  Russia                 50%(1)    MTU Inform and       Local Access Lines
                                                                        others
  TeleRoss.........................  Russia                 50%(2)    Various local PTOs   Domestic Long
                                                                                             Distance
  Sovam............................  Russia                 67%       Institute for        Data and Internet
                                                                        Automated Systems
  GTS Cellular.....................  CIS                 25-70%(3)    Primarily various    Basic Cellular
                                                                        local PTOs
WESTERN EUROPE
  H.E.R............................  Western Europe         79%(4)    Various              Carriers' Carrier
  GTS -- Monaco Access.............  Monaco                 50%       Principality of      Carriers' Carrier;
                                                                        Monaco               International
                                                                                             Gateway
CENTRAL EUROPE
  GTS-Hungary......................  Hungary                99%       --                   VSAT Network
  EuroHivo.........................  Hungary                70%       Microsystems         Paging Services
                                                                        Telecom Rt.;
                                                                      Gerard Aircraft
                                                                        Sales and Leasing
                                                                        Company
  CzechNet.........................  Czech Republic        100%       --                   International Long
                                                                                             Distance
ASIA
  V-Tech...........................  China                  75%       Shanghai Science     VSAT Network
                                                                        and Technology
                                                                        Investment
                                                                        Corporation
  Beijing Tianmu...................  China                  47%       China International  VSAT Network
                                                                        Travel Service
                                                                      Telecom Co.,
                                                                        Ltd.(5)
  Shanghai Global Intelligent        China                  80%       Shanghai             Basic Cellular
    TeleSystems....................                                   Intelligent
                                                                        Engineering(6)
  CDI..............................  India                 100%       --                   Voice, Data and
                                                                                             Internet
</TABLE>
    
 
- ---------------
 
   
(1) GTS holds a 50% indirect interest in TCM through its 52.6% interest in
    GTS-Vox Limited, an intermediate holding company.
    
 
(2) TeleRoss consists of (i) two wholly-owned holding companies and a 99% owned
    subsidiary that operates a domestic long distance network (collectively,
    "TeleRoss Operating Company") and (ii) thirteen joint ventures that are 50%
    beneficially-owned by GTS (the "TeleRoss Ventures"). See "Business -- Russia
    and the CIS -- TeleRoss."
 
(3) GTS conducts its cellular operations through (i) Vostok Mobile B.V. ("Vostok
    Mobile"), a GTS venture which owns between 50% and 70% of a series of 11
    cellular joint ventures in various regions in Russia, (ii) PrimTelefone, a
    50% owned venture in Vladivostok, Russia and (iii) Bancomsvyaz, an
    approximately 25% beneficially-owned venture in Kiev, Ukraine. GTS currently
    holds a 62% beneficial interest in Vostok Mobile. The Company expects to
    purchase, pending execution of definitive documentation, the minority
    interest in Vostok Mobile. After the purchase, Vostok Mobile will be a
    wholly owned venture of GTS. In addition, GTS intends to enter into the
    cellular markets of additional Russian regions through its Vostok Mobile
    venture. See "Business -- Russia and the CIS -- GTS Cellular."
 
   
(4) GTS currently owns approximately 79% of H.E.R. after giving full effect to a
    recapitalization of H.E.R., which is substantially complete. The Company's
    interest is also expected to decrease due to the issuance of shares to
    certain H.E.R. executives under the proposed H.E.R. stock option plan. See
    "Business -- Western Europe -- H.E.R. -- H.E.R. Recapitalization and
    "Executive Compensation and Other Information -- H.E.R. 1994 Stock Option
    Plan."
    
 
(5) GTS owns 75% of GTS China Investments LLC ("GCI"), which owns 90% of
    American China Investment Corporation ("ACIC"). ACIC owns 70% of Beijing
    Tianmu China joint venture company.
 
(6) Shanghai Intelligent Engineering is an operating unit of the Shanghai
    municipal government.
                                        3
<PAGE>   9
 
                               BUSINESS STRATEGY
 
     GTS seeks to develop businesses to meet the rapidly expanding market demand
for telecommunications services. GTS's goal in emerging markets is to establish
itself as the leading alternative to the incumbent telecommunications service
providers and as a premier provider of value-added services. In addition, the
Company seeks to position itself as the leading independent carriers' carrier
within Western Europe through the development of a pan-European fiber optic
network in partnership with Western European railways and other infrastructure
providers, and an international gateway in partnership with, and utilizing the
gateway infrastructure of, the Principality of Monaco.
 
     GTS believes that it will be able to successfully operate its businesses
and develop business opportunities by pursuing the following strategies:
 
     - Identify and Seize Early Market Opportunities. GTS's primary strategy is
      to identify less developed markets in which the incumbent operator offers
      inadequate service and where liberalization of telecommunications
      regulations may be pending. The Company believes that entering these less
      developed markets quickly is a key competitive advantage in the global
      telecommunications market. GTS leverages its management's knowledge of the
      markets in which the Company operates to assess and react quickly when
      attractive business opportunities arise.
 
     - Establish Joint Ventures with Experienced Local Partners. GTS seeks to
      establish and maintain strategic partnerships and relationships with key
      telecommunications operators and service providers in the countries in
      which it operates. The Company believes that these relationships increase
      its ability to anticipate and respond to changes in the regulatory and
      legal environment and assist with license renewal and expansion of its
      operating companies.
 
     - Retain Significant Operational Control. In general, GTS actively
      participates in the management of its ventures by (i) providing most of
      the funding for the ventures' operations, (ii) selecting key members of
      the local management team, (iii) developing business plans and marketing
      strategies together with local management, (iv) monitoring operating
      functions, (v) maintaining close working relationships with local partners
      and (vi) integrating its networks and businesses in a manner which is
      consistent with the Company's overall strategic objectives.
 
     - Build Infrastructure to Provide High Quality Services. GTS continues to
      develop and expand its network infrastructure. The Company believes that
      its networks offer service, quality and cost advantages over incumbent
      providers as a result of the Company's customer support, network
      monitoring, management systems and its ability to integrate and co-market
      its service offerings.
 
     - Leverage Management Depth and Experience. GTS's management has
      significant experience in the development and operation of
      telecommunications businesses outside the United States. The Company
      believes that this experience, together with the Company's extensive
      operations, has provided its management with the ability to identify,
      evaluate and pursue international telecommunications business
      opportunities. Additionally, GTS has assembled a management team comprised
      of executives with extensive experience managing telecommunications
      companies in the respective local markets. GTS believes that its
      management team possesses a broad knowledge of relevant political and
      regulatory structures, as well as the cultural awareness and fluency with
      international and local business practices necessary to implement the
      Company's objectives.
 
   
     - Ability to Access Capital. In general, the Company's financing strategy
       is to establish parent level funding to meet general corporate needs and
       the costs of start-ups and acquisitions and, when it is possible and
       cost-effective, to finance ongoing operations at the venture level. Since
       1993, the Company has raised approximately $269 million in equity and
       approximately $215 million of debt (of which approximately $74 million
       was raised through shareholders). In addition, H.E.R. completed a $265
       million private placement of senior notes (of which $56.5 million was
       placed into escrow for the first two years' interest payments) in 1997.
       The Company's principal investors include affiliates of George Soros and
       Alan B. Slifka.
    
                                        4
<PAGE>   10
 
     In addition to its overall business strategy, GTS has developed specific
market strategies to achieve its goals in emerging markets and Western Europe.
 
     Emerging Markets. The Company pursues its goals in emerging markets through
a three-stage approach of market entry, market expansion and market integration.
 
     - Market Entry. GTS identifies a market as a suitable target for entry
       based upon: (i) superior growth prospects for such market, demonstrated
       by growing demand for high quality telecommunications services; (ii) the
       provision of inadequate services by incumbent providers, typically
       resulting from the incumbents' unwillingness to offer high quality
       services with reliable customer support at attractive prices; and (iii)
       attractive regulatory environments in which emerging alternative
       telecommunications providers such as GTS have, or expect to have over a
       clearly defined time horizon, the ability to compete on a substantially
       equal basis with the incumbent providers in terms of certain services and
       the cost of providing those services. Once GTS has identified a market as
       suitable for entry, the Company seeks to establish its presence in that
       market by establishing a venture with a strong local partner or partners.
       In general, GTS maintains a significant degree of operational control in
       such ventures. Through such ventures, the Company benefits from its
       partners' ability to provide infrastructure, regulatory expertise and
       personnel that will provide GTS with a competitive advantage in entering
       that market. When entering a new market, GTS's strategy is to provide its
       customers with higher quality service as compared to the services offered
       by incumbent providers.
 
     - Market Expansion. Having entered a market successfully and established a
       limited service offering to its targeted customer base, GTS then seeks to
       expand the range of services it offers to existing and potential
       customers and to further develop its relationships with local partners.
       By broadening its service offerings, GTS anticipates achieving increased
       economies of scale through the common use of administrative and operating
       functions already in place, increasing the Company's share of its
       customers' telecommunications spending and expanding GTS's base of
       potential customers through the provision of a bundled service offering.
       The Company also seeks to expand its targeted geographic market by
       forming new partnerships, installing infrastructure and offering services
       in additional geographic regions, allowing the Company to further enhance
       its operating leverage and ability to service its customers'
       telecommunications needs.
 
     - Market Integration. GTS ultimately intends to integrate and co-market its
       service offerings in each of the markets in which it operates. The
       Company believes such integration enables it to enhance its operating
       efficiency by leveraging its distribution channels, infrastructure and
       networks, and management information systems. As customers develop a need
       for a broader variety of telecommunications services, the Company
       believes GTS's integrated operations will represent an attractive service
       alternative for customers seeking a single provider with the ability to
       meet all their telecommunications needs.
 
   
     Western Europe. The Company seeks to position itself as the leading
independent carriers' carrier within Western Europe through the development of
H.E.R.'s pan-European fiber optic network and the operation of GTS-Monaco
Access's international gateway in partnership with, and utilizing the gateway
infrastructure of, the Principality of Monaco. The overall strategy of GTS in
Western Europe is to complement and enhance the services provided by PTOs and
New Entrants in a way that helps them to more successfully meet the needs of
their end-user customers. H.E.R. seeks to enter the market ahead of competition
and encourage a wide variety of carriers to use its network with service
offerings that meet their needs. To establish itself as the leading carriers'
carrier for international telecommunications within Europe, H.E.R. intends to
provide its customers with significantly higher quality transmission and
advanced network capabilities at a competitive price by utilizing advanced,
uniform technology across the region and providing redundant routing for higher
levels of reliability.
    
                                        5
<PAGE>   11
 
                                 FINANCING PLAN
 
   
     In general, the Company's strategy is to finance general corporate cash
needs, the development of start-up ventures and acquisitions through the parent
company and, when possible and cost effective, to finance ongoing operations at
the venture level. Since 1993, the Company has raised approximately $269 million
in equity and approximately $215 million of debt (of which approximately $74
million was raised through shareholders). In addition, H.E.R. completed a $265
million private placement of senior notes (of which $56.5 million was placed
into escrow for the first two years' interest payments) in 1997.
    
 
   
     The Company believes that the net proceeds from the Offerings, together
with existing cash and cash flow from operations, if any, will be sufficient to
fund its expected capital needs until at least June 1999. GTS expects that it
may require additional capital to execute its current business plan and to fund
expected operating losses, as well as to consummate future acquisitions and
exploit opportunities to expand and develop its businesses. Management expects
that GTS and its ventures will incur over $475 million of capital expenditures
during the next three years, of which approximately $200 million will be
incurred in 1997. Of these amounts, approximately $335 million will be used to
fund construction of the H.E.R. network, with approximately $100 million
required for the roll out of the initial five country network that is expected
to be completed in the second quarter of 1998. The Company also will need to
fund operating losses of its ventures for at least the next 12 months. In
addition, as part of its business strategy, the Company regularly evaluates
potential acquisitions and joint ventures. The Company has no definitive
agreement with respect to any acquisition or joint venture, although from time
to time it has discussions with other companies and assesses opportunities on an
on-going basis. The Company may fund these acquisitions or joint ventures with a
portion of the net proceeds from the Offerings. See "Risk Factors -- Additional
Capital Requirements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
    
 
     After giving effect to the Offerings, certain affiliates of George Soros
and Alan B. Slifka and certain affiliates are expected to own      % and      %
of the Common Stock on a fully-diluted basis, respectively. See "Principal
Stockholders."
 
                             *          *          *
 
     The Company was founded in 1983 as a not-for-profit company under the name
San Francisco/Moscow Teleport, Inc. The Company was incorporated as a California
for-profit corporation on September 25, 1986, and by way of a reincorporation
merger, merged with and into SFMT, Inc., a Delaware corporation formed for that
purpose on September 13, 1993. The Company was renamed Global TeleSystems Group,
Inc., on February 22, 1995. The Company's principal business office is located
at 1751 Pinnacle Drive, McLean, Virginia 22102, United States, and its telephone
number is (703) 918-4500.
                                        6
<PAGE>   12
 
                                 THE OFFERINGS
 
   
<TABLE>
<CAPTION>
<S>                                                    <C>
Common Stock offered by the Company
  U.S. Offering......................................  shares
  International Offering.............................  shares
          Total......................................  shares
Common Stock to be outstanding after the
  Offerings(1).......................................  shares
Use of Proceeds......................................  The Company intends to use the net proceeds
                                                       from the Offerings to provide working capital
                                                       for existing telecommunications ventures,
                                                       particularly in Russia and the CIS, to expand
                                                       the Company's operations, and for general
                                                       corporate purposes. The Company is also
                                                       considering using up to $84 million of the net
                                                       proceeds to repay shareholder loans. In
                                                       addition, a portion of the net proceeds may be
                                                       used by the Company in connection with one or
                                                       more acquisitions. See "Use of Proceeds."
Listing..............................................  The Common Stock has been approved for
                                                       quotation on the Nasdaq National Market,
                                                       subject to official notice of issuance, under
                                                       the symbol "GTSG".Application will be made for
                                                       listing the Common Stock on the Amsterdam
                                                       Stock Exchange."
</TABLE>
    
 
- ---------------
 
   
(1) Excludes (i) 7,777,776 shares of Common Stock reserved for issuance upon
    exercise of outstanding warrants at an exercise price of $9.33 per share,
    (ii) 713,310 shares of Common Stock reserved for issuance upon exercise of a
    put right associated with a 1996 financing agreement, as amended, (iii)
    5,664,994 shares of Common Stock reserved for issuance upon exercise of
    outstanding stock options at exercise prices ranging from $0.53 per share to
    $13.33 per share, (iv)        shares issuable upon conversion of the
    Company's Senior Subordinated Convertible Bonds due 2000 (the "Convertible
    Bonds") (assuming a public offering price in the Offerings of $       per
    share) and (v) 617,040 shares of Common Stock reserved for issuance pursuant
    to the TCM business partnership agreement as deferred consideration to TCM's
    partners, see "Certain Related Party Transactions."
    
 
                                  RISK FACTORS
 
     See "Risk Factors" beginning on page 10 for a discussion of certain factors
that should be considered by prospective investors in evaluating an investment
in the Common Stock.
                                        7
<PAGE>   13
 
                 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
 
     The following summary historical consolidated financial data as of December
31, 1996 and for the years ended December 31, 1994, 1995 and 1996 are derived
from the Company's audited Consolidated Financial Statements. The following
unaudited summary historical consolidated financial data as of June 30, 1997 and
for the six months ended June 30, 1996 and 1997 are derived from the Company's
unaudited Consolidated Financial Statements. The summary historical consolidated
financial data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the audited Consolidated Financial Statements and related notes thereto
appearing elsewhere in this Prospectus.
 
   
     Under generally accepted accounting principles, a majority of the Company's
ventures are accounted for by the equity method of accounting. Under this
method, the operating results of the ventures are included in the Company's
Statement of Operations as a single line item, "Equity in losses of ventures."
Also, the assets, liabilities and equity of the ventures are included in the
Company's balance sheet data as a single line item, "Investments in and advances
to ventures." The Company recognizes 100% of the losses in ventures where the
Company bears all of the financial risk (which includes all of the Company's
significant ventures except for Sovintel and, historically, H.E.R. ). See Note 2
to the Company's audited Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
    
 
<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED
                                               YEAR ENDED DECEMBER 31,               JUNE 30,
                                            ------------------------------    ----------------------
                                              1994       1995       1996        1996          1997
                                            --------   --------   --------    --------      --------
                                                                 (IN THOUSANDS)
<S>                                         <C>        <C>        <C>         <C>           <C>
STATEMENT OF OPERATIONS DATA:
  Revenues, net...........................  $  2,468   $  8,412   $ 24,117    $  8,715      $ 17,295
  Gross margin............................        23         16      5,176         875         4,332
  Selling, general and administrative
     expenses.............................    12,863     41,014     52,928      23,190        27,075
  Equity in losses of ventures............      (135)    (7,871)   (10,150)     (5,433)      (10,167)
  Other income (expense)..................       990     11,034     (8,729)     (3,789)       (5,960)
  Net loss................................   (11,985)   (40,400)   (67,991)    (32,199)      (39,687)
  Loss per share..........................
</TABLE>
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   JUNE 30,
                                                                  1996         1997     AS ADJUSTED(1)
                                                              ------------   --------   --------------
                                                                           (IN THOUSANDS)
<S>                                                           <C>            <C>        <C>
BALANCE SHEET DATA (AT END OF PERIOD):
  Cash and cash equivalents.................................    $ 57,874     $ 14,587       $189,084
  Property and equipment, net...............................      35,463       35,415         35,415
  Investments in and advances to ventures...................     104,459      117,123        117,123
  Total assets..............................................     237,378      198,340        380,077
  Total debt................................................      85,547       84,090        228,885
  Minority interest and stock subject to repurchase.........       6,248        6,477          6,477
  Shareholders' equity......................................     113,668       76,278        113,220
</TABLE>
 
- ---------------
 
   
(1) The June 30, 1997 balances are adjusted to reflect (i) the issuance in
    August and September 1997 of approximately $144.8 million of Convertible
    Bonds which are convertible into Common Stock and (ii) the sale in August
    and September 1997 of 2,502,686 shares of Common Stock for an aggregate
    $39.2 million (of which $8 million remains to be funded). In addition,
    H.E.R. issued $265 million of senior notes, of which approximately $56.5
    million was placed into escrow for the first two years' interest payments on
    the notes. H.E.R. did not become a consolidated subsidiary of the Company
    until the third quarter of 1997 and was accounted for under the equity
    method as of June 30, 1997. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations -- Liquidity and Capital
    Resources," "Capitalization," and "Description of Certain Indebtedness."
    
                                        8
<PAGE>   14
 
   
     Supplemental Information -- Summary Historical Financial Data
    
 
   
     [The Company is currently evaluating the disclosure that it intends to
present.]
    
                                        9
<PAGE>   15
 
                                  RISK FACTORS
 
ADDITIONAL CAPITAL REQUIREMENTS
 
   
     GTS expects that it may require additional capital to execute its current
business plan and to fund expected operating losses, as well as to consummate
future acquisitions and exploit opportunities to expand and develop its
businesses. Management expects that GTS and its ventures will incur over $475
million of capital expenditures during the next three years, of which
approximately $200 million will be incurred in 1997. Of these amounts,
approximately $335 million will be used to fund construction of the H.E.R.
network, with approximately $100 million required for the roll out of the
initial five country network that is expected to be completed in the second
quarter of 1998. The Company also will need to fund operating losses of its
ventures for at least the next 12 months. In addition, as part of its business
strategy, the Company regularly evaluates potential acquisitions and joint
ventures. The Company has no definitive agreement with respect to any material
acquisition or joint venture, although from time to time it has discussions with
other companies and assesses opportunities on an on-going basis. The Company may
fund such acquisitions or joint ventures with a portion of the net proceeds from
the Offerings.
    
 
   
     The Company believes that the net proceeds from the Offerings, together
with existing cash and cash flow from operations, will be sufficient to fund its
expected capital needs until at least June 1999. The actual amount and timing of
the Company's future capital requirements, however, may differ materially from
management's estimates. In particular, the accuracy of management's estimates
are subject to changes and fluctuations in the Company's revenues, operating
costs and development expenses, which can be affected by the Company's ability
to (i) effectively and efficiently manage the expansion of the H.E.R. network
and operations, (ii) obtain infrastructure contracts, rights-of-way, licenses
and other regulatory approvals necessary to complete and operate the H.E.R.
network, (iii) negotiate favorable contracts with suppliers, including large
volume discounts on purchases of capital equipment and (iv) access markets,
attract sufficient numbers of customers and provide and develop services for
which customers will subscribe. The Company's revenues and costs are also
dependent upon factors that are not within the Company's control such as
regulatory changes, changes in technology, increased competition and various
factors such as strikes, weather, and performance by third-parties in connection
with the Company's operations. Due to the uncertainty of these factors, actual
revenues and costs may vary from expected amounts, possibly to a material
degree, and such variations are likely to affect the Company's future capital
requirements. Historically, GTS has experienced liquidity problems resulting in
part from the Company's need to meet the capital requirements of certain of its
joint ventures in excess of forecast amounts. In addition, certain of the
Company's joint ventures have not met management's financial performance
expectations or have not been able to secure local country financing and thus
have not been able to generate the expected cash inflows. In addition, if the
Company expands its operations at an accelerated rate or consummates
acquisitions, the Company's funding needs will increase, possible to a
significant degree, and it will expend its capital resources sooner than
currently expected. The Company may also be required to repay its Convertible
Bonds upon maturity in the year 2000 to the extent such bonds are not converted
into Common Stock. As a result of the foregoing, or if the Company's capital
resources otherwise prove to be insufficient, the Company may need to raise
additional capital. See "-- Government Regulation," "-- Competition,"
"-- Technology," "-- H.E.R. Network Roll-out," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Use of
Proceeds."
    
 
     If the Company decides to raise additional funds through the incurrence of
debt, it may become subject to additional or more restrictive financial
covenants and its interest obligations will increase. If the Company decides to
raise additional funds through the issuance of equity, the interests of holders
of the Common Stock, will be diluted. There can be no assurance that additional
financing will be available to GTS on favorable terms or at all, and failure to
generate sufficient funds in the future, whether from operations or by raising
additional debt or equity capital, may require the Company to delay or abandon
some or all of its anticipated expenditures, to sell assets, or both, and could
affect the Company's ability to compete, either of which could have a material
adverse effect on the operations of the Company, and could affect the value of
the Common
 
                                       10
<PAGE>   16
 
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Use of Proceeds."
 
HISTORY OF OPERATING LOSSES
 
     The Company has historically sustained substantial operating and net
losses. The Company had net losses of $0.4 million in 1992, $2.4 million in
1993, $12.0 million in 1994, $40.4 million in 1995, $68.0 million in 1996 and
$39.7 million for the six months ended June 30, 1997. The Company's cumulative
net losses totalled $165.6 million through June 30, 1997. Further development of
the Company's business will require significant additional expenditures and the
Company expects that it will have significant operating and net losses and will
record significant net cash outflow, before financing, in coming years. There
can be no assurance that the Company's operations will achieve or sustain
profitability or positive cash flow in the future. If the Company cannot achieve
and sustain operating profitability or positive cash flow from operations, it
may not be able to meet its debt service obligations or working capital
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
 
   
H.E.R. NETWORK ROLL-OUT
    
 
   
     H.E.R.'s ability to achieve its strategic objective will depend in large
part on the successful, timely and cost-effective completion of the H.E.R.
network. Although H.E.R. currently operates commercially over the
Amsterdam-Brussels portion of the network, the development of the remainder of
the network may be delayed or adversely affected by a variety of factors,
uncertainties and contingencies. Many of these factors, such as strikes, natural
disasters and other casualties, are beyond H.E.R.'s control. In addition, H.E.R.
will need to negotiate and conclude additional agreements with various parties
regarding, among other things, rights-of-way and development and maintenance of
the network infrastructure and equipment. Historically, H.E.R. has experienced
substantial delays in concluding these agreements and developing its network.
There can be no assurance that H.E.R. will be successful in concluding necessary
agreements, or that delays in concluding such agreements will not materially and
adversely affect the speed or successful completion of the network. The
successful and timely completion of the network will also depend on, among other
things, (i) the availability to H.E.R. of substantial amounts of additional
capital and financing, (ii) timely performance by various third parties of their
contractual obligations to engineer, design and construct portions of the
network and (iii) H.E.R.'s ability to obtain and maintain applicable
governmental approvals.
    
 
   
     H.E.R. expects to roll out full telecommunications service over the initial
five country network in the second quarter of 1998, and the 18,000 kilometer
network to be operational during the year 2000. Although H.E.R. believes that
its cost estimates and the build-out schedule are reasonable, there can be no
assurance that the actual construction costs or time required to complete the
network build-out will not substantially exceed current estimates.
    
 
   
     Any significant delay or increase in the costs associated with development
of the network could have a material adverse effect on H.E.R. and the Company.
    
 
   
     Development of the H.E.R. network is capital intensive. The buildout of the
network is expected to require approximately $335 million of capital
expenditures, with approximately $100 million required for the initial five
country network. While H.E.R. raised approximately $265 million in a private
placement of its senior notes in August 1997 (of which $56.5 million has been
placed in escrow for the first two years' interest payments on the notes),
additional financing must be obtained to construct the H.E.R. network and there
can be no assurance that such additional financing will be completed. Failure to
obtain necessary financing may require H.E.R. to delay or abandon its plans for
deploying the remainder of the network and would adversely affect the viability
of H.E.R., or may require the Company to make additional capital contributions
to H.E.R. at the expense of the Company's other operations, either of which
could have a material adverse effect on the operations of the Company. H.E.R.'s
revenues and the cost of deploying its network and operating its business will
depend upon a variety of factors including, among other things, H.E.R.'s ability
to (i) effectively and efficiently manage the expansion of its network and
operations, (ii) negotiate favorable contracts with suppliers, (iii) obtain
additional licenses, regulatory approvals, rights-of-way and infrastructure
contracts to
    
 
                                       11
<PAGE>   17
 
   
complete and operate the network, (iv) access markets and attract sufficient
numbers of customers and (v) provide and develop services for which customers
will subscribe. H.E.R.'s revenues and costs are also dependent upon factors that
are not within H.E.R.'s control such as regulatory changes, changes in
technology, increased competition and various factors such as strikes, weather,
and performance by third-parties in connection with the development of the
network. Due to the uncertainty of these factors, actual costs and revenues may
vary from expected amounts, possibly to a material degree, and such variations
would likely affect H.E.R.'s future capital requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." H.E.R. must obtain additional
infrastructure provider agreements for the long-term lease of dark fiber,
rights-of-way and other permits to install fiber optic cable from railroads,
utilities and governmental authorities to build out the network. There can be no
assurance that H.E.R. will be able to maintain all of its existing agreements,
rights and permits or to obtain and maintain the additional agreements, rights
and permits needed to implement its business plan on acceptable terms. Loss of
substantial agreements, rights and permits or the failure to enter into and
maintain required arrangements for the H.E.R. network could have a material
adverse effect to enter on H.E.R.'s business. In addition, H.E.R. depends on
third parties for leases of dark fiber for portions of its network. There can be
no assurance that H.E.R. will be able to enter into and maintain required
arrangements for leased portions of the H.E.R. network, which could have a
material adverse effect on H.E.R.'s business.
    
 
   
     In order to operate and, in the case of some countries, even to construct
the network in accordance with current plans, H.E.R. must obtain the necessary
regulatory approvals. To date, H.E.R. has obtained licenses, authorizations
and/or registrations in the United Kingdom, the Netherlands, Belgium, Germany
and France. In addition, H.E.R. intends to file applications in other countries
in anticipation of service launch in accordance with the H.E.R. network roll-out
plan. The terms and conditions of these licenses, authorizations or
registrations may limit or otherwise affect H.E.R. scope of operations. There
can be no assurance that H.E.R. will be able to obtain, maintain or renew
licenses, authorizations or registrations to provide the services it currently
provides and plans to provide, that such licenses, authorizations or
registrations will be issued or renewed on terms or with fees that are
commercially viable, or that the licenses, authorizations or registrations
required in the future can be obtained by H.E.R. The loss of, or failure to
obtain, these licenses, authorizations or registrations or a substantial
limitation upon the terms of these licenses, authorizations or registrations
could have a material adverse effect on H.E.R. See "Business -- Western
Europe -- H.E.R.  -- Licenses and Regulatory Issues."
    
 
RISKS RELATING TO REORGANIZATION OF RUSSIAN TELECOMMUNICATIONS INDUSTRY
 
     Svyazinvest was established by the Russian government in 1994 to hold the
government's interest in 88 regional telecommunication companies. In April 1997,
President Yeltsin approved the transfer of additional government-owned
telecommunications assets, including the government's 51% stake in Rostelecom
(the government controlled international and long distance operator), to
Svyazinvest. On July 30, 1997, Mustcom Ltd., a Cyprus-based company that
represents the interests of a consortium which includes ICFI Cyprus, Renaissance
International Ltd., Deutsche Morgan Grenfell, Morgan Stanley, and an affiliate
of George Soros, purchased a 25% stake in Svyazinvest for $1.87 billion. As of
June 30, 1997, George Soros and affiliates beneficially owned 26.6% of the
Company's Common Stock. The President has also authorized the sale of another
24% of Svyazinvest at a future date. The Russian government has announced that
it will retain a controlling 51% interest in Svyazinvest. As a result of the
government's actions, a single entity, Svyazinvest, now owns a majority interest
in most of the Company's principal venture partners and other telecommunication
service providers in Russia which together provide a range of international and
domestic long distance and local telecommunications services throughout Russia.
The consolidation of many of its partners under Svyazinvest and the possible
sale of a significant interest in Svyazinvest to foreign and/or Russian
investors will likely subject the Company to more coordinated competition from
Svyazinvest, and may lead to adverse changes in the business relationships
between the Company and such partners, which business relationships represent a
material component of the Company's business strategy in Russia. There can be no
assurance that the continuing privatization of Svyazinvest, or the evolution of
government policy regarding Svyazinvest and Rostelecom, will not have a material
adverse effect on the Company or its ventures. See "-- Competition,"
 
                                       12
<PAGE>   18
 
"-- Dependence on Certain Local Parties; Absence of Control" and
"Business -- Russia and the CIS -- Overview" and "Principal Stockholders."
 
MANAGING RAPID GROWTH
 
   
     As a result of the Company's past and expected continued growth and
expansion, significant demands have been placed on the Company's management,
operational and financial resources and on its systems and controls. The Company
continues to construct segments of the H.E.R. network, expand its operations
within Russia and the CIS, and expand into additional geographic and service
markets when business and regulatory conditions warrant. In order to manage its
growth effectively, the Company must continue to implement and improve its
operational and financial systems and controls, purchase and utilize additional
telecommunications facilities, and expand, train and manage its employee base.
Inaccuracies in the Company's forecasts of market demand could result in
insufficient or excessive telecommunications facilities and disproportionate
fixed expenses for certain of its operations. There can be no assurance that the
Company will be able to construct and operate the entire H.E.R. network as
currently planned, expand with the markets in which its ventures are currently
operating or expand into additional markets at the rate presently planned by the
Company, or that any existing regulatory barriers to such expansion will be
reduced or eliminated. As the Company proceeds with its development and
expansion, there will be additional demands on the Company's customer support,
sales and marketing and administrative resources and network infrastructure.
There can be no assurance that the operating and financial control systems and
infrastructure of the Company and its ventures will be adequate to maintain and
effectively manage future growth. The failure to continue to upgrade the
administrative, operating and financial control systems or the emergence of
unexpected expansion difficulties could materially and adversely affect the
Company's business, results of operations and financial condition.
    
 
RISKS RELATING TO EMERGING MARKETS
 
     Substantially all of the Company's revenue is derived from operations in
emerging markets, where the Company's businesses are subject to numerous risks
and uncertainties, including political, economic and legal risks, such as
unexpected changes in regulatory requirements, tariffs, customs, duties and
other trade barriers, difficulties in staffing and managing foreign operations,
problems in collecting accounts receivable, political risks, fluctuations in
currency exchange rates, foreign exchange controls which restrict or prohibit
repatriation of funds, technology export and import restrictions or
prohibitions, delays from customs brokers or government agencies, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, and potentially adverse tax consequences resulting
from operating in multiple jurisdictions with different tax laws, which could
materially adversely impact the Company's business, results of operations and
financial condition.
 
     The political systems of many of the emerging market countries in which the
Company operates or plans to operate are slowly emerging from a legacy of
totalitarian rule. Political conflict and, in some cases, civil unrest and
ethnic strife may continue in some of these countries for a period of time. Many
of the economies of these countries are weak, volatile and reliant on
substantial foreign assistance. Expropriation of private businesses in such
jurisdictions remains a possibility, whether by an outright taking or by
confiscatory tax or other policies. There can be no assurance that GTS's
operations will not be materially and adversely affected by such factors or by
actions to expropriate or seize its operations. The success of free market
reforms undertaken in certain of the emerging market countries in which the
Company operates is also uncertain, and further economic instability may occur.
These factors may reduce and delay business activity, economic development and
foreign investment.
 
     Legal systems in emerging market countries frequently have little or no
experience with commercial transactions between private parties. The extent to
which contractual and other obligations will be honored and enforced in emerging
market countries is largely unknown. Accordingly, there can be no assurance that
difficulties in protecting and enforcing rights in emerging market countries
will not have a material adverse effect upon GTS and its operations.
Additionally, the Company's businesses operate in uncertain regulatory
environments. The laws and regulations applicable to GTS's activities in
emerging market countries are in general new and subject to change and, in some
cases, incomplete. There can be no assurance that local laws and regulations
will become stable in the future, or that changes thereto will not adversely
affect the operations
 
                                       13
<PAGE>   19
 
of GTS. Additionally, telecommunications regulations in the more developed
Western European markets in which GTS participates are currently undergoing
changes initiated by the Commission of the European Union. See "Business."
 
RISKS RELATING TO RUSSIA AND THE CIS
 
     Substantially all of the Company's revenue is derived from operations in
Russia and the CIS. Foreign companies conducting operations in the former Soviet
Union face significant political, economic, and legal risks.
 
     Political. The political systems of Russia and the other independent
countries of the CIS, which are in a stage of relative infancy, are vulnerable
to instability due to the populace's dissatisfaction with reform, social and
ethnic unrest and changes in government policies. Such instability could lead to
events that could have a material adverse effect on the Company's operations in
these countries. In recent years, Russia has been undergoing a substantial
political transformation. During this transformation, legislation has been
enacted to protect private property against expropriation and nationalization.
However, due to the lack of experience in enforcing these provisions in the
short time they have been in effect and due to potential political changes in
the future, there can be no assurance that such protections would be enforced in
the event of an attempted expropriation or nationalization. Expropriation or
nationalization of the Company, its assets or portions thereof, whether by an
outright taking or by confiscatory tax or other policies potentially without
adequate compensation, would have a material adverse effect on the Company.
 
     The various government institutions and the relations between them, as well
as the government's policies and the political leaders who formulate and
implement them, are subject to rapid and potentially violent change. For
example, the Constitution of the Russian Federation gives the President of the
Russian Federation substantial authority, and any major changes in, or rejection
of, current policies favoring political and economic reform by the President may
have a material adverse effect on the Company. Furthermore, the political and
economic changes in Russia have resulted in significant dislocations of
authority. The local press and international press have reported that
significant organized criminal activity has arisen and high levels of corruption
among government officials exist where the Company operates. While the Company
does not believe it has been adversely affected by these factors to date, no
assurance can be given that the depredations of organized or other crime will
not in the future have a material adverse effect on the Company.
 
     Economic. Over the past five years the Russian government has enacted
reforms to create the conditions for a more market-oriented economy. Despite
some progress in implementing its reforms, including progress in reducing
inflation and stabilizing the currency and industrial production, there remains
generally rising unemployment and underemployment, high government debt relative
to gross domestic product and high levels of corporate insolvency. No assurance
can be given that reform policies will continue to be implemented and, if
implemented, will be successful, that Russia will remain receptive to foreign
trade and investment or that the economy will improve.
 
     In addition, Russia, the CIS and other emerging countries in which the
Company operates currently receive substantial financial assistance from several
foreign governments and international organizations. To the extent any of this
financial assistance is reduced or eliminated, economic development in Russia,
the CIS and such other countries may be adversely affected.
 
     Russian and CIS businesses have a limited operating history in
market-oriented conditions. The relative infancy of the business culture is
reflected in the Russian banking system's under-capitalization and liquidity
crises. There have been concerns about rumors that many Russian banks continue
to have cash shortages. The Russian Central Bank has reduced banks' reserve
requirements in order to inject more liquidity into the Russian financial
system, but has stressed that it will not bail out the weaker banks. Many of
these banks are expected to disappear over the next several years as a result of
bank failure and anticipated consolidation in the industry. A general Russian
banking crisis could have a material adverse effect on the Company's operations
and financial performance and on the viability of the Company's receivables.
 
                                       14
<PAGE>   20
 
     Regulation of Telecommunications Industry. The Russian telecommunications
system is currently regulated largely through the issuance of licenses. There is
currently no comprehensive legal framework with respect to the provision of
telecommunications services in Russia, although a number of laws, decrees and
regulations govern or affect the telecommunications sector. As a result,
ministry officials have a fairly high degree of discretion to regulate the
industry. Although telecommunication licenses may not be transferred under
Russian law, the Russian Ministry of Communications (the "MOC") has adopted the
position that licensees may enter into agreements with third parties in
connection with the provision of services under the licensee's license; however,
the MOC does not generally review agreements entered into by licensees. There
can be no assurances that the current or future regulation of the Russian
telecommunications systems will not have a material adverse effect on the
Company.
 
     Current Russian legislation governing foreign investment activities does
not prohibit or restrict foreign investment in the telecommunications industry.
However, on February 28, 1997, the State Duma, the lower house of parliament,
approved, on the first reading, draft foreign investment legislation which would
restrict any significant future foreign investment in numerous sectors of the
Russian economy, including telephone and radio communications. It is unlikely
that such restrictive legislation will be enacted, unless the political climate
changes dramatically. See "-- Political." More likely is the emergence of
restrictions on foreign investment in strategic industries, which could result
in foreign ownership limitations in industries such as telecommunications which
are not uncommon in many countries. The draft legislation has been referred to
the Russian government for comment. For such draft legislation to become Federal
law, it must be passed by a majority vote of the State Duma at another two
readings, then be approved by a majority of the Federation Council, the upper
house of parliament, and signed by the President of the Russian Federation.
Rejection of such legislation by the Federation Council can be overridden by a
two-thirds majority of the State Duma. Rejection of such legislation by the
President can be overridden by a two-thirds majority of each of the Federation
Council and the State Duma. There can be no assurance that future regulation of
foreign investment in the telecommunications industry will not have a material
adverse effect on the Company.
 
     In addition, a lack of consensus exists over the manner and scope of
government control over the telecommunications industry. Because the
telecommunications industry is widely viewed as strategically important to
Russia, there can be no assurance that recent government policies liberalizing
control over the telecommunications industry will continue. Any change in or
reversal of such governmental policies could have a material adverse effect on
the Company. See "Business -- Russia and CIS -- Licenses and Regulatory Issues."
 
     Legal Risks. As part of the effort to transform their economies into more
market-oriented economies, the Russian and other CIS governments have rapidly
introduced laws, regulations and legal structures intended to give participants
in the economy a greater degree of confidence in the legal validity and
enforceability of their obligations. Risks associated with the legal systems of
Russia and the other independent republics of the CIS include (i) the untested
nature of the independence of the judiciary and its immunity from economic,
political or nationalistic influence; (ii) the relative inexperience of judges
and courts in commercial dispute resolutions and generally in interpreting legal
norms; (iii) inconsistencies among laws, presidential decrees, government
resolutions and ministerial orders; (iv) frequently conflicting local, regional
and national laws, rules and regulations; (v) the lack of legislative, judicial
or administrative guidance on interpreting the applicable rules; and (vi) a high
degree of discretion on the part of government authorities and arbitrary
decision making which increases, among other things, the risk of property
expropriation. The result has been considerable legal confusion, particularly in
areas such as company law, commercial and contract law, securities and antitrust
law, foreign trade and investment law and tax law. Accordingly, there can be no
assurance that the Company will be able to enforce its rights in any disputes
with its joint venture partners or other parties in Russia or the CIS or that
its ventures will be able to enforce their respective rights in any disputes
with partners, customers, suppliers, regulatory agencies or other parties in
Russia or that the Company can be certain that it will be found to be in
compliance with all applicable laws, rules and regulations.
 
     Russia has adopted currency and capital transfer regulations designed to
prevent the flight of capital from its borders. These regulations require
certain licenses for the movement of capital, which includes the incurrence and
repayment of indebtedness and the payment of capital contributions in foreign
exchange to
 
                                       15
<PAGE>   21
 
Russian entities. The Company is resolving licensing issues with respect to
certain intercompany loans and capital contributions with the applicable
government agencies and believes that any licensing irregularities that may
arise will not have a material adverse effect on its financial condition or
results of operations. There can be no assurance, however, that Russian
government authorities will not take an unexpected adverse position which could
materially adversely affect the Company's business.
 
     Taxes. Generally, taxes payable by Russian companies are substantial. In
addition, taxes payable by Russian companies are numerous and include taxes on
profits, revenue, assets and payroll as well as value-added tax ("VAT").
Moreover, statutory tax returns of Russian companies are not consolidated and
therefore, each company must pay its own Russian taxes. Because there is no
consolidation provision, dividends are subject to Russian taxes at each level.
Currently, dividends are taxed at 15% and the payor is required to withhold the
tax when paying the dividend, except with respect to dividends to foreign
entities that qualify for an exemption under treaties on the avoidance of double
taxation. To date, the system of tax collection has been relatively ineffective,
resulting in the continual imposition of new taxes in an attempt to raise
government revenues. This history, plus the existence of large government budget
deficits, raises the risk of a sudden imposition of arbitrary or onerous taxes,
which could adversely affect the Company.
 
     Because of uncertainties associated with the laws and regulations of the
Russian tax system and the increasingly aggressive interpretation, enforcement
and collection activities of the Russian tax authorities, the Company's Russian
taxes may be in excess of the estimated amount expensed to date and accrued at
December 31, 1995 and 1996. It is the opinion of management that the ultimate
resolution of the Company's Russian tax liability, to the extent not previously
provided for, will not have a material adverse effect on the financial condition
of the Company. However, depending on the amount and timing of an unfavorable
resolution of this contingency, it is possible that the Company's future results
of operations or cash flows could be materially affected in a particular period.
 
     In various foreign jurisdictions, the Company is obligated to pay VAT on
the purchase or importation of assets, and for certain other transactions. In
many instances, VAT can be offset against VAT which the Company collects and
otherwise would remit to the tax authorities, or may be refundable. Because the
law in some jurisdictions is unclear, the local tax authorities could assert
that the Company is obligated to pay additional amounts of VAT. In the opinion
of management, any additional VAT which the Company may be obligated to pay
would not be material.
 
ADEQUACY OF MANAGEMENT, LEGAL AND FINANCIAL CONTROLS IN EMERGING MARKETS
 
     Many of the emerging market countries in which the Company operates,
particularly in Russia and the CIS where the Company has to date derived most of
its revenues, are deficient in management and financial reporting concepts and
practices, as well as in modern banking, computer and other control systems. The
Company historically has had difficulty in hiring and retaining a sufficient
number of qualified employees to work in these markets. As a result of these
factors, the Company has experienced difficulty in establishing management,
legal and financial controls, collecting financial data and preparing financial
statements, books of account and corporate records and instituting business
practices that meet Western standards.
 
     The Company has a policy worldwide of complying with all applicable laws
and seeks to ensure that all persons in its employ comprehend and comply with
such laws. The application of the laws of any particular country, however, is
not always clear, particularly in emerging market countries where commercial
practices differ significantly from practices in the United States and other
Western countries and the legal and regulatory frameworks are less developed. In
addition, some practices, such as the payment of fees for the purpose of
obtaining expedited customs clearance and other commercial benefits, that may be
common methods of doing business in these markets might be unlawful under the
laws of the United States. As a result of the difficulty the Company
historically has experienced in emerging markets in instituting business
practices that meet Western reporting and control standards, it historically has
been unable to ascertain whether certain practices by its ventures, which were
not in accordance with Company policy, were in compliance with applicable U.S.
and foreign laws. If it were to be determined that the Company or any of its
ventures were involved in unlawful practices and were the factual and legal
issues relating thereto to be resolved adversely,
 
                                       16
<PAGE>   22
 
the Company or its ventures could be exposed, among other things, to significant
fines, risk of prosecution and loss of its licenses. See "-- Risks Relating to
Emerging Markets" and "-- Government Regulation."
 
     In light of these circumstances, in the second half of 1996 the Company
increased its efforts to improve its management and financial controls and
business practices. The Company recruited a more experienced financial and legal
team, including a new Chief Financial Officer of the Company, a senior finance
officer overseeing all of the regions in which the Company operates, a senior
finance officer for the CIS region, and a senior legal officer for the CIS
region. The Company also established a Treasury group and adopted a more
rigorous Foreign Corrupt Practices Act ("FCPA") compliance program. The Company
has developed and implemented a training program for employees regarding U.S.
legal and foreign local law compliance. The Company also appointed a Compliance
Officer responsible for monitoring compliance with such laws and training
Company personnel around the world. In connection with these developments, the
Company expanded its corporate business practices policy to include, in addition
to compliance with U.S. laws such as the FCPA, compliance with applicable local
laws such as the conflict of interest rules under the 1996 Russian Joint Stock
Company Law, currency regulations and applicable tax laws.
 
     In early 1997, the Company retained special outside counsel to conduct a
thorough review of certain business practices of the Company in the emerging
markets in which the Company operates in order to determine whether additional
deficiencies existed that needed to be remedied. In the course of this review,
the Company replaced certain senior employees in Russia and instituted
additional and more stringent management and financial controls. As a result of
the review, the Company has not identified any violations of law that management
believes would have a material adverse effect on the Company's financial
condition. There can be no assurances, however, that if the Company or any of
its ventures were found by government authorities to have committed violations
of law that, depending on the penalties assessed and the timing of any
unfavorable resolution, the Company's future results of operations and cash
flows would not be materially adversely affected in a particular period.
 
     Although the Company believes that this review was properly conducted and
was sufficient in scope, there can be no assurance that all potential
deficiencies have been identified or that the control procedures and compliance
programs initiated by the Company will be effective. If the Company or any of
its ventures are ever found to have committed violations of law, depending on
the penalties assessed and the timing of any unfavorable resolution, the
Company's future results of operations and cash flows could be materially
adversely affected in a particular period. Management believes, however, that
the actions taken during the past twelve months to strengthen the Company's
management, financial controls and legal compliance, coupled with the
implementation of the recent recommendations from the review and the oversight
provided through the Audit Committee of the Board of Directors of the Company to
ensure compliance, will be adequate to address the recurrence of any past
possible deficiencies.
 
DEPENDENCE ON CERTAIN LOCAL PARTIES; ABSENCE OF CONTROL
 
     Many GTS operations including Sovintel, TeleRoss and GTS Cellular have been
developed in cooperation or partnership with key local parties, such as regional
PTOs. The Company is substantially dependent on its local partners to provide
marketing expertise and knowledge of the local regulatory environment in order
to facilitate the acquisition of necessary licenses and permits. Any failure by
the Company to form or maintain alliances with local partners, or the preemption
or disruption of such alliances by the Company's competitors or otherwise, could
adversely affect the Company's ability to penetrate and compete successfully in
the emerging markets it operates in or enters. In addition, in the uncertain
legal environments in which GTS operates, certain GTS businesses may be
vulnerable to local government agencies or other parties who wish to renegotiate
the terms and conditions of, or terminate, their agreements or other
understandings with GTS. See "Business."
 
     While the Company may have the right to nominate key employees, direct the
operations and determine the strategies of such joint ventures, under the terms
of their respective constituent documents, the Company's partners in some of the
ventures have the ability to frustrate the exercise of such rights. Significant
actions by most of GTS's ventures, such as approving budgets and business plans,
declaring and paying dividends, and
 
                                       17
<PAGE>   23
 
entering into significant corporate transactions effectively require the
approval of GTS's local partners. Further, the Company would be unlikely as a
practical matter to want to take significant initiatives without the approval of
its joint venture partners. Accordingly, the absence of unilateral control by
the Company over the operations of its joint ventures could have a material
adverse effect on the Company.
 
     In addition, the Company and its venture partners frequently compete in the
same markets. For example, Rostelecom, GTS's partner in Sovintel, is the
dominant international and domestic long distance carrier in Russia. In
addition, many of the regional telephone companies partnered with GTS in the
TeleRoss Ventures offer cellular services in direct competition with certain of
the operations of GTS Cellular. Such competition with its partners may lead to
conflicts of interest for GTS and its partners in the operations of their
ventures. There can be no assurance that any such conflicts will be resolved in
favor of GTS. In addition, the combination under Svyazinvest of the Russian
government's majority interest in Rostelecom and 85 of the regional telephone
companies gives Svyazinvest a majority interest in entities that provide
international and domestic long distance and local telecommunications services
throughout Russia and may expose the Company to more coordinated competition
from its partners in the Russian telecommunications market. See "-- Risks
Relating to Reorganization of Russian Telecommunications Industry."
 
GOVERNMENT REGULATION
 
     As a multinational telecommunications company, GTS through its ventures is
subject to varying degrees of regulation in each of the jurisdictions in which
its ventures provide services. Local laws and regulations, and the
interpretation of such laws and regulations, differ significantly among the
jurisdictions in which the Company and its ventures operate. There can be no
assurance that future regulatory, judicial and legislative changes will not have
a material adverse effect on the Company, that regulators or third parties will
not raise material issues with regard to the Company's or its ventures'
compliance or noncompliance with applicable regulations or that any changes in
applicable laws or regulations will not have a material adverse effect on the
Company or any of its ventures.
 
     Many of GTS's ventures require telecommunications licenses, most of which
have been granted for periods of three to ten years. The terms and conditions of
these licenses may limit or otherwise affect the ventures' scope of operations.
The Company has had favorable experience obtaining, maintaining and renewing
licenses in the past. However, there can be no assurance that it will be able to
obtain, maintain or renew licenses to provide the services it currently provides
and plans to provide, that such licenses will be issued or renewed on terms or
with fees that are commercially viable, or that licenses required by future
ventures can be obtained by the Company or its partners. The loss of or a
substantial limitation upon the terms of these telecommunications licenses could
have a material adverse effect on the Company. See each section under "Business"
entitled "Licenses and Regulatory Issues."
 
   
     A substantial portion of H.E.R.'s strategy is based upon the timely
implementation of regulatory liberalization of the European Union ("EU")
telecommunications market on January 1, 1998 under existing European Community
("EC") directives. Although EU member states have a legal obligation to
liberalize their markets in accordance with their requirements, certain more
detailed aspects of the EU regulatory framework to apply in the liberalized
environment after January 1, 1998 still remain to be adopted. In addition,
Ireland, Portugal, Spain, Luxembourg and Greece have been granted extensions
from the January 1, 1998 deadline. There can be no assurance that each EU member
state will proceed with the expected liberalization on schedule, or at all, or
that the trend toward liberalization will not be stopped or reversed in any of
the countries. Accordingly, H.E.R. faces the risk that it will establish the
H.E.R. network and make capital expenditures in a given country in anticipation
of regulatory liberalization which does not subsequently occur.
    
 
   
     In order to give effect to EC directives in each member state, national
governments must pass legislation liberalizing their respective markets. This
applies not only to the liberalization requirements set out in existing EC
directives, but also to requirements set out in directives which have yet to be
adopted. The implementation of EC directives in the telecommunications sector
has been inconsistent or ambiguous in some EU member states. Such implementation
could limit, constrain or otherwise adversely affect H.E.R.'s ability to provide
certain services. Furthermore, national governments may not necessarily pass
legislation implementing an EC
    
 
                                       18
<PAGE>   24
 
   
directive in the form required, or at all, or may pass such legislation only
after a significant delay. Even if a national legislature enacts appropriate
regulation within the time frame established by the EU, there may be significant
resistance to the implementation of such legislation from PTOs, regulators,
trade unions and other sources. Further, H.E.R.'s provision of services in
Europe may be materially adversely affected if any EU member state imposes
greater restrictions on non-EU international services than on international
services within the EU. These and other potential obstacles to liberalization
could have a material adverse effect on H.E.R.'s operations by preventing H.E.R.
from establishing its network as currently intended, as well as a material
adverse effect on the Company.
    
 
COMPETITION
 
   
     GTS faces significant competition in all of its existing telecommunications
businesses and for the types of acquisition and development opportunities it
seeks in both emerging and Western European markets. GTS's competition in these
markets includes national PTOs, multinational telecommunications carriers, other
telecommunications developers and certain niche telecommunications providers. In
addition, certain of the Company's joint venture partners, including Rostelecom
and the regional telephone companies in Russia, certain of H.E.R.'s rail-based
shareholders and other entities in the emerging markets in which the Company
operates, are also competitors of the Company. As a result of the recent
combination under Svyazinvest of the government's majority interest in
Rostelecom and 85 of the regional telephone companies, the Company may in the
future be subject to more coordinated competition from its partners in the
Russian telecommunications market. Although the Company believes it has a
favorable and cooperative relationship with its joint venture partners, there
can be no assurance that these partners will continue to cooperate with the
Company in the future or that they will not increase competitive pressures on
the Company. Any measures taken by the partners that reduce the level of
cooperation with the Company could jeopardize the Company's ability to
participate in the management and operation of its joint ventures and could have
a material adverse effect on the Company.
    
 
     WorldCom, Inc. recently announced plans to construct a pan-European fiber
network, the first phase of which is expected to connect London, Amsterdam,
Brussels and Paris by early 1998. Although the Company believes that the
proposed WorldCom pan-European network is primarily intended to carry WorldCom
traffic, WorldCom has stated that any excess capacity on such network will be
used to provide a competitive "carriers' carrier" service.
 
   
     H.E.R. also competes with respect to its "point-to-point" transborder
service offering against circuits currently provided by PTOs through
International Private Leased Circuits. In addition, the liberalization of the
European telecommunications market is likely to attract additional entrants to
both the "point-to-point" and other telecommunications markets. There can be no
assurance that H.E.R. will compete effectively against its current or future
competitors.
    
 
     Many of the Company's competitors have technical, financial, marketing and
other resources substantially greater than those of GTS. There can be no
assurance that the Company will be able to overcome successfully the competitive
pressures to which it is subject, both in the markets in which it currently
operates and in markets into which it might expand. See each section under
"Business" entitled "Competition." In addition, many of the Company's current
and potential competitors are not subject to, or constrained by the prohibitions
of, the FCPA, including the prohibition against making payments to government
officials in order to obtain commercial benefits. The Company is subject to and
seeks to comply with the limitations and prohibitions of such law, and
accordingly may be subject to competitive disadvantages to the extent that its
competitors are able to secure business, licenses or other preferential
treatment through the making of such payments. Accordingly, there can be no
assurances that the Company will be able to compete effectively against
companies free from such limitations in the emerging markets where such
commercial practices are commonplace. See "-- Adequacy of Management, Legal and
Financial Controls in Emerging Markets."
 
                                       19
<PAGE>   25
 
CONTROL BY CERTAIN STOCKHOLDERS
 
     Certain persons control substantial portions of the Company's voting stock.
After giving effect to the Offerings, Soros Foundation-Hungary and certain of
its affiliates (collectively the "Soros Foundations"), affiliates of Capital
International, Inc., and Alan B. Slifka and certain of his affiliates, are
expected to beneficially own, or have rights to acquire, approximately      %,
     % and      %, respectively, of the Common Stock on a fully diluted basis.
See "Principal Stockholders." In addition, three persons affiliated with the
Soros Foundation currently serve on the Company's Board of Directors (the "Board
of Directors"). Consequently, these entities are in a position to exercise
control over the outcome of matters submitted for stockholder actions, including
the election of members to the Board of Directors, and are able to influence the
management and affairs of the Company. Additionally, affiliates of the Soros
Foundations and of Capital International, Inc. have purchased debt securities of
the Company that include covenants that restrict the operating and financing
activities of the Company. In certain situations, the interests of holders of
the Company's equity securities may diverge from the interests of the holders of
the Company's debt securities, and holders of both equity and debt securities of
the Company may be in a position to require GTS to act in a way that is not
consistent with the general interests of the holders of the Common Stock. See
"-- Substantial Additional Capital Requirements," "Management," "Principal
Stockholders" and "Certain Related Party Transactions."
 
CURRENCY AND EXCHANGE RISKS
 
     All of GTS's operations are conducted outside the United States. A
substantial portion of the Company's anticipated revenues (as well as the
majority of its operating expenses) will be in foreign currency. As a result,
the Company will be subject to significant foreign exchange risks. In
particular, GTS's ventures in countries whose currencies are considered "soft
currencies" subject the Company to the risk that it will accumulate currencies
which may not be readily convertible into hard currency and which may be subject
to significant limitations on repatriation. The Company does not enter into
hedging transactions to limit its foreign currency risk exposure, although the
Company may implement such practices in the future. There can be no assurance
that GTS's operations will not be adversely affected by such factors. In
addition, these factors may limit the ability of the Company to reinvest
earnings from ventures in one country to fund the capital requirements of
ventures in other countries.
 
     In Russia, where the Company derives most of its revenue, the ruble has
generally experienced a steady depreciation relative to the U.S. Dollar over the
past three years, although there has been some instability in the ruble exchange
rate over this period of time. The Company's tariffs are denominated in U.S.
Dollars but charges are invoiced and collected in rubles, while the Company's
major capital expenditures are generally denominated and payable in various
foreign currencies. To the extent such major capital expenditures involve
importation of equipment and the like, current law permits the Company to
convert its ruble revenues into foreign currency to make such payments. The
ruble is generally not convertible outside Russia. A market exists within Russia
for the conversion of rubles into other currencies, but it is limited in size
and is subject to rules limiting the purposes for which conversion and payment
may be effected. The limited availability of other currencies may tend to
inflate their values relative to the ruble and there can be no assurance that
such a market will continue to exist indefinitely. Moreover, the banking system
in Russia is not yet as developed as its Western counterparts and considerable
delays may occur in the transfer of funds within, and the remittance of funds
out of, Russia. Any delay in converting rubles into a foreign currency in order
to make a payment or delay in the transfer of such foreign currency could have a
material adverse effect on the Company.
 
EXCHANGE CONTROLS AND REPATRIATION RISKS RELATING TO RUSSIAN SECURITIES
 
     Russia has adopted currency and capital transfer regulations designed to
prevent the flight of capital from its borders. These regulations require
certain licenses for the movement of capital, which includes the incurrence and
repayment of indebtedness and the payment of capital contributions in foreign
exchange to Russian entities. The Company is resolving licensing issues with
respect to certain intercompany loans and capital contributions with the
applicable government agencies and believes that any licensing irregularities
that may arise will not have a material adverse effect on its financial
condition or results of operations. There can
 
                                       20
<PAGE>   26
 
be no assurance, however, that Russian government authorities will not take an
unexpected adverse position which could materially affect the Company's
business.
 
     No assurance can be given that Russian foreign investment and currency
legislation will continue to permit repatriation of the proceeds from
investments. Furthermore, no assurance can be given that further restrictions
will not be imposed on the conversion of ruble earnings into foreign currency
for purposes of making dividend payments or on the repatriation of profits. If
any such further restrictions were imposed, they would have a material adverse
effect on the Company's interests in Russia.
 
TRANSACTIONS WITH AFFILIATES
 
     The Company has entered into financing agreements with certain of its
affiliates. It is the Company's view that each such transaction has been on
terms no less favorable to the Company than other similar transactions available
to the Company with unaffiliated parties, if available at all. Generally, such
transactions have been the Company's only recourse to meet financing needs
and/or business goals. Despite the foregoing, prospective purchasers may wish to
consider the circumstances in which such transactions were made, the terms of
such transactions and the Company's possible alternative courses of action. The
Company may enter into transactions in the future with affiliates in order to
meet its financing needs and/or business goals. See "Description of Certain
Indebtedness."
 
DEPENDENCE ON KEY PERSONNEL
 
     The Company believes that its growth and future success will depend in
large part upon the efforts of a small number of key executive officers, as well
as on its ability to attract and retain highly skilled and qualified personnel
to work in the emerging markets in which it operates. The Company has replaced
or reassigned several executive officers and other senior personnel, including
Henry Radzikowski who served as Chief Executive Officer -- CIS and Eastern
Europe Operations from February 1994 until January 1997 and who has extensive
experience in the telecommunications industry in Russia. Stewart Reich became
Senior Vice President-Russia effective September 1, 1997. The competition for
qualified personnel in the telecommunications industry is intense, particularly
in emerging markets where the Company operates and, accordingly, there can be no
assurance that the Company will be able to hire and retain qualified personnel.
Although the Company believes it has recently strengthened its management team
in Russia and the CIS, there can be no assurance as to what effect such
personnel changes will have on the Company's operations in Russia and the CIS.
 
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
 
     To complete its billing, the Company must record and process massive
amounts of data quickly and accurately. While the Company believes its ventures'
management information systems are currently adequate, certain of such systems
will have to grow as the ventures' businesses expand. The Company believes that
the successful expansion of its information systems and administrative support
will be important to its continued growth, its ability to monitor and control
costs, to bill customers accurately and in a timely fashion and to achieve
operating efficiencies. There can be no assurance that the Company will not
encounter delays or cost-overruns or suffer adverse consequences in implementing
these systems. Any such delay or other malfunction of the Company's management
information systems could have a material adverse effect on the Company's
business, financial condition and results of operations.
 
TAXES; AVAILABILITY OF NET OPERATING LOSS CARRY FORWARDS
 
     The tax rules and regimes prevailing in certain emerging market countries
in which the Company operates or plans to operate are, in many cases, new and
rapidly changing. Repatriation of profits may result in additional taxes. In
addition, other forms of taxation, including VAT, excise taxes and import
duties, change at an unpredictable pace and may have an adverse effect on the
Company's operations.
 
     Availability of tax holidays and provisions of tax treaties with the United
States are subject to changes which may affect GTS's utilization of certain tax
benefits in the countries in which it operates as well as in the United States.
Certain ventures in the CIS and Hungary are operating under tax holidays granted
by local governments. Tax holidays are for periods ranging from up to five to
several years after achieving profitability
 
                                       21
<PAGE>   27
 
under local tax regulations. In addition to these holidays, certain of the
Company's foreign ventures have foreign tax loss carryforwards in excess of
$25.0 million.
 
     As of December 31, 1996, the Company had net operating loss carryforwards
for U.S. federal income tax purposes of approximately $60.9 million expiring in
fiscal years 2003 through 2011. Because of the "change in ownership" provisions
of the Tax Reform Act of 1986, the utilization of the Company's net operating
loss carryforwards will be subject to an annual limitation as a result of the
consummation of the Offerings.
 
     The Company's financial statements do not reflect any provision for
benefits that might be associated with the U.S. and non-U.S. loss carryforwards.
There can be no assurance that such loss carryforwards will be allowed, in part
or full, by local tax authorities against future income.
 
TECHNOLOGY
 
     The telecommunications industry is subject to rapid and significant changes
in technology and such technological advances may reduce the relative
effectiveness of existing technology and equipment. The Company obtains
telecommunications equipment from a number of vendors, upon whom it is dependent
for the adaptation of such equipment to meet varying local telecommunications
standards. The cost of implementation of emerging and future technologies could
be significant. There can be no assurance that the Company will maintain
competitive services or that the Company will obtain appropriate new technology
on a timely basis or on satisfactory terms. Any failure by the Company to
maintain competitive services or obtain new technologies could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
   
     Development and operation of the H.E.R. network are also subject to certain
technological risks. The network has been designed to utilize SDH technology.
While SDH represents an advanced, new transmission technology, H.E.R.'s ability
to upgrade technology from this platform may be important in establishing and/or
maintaining a cost advantage over competitive carriers. There can be no
assurance that the H.E.R. network will achieve the technical specifications for
which it was designed or that H.E.R. will be able to upgrade the network as
technological improvements in telecommunications equipment are introduced.
Failure to achieve current specifications for, or future upgrades of, the
network may materially and adversely affect the viability of the H.E.R. network
and could have a material adverse effect on the business and prospects of GTS.
    
 
DIFFICULTY IN OBTAINING RELIABLE MARKET INFORMATION
 
     The Company operates in markets in which it is difficult to obtain reliable
market information. The Company's business planning has been based on certain
assumptions concerning subscriber base, usage levels, pricing and operating
expenses based on the Company's experience and the Company's own investigation
of market conditions in the emerging market countries in which it operates. No
assurances can be given as to the accuracy of such assumptions, and such
assumptions may not be indicative of the actual performance of the Company's
operations.
 
DILUTION
 
     The initial public offering price per share of Common Stock exceeds the net
tangible book value per share of the Common Stock. In addition, the net tangible
book value per share of the Common Stock will decrease upon the exercise of
outstanding options and warrants. Accordingly, purchasers of the Common Stock
offered hereby will incur an immediate and substantial dilution. See "Dilution."
 
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POTENTIAL ADVERSE IMPACT
ON MARKET PRICE FROM SALES OF COMMON STOCK
 
     Sales of substantial amounts of Common Stock in the public market following
the Offerings could adversely affect the market price of the Common Stock and
adversely affect the Company's ability to raise capital at a time and on terms
favorable to the Company. Upon completion of the Offerings, there will be
          shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment
 
                                       22
<PAGE>   28
 
   
option and excluding 9,896,019 shares covered by vested options and warrants
outstanding at June 30, 1997. Of the outstanding shares, the           shares
registered in the Offerings and 13,582,764 additional shares will be freely
tradeable without restriction under the Securities Act, except that any shares
purchased in the Offerings by "affiliates" of the Company may generally only be
resold in compliance with the applicable provisions of Rule 144. Beginning 90
days after the date of this Prospectus, an additional 23,361,744 shares will be
eligible for sale in the public market, subject to compliance with applicable
provisions of Rule 144. In addition, the holders of approximately 31,224,790
shares of Common Stock, warrants to purchase 7,777,776 shares of Common Stock
and shares of Common Stock received by holders of Convertible Bonds upon
conversion are entitled to certain demand and piggy-back registration rights in
respect of their shares. If such holders exercise their exercise registration
rights and cause a large number of shares to be registered and sold in the
public market, such sales could have an adverse effect on the market price for
the Common Stock. See "Shares Eligible for Future Sale" and "Description of
Capital Stock -- Prior Purchase Agreements -- Registration Rights."
    
 
ABSENCE OF DIVIDENDS
 
   
     The Company has not paid any dividend on its Common Stock and does not
intend to pay dividends in the foreseeable future. The terms of the purchase
agreements relating to $40 million of notes (the "Chatterjee Notes") issued to
the Chatterjee Group, an affiliate of George Soros, and $30 million of notes
(the "Capital Research Notes") issued to Capital Research International prohibit
the Company from paying cash dividends until the notes have been repaid in full.
The Chatterjee Notes and the Capital Research Notes mature on January 1, 2001
and February 2, 2001, respectively. See "Description of Certain Indebtedness.".
In the event that the Company and/or certain operating companies of the Company
enter into future financings, the terms of such financings may include dividend
restrictions. See "Dividend Policy."
    
 
ANTI-TAKEOVER PROVISIONS
 
   
     The Company is subject to Section 203 of the Delaware General Corporation
Law which contains certain anti-takeover provisions that prohibit a "business
combination" between a corporation and an "interested stockholder" within three
years of the stockholder becoming an "interested stockholder" except in certain
limited circumstances. The business combination provisions of Section 203 of the
Delaware General Corporation Law may have the effect of deterring merger
proposals, tender offers or other attempts to effect changes in control of the
Company that are not negotiated and approved by the Company's Board of
Directors. Accordingly, stockholders of the Company could be prevented from
realizing a premium on their shares in a transaction not approved by the
Company's Board of Directors. In addition, the Company's Certificate of
Incorporation grants the Board of Directors of the Company the authority to
issue up to 10,000,000 shares of preferred stock in one or more series and to
determine the rights, voting powers, dividend rate, conversion rights,
redemption price, liquidation preference and other terms of such preferred stock
without any further vote or action by the stockholders. The foregoing
provisions, and any issuance of preferred stock with voting or conversion
rights, may adversely affect the voting power of the holders of Common Stock and
may have the effect of delaying or preventing a change of control of the Company
or adversely affect the market price of the Company's Common Stock. See
"Description of Capital Stock."
    
 
ENFORCEABILITY OF JUDGMENTS
 
     Substantially all of the assets of the Company (including all of the assets
of the Company's operating ventures) are located outside the United States. As a
result, it will be necessary for investors to comply with foreign laws in order
to enforce judgments obtained in a United States court against the assets of the
operating ventures, including foreclosure upon such assets, and there can be no
assurance that any U.S. judgments would be enforced under any such foreign laws.
 
NO PRIOR PUBLIC MARKET: VOLATILITY OF STOCK PRICE
 
     Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or be sustained after the Offerings. The initial public
 
                                       23
<PAGE>   29
 
offering price of the Common Stock will be determined through negotiations
between the Company and the Representatives of the Underwriters (as defined
herein) and may not be indicative of the market prices for the Common Stock
after consummation of the Offerings. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. The market
price for the Common Stock could be subject to significant fluctuations in
response to various other factors such as announcements of new contracts,
technological innovations or new products by the Company or its competitors,
other announcements concerning the Company or its competitors, changes in
government regulations, fluctuations in the Company's quarterly and annual
operating results and general market conditions. In addition, the stock markets
have in recent years experienced significant price fluctuations. Those
fluctuations often have been unrelated to the operating performance of the
specific companies whose stock is traded. Market fluctuations, as well as
economic conditions, may adversely affect the market price of the Common Stock.
 
   
BENEFITS OF THE OFFERINGS TO CURRENT STOCKHOLDERS
    
 
   
     The Company is considering using up to $84 million of the net proceeds of
the Offerings to repay the Capital Research Notes and the Chatterjee Notes,
which notes are held by current shareholders of the Company. Upon completion of
the Offerings, certain additional benefits will accrue to the current
stockholders of the Company, including the creation of a public market for their
shares of Common Stock, an increase of        in the net tangible book value per
share of Common Stock, and potentially ownership of Common Stock in a Company
having a lower debt-to-equity ratio than existed prior to the completion of the
Offerings. Additionally, the aggregate unrealized gain to current stockholders
will be approximately        million. See "Dilution."
    
 
                                       24
<PAGE>   30
 
                                USE OF PROCEEDS
 
   
     The aggregate net proceeds of the Offerings are estimated to be
approximately $  million after deducting estimated expenses of the Offerings
payable by the Company. The Company intends to use the net proceeds from the
Offerings to provide working capital for existing telecommunications ventures,
particularly in Russia and the CIS, to expand the Company's operations, and for
general corporate purposes. In addition, as part of its business strategy, the
Company regularly evaluates potential acquisitions and joint ventures. The
Company has no definitive agreement with respect to any material acquisition or
joint venture, although from time to time it has discussions with other
companies and assesses opportunities on an on-going basis. A portion of the net
proceeds from the Offerings may be used to fund such acquisitions. The Company
is also considering using up to $84 million of the net proceeds to repay loans
from shareholders which bear interest at 10% per annum and mature on March 31,
2001. Pending any use of its net proceeds from the Offerings in the manner
described above, the Company intends to invest the proceeds in short-term
investment grade obligations, bank deposits or similar instruments.
    
 
                                DIVIDEND POLICY
 
   
     GTS has not paid any dividend on its Common Stock and does not intend to
pay dividends in the foreseeable future. The terms of the purchase agreements
relating to the Chatterjee Notes and the Capital Research Notes prohibit the
Company from paying cash dividends until the notes have been repaid in full. The
Chatterjee Notes and the Capital Research Notes mature on January 1, 2001 and
February 2, 2001, respectively. In the event that the Company and/or certain
operating companies of the Company enter into future financings, the terms of
such financings may include dividend restrictions.
    
 
                                       25
<PAGE>   31
 
                                    DILUTION
 
   
     At June 30, 1997, after giving pro forma effect to the sale of 2,502,686
shares of Common Stock for an aggregate $39.2 million (of which $8.0 million
remains to be funded), the net tangible book value of the Common Stock was
$103.7 million in the aggregate, or $4.11 per share of Common Stock. The net
tangible book value per share was $2.84 per share of Common Stock, prior to the
pro forma effect of the sale of 2,502,686 shares of Common Stock. "Net tangible
book value per share" represents the amount of total tangible assets of the
Company reduced by the amount of total liabilities and divided by the number of
shares of Common Stock outstanding. After giving effect to the sale of
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $          per share and after deduction of the estimated
offering expenses), the pro forma net tangible book value of the Common Stock
would have been $     million in the aggregate, or $     per share. This
represents an immediate increase in net tangible book value of $     per share
of Common Stock to existing shareholders and an immediate dilution per share of
$          to new investors purchasing shares of Common Stock in the Offering.
"Dilution per share" represents the difference between the price per share to be
paid by new investors and the pro forma net tangible book value per share after
the Offerings. The following table illustrates the dilution per share as
described above:
    
 
<TABLE>
<S>                                                           <C>
Assumed initial public offering price per share.............  $
Net tangible book value per share at June 30, 1997..........  $4.11
Increase in net tangible book value per share attributable
  to the Offerings..........................................  $
                                                              -----
                                                                 --
Pro forma net tangible book value per share after the
  Offerings.................................................  $
                                                              =====
Dilution per share to new investors in the Offerings........  $  --
</TABLE>
 
<TABLE>
<CAPTION>
                                               SHARES OF            TOTAL
                                              COMMON STOCK      CONSIDERATION     AVERAGE PRICE
                                            ----------------   ----------------   PER SHARE OF
                                            NUMBER   PERCENT   AMOUNT   PERCENT   COMMON STOCK
                                            ------   -------   ------   -------   -------------
<S>                                         <C>      <C>       <C>      <C>       <C>
Current Stockholders......................
New Investors.............................
                                            -----     -----    -----     -----
          Total...........................
                                            =====     =====    =====     =====
</TABLE>
 
   
     The above computations assume no exercise of any outstanding options or
warrants. At June 30, 1997, there were outstanding options to purchase 4,831,862
shares of Common Stock at a weighted average exercise price of $7.29 per share
and warrants to purchase 7,777,776 shares of Common Stock at an exercise price
of $9.33 per share. To the extent outstanding options are exercised, there will
be further dilution to new investors. See "Certain Related Party Transactions,"
"Management" and Note 7 to the audited Consolidated Financial Statements of the
Company.
    
 
                                       26
<PAGE>   32
 
                                 CAPITALIZATION
 
   
     The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997 and as adjusted to give effect to (i) the Offerings,
(ii) the issuance of approximately $144.8 million of Convertible Bonds which are
convertible into Common Stock in August and September 1997 and (iii) the sale in
August and September 1997 of 2,502,686 shares of Common Stock for an aggregate
$39.2 million (of which $8 million remains to be funded) and (iv) the increase
in the authorized common shares; the 3-for-2 common share stock split; and an
increase in the par value of its common stock as of November 1997. In addition,
H.E.R. issued $265 million of senior notes, of which approximately $56.5 million
was placed into escrow for the first two years' interest payments on the notes,
in August 1997. H.E.R. did not become a consolidated subsidiary of the Company
until the third quarter of 1997 and was accounted for under the equity method as
of June 30, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," and
"Description of Certain Indebtedness."
    
 
   
<TABLE>
<CAPTION>
                                                              ACTUAL            AS ADJUSTED
                                                            -----------        --------------
                                                            (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                         <C>                <C>
Debt maturing within one year...........................       $ 19,665
Long-term debt, less current portion....................         64,425
                                                               --------            --------
          Total debt....................................         84,090
                                                               --------            --------
 
Minority interest.......................................          1,894
Common stock subject to repurchase......................          4,583
Shareholders' equity(1):
  Common stock, $0.10 par value (135,000,000 shares
     authorized; 35,319,522 shares issued and
     outstanding as of June 30, 1997)...................          3,532
Additional paid-in capital..............................        243,190
Accumulated deficit.....................................       (165,585)
Other...................................................         (4,859)
                                                               --------            --------
          Total shareholders' equity....................         76,278
                                                               --------            --------
          Total capitalization..........................       $166,845            $
                                                               ========            ========
</TABLE>
    
 
- ---------------
 
   
(1) Excludes (i) 7,777,776 shares of Common Stock reserved for issuance upon
    exercise of outstanding Common Stock Warrants of the Company at an exercise
    price of $9.33 per share, (ii) 713,310 shares of Common Stock reserved for
    issuance upon exercise of a put right associated with a 1996 financing
    agreement, as amended, (iii) 5,649,995 shares of Common Stock reserved for
    issuance upon exercise of stock options at exercise prices ranging from
    $0.53 per share to $13.33 per share, (iv)           shares issuable upon
    conversion of the Convertible Bonds (assuming a public offering price in
    this Offering of $     per share) and (v) 617,040 shares of Common Stock
    reserved for issuance pursuant to the TCM business partnership agreement as
    deferred consideration to TCM's partners. See "Certain Related Party
    Transactions."
    
 
                                       27
<PAGE>   33
 
                SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
     The following selected historical consolidated financial data as of and for
the years ended December 31, 1992, 1993, 1994, 1995 and 1996 are derived from
the Company's audited Consolidated Financial Statements. The following unaudited
selected historical consolidated financial data as of and for the six months
ended June 30, 1996 and 1997 are derived from the Company's unaudited
Consolidated Financial Statements. The selected financial data presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the audited Consolidated
Financial Statements and related notes thereto appearing elsewhere in this
Prospectus. Under generally accepted accounting principles, most of the
Company's ventures are accounted for by the equity method of accounting.
 
   
     Under this method, the operating results of the ventures are included in
the Company's Statement of Operations as a single line item, "Equity in (losses)
earnings of ventures." The Company recognizes 100% of the losses in ventures
where the Company bears all of the financial risk (which includes all of the
Company's significant ventures except for Sovintel and, historically, H.E.R.)
Also, the assets, liabilities and equity of the ventures are included in the
Company's balance sheet data as a single line item "Investments in and advances
to ventures."
    
 
<TABLE>
<CAPTION>
                                                                                           SIX MONTHS ENDED
                                                    YEARS ENDED DECEMBER 31,                   JUNE 30,
                                          ---------------------------------------------   -------------------
                                           1992     1993     1994      1995      1996       1996       1997
                                          ------   ------   -------   -------   -------   --------   --------
                                                                    (IN THOUSANDS)
<S>                                       <C>      <C>      <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Revenues, net.........................  $1,690   $  328   $ 2,468   $ 8,412   $24,117   $  8,775   $ 17,295
  Gross margin..........................   1,690      328        23        16     5,176        875      4,332
  Selling, general and administrative
     expenses...........................   1,992    3,340    12,863    41,014    52,928     23,190     27,075
  Equity in (losses) earnings of
     ventures...........................    (134)     472      (135)   (7,871)  (10,150)    (5,433)   (10,167)
  Other (expense) income................      (2)     100       990    11,034    (8,729)    (5,789)    (5,960)
  Net loss..............................    (437)  (2,440)  (11,985)  (40,400)  (67,991)   (32,199)   (39,687)
BALANCE SHEET DATA (AT END OF PERIOD):
  Cash and cash equivalents.............  $1,597   $3,641   $29,635   $ 9,044   $57,874   $ 16,987   $ 14,587
  Property and equipment,
     net................................      41      829     8,393    29,523    35,463     33,567     35,415
  Investments in and advances to
     ventures...........................     270      794    13,841    56,153   104,459     67,935    117,123
  Total assets..........................   2,051    5,968    61,957   115,621   237,378    147,158    198,340
  Total debt............................      --      725     2,152    27,454    85,547     72,940     84,090
  Minority interest and stock subject to
     repurchase.........................      --       --         8     5,273     6,248      5,553      6,477
  Shareholders' equity..................   1,659    4,685    54,684    55,322   113,668     43,364     76,278
</TABLE>
 
                                       28
<PAGE>   34
 
   
     Supplemental Information -- Summary Historical Financial Data
    
 
   
     [The Company is currently evaluating the disclosure that it intends to
present.]
    
 
                                       29
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                                       35
<PAGE>   41
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
     The following is a discussion of the financial condition and results of
operations of the Company as of June 30, 1997 and 1996, December 31, 1996 and
1995 and for the six months ended June 30, 1997 and 1996 and for the years ended
December 31, 1996, 1995 and 1994. The following discussion should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
related thereto. Certain statements contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" including, without
limitation, those concerning (i) projected traffic volume, (ii) future revenues
and costs, (iii) changes in the Company's competitive environment and (iv) the
performance of future equity-method investments, contain forward-looking
statements concerning the Company's operations, economic performance and
financial condition. Because such statements involve risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements.
 
OVERVIEW
 
   
     Business. GTS is a provider of a broad range of telecommunications services
to businesses, other telecommunications service providers and consumers in
Russia and the CIS, Central Europe and Asia. In Western Europe, through H.E.R.,
GTS is developing, and operating the initial segment of, a pan-European high
capacity fiber optic network which is designed to interconnect a majority of the
largest Western and Central European cities and to transport international
voice, data and multimedia/image traffic for other carriers throughout Western
and Central Europe. GTS's strategy to develop its businesses generally has been
to establish joint ventures with a strong local partner or partners while
maintaining a significant degree of operational control. The Company's business
activities consist of the ownership and operation of (i) international long
distance businesses, which operate through international gateways that provide
international switching services and transmission capacity, (ii) local access
networks, which provide local telephone service, (iii) cellular networks, which
provide wireless telecommunications services, (iv) a domestic long distance
business, (v) data networks and (vi) carriers' carrier networks, which provide
high volume transmission capacity to other carriers.
    
 
   
     The Company began to acquire interests in numerous telecommunications
ventures beginning in 1994 and continued to acquire such interests throughout
1995 and 1996. Ventures with significant financial results in 1994 included
Sovintel (an international long distance and domestic and local access
telecommunications service provider) and GTS-Hungary (a VSAT network
telecommunications service provider); ventures that incurred start-up costs
associated with building out their business infrastructure in 1994 included
Sovam (a data and internet telecommunications service provider) and EuroHivo (a
paging telecommunications service provider). In 1995, TeleRoss (a domestic long
distance telecommunications service provider) and GTS Cellular (a basic cellular
telecommunications service provider) began operations and expanded into numerous
regions within the CIS by the end of 1996. Telecommunications of Moscow ("TCM")
(a local access telecommunications service provider) began operations in 1996.
H.E.R. (a carriers' carrier telecommunications service provider) began its
network build-out in 1995, began limited operations at the end of 1996 and
expects to continue to develop its network during 1997 and beyond. The fact that
these ventures are in various stages of development affects the discussion of
comparative results below.
    
 
     GTS has invested significantly in its ventures through capital
contributions and loans. In addition, the Company has made a significant
commitment to its businesses and ventures through the provision of management
assistance and training. GTS has also incurred significant expenses in
identifying, negotiating and pursuing new telecommunications opportunities. GTS
and certain of its ventures are experiencing continuing losses and negative
operating cash flow primarily because the businesses are in the developmental
and start-up phases of operations. Management recognizes that the Company must
generate additional capital resources in order to continue its operations and
meet its new development initiatives. The ultimate recoverability of the
Company's investments in and advances to ventures is dependent on many factors
including, but not limited to, the ability of the Company to obtain sufficient
financing to continue to meet its capital and operational commitments, the
economies of the countries in which it does business and the ability of the
Company to maintain the necessary telecommunications licenses.
 
                                       36
<PAGE>   42
 
     The Company's businesses are developing rapidly. Some of the businesses
operate in countries with emerging economies which have uncertain economic,
political and regulatory environments. The general risks of operating businesses
in the CIS and other developing countries include the possibility for rapid
change in government policies including telecommunications regulations, economic
conditions, the tax regime and foreign currency regulations.
 
ACCOUNTING METHODOLOGY
 
   
     Accounting for Business Ventures. Wholly-owned subsidiaries and
majority-owned ventures where the Company has unilateral operating and financial
control are consolidated. Those ventures where the Company exercises significant
influence, but does not exercise unilateral operating and financial control, are
accounted for by the equity method. The Company has certain majority-owned
ventures that are accounted for by the equity method as a result of
super-majority voting conditions or other governmentally imposed uncertainties
so severe that they prevent the Company from obtaining unilateral control of the
venture.
    
 
   
     The CIS region includes the following significant operating ventures:
Sovintel, TCM, Sovam, TeleRoss (which includes TeleRoss Operating Company and
TeleRoss Ventures, as hereinafter defined) and GTS Cellular. With the exception
of the TeleRoss Operating Company, which is accounted for by the consolidation
method of accounting, all of these ventures are accounted for by the equity
method of accounting. The Western Europe region includes the following
significant operating ventures: H.E.R. and GTS-Monaco Access. These ventures
have been accounted for by the equity method of accounting. Upon the
finalization of the H.E.R. recapitalization and the execution of the new
shareholder agreement by H.E.R., GTS-Hermes, Inc. ("GTS-Hermes") and HIT Rail
B.V. ("HIT Rail"), H.E.R. will be accounted for by the consolidation method of
accounting. The Central Europe region includes the following significant
operating ventures: GTS-Hungary, EuroHivo, CzechNet and CzechCom (collectively,
the "Czech Companies"). GTS-Hungary and the Czech Companies are accounted for by
the consolidation method of accounting, and EuroHivo is accounted for by the
equity method of accounting. The Asia region includes the following significant
operating ventures: V-Tech and Beijing Tianmu. These ventures are accounted for
by the equity method of accounting.
    
 
     Accounting Methodology for TeleRoss. TeleRoss provides domestic long
distance service and last mile interconnectivity in fourteen cities in Russia,
including Moscow. TeleRoss is comprised of (i) two wholly-owned holding
companies and a 99% owned subsidiary (collectively, the "TeleRoss Operating
Company") that operates a domestic long distance network and holds the
applicable operating license for TeleRoss and performs the customer invoicing
and collection functions for telecommunications services, and (ii) thirteen
joint ventures that are 50% beneficially owned by GTS (the "TeleRoss Ventures"),
which originate traffic and provide local termination of calls through agency
arrangements with TeleRoss Operating Company. TeleRoss Operating Company is
accounted for under the consolidation method of accounting because GTS has
unilateral control over the operations and management decisions made at TeleRoss
Operating Company. GTS does not exercise unilateral control over the TeleRoss
Ventures and therefore, they are accounted for under the equity method of
accounting. TeleRoss Operating Company's operations are further discussed in
"-- Results of Operations -- Consolidated Ventures" and TeleRoss Venture's
operations are further discussed in "-- Results of
Operations -- Non-Consolidated Ventures." A significant portion of TeleRoss
Operating Company's costs of revenue consists of settlement fees paid to the
TeleRoss Ventures, with such fees being recorded as revenue by the TeleRoss
Ventures. In 1996 and for the three and six months ended June 30, 1997, all of
the TeleRoss Ventures' revenue was derived from such fees. Any decline in the
business or operations of the TeleRoss Ventures would have a material adverse
effect on the results of operations of TeleRoss Operating Company.
 
   
     Profit and Loss Accounting. The Company recognizes profits and losses in
accordance with its underlying ownership percentage or allocation percentage as
specified in the agreements with its partners; however, the Company recognizes
100% of the losses in ventures where the Company bears all of the financial risk
(which includes all of the Company's significant ventures except for Sovintel
and, historically, H.E.R.). Accordingly, the portion of the losses that would
normally be assigned to the minority interest partner ("Excess Losses") is
recognized by the Company. When such ventures become profitable, the Company
recognizes 100% of the profits until such time as the Excess Losses previously
recognized by the Company have been recovered. This
    
 
                                       37
<PAGE>   43
 
   
accounting policy was adopted prior to 1995; however, 1995 was the first year
that the excess loss amount was deemed material for recognition within the
Company's accounting records. Effective January 1, 1997, the Company recognizes
100% of H.E.R.'s losses due to GTS becoming the financing partner.
    
 
     Inter-Affiliate Transactions. Several of the Company's ventures have
entered into business arrangements through which they provide integrated
solutions for their customers by leveraging each others' telecommunications
infrastructure. These arrangements have historically been focused primarily
within a region; however, as GTS has increased its geographic coverage and
telecommunication capabilities, these arrangements have expanded between
regions. In accordance with generally accepted accounting principles, all
significant intercompany accounts and transactions are eliminated upon
consolidation.
 
     Turnover Taxes. The Company's ventures within the CIS region incur a 4%
turnover tax that is based on the revenues earned. The Company includes these
taxes as a component of its operating expenses, since these taxes are incidental
to the revenue cycle.
 
RESULTS OF OPERATIONS -- CONSOLIDATED VENTURES
 
     Management's discussion included within "-- Results of
Operations -- Consolidated Ventures" reflects the following significant
operating ventures: TeleRoss Operating Company, GTS-Hungary and the Czech
Companies. See "Results of Operations -- Non-Consolidated Ventures" for a
discussion of the operating results of Sovintel, TCM, Sovam, TeleRoss Ventures,
GTS Cellular, Hermes, GTS-Monaco Access, EuroHivo and the Asia business
ventures.
 
  Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996
 
     Revenue. The Company's consolidated revenue for the six months ended June
30, 1997 increased by $8.6 million, an approximately 100% increase from the
comparable period in 1996. TeleRoss Operating Company's growth accounted for
approximately 57.2% of the Company's total growth over the six months ended June
30, 1997. The remainder of the growth was primarily derived from the increase of
customers in the Central Europe businesses.
 
     TeleRoss Operating Company's revenue increased by $6.9 million for the six
months ended June 30, 1997, from the comparable period in 1996. Service revenue
represented approximately 79.8% of the total TeleRoss Operating revenue for the
six months ended June 30, 1997. The growth in service revenue was a result of
increased traffic volume generated by the TeleRoss Ventures as they expanded
from ten cities at June 30, 1996 to thirteen cities at June 30, 1997 and added
customers in existing cities. The average revenue per minute for intercity and
international traffic for the six months ended June 30, 1997 was $0.76 and
$2.62, respectively, as compared with $1.00 and $2.71, respectively, for the six
months ended June 30, 1996. The decrease in the average revenue per minute for
both intercity and international traffic was primarily attributable to the use
of wholesale rates for regional Electrosviaz companies' traffic that commenced
in July 1996 and a higher proportion of lower margin traffic originating at
Moscow, respectively.
 
     The remaining revenue generated by TeleRoss Operating Company was primarily
related to equipment sales and installation revenue. The Company anticipates
that equipment and installation sales will continue to represent a low
percentage of total TeleRoss Operating Company revenue.
 
     GTS-Hungary's revenue increased by $1.0 million for the six months ended
June 30, 1997, from the comparable period in 1996, representing approximately a
35.0% growth rate. The increase in revenue was largely due to a doubling of its
customer base since June 1996 and the introduction of frame relay and packet
services.
 
     Revenue of the Czech Companies, which provide a growing range of
international telephony, private data and Internet access services, increased by
$1.6 million for the six months ended June 30, 1997, from the comparable period
in 1996. The increase in revenue was primarily due to the increase in voice
traffic carried from 17 buildings at June 30, 1997 as compared to 13 buildings
at June 30, 1996. Revenue per minute for the six months ended June 30, 1996 and
1997 was $1.05 and $0.79, respectively. This decrease was directly related to
the devaluation of the Koruna against the U.S. dollar. Management anticipates
that revenue per minute will
 
                                       38
<PAGE>   44
 
continue to diminish as a result of competitive pressures. Additional increases
in revenue were generated from internet services revenue and leased line
services, with subscribership increasing by 424 subscribers for the six months
ended June 30, 1997, from the comparable period in 1996.
 
     The remaining consolidated revenue, related to sales of equipment and
consulting services, decreased by $0.9 million for the six months ended June 30,
1997. The Company anticipates that equipment sales and consulting revenue will
continue to diminish as a percentage of total company revenue.
 
     Gross Margin. GTS's consolidated gross margin was $4.3 million and $0.9
million, or 24.9% and 10.0% of total revenue, for the six months ended June 30,
1997 and 1996, respectively. The growth in margin as a percentage of revenue was
attributed to increased utilization of capacity and renegotiated, lower voice
traffic settlement costs.
 
     TeleRoss Operating Company had a gross margin of $1.5 million, or 15.2% of
revenue, and $(0.5) million for the six months ended June 30, 1997 and 1996,
respectively. TeleRoss Operating Company's margin is expected to improve as
additional customers increase utilization of existing capacity, thereby enabling
TeleRoss Operating Company to spread fixed costs over a broader customer base.
Traffic settlements and charges for lines leased from outside vendors in 1997
remained relatively stable compared to such charges in 1996.
 
     GTS-Hungary had gross margins of $1.9 million and $1.1 million for the six
months ended June 30, 1997 and 1996, respectively (representing 50.0% and 39.3%
of GTS-Hungary's revenue during these periods). The favorable gross margin trend
reflects the increased utilization of GTS-Hungary's 1,000 VSAT capacity hub
located in Budapest. Management anticipates that competitive pressures within
the VSAT market could negatively affect future gross margins. The remaining
consolidated gross margin of $0.9 million for the six months ended June 30,
1997, was primarily attributed to the Czech Companies and the sale of spare
capacity on its leased data communications connection between London and Prague
to banking customers.
 
     Operating Expenses. Consolidated operating costs were $27.1 million and
$23.2 million for the six months ended June 30, 1997 and 1996, respectively. The
Company's operating expenses were comprised primarily of personnel related costs
and professional and consulting fees. The increase in operating costs reflected
the growth in expenditures associated with building business infrastructure for
primarily the TeleRoss Operating Company and increasing corporate staff. The
Company's corporate headquarters incurred costs of $12.2 million and $9.0
million for the six months ended June 30, 1997 and 1996, respectively.
 
   
     Equity in (Losses)/Earnings of Ventures. GTS recognized losses from its
investments in non-consolidated ventures of $10.2 million and $5.4 million for
the six months ended June 30, 1997 and 1996, respectively. Included in these
losses were $2.4 million and $3.3 million for the six months ended June 30, 1997
and 1996, respectively, that related to GTS's ownership share of the losses
incurred. In addition, the Company's results were negatively affected by the
recognition of Excess Losses of $7.8 million and $2.1 million for the six months
ended June 30, 1997 and 1996, respectively. The significant increase in Excess
Losses was primarily due to recognizing 100% of the losses of H.E.R., effective
January 1, 1997, resulting in Excess Losses of $5.0 million for the six months
ended June 30, 1997. The Company would have recognized additional losses of $3.5
million for the six months ended June 30, 1996 had the Company been considered
the financing partner of H.E.R. during that time period. See "-- Overview." The
Company's losses from its ventures were primarily the result of most of its
ventures being in the early stages of operations. Sovintel and TCM, however,
generated combined earnings of $8.1 million and $5.0 million for the six months
ended June 30, 1997 and 1996, respectively, which partially offset losses
generated by other ventures. See "-- Results of Operations -- Non-Consolidated
Ventures."
    
 
     Interest, Net. GTS incurred interest expense of $7.2 million and $4.0
million for the six months ended June 30, 1997 and 1996, respectively. Interest
expense is comprised of interest accrued from debt maturing within one year,
long-term debt obligations, amortization of debt discount on the long-term debt
obligations and various other debt instruments. The increase in interest expense
was primarily due to increases in the Company's level of third party debt from
1996 to 1997. See "-- Liquidity and Capital Resources."
 
                                       39
<PAGE>   45
 
     GTS earned interest income of $2.2 million and $0.8 million for the six
months ended June 30, 1997 and 1996, respectively, primarily as a result of
investing the proceeds from equity and debt offerings in various highly liquid
investments.
 
     Provision for Income Taxes. The effective income tax rate was (2.1)% for
the six months ended June 30, 1997 and 1996. The Company's income tax rates are
significantly affected by foreign taxes and the utilization of net operating
losses. In addition, the Company operates world-wide in numerous tax
jurisdictions. As a result, losses incurred in one jurisdiction may not be
available to offset income in another.
 
  Year Ended December 31, 1996 compared to Year Ended December 31, 1995 and
  compared to Year Ended December 31, 1994
 
     Revenue. The Company's consolidated revenue was $24.1 million, $8.4 million
and $2.5 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The growth in revenue was attributable to the commencement in 1995
of commercial operations by TeleRoss Operating Company, as well as the continued
expansion of services and customer base in Central Europe.
 
     TeleRoss Operating Company generated revenue of $9.2 million and $3.8
million, representing 38.3% and 44.9% of the Company's consolidated revenue for
the years ended December 31, 1996 and 1995, respectively. Service revenue
represented 64.1% and 21.1% of TeleRoss Operating Company's revenue for the
years ended December 31, 1996 and 1995, respectively, with the balance of its
revenue in such periods principally represented by equipment sales. The growth
in revenue was a result of increased traffic volume generated by the TeleRoss
Ventures as they expanded to seven new cities during the year ended December 31,
1996, added customers in existing cities and installed several VSATs at customer
locations outside of cities in which they have a presence. Total intercity and
international minutes carried by TeleRoss Operating Company for the year ended
December 31, 1996 were 4.3 million and 0.3 million, respectively, as compared
with 0.2 million and 0.01 million, respectively, for the year ended December 31,
1995. The average revenue per minute for intercity and international traffic for
the year ended December 31, 1996 was $0.99 and $2.76, respectively, as compared
with $0.95 and $2.52, respectively, for the year ended December 31, 1995. The
increase in the average revenue per minute for both intercity and international
traffic was primarily attributable to the expanded geographic coverage of the
TeleRoss Ventures, because customers who are further away from Moscow were
charged a higher toll. The Company anticipates that equipment and installation
sales will continue to decline as a percentage of total TeleRoss Operating
Company revenue.
 
     GTS-Hungary and the Czech Companies accounted for $6.9 million and $2.3
million of the Company's consolidated revenue in 1996, respectively, compared to
$4.2 million and $0.3 million in 1995, respectively, and $1.3 million and none
in 1994, respectively. The growth in revenue of GTS-Hungary from 1994 to 1996
was due to the expansion of its customer base and the introduction of microwave
technology services. The Hungary state lottery accounted for 55.3%, 65.0% and
67.2% of GTS-Hungary's revenue in 1996, 1995 and 1994, respectively. The growth
in revenue of the Czech Companies was generated through increases in voice
traffic carried from sixteen buildings at December 31, 1996 as compared to eight
buildings at December 31, 1995.
 
     The remaining consolidated revenue of $5.7 million in 1996, related to
sales of equipment and consulting services.
 
     Although the Company expects increases in traffic volume in 1997, it
expects lower margins due to competition.
 
     Gross Margin. GTS's consolidated gross margin was $5.2 million, or 21.6% of
revenue, for the year ended December 31, 1996 and $0.02 million, or 0.0% of
revenue, for the years ended December 31, 1995 and 1994.
 
     TeleRoss Operating Company incurred a negative gross margin of $1.0 million
for both the years ended December 31, 1996 and 1995 which was the result of the
high fixed cost component of its network hub in Moscow. TeleRoss Operating
Company's margin is expected to improve to the extent that additional customers
increase utilization of existing capacity and allow TeleRoss Operating Company
to spread fixed
 
                                       40
<PAGE>   46
 
costs over a broader customer base. Traffic settlements and charges for lines
leased from outside vendors for the year ended December 31, 1996 remained
relatively stable compared to such charges for the year ended December 31, 1995.
 
     GTS-Hungary had a gross margin of $3.0 million, $1.7 million and $(0.3)
million, representing 43.4%, 40.5% and (23.1)% of GTS-Hungary's revenue for the
years ended December 31, 1996, 1995 and 1994, respectively. The favorable gross
margin trend reflected the increased utilization of GTS-Hungary's 1,000 VSAT
capacity hub located in Budapest. Management anticipates that competitive
pressures within the VSAT market may negatively affect future gross margins.
 
     The remaining gross margin of $3.2 million for the year ended December 31,
1996 was attributable to the higher margin sales of equipment and consulting
services. The Company expects such equipment sales and consulting services to
represent a significantly lower portion of revenue, and consequently a
significantly lower portion of gross margin, in the future.
 
     Operating Expenses. Consolidated operating costs were $52.9 million, $41.0
million and $12.9 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company's selling, general and administrative expenses were
comprised primarily of personnel related costs and professional and consulting
fees. The Company's corporate headquarters incurred costs of $24.6 million,
$21.4 million and $9.7 million, for the years ended December 31, 1996, 1995 and
1994, respectively. The increase in selling, general and administrative costs
reflected the growth in expenditures associated with building business
infrastructure for primarily the TeleRoss Operating Company and GTS-Hungary and
increasing corporate staff.
 
   
     Equity in (Losses)/Earnings of Ventures. GTS recognized losses from its
investments in non-consolidated ventures of $10.2 million, $7.9 million and $0.1
million for the years ended December 31, 1996, 1995 and 1994, respectively.
Included in these losses were $5.7 million, $5.2 million and $0.1 million for
the years ended December 31, 1996, 1995 and 1994, respectively, that related to
GTS's ownership share of the losses. In addition, the Company's results were
negatively affected due to the recognition of Excess Losses of $4.5 million and
$2.7 million for the years ended December 31, 1996 and 1995, respectively. See
"--Overview." The Company would have recognized additional losses of $8.2
million and $3.3 million for the years ended December 31, 1996 and 1995,
respectively, had the Company been considered the financing partner of H.E.R.
during those time periods. The Company's losses from its ventures were primarily
the result of most of its ventures being in the early stages of operations.
Sovintel and TCM, however, generated combined earnings of $11.8 million and $3.8
million for the years ended December 31, 1996 and 1995, respectively, which
partially offset losses generated by other ventures.
    
 
   
     Other Non-Operating Income. Favorably affecting the 1995 results was the
non-recurring $10.3 million gain the Company recognized as a result of its cash
settlement of certain claims with a third party in 1995.
    
 
     Interest, Net. GTS incurred interest expense of $11.1 million, $0.7 million
and $0.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The increase in interest expense was due to the $60.0 million
increase in debt during 1996. See "--Liquidity and Capital Resources."
 
     GTS earned interest income of $3.6 million, $2.2 million and $1.2 million
for the years ended December 31, 1996, 1995 and 1994, respectively, primarily as
a result of investing the proceeds from private placements of common stock in
various highly liquid investments.
 
     Provision for Income Taxes. The effective income tax rate for the year
ended December 31, 1996 was (2.1)% as compared with (6.8)% for the year ended
December 31, 1995. These rates were significantly affected by foreign taxes and
the utilization of net operating losses. In addition, the Company operates
world-wide in numerous tax jurisdictions. As a result, losses incurred in one
jurisdiction may not be available to offset income in another. The Company had
no income tax expense for the year ended December 31, 1994.
 
                                       41
<PAGE>   47
 
RESULTS OF OPERATIONS -- NON-CONSOLIDATED VENTURES
 
  Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996
 
     RUSSIA -- CIS
 
   
     Sovintel. Sovintel's revenue increased by 69.1% to $54.1 million for the
six months ended June 30, 1997, as compared to $32.0 million for the six months
ended June 30, 1996. The increase in revenue was primarily the result of
telecommunications services traffic revenue which increased by $20.5 million to
$41.3 million for six months ended June 30, 1997, as compared to $20.8 million
for the six months ended June 30, 1996.
    
 
     The growth in telecommunications services revenue resulted from Sovintel's
increased customer base in Moscow and traffic from other GTS ventures that
increased the volume of outgoing international and domestic minutes carried by
Sovintel to 29.2 million minutes of use ("MoU") for the six months ended June
30, 1997 as compared to 11.3 million MoU for the six months ended June 30, 1996.
Due to competitive pressures, the average revenue per minute for outgoing
international and domestic long distance traffic decreased by 23.2% for the six
months ended June 30, 1997 from the comparable period in 1996. Sovintel's
incoming international traffic revenue increased to $6.5 million for the six
months ended June 30, 1997 as compared to $2.2 million for the six months ended
June 30, 1996. Due to competitive pressures, the average revenue per minute
decreased by 12.9% from $0.31 for the six months ended June 30, 1996 to $0.27
for the six months ended June 30, 1997. The average revenue per minute for local
service traffic decreased to $0.07 from $0.08 for the six months ended June 30,
1997 and 1996, respectively. Included in Sovintel's 1997 traffic revenue was
$7.7 million for the six months ended June 30, 1997 that was related to
customers using phone numbers provided by TCM. Sovintel and TCM have an
arrangement whereby Sovintel reimburses TCM 50% of installation charges, monthly
fees and local traffic revenues and approximately 33% of the international/ long
distance billings from TCM-supplied phone numbers.
 
     Sovintel's non-traffic related revenue increased to $12.8 million for the
six months ended June 30, 1997 as compared to $11.2 million for the comparable
period in 1996. Sovintel's historically largest customer for port sales revenue,
MTS, received its own numbering plan in March 1997. Accordingly, management
expects revenue from port sales to decline as future port sales to reseller
companies will be affected by both MTS and TCM activities.
 
     Sovintel's gross margin percentage remained relatively unchanged at
approximately 39.2%, as the decrease in average revenue per minute for
international/domestic long distance was partially offset by comparable
decreases in average settlement cost per minute primarily as a result of rate
competition among the international carriers.
 
     Operating expenses were $8.1 million and $4.6 million, or 14.9% and 14.4%
of total revenue, for the six months ended June 30, 1997 and 1996, respectively.
The increase in operating expenses for the six months ended June 30, 1997 was
related to an increase in turnover taxes associated with revenues, and also
increased personnel, advertising and sales force costs required to support
Sovintel's growth.
 
     Income tax expense was $2.1 million and $1.1 million for the six months
ended June 30, 1997 and 1996, respectively. The increase in income tax expense
was attributable to Sovintel's profitable operations.
 
     TCM. TCM's revenue grew 67.1% to $12.9 million for the six months ended
June 30, 1997, from the comparable period in 1996. Traffic revenue increased to
$3.3 million for the six months ended June 30, 1997. Recurring port charge
revenue increased to $2.4 million from $0.7 million for the six months ended
June 30, 1997 and 1996, while sales of ports decreased to $4.2 million from $4.3
million for the six months ended June 30, 1997 and 1996, respectively.
 
     TCM's gross margin was $10.2 million and $6.4 million, or 79.1% and 83.1%
of total revenue, for the six months ended June 30, 1997 and 1996, respectively.
The decrease in gross margin as a percentage of revenue was attributable to
higher infrastructure and settlement costs.
 
     Operating expenses were $1.3 million and $1.2 million, or 9.7% and 17.1% of
total revenue, for the six months ended June 30, 1997 and 1996, respectively.
Personnel related costs, consulting expenses and turnover
 
                                       42
<PAGE>   48
 
taxes comprised approximately 50.0% and 51.0% for the six months ended June 30,
1997 and 1996 notwithstanding an increase in head count to 20 at June 30, 1997,
as compared to 7 at June 30, 1996.
 
     Sovam. Sovam's revenue increased by 60.2% to $8.0 million for the six
months ended June 30, 1997, from the comparable period in 1996. Sovam's revenue
was derived primarily from data service and application revenues. The increase
was attributed to the increase in the number of ports connected, increases in
bandwidth, customer demand for frame relay and TCP/IP data solutions, and a
63.9% increase in Russia On Line subscribers from approximately 1,890 at June
30, 1996 to approximately 3,091 at June 30, 1997. The continued growth in Russia
On Line resulted from the first quarter 1997 introduction of the E-1 channel to
improve the quality of service and capacity of the network.
 
     Sovam's gross margin was $2.9 million or 36.4% for the six months ended
June 30, 1997, up from $1.2 million, or 24.8%, for the six months ended June 30,
1996. The increase in gross margin was reflective of the higher proportion of
value added transportation service revenue and Sovam's low variable cost
structure.
 
     Operating expenses were $3.1 million and $2.8 million, or 38.3% and 55.8%
of total revenue, for the six months ended June 30, 1997 and 1996, respectively.
The increase in operating expenses was primarily attributable to the increase in
turnover taxes and personnel costs.
 
     TeleRoss Ventures. The TeleRoss Ventures are a series of 50% owned joint
ventures which provide installation services, sales support and customer service
through agency arrangements with TeleRoss Operating Company. See "-- Accounting
Methodology -- Accounting Methodology for TeleRoss." Revenue for the TeleRoss
Ventures for the six months ended June 30, 1997 and 1996 was $2.8 million and
$0.6 million, respectively. The increase in revenues reflected growth in
settlement fees charged to the TeleRoss Operating Company. The settlement fees
are based on minutes of use by regional customers in the core switched voice
services, as well as installation work and equipment sales.
 
     Gross margin as a percentage of total revenue was 75.0% and 57.1% for the
six months ended June 30, 1997 and 1996, respectively. The increase in margin
was the result of the low variable costs of providing services for the TeleRoss
Operating Company.
 
     Operating expenses of $1.6 million and $0.9 million were incurred for the
six months ended June 30, 1997 and 1996, respectively. The increase in operating
expenses was primarily attributable to personnel related costs, approximately
37.5% of total operating expenses, as evidenced by the increase in personnel to
95 at June 30, 1997 from 56 at June 30, 1996.
 
     GTS Cellular. The Company operates three cellular networks through
differing ownership structures: Vostok Mobile, PrimTelefone and Bancomsvyaz.
 
     Revenue for Vostok Mobile increased by 78.8% to $10.8 million for the six
months ended June 30, 1997, from the comparable period in 1996. Vostok's
cellular telecommunications revenue increased by $5.1 million for the six months
ended June 30, 1997, from the comparable period in 1996, as a result of
increased subscribership from approximately 3,300 at June 30, 1996 to
approximately 8,900 at June 30, 1997. Although revenue and volume of traffic
increased at similar rates, the average revenue per minute decreased slightly to
$0.44 per minute for the six months ended June 30, 1997, as compared to $0.46
for the same period in 1996. The remaining revenue was comprised of equipment
sales and installation revenue.
 
     Vostok Mobile's gross margin was $5.7 million and $2.8 million, or 53.3%
and 46.5% of total revenue, for the six months ended June 30, 1997 and 1996,
respectively. The increase in revenues and gross margin for the six months ended
June 30, 1997 was reflective of the growth in the subscriber base.
 
     Operating expenses were $5.0 million and $5.3 million for the six months
ended June 30, 1997 and 1996, respectively. The decrease in operating expenses
was attributed to development and start-up expenses related to new business
ventures entered into in 1996.
 
     Revenue for PrimTelefone increased by 54.0% to $5.0 million for the six
months ended June 30, 1997 from the comparable period in 1996. The increase in
revenue was primarily due to increases in cellular traffic revenue which
increased to $3.0 million from $1.4 million for the six months ended June 30,
1997 and 1996,
 
                                       43
<PAGE>   49
 
respectively. PrimTelefone's subscribership doubled to approximately 3,700 as of
June 30, 1997 in comparison to June 30, 1996. However, the increase in cellular
traffic revenue was partially offset by a decrease in handset revenues as a
result of a price reduction in handsets and connection fees due to increased
competition. Management expects pricing pressure to continue as competitors
lower cellular traffic tariffs and entry level pricing of equipment.
 
     PrimTelefone's gross margin was $3.3 million and $1.6 million, or 66.7% and
50.4% of total revenue, for the six months ended June 30, 1997 and 1996,
respectively. The increase in the gross margin was reflective of the growth in
the subscriber base and the fixed cost nature of the business.
 
     Operating expenses were $1.5 million and $0.9 million, or 29.7% and 29.1%
of total revenue, for the six months ended June 30, 1997 and 1996, respectively.
The increase in operating expenses reflected the growth of the business
infrastructure and increases in turnover taxes and personnel costs, as the total
number of employees increased to 51 at June 30, 1997.
 
     Revenue for Bancomsvyaz was $1.8 million for the six months ended June 30,
1997. Bancomsvyaz derived 42.9% and 30.1% of its revenue from traffic associated
with its cellular and overlay operations, respectively, for the six months ended
June 30, 1997. The remaining 27.0% of Bancomsvyaz's revenue was attributable to
the sale of handsets and related equipment for the six months ended June 30,
1997.
 
     Bancomsvyaz's gross margin was $0.3 million for the six months ended June
30, 1997, of which $0.1 million was associated with its cellular and overlay
operations. The remaining $0.2 million of gross margin was attributable to the
sale of handsets and related equipment.
 
     Operating expenses were $2.1 million for the six months ended June 30,
1997. The increase in operating expenses reflected the growth of the business
infrastructure and increases in advertising, marketing and personnel costs.
 
     WESTERN EUROPE
 
   
     H.E.R. For the six months ended June 30, 1997, H.E.R. generated revenue of
$0.6 million. This revenue was generated from the operation of the Brussels to
Amsterdam segment of the H.E.R. network, which began commercial operation in
November 1996. There was no revenue generated from operations for the six months
ended June 30, 1996.
    
 
   
     Gross Margin. H.E.R. had gross margins of $(2.7) million and $(2.3) million
for the six months ended June 30, 1997 and 1996, respectively. The unfavorable
gross margins were primarily due to higher depreciation expense on network
assets related to the Brussels to Amsterdam segment which were transferred from
construction in process to telecommunications equipment at the end of 1996.
    
 
     Operating Expenses. Operating expenses were $6.3 million and $4.7 million
for the six months ended June 30, 1997 and 1996, respectively. The increase in
operating expenses was due primarily to the increase in the number of employees.
The Company had 115 and 74 employees at June 30, 1997 and 1996, respectively.
 
     GTS-Monaco Access. In 1997, GTS-Monaco Access revenue increased
significantly to $4.5 million for the six months ended June 30, 1997 from $0.9
million for the six months ended June 30, 1996. The increase in revenue for the
six months ended June 30, 1997 was the result of additional customer contracts
and the corresponding increase in international minutes to 10.5 million MoU for
the six months ended June 30, 1997 from 2.3 million MoU in the comparable period
in 1996.
 
     Gross margin for the six months ended June 30, 1997 and 1996 was 3.1% and
(18.4)%, respectively. The growth resulted from an increased volume of business
in 1997 as compared to the start-up phase in 1996, when costs for termination of
traffic were higher than revenue.
 
     CENTRAL EUROPE
 
     EuroHivo. EuroHivo's revenue increased to $0.6 million for the six months
ended June 30, 1997 from $0.4 million in the comparable period in 1996. The
growth in revenue was primarily attributable to the higher
 
                                       44
<PAGE>   50
 
number of paging customers, although it was partially offset by lower revenue
per customer. The number of subscribers increased from approximately 7,900 at
June 30, 1996 to approximately 31,200 at June 30, 1997, which was attributed to
sales and marketing effort and lower prices for new subscribers. Furthermore,
revenue from existing customers declined as a result of devaluation of the
Hungarian currency against the U.S. dollar.
 
     Despite its revenue growth, EuroHivo continued to realize break-even gross
margins for the six months ended June 30, 1997.
 
     Operating expenses decreased by 8.6% to $0.8 million for the six months
ended June 30, 1997 from the comparable period in 1996. The decrease in
operating expenses was the result of a decrease in advertising expenses offset
by an increase in personnel costs and rent expenses.
 
     ASIA
 
     Most of the Company's ventures within the Asia region were in the start-up
phase and had not commenced operations in 1996. The non-consolidated ventures in
the Asia region had revenue of $0.7 million and $0.3 million for the six months
ended June 30, 1997 and 1996, respectively, which consisted primarily of sales
generated by the V-Tech business.
 
 Year Ended December 31, 1996 compared to Year Ended December 31, 1995 and
 compared to Year Ended December 31, 1994
 
     RUSSIA -- CIS
 
   
     Sovintel. Sovintel's revenue for the years ended December 31, 1996, 1995
and 1994 was $75.0 million, $44.3 million, and $20.7 million, respectively.
Sovintel's revenue was derived from telecommunications services, including
international, domestic and local traffic, and other non-traffic related revenue
associated with port and equipment sales, leased line installation and
maintenance. Telecommunications services traffic revenue was $50.8 million,
$26.8 million and $19.5 million, representing 67.7%, 60.5% and 94.2% of
Sovintel's total revenue, for the years ended December 31, 1996, 1995 and 1994,
respectively.
    
 
     Revenue from outgoing international, domestic long distance and Moscow
local traffic was $44.0 million, $24.6 million and $18.0 million for the years
ended December 31, 1996, 1995 and 1994, respectively. This growth was due to
Sovintel's increased customers in Moscow and traffic from other GTS ventures
that generated outgoing international and domestic minutes carried by Sovintel
of 30.1 million, 12.6 million and 7.7 million minutes for the years ended
December 31, 1996, 1995 and 1994, respectively. Due to competitive pressures,
the average revenue per minute for outgoing international and domestic long
distance traffic decreased to $1.25 per minute for the year ended December 31,
1996, from $1.87 and $2.35 per minute for the years ended December 31, 1995 and
1994, respectively. Sovintel began providing Moscow local access services in
1995. The average revenue per minute for Moscow local traffic increased to $0.08
per minute for the year ended December 31, 1996, from $0.06 per minute for the
year ended December 31, 1995. Revenue from incoming international minutes was
$6.8 million, $2.2 million and $1.5 million for the years ended December 31,
1996, 1995 and 1994, respectively. Incoming traffic generated 24.3 million, 3.8
million and 2.0 million minutes for the years ended December 31, 1996, 1995 and
1994, respectively. Included in Sovintel's 1996 traffic revenue was $5.0 million
from customers using phone numbers provided by TCM.
 
     Sovintel's non-traffic related revenue of $24.2 million, $17.5 million and
$1.2 million for the years ended December 31, 1996, 1995 and 1994, respectively,
was primarily attributable to non-recurring port sales revenues of $12.4 million
and $14.4 million for the years ended December 31, 1996 and 1995, respectively.
Included in 1996 non-traffic related revenue was $3.7 million from one-time
installation charges related to TCM-supplied phone numbers. There were no
significant port sales in 1994.
 
     Sovintel's gross margin was $31.1 million, $18.0 million and $8.2 million,
or 41.5%, 40.6% and 39.6% of revenue, for the years ended December 31, 1996,
1995 and 1994, respectively. The gross margin percentage remained relatively
unchanged over the past three years as the decrease in average revenue per
minute for international and intercity calls was partially offset by the
decrease in average settlement cost per minute.
 
                                       45
<PAGE>   51
 
     Operating expenses were $10.3 million, $7.1 million and $4.6 million, or
13.7%, 16.0% and 22.2% of total revenue, for the years ended December 31, 1996,
1995 and 1994, respectively. Turnover taxes and personnel related costs
comprised the majority of the increase in selling, general and administrative
costs. The increase in personnel related costs reflected the growth in sales and
general operations of Sovintel.
 
     Income tax expense was $5.2 million and $2.6 million for the years ended
December 31, 1996 and 1995, respectively. The increase in income tax expense was
attributable to Sovintel's profitable operations. According to Russian
Federation tax holiday provisions, Sovintel was exempt from income taxes for a
two-year period beginning with the first year of taxable income, which was in
1993.
 
     TCM. TCM's total revenue was $16.5 million for the year ended December 31,
1996 and had minimal activities in 1995. Service revenue was $10.0 million in
1996, of which $4.1 million was derived from international and intercity traffic
through the Sovintel arrangement and the remaining $5.9 million was derived from
local traffic monthly fees billed directly by TCM. TCM generated $6.5 million in
port sale revenue in 1996, from the sale of 21,000 ports.
 
     In 1996, TCM had a gross margin of $13.2 million, or 80.0% of total
revenue. The gross margin was favorably affected because the revenue earned from
Sovintel was net of settlement costs and included only direct costs, with no
allocation for overhead costs. As traffic-related revenue becomes a higher
proportion of revenue, the gross margin percentage is expected to decrease.
 
     Operating expenses for the year ended December 31, 1996 were $1.9 million,
or 11.5% of total revenue. Personnel grew to 15 at December 31, 1996, compared
to 4 at December 31, 1995.
 
     Sovam. Sovam's revenue was $11.7 million, $4.4 million and $3.3 million for
the years ended December 31, 1996, 1995 and 1994, respectively. Data service
revenue decreased from 96.0% of total revenue for the year ended December 31,
1994, to 91.0% for the year ended December 31, 1995, to 79.0% for the year ended
December 31, 1996. The number of data subscribers increased from approximately
1,330 at the end of 1994 to approximately 1,590 and 1,730 at the end of 1995 and
1996, respectively. Equipment and software sales increased from 4.0% for the
year ended December 31, 1994, to 8.0% for the year ended December 31, 1995, to
14.0% for the year ended December 31, 1996; however, the decrease in data
service revenue as a percentage of total revenue was attributed to the wider
variety of service offerings and the introduction of Russia On Line services.
The Company anticipates that this revenue will continue to decrease as a
percentage of total revenue as traffic revenues grow. Revenue related to Sovam's
Russia On Line services, which were introduced in 1995, increased from 1.4% of
total revenue for the year ended December 31, 1995 to 7.3% for the year ended
December 31, 1996. Although the number of Russia On Line subscribers increased
from approximately 400 at the end of 1995 to approximately 2,300 at the end of
1996, Sovam encountered international bandwidth capacity constraints during the
fourth quarter of 1996 that limited the growth rate for sales. Management
introduced an E-1 channel during the first quarter of 1997 to address this
problem.
 
     Gross margin was $3.4 million, $1.5 million and $1.8 million, or 29.1%,
34.1% and 54.6% of total revenue for the years ended December 31 in 1996, 1995
and 1994, respectively. The decline in gross margin as a percentage of revenue
was reflective of the higher cost of sales component in Sovam's recently
introduced products. In addition, gross margin in 1996 was negatively affected
by the decrease in revenue related to Russia On Line services to total revenue
in 1996. If future delays in working capital and capital expenditures occur that
result in capacity constraints or other problems, gross margin may be negatively
affected.
 
     Operating expenses were $5.7 million, $3.3 million and $2.1 million, or
48.7%, 75.0% and 63.6% of total revenue, for the years ended December 31, in
1996, 1995 and 1994, respectively. The increase in selling, general and
administrative expenses was attributable to the establishment and marketing of
the Russia On Line services in late 1995 and increase in turnover taxes.
 
     TeleRoss Ventures. Revenues for TeleRoss Ventures for the years ended
December 31, 1996 and 1995 were $2.4 million and $0.1 million, respectively.
Revenues resulted from settlement fees charged to TeleRoss Operating Company.
The growth in total revenue was the result of steady growth in sales of core
switched voice services in the five cities serviced in 1995 as well as the
addition of seven new cities to the network in 1996.
 
                                       46
<PAGE>   52
 
     Gross margin for the years ended December 31, 1996 and 1995 was $1.6
million and $0.1 million, respectively. The 66.7% margin for the year ended
December 31, 1996 was representative of the growth in revenue and reflected the
low variable costs of providing services for the TeleRoss Operating Company.
 
     Operating expenses of $2.3 million and $0.2 million were incurred for the
years ended December 31, 1996 and 1995, respectively.
 
     GTS Cellular. The Company operates three cellular networks through
differing ownership structures: Vostok Mobile, PrimTelefone and Bancomsvyaz.
 
     Revenue for Vostok Mobile was $16.5 million and $2.0 million for the years
ended December 31, 1996 and 1995, respectively. Vostok Mobile's subscribers grew
from approximately 850 at December 31, 1995 to approximately 6,880 at December
31, 1996. The average revenue per minute for traffic decreased to $0.39 per
minute for the year ended December 31, 1996 as compared to $0.59 for the year
ended December 31, 1995.
 
     Vostok Mobile's gross margin was $9.3 million and $1.1 million, or 56.4%
and 55.0% of total revenue for the years ended December 31, 1996 and 1995,
respectively. The increase in the gross margin as a percentage of revenue
reflected the growth in the subscriber base and the fixed cost nature of the
business.
 
     Operating expenses were $9.2 million and $4.7 million for the year ended
December 31, 1996 and 1995, respectively. The increase in selling, general and
administrative expenses reflected the growth of the business infrastructure and
increase in turnover taxes.
 
     Revenue for PrimTelefone was $8.4 million and $2.2 million for the years
ended December 31, 1996 and 1995, respectively. PrimTelefone derived 29.9% and
54.5% of its 1996 and 1995 revenue, respectively, from the sale of handsets and
related equipment to new and existing subscribers. PrimTelefone's subscribers
grew from approximately 800 at December 31, 1995 to approximately 2,800 at
December 31, 1996.
 
     PrimTelefone's gross margin was $4.7 million and $0.6 million, or 56.0% and
27.3% of total revenue, for the years ended December 31, 1996 and 1995,
respectively. The increase in the gross margin as a percentage of revenue was
reflective of the growth in the subscriber base and the fixed cost nature of the
business.
 
     Operating expenses were $3.7 million and $0.7 million for the years ended
December 31, 1996 and 1995, respectively, reflecting the growth of the business
infrastructure and increase in turnover taxes.
 
     Bancomsvyaz did not have significant operations until 1997.
 
     WESTERN EUROPE
 
   
     H.E.R. H.E.R. represents substantially all of GTS's investment in the
Western Europe region. A small operational revenue stream was earned in 1996.
    
 
   
     Operating expenses were $16.0 million, $6.7 million and $0.2 million for
the years ended December 31, 1996, 1995 and 1994, respectively. The increase in
selling, general and administrative expenses reflected H.E.R.'s continued
transition from the start-up phase to the operational phase.
    
 
     GTS-Monaco Access. Limited international traffic was carried from GTS
subsidiaries through GTS-Monaco Access for termination worldwide during 1995
which resulted in minimal revenues earned. Total revenue was $3.9 million for
the year ended December 31, 1996 despite a three month delay in the completion
of the link between GTS-Monaco Access to Russia.
 
     Although termination costs were reduced substantially in 1996, gross
margins of $(0.4) million and $(0.3) million for the years December 31, 1996 and
1995, respectively, were negative primarily because of lower average revenue per
minute in the wholesale market, underutilization of capacity on several routes
and lower overall traffic than anticipated.
 
                                       47
<PAGE>   53
 
     CENTRAL EUROPE
 
     EuroHivo. EuroHivo's revenue was $1.0 million and $0.5 million for the
years ended December 31, 1996 and 1995, respectively. The growth in revenue was
reflective of the increase in subscriber levels, which in turn, was principally
a result of the fourth quarter 1996 launch of the POCSAG paging technology
protocol.
 
     Although revenue improved significantly during 1996, EuroHivo continued to
show negative gross margins of $(0.2) million and $(0.5) million for the years
ended December 31, 1996 and 1995, respectively, which was attributable to a
15.0% increase in pager costs due to the increased competition in the pager
market and the devaluation of the Hungarian currency relative to the U.S.
dollar.
 
     Operating expenses decreased to $1.9 million for the year ended December
31, 1996 from $2.4 million for the year ended December 31, 1995 despite a 64.0%
increase in personnel during 1996. This was primarily attributable to
management's decision to grow revenue through alternative measures resulting in
significant reductions to advertising expenditures in 1996.
 
     ASIA
 
     Most of the Company's ventures within the Asia region were in the start-up
phase and had not commenced operations in 1996. The non-consolidated ventures in
the Asia region had revenue of $7.0 million and $0.0 million for the years ended
December 31, 1996 and 1995, respectively. The revenue in 1996 consisted
principally of equipment sales. The Company believes that future revenue will be
derived primarily from providing telecommunications engineering and consulting
services.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The telecommunications business is capital intensive. The Company generally
is the primary source of funding for its ventures, both for working capital and
capital expenditures. Under a typical arrangement, GTS's venture partner
contributes the necessary licenses or permits under which the venture will
conduct its business, office space and other equipment. GTS's contribution is
generally cash and equipment, but may consist of other specific assets as
required by the joint venture agreement.
 
     The Company has primarily raised capital through the issuance of equity
securities. As of September 15, 1997, these issuances have raised $36.9 million,
$107.7 million, $42.1 million and $62.1 in 1997, 1996, 1995 and 1994,
respectively, net of placement fees, for a total of $248.8 million. In addition,
as of September 15, 1997, the Company received $144.8 million, $60.0 million and
$23.3 million in 1997, 1996 and 1995, respectively, under various debt
agreements. Included within the debt proceeds identified above, the Company
received $3.5 million, $60.0 million and $10.0 million in 1997, 1996 and 1995,
respectively, from lenders who are affiliated with, and are considered related
parties to, the Company as a result of their ownership of the Company's common
stock.
 
     The Company had working capital of $6.5 million as of June 30, 1997 and a
working capital deficit of $0.5 million as of June 30, 1996. The Company had an
accumulated deficit of $165.6 million as of June 30, 1997, including a net loss
of approximately $39.7 million and $32.2 million for the six months ended June
30, 1997 and 1996, respectively. During 1997, the Company has incurred and
expects to continue to incur substantial expenditures to fund the working
capital requirements of its ventures, to provide capital equipment for certain
of its ventures, and to engage in new development and acquisitions.
 
   
     GTS will require substantial capital investment to execute its business
plans and to fund expected operating losses. Management expects that GTS and its
ventures will incur over $475 million of capital expenditures and investments in
ventures during the next three years, of which approximately $200 million will
be incurred in 1997. The Company has obtained funds through a variety of
financing arrangements, including (i) the sale in September 1997 of $39.2
million (of which $8.0 million remains to be funded) of GTS common stock in a
private placement of equity for $15.67 per share, (ii) the issuance in August
1997 of $265.0 million in gross proceeds (of which $56.5 million was placed into
escrow to fund the first two years' interest payments) of 11.5% Senior Notes by
H.E.R., and (iii) the issuance in July 1997 of $144.8 million in gross
    
 
                                       48
<PAGE>   54
 
proceeds of convertible bonds by GTS, that are convertible into common stock
upon the Company's completion of a complying equity offering.
 
     The Company believes that the net proceeds from the Offerings, together
with existing cash and cash flow from operations, will be sufficient to fund its
expected capital needs until at least June 1999. The Company expects that it may
require additional capital to execute its current business plan and to fund
expected operating losses, as well as to consummate future acquisitions and
exploit opportunities to expand and develop its businesses. There can be no
assurances that the Company will be able to consummate additional financing on
favorable terms. As a result, the Company may be subject to additional or more
restrictive financial covenants, its interest obligations may increase
significantly and its existing shareholders may be adversely diluted. Failure to
generate sufficient funds in the future, whether from operations or by raising
additional debt or equity capital, may require the Company to delay or abandon
some or all of its anticipated expenditures, to sell assets, or both, either of
which could have a material adverse effect on the operations of the Company.
 
   
  H.E.R.
    
 
   
     Construction of the H.E.R. fiber optic network is one of the Company's most
significant business activities. The buildout of the network is expected to
require approximately $335 million of capital expenditures, with approximately
$100 million required for initial five country network. As of June 30, 1997,
approximately $22.6 million has been spent on network capital expenditure. In
August 1997, H.E.R. completed the issuance of $265.0 million in gross proceeds
(of which $56.5 million was placed into escrow to fund the first two years'
interest payments) of 11.5% Senior Notes due in August 2007. The Senior Notes
will be general unsecured obligations of H.E.R. H.E.R. currently estimates that
after the issuance of these Senior Notes, H.E.R.'s capital resources will be
sufficient to fund operations and expected network development through December
1998, at which time it may be required to obtain additional funds. Sources of
capital to fund network development after 1998 may include internally generated
funds, bank debt and vendor financing. H.E.R. is currently in discussion with a
number of financial institutions to obtain debt financing and to negotiate
vendor financing with key suppliers of network equipment. Any failure to obtain
necessary financing may require H.E.R. to delay or abandon its plans for the
deploying the remainder of the network and would jeopardize the viability of
H.E.R., or may require the Company to make additional capital contributions to
H.E.R. at the expense of the Company's other operations, either of which could
have a material adverse effect on the operations of the Company. There can be no
assurance that GTS or its partners in H.E.R. would have sufficient capital to
make contributions to H.E.R., or that they would be willing to do so.
    
 
   
     In January and February 1997, additional loans of ECU 6.5 million
(approximately $7.5 million) were advanced to H.E.R. by a wholly-owned
subsidiary of the Company. These loans were converted to equity upon completion
of the first phase of the H.E.R. Recapitalization, as discussed in the notes to
the unaudited, condensed, consolidated financial statements, to increase the
equity of H.E.R. See "Business -- Western Europe -- Hermes -- Hermes
Recapitalization."
    
 
  Liquidity Analysis
 
   
     The Company had cash and cash equivalents and restricted cash of $14.6
million and $13.4 million, respectively, as of June 30, 1997. Restricted cash
included amounts held for equipment purchases under various debt agreements as
well as cash maintained in foreign financial institutions which may not be
readily convertible into dollars or easily repatriated.
    
 
     During the six months ended June 30, 1997 and 1996, the Company used $23.3
million and $26.0 million, respectively, of cash for operating activities. Cash
used for investing activities was $17.1 million and $27.7 million for the six
months ended June 30, 1997 and 1996, respectively. The use of cash in operations
and for investing activities reflected the development and build-out of existing
telecommunications networks, the funding of fully operational ventures and the
establishment of many new telecommunications businesses.
 
   
     Substantially all of the Company's operations are in foreign countries and
therefore the Company's consolidated financial results are subject to
fluctuations in currency exchange rates. The Company's consolidated operations
transact their business in the following significant currencies: Russian Ruble,
    
 
                                       49
<PAGE>   55
 
   
Hungarian Florint, Belgium Franc and the European Currency Equivalent. For those
operating companies that transact their business in currencies that are not
readily convertible, the Company attempts to minimize its exposure by indexing
its invoices and collections to the applicable dollar/foreign currency exchange
rate to the extent its costs (including interest expense, capital expenditures
and equity) are incurred in U.S. dollars. Although the Company will continue to
attempt to match revenues, costs, borrowing and repayments in terms of their
respective currencies, the Company may experience economic loss and a negative
impact on earnings with respect to holdings solely as a result of foreign
currency exchange rate fluctuations, which include foreign currency devaluations
against the U.S. dollar. Furthermore, certain of the Company's operations have
notes payable and notes receivable which are denominated in a currency other
than their own functional currency or loans linked to the U.S. dollar. The
Company may also experience economic loss and a negative impact on earnings
related to these monetary assets and liabilities.
    
 
   
     The Company is in the process of developing risk management policies that
will establish guidelines for managing foreign exchange risk. The Company
expects that these policies will be implemented in the first quarter of 1998,
and anticipates that these policies will allow management to use financial
hedging instruments to manage foreign exchange exposure. Currently, the Company
is considering alternatives to hedge foreign exchange exposure resulting from
the issuance of $265 million in senior notes by Hermes Europe Railtel, B.V.
    
 
                                       50
<PAGE>   56
 
                                    BUSINESS
 
INTRODUCTION
 
   
     GTS is a provider of a broad range of telecommunications services to
businesses, other telecommunications service providers and consumers in Russia
and the CIS, Central Europe and Asia. Through H.E.R., GTS is developing, and
operating the initial segment of, a pan-European high capacity fiber optic
network that is designed to interconnect a majority of the largest Western and
Central European cities and to transport international voice, data and
multimedia/image video traffic for other carriers throughout Western and Central
Europe. GTS's strategy to develop its businesses generally has been to establish
joint ventures with a strong local partner or partners while maintaining a
significant degree of operational control. The Company's business activities
consist of the ownership and operation of (i) international long distance
businesses, which operate through international gateways that provide
international switching services and transmission capacity, (ii) local access
networks, which provide local telephone service, (iii) cellular networks, which
provide wireless telecommunications services, (iv) a domestic long distance
business, (v) data networks and (vi) carriers' carrier networks, which provide
high volume transmission capacity to other carriers.
    
 
   
     In Russia and the CIS, GTS's objective is to become the premier alternative
telecommunications operator. To attain its objective, the Company has partnered
with regional telephone companies and with Rostelecom, the national long
distance carrier in Russia. The Company currently operates in 23 oblasts
(regions) and the city of Moscow in Russia, as well as in 11 additional cities
in the CIS, and believes it is well-positioned to become the leading independent
telecommunications service provider in Russia. These businesses include: (i)
Sovintel, which provides Moscow, and recently St. Petersburg, with international
long distance and local telephone services and access to the major domestic long
distance carriers; (ii) TCM, which provides local access services in Moscow;
(iii) TeleRoss, which provides domestic long distance services in fourteen
cities in Russia, including Moscow, as well as VSAT service to customers outside
its primary long distance satellite network; (iv) Sovam, which provides data
services, including high-speed data transmission, electronic mail, Internet
access services, as well as Russia On Line, the first Russian language internet
service; and (v) GTS Cellular, which operates cellular networks in twelve
regions in Russia and also in Kiev, Ukraine, with licenses covering regions with
an aggregate population of approximately 25 million people at the end of 1996.
Whenever practical, GTS's businesses integrate and co-market their service
offerings in Russia and the CIS, utilizing TeleRoss as the domestic long
distance provider, Sovintel as the international gateway, TCM and GTS Cellular
for local access, and Sovam as the data communications and Internet access
network for business applications and on-line services. Together, GTS's Russian
and CIS ventures carried 202.5 million and 179.3 million minutes of traffic for
the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively, and had approximately 27,600 customers, including approximately
13,500 cellular subscribers, as of June 30, 1997. See "-- Russia and the CIS."
    
 
   
     In Western Europe, GTS seeks to position itself as the leading independent
carriers' carrier through the development of two ventures, H.E.R. and GTS-Monaco
Access. H.E.R. is developing an approximately 17,000 kilometer pan-European high
capacity fiber optic network designed to interconnect a majority of Western and
Central European cities. H.E.R. is currently operating over an approximately
240-kilometer portion of the network linking Brussels and Amsterdam. H.E.R.
expects the initial five country network to be placed in operation in the second
quarter of 1998 and the 17,000 kilometer network to be operational during the
year 2000. H.E.R.'s objective is to become the leading pan-European carriers'
carrier by providing centrally managed cross-border telecommunications
transmission capacity to telecommunications companies including traditional PTOs
and New Entrants. GTS-Monaco Access operates an international gateway in Monaco
in partnership with, and utilizing the existing gateway infrastructure of, the
Principality of Monaco and provides advanced transit and routing of
international calls to other telecommunications operators. Through its H.E.R.
and GTS-Monaco Access ventures, GTS is building a new network for transporting
voice, data and multimedia/image traffic for other carriers throughout Western
Europe and for worldwide international voice, data and multimedia/image traffic
that either originates or terminates in, or transits through, Western Europe.
See " -- Western Europe."
    
 
                                       51
<PAGE>   57
 
   
     In Central Europe, GTS's objective is to become one of the leading
alternative telecommunications providers in the region. GTS currently provides
private data communications services to governmental and commercial customers in
Hungary and the Czech Republic. In the Czech Republic, the Company also provides
outgoing international voice services. Through its subsidiary GTS-Hungary, GTS
operates a VSAT network in Hungary, which GTS believes is the largest VSAT
network in Central Europe as measured by number of VSAT sites. In addition,
through its subsidiary EuroHivo, GTS operates a national paging network in
Hungary and, through its subsidiary CzechNet, operates an international gateway
and a data services network in Prague and the Czech Republic. During 1996, GTS's
ventures in the Czech Republic carried approximately 1.6 million minutes of
international long distance voice and data traffic. GTS's strategy is to expand
its service offerings as the regulatory environment permits, leveraging its
existing VSAT and international gateway infrastructure where possible and
providing a broad range of services to its target markets. See " -- Central
Europe."
    
 
   
     In Asia, GTS's objective is to become an established and diversified
telecommunications provider in China and India. In China, GTS participates in
ventures which provide technical, operational, financial, engineering and other
services to two VSAT networks and a planned cellular network. In India, the
Company's venture carries international traffic for certain multinational
corporations. Although GTS does not currently own or operate significant
telecommunications assets in Asia, GTS seeks to leverage its position in these
countries to capitalize on opportunities that arise as the Chinese and Indian
telecommunications markets develop. See "-- Asia."
    
 
BUSINESS STRATEGY
 
     GTS seeks to develop businesses to meet the rapidly expanding market demand
for telecommunications services. GTS's goal in emerging markets is to establish
itself as the leading alternative to the incumbent telecommunications service
providers and as a premier provider of value-added services. In addition, the
Company seeks to position itself as the leading independent carriers' carrier
within Western Europe through the development of a pan-European fiber optic
network in partnership with Western European railways and other infrastructure
providers, and an international gateway in partnership with, and utilizing the
gateway infrastructure of, the Principality of Monaco.
 
     GTS believes that it will be able to successfully operate its businesses
and develop business opportunities by pursuing the following strategies:
 
     - Identify and Seize Early Market Opportunities. GTS's primary strategy is
       to identify less developed markets in which the incumbent operator offers
       inadequate service and where liberalization of telecommunications
       regulations may be pending. The Company believes entering these less
       developed markets quickly is a key competitive advantage in the global
       telecommunications market. GTS leverages its management's knowledge of
       the markets in which the Company operates to assess and react quickly
       when attractive business opportunities arise.
 
     - Establish Joint Ventures with Experienced Local Partners. GTS seeks to
       establish and maintain strategic partnerships and relationships with key
       telecommunications operators and service providers in the countries in
       which it operates. The Company believes that these relationships increase
       its ability to anticipate and respond to changes in the regulatory and
       legal environment and assist with license renewal and expansion of its
       operating companies.
 
     - Retain Significant Operational Control. In general, GTS actively
       participates in the management of its ventures by (i) providing most of
       the funding for the ventures' operations, (ii) selecting key members of
       the local management team, (iii) developing business plans and marketing
       strategies together with local management, (iv) monitoring operating
       functions, (v) maintaining close working relationships with local
       partners and (vi) integrating its networks and businesses in a manner
       which is consistent with the Company's overall strategic objectives.
 
     - Build Infrastructure to Provide High Quality Services. GTS continues to
       develop and expand its network infrastructure. The Company believes that
       its networks offer service, quality and cost
 
                                       52
<PAGE>   58
 
       advantages over incumbent providers as a result of the Company's customer
       support, network monitoring, management systems and its ability to
       integrate and co-market its service offerings.
 
     - Leverage Management Depth and Experience. GTS's management has
       significant experience in the development and operation of
       telecommunications businesses outside the United States. The Company
       believes that this experience, together with the Company's extensive
       operations, has provided its management with the ability to identify,
       evaluate and pursue international telecommunications business
       opportunities. Additionally, GTS has assembled a management team
       comprised of executives with extensive experience managing
       telecommunications companies in the respective local markets. GTS
       believes that its management team possesses a broad knowledge of relevant
       political and regulatory structures, as well as the cultural awareness
       and fluency with international and local business practices necessary to
       implement the Company's objectives.
 
   
     - Ability to Access Capital. In general, the Company's financing strategy
       is to establish parent level funding to meet general corporate needs and
       the costs of start-ups and acquisitions and, when it is possible and
       cost-effective, to finance ongoing operations at the venture level. Since
       1993, the Company has raised approximately $269 million in equity and
       approximately $215 million of debt (of which approximately $74 million
       was raised through shareholders). In addition, H.E.R. completed a $265
       million private placement of senior notes (of which $56.5 million was
       placed in escrow for the first two years' interest payments) in 1997. The
       Company's principal investors include affiliates of George Soros and Alan
       B. Slifka.
    
 
     In addition to its overall business strategy, GTS has developed specific
market strategies to achieve its goals in emerging markets and Western Europe.
 
     Emerging Markets. The Company pursues its goals in emerging markets through
a three stage approach of market entry, market expansion and market integration.
 
     - Market Entry. GTS identifies a market as a suitable target for entry
       based upon: (i) superior growth prospects for such market, demonstrated
       by growing demand for high quality telecommunications services; (ii) the
       provision of inadequate services by incumbent providers, typically
       resulting from the incumbents' unwillingness to offer high quality
       services with reliable customer support at attractive prices; and (iii)
       attractive regulatory environments in which emerging alternative
       telecommunications providers such as GTS have, or expect to have over a
       clearly defined time horizon, the ability to compete on a substantially
       equal basis with the incumbent providers in terms of certain services and
       the cost of providing those services. Once GTS has identified a market as
       suitable for entry, the Company seeks to establish its presence in that
       market by establishing a venture with a strong local partner or partners.
       In general, GTS maintains a significant degree of operational control in
       such ventures. Through such ventures, the Company benefits from its
       partners' ability to provide infrastructure, regulatory expertise and
       personnel that will provide GTS with a competitive advantage in entering
       that market. When entering a new market, GTS's strategy is to provide its
       customers with higher quality service as compared to the services offered
       by incumbent providers.
 
     - Market Expansion. Having entered a market successfully and established a
       limited service offering to its targeted customer base, GTS then seeks to
       expand the range of services it offers to existing and potential
       customers and to further develop its relationships with local partners.
       By broadening its service offerings, GTS anticipates achieving increased
       economies of scale through the common use of administrative and operating
       functions already in place, increasing the Company's share of its
       customers' telecommunications spending and expanding GTS's base of
       potential customers through the provision of a bundled service offering.
       The Company also seeks to expand its targeted geographic market by
       forming new partnerships, installing infrastructure and offering services
       in additional geographic regions, allowing the Company to further enhance
       its operating leverage and ability to service its customers'
       telecommunications needs.
 
     - Market Integration. GTS ultimately intends to integrate and co-market its
       service offerings in each of the markets in which it operates. The
       Company believes such integration enables it to enhance its
 
                                       53
<PAGE>   59
 
       operating efficiency by leveraging its distribution channels,
       infrastructure and networks, and management information systems. As
       customers develop a need for a broader variety of telecommunications
       services, the Company believes GTS's integrated operations will represent
       an attractive service alternative for customers seeking a single provider
       with the ability to meet all their telecommunications needs.
 
   
     Western Europe. The Company seeks to position itself as the leading
independent carriers' carrier within Western Europe through the development of
H.E.R.'s pan-European fiber optic network and the operation of GTS-Monaco
Access's international gateway in partnership with, and utilizing the gateway
infrastructure of, the Principality of Monaco. The overall strategy of GTS in
Western Europe is to complement and enhance the services provided by emerging
carriers and PTOs in a way that helps them to more successfully meet the needs
of their end-user customers. H.E.R. seeks to enter the market ahead of
competition and encourage a wide variety of carriers to use its network with
service offerings that meet their needs. To establish itself as the leading
carriers' carrier for international telecommunications within Europe, H.E.R.
intends to provide its customers with significantly higher quality transmission
and advanced network capabilities at a competitive price by utilizing advanced,
uniform technology across the region and providing redundant routing for higher
levels of reliability. In addition, H.E.R. is not aligned with any major Western
telecommunications company and GTS believes that H.E.R.'s status as an
independent developer and operator of a new pan-European fiber optic network
will make it attractive to primary carriers throughout Western Europe.
    
 
RUSSIA AND THE CIS
 
     OVERVIEW
 
     GTS is a leading provider of a broad range of telecommunications services
in Russia. GTS's services include international long distance services, domestic
long distance services, high speed data transmission and Internet access,
cellular services and local access services. GTS was among the first foreign
telecommunications operators in the CIS, where it began offering data links to
the United States in 1986, international long distance services in 1992, local
access to its networks in 1994 and cellular services in 1995. GTS has developed
these businesses into a leading provider of telecommunications service offerings
in Russia by building its own infrastructure, including a fully digital overlay
network and interconnections with its local Russian telecommunications partners.
 
     The Company believes that evolving changes in government policy over the
last several years and the overall inadequacy of basic telecommunications
services throughout Russia have created a significant opportunity. Before 1990,
all international, domestic long distance and local telecommunications in the
Soviet Union were provided by a monopoly state telecommunications company
managed by the Ministry of Posts and Communications. In 1990, the Council of
Ministers established a joint-stock company called Sovtelecom and transferred to
it all of the telecommunications assets and operations of the Soviet Ministry of
Posts and Communications. Following the dissolution of the Soviet Union in 1991,
the name of the company was changed to Intertelecom. In 1992, the Russian
government decided to split Intertelecom into several components to foster
privatization, competition and investment. The international and long-distance
assets and operations were combined into Rostelecom, creating a monopolistic
service provider. The local telecommunications assets and operations were broken
up into 88 independent regional joint-stock companies, seven of which serve
cities, including the Moscow City Telephone Network and the Petersburg Telephone
Network. Most of the regional companies have a telecommunications trunk operator
and provide a domestic long distance service within their service region.
Domestic long distance calls to and from areas outside the companies' service
area, as well as international calls, are switched to and from Rostelecom, which
forwards the calls to and from another regional company or a foreign carrier for
international calls. Exceptions to this rule include the seven city operators.
In Moscow and St. Petersburg, the trunk operators have been isolated into
separate, long distance companies called Moscow MMT and St. Petersburg MMT. All
domestic long distance and international calls originating from or terminating
in Moscow and St. Petersburg are switched through the MMTs, which forward the
calls to and from Rostelecom.
 
                                       54
<PAGE>   60
 
     Following the former Soviet Union's transformation from a centralized
economy to a more market-oriented economy, increased demand from emerging
private businesses and from individuals, together with the poor state of the
public telephone network, has led to rapid growth in the telecommunications
sector in Russia and the CIS. In 1991 the MOC was established as the Russian
successor to the Soviet Ministry of Posts and Communications to regulate and
improve the telecommunications industry and to be the government's
representative for its ownership share of 88 regional operating companies, the
assets currently held by Svyazinvest (then the monopoly international and
domestic long distance service provider) and national radio, television and
satellite operating companies. This enabled the MOC and operating organizations
to begin the privatization process, attract foreign investment and initiate
joint ventures with foreign partners.
 
     Although it remains subject to certain restrictions, significant progress
in privatization of the telecommunications industry in Russia and the CIS has
occurred. Under Russian law, state-owned enterprises within the
telecommunications sector were subject to privatization but only pursuant to a
decision of the Russian government in each individual case and with the state
retaining a certain percentage of the stock of the privatized entity for three
years, subject to extension for national security reasons. At present, virtually
all of the former state telecommunications enterprises have been privatized and,
subject to the above restrictions, shares of the newly formed joint stock
companies have been sold to the public. Also, a significant number of private
operators provide a wide variety of telecommunications services pursuant to
licenses from the MOC to a growing number of customers throughout Russia.
According to the MOC, more than 6,000 licenses have been granted to
telecommunications operators in Russia, a large portion of which is assumed to
represent licenses reissued to the same operators as a result of their
reorganization or obligation to hold such licenses on counterfeit-proof paper.
 
     In October 1994, the President authorized the establishment of Svyazinvest
with the stated purpose of fostering greater efficiency and economies of scale
within the industry through competition. As a wholly government-owned company,
Svyazinvest was granted a controlling stake in approximately 85 regional
telecommunications companies in order to compete in these respective markets.
Svyazinvest was also given control of more than 20 million of the 25.5 million
telephone lines in Russia, except in Moscow and St. Petersburg.
 
     In April 1997, President Yeltsin approved the transfer of the federal
government's 51% stake in Rostelecom, as well as similar stakes in Central
Telegraph (the national PTO), the Yekaterinberg City Telephone Network and
Giprosvyaz (a telecommunications research institute), to Svyazinvest. On July
30, 1997, Mustcom Ltd., a Cyprus-based company that represents the interests of
a consortium which includes ICFI Cyprus, Renaissance International Ltd.,
Deutsche Morgan Grenfell, Morgan Stanley, and an affiliate of George Soros,
purchased a 25% stake in Svyazinvest for $1.87 billion. The President has also
authorized the sale of another 24% of Svyazinvest at a future date. The Russian
government has announced that it will retain a controlling 51% interest in
Svyazinvest.
 
     The Russian government's interest in Svyazinvest is held by the MOC, which
was recently reclassified as the State Committee on Telecommunications and
Informatics during a recent government reorganization. The MOC remains the
central body of federal authority in the Russian Federation, having
responsibility for state management of the communications industry and
supervisory responsibility for the condition and development of all types of
communications.
 
     Despite the recent changes in the Russian telecommunications industry, the
level of telecommunications service generally available from most public
operators in Moscow remains significantly below that available in cities of
Western Europe and the United States, although in recent years, the Moscow local
telephone infrastructure has benefitted from significant capital investment. By
1995, there were approximately 16 lines per 100 persons in Russia and 45 lines
per person in Moscow. In comparison, there were 60 and 58 lines per 100 persons
in the United States and Western Europe, respectively. In addition, the quality
of services, reflected as the percentage of digital switching in local telephone
networks, currently is approximately 12% in Russia compared to 65% and 66% in
the United States and Western Europe, respectively.
 
     Outside Moscow (and to a lesser extent St. Petersburg), most standard
Russian telecommunications equipment is obsolete. For example, many of the
telephone exchanges are electromechanical and most
 
                                       55
<PAGE>   61
 
telephones still use pulse dialing. The Russian population is over 145 million,
of which approximately two-thirds is concentrated in urban areas. The
telecommunications market in Russia currently includes a number of operators
that compete in different service offering segments -- local, inter-city,
international, data and cellular services. In large measure, the relative lack
of economic development in the regions accounts for the lack of improvement in
local telecommunications infrastructure. Although the regions still generally
rely on an outdated infrastructure inherited from the former Soviet Union, they
are starting to resort to sophisticated sources of finance, such as municipal
bond offerings, in order to upgrade it.
 
     Growth in the Russian telecommunications industry has been principally
driven by businesses in Moscow requiring international and domestic long
distance voice and data services and by consumers using mobile telephony. This
growth has been most significant as multinational corporations have established
a presence in Moscow and Russian businesses have begun to expand. The service
sector, which includes operations in distribution, financial services and
professional services and tends to be the most telecommunications-intensive
service sector of the economy, is growing rapidly in Moscow. Since moving to a
more market-oriented economy, the economic conditions in the outlying regions in
Russia have also generally improved. The telecommunications industry in the
outlying regions has experienced recent growth, principally as a result of
growth in the industrial sector as well as the establishment of satellite
offices in the regions by multinational corporations and growing Russian
businesses. The extent of overall market growth will depend in part on the rate
at which the Russian economy expands, although recent revenue growth in the
sector has been significant (in spite of a declining economy in certain regions)
because of increasing traffic from pre-existing customers and the normalization
of tariffs for business services.
 
     The Company believes it is well-positioned to take advantage of market
growth factors due to (i) its early market entry, (ii) its strong infrastructure
position in Moscow, by far the most important regional market, (iii) the local
market experience of its local partners, (iv) the extent of its existing
customer base and (v) its extensive range of international and domestic
telecommunications services. GTS believes it is the only operator in Russia
currently capable of providing a broad range of service offerings and marketing
them as a single end-to-end service offering for its customers.
 
     STRATEGY
 
     GTS's objective is to become the premiere carrier in Russia and other key
growth markets of the CIS. To attain this objective, the Company has developed
and implemented the following strategy:
 
     - Develop Strong Local Partnerships. The Company has and continues to
       develop its Russian and CIS business through alliances with experienced
       local partners, which to date have been primarily regional telephone
       companies and Rostelecom. These ventures combine the management,
       financial and marketing expertise of GTS together with its partner's
       ability to provide infrastructure and local regulatory experience. GTS
       believes that these relationships lend it credibility and increase its
       ability to anticipate and respond to the evolving regulatory and legal
       environment. GTS maintains a significant degree of managerial and
       operational control in its joint ventures through its foundation
       documents, which enable GTS to develop them in a manner consistent with
       its overall strategic objectives.
 
     - Expand Customer Base. The Company continues to expand its customer base
       through the provision of basic telephone and digital services in markets
       where such services are not currently provided. Once they have
       established a presence in a market, the Company's ventures seek for
       opportunities to expand further into neighboring regions and cities.
 
     - Increase Range of Digital Services. As its business customers expand
       their operations throughout Russia and the CIS and as their
       telecommunications needs become more sophisticated, the Company seeks to
       increase its revenues by expanding the range of integrated digital
       services offered to its customers.
 
     - Offer High Quality Telecommunications Service and Customer Service. The
       Company continues to invest in and build sophisticated high-speed digital
       networks and other infrastructure through which customers can gain local
       access to the Company's services. In addition to providing advanced, high
 
                                       56
<PAGE>   62
 
       quality network infrastructure, the Company emphasizes and offers its
       customers a level of customer service which the Company believes cannot
       be found elsewhere in the market.
 
     To date, GTS has made substantial progress employing this strategy. The
Company provides digital voice, data and local services in Moscow through its
Sovintel, Sovam and TCM ventures and provides these same services to thirteen
additional Russian cities through its TeleRoss long distance network.
 
     OPERATIONS
 
     GTS provides a broad range of telecommunications services in Russia,
including international long distance services, domestic long distance services,
cellular services, high speed data transmission, Internet access and local
access services. These services are supported by operator assistance, itemized
call reporting and billing, and other value-added capabilities that leverage
GTS's investment in advanced switching, data collection and processing
equipment. GTS also provides customized systems integration, including PABXs,
key systems, wiring and interconnectivity. GTS's own infrastructure is
supplemented with dedicated and leased capacity to allow GTS to bypass the
severely congested and poorly maintained local, domestic and long distance
circuits of the Russian carriers. Whenever practical, GTS's business units
integrate and co-market their service offerings, utilizing TeleRoss as the long
distance provider, Sovintel as the international gateway, TCM and GTS Cellular
for local access, and Sovam as the data communications and Internet access
network for business applications and on-line services. Through this integrated
marketing approach, GTS is able to provide comprehensive telecommunications
solutions to multinational corporations operating throughout Russia and the CIS.
 
     The following table sets forth certain operating data related to the
Company's operating ventures in Russia and the CIS.
 
<TABLE>
<CAPTION>
                                                      AT AND FOR THE YEAR
                                                       ENDED DECEMBER 31,        AT AND FOR THE SIX
                                                    ------------------------        MONTHS ENDED
                                                    1994(1)    1995    1996        JUNE 30, 1997
                                                    -------    ----    -----    --------------------
<S>                                                 <C>        <C>     <C>      <C>
Cities In Service.................................    5        24       32              39
Total Voice Minutes (millions)(2)
  Inter-city......................................   --  (3)    2.3     15.8            19.5
  Local...........................................    0.0      22.1    133.0           107.0
  International Outgoing..........................    7.7(3)   10.5     20.5            20.2
  Incoming........................................    2.0       4.5     33.2            32.6
Total Data Customers (thousands)..................    1.9       3.0      6.3            14.1
Total Cellular Subscribers (thousands)............    0.0       1.6      9.8            13.5
</TABLE>
 
- ---------------
 
(1) In 1994, the Company's interest in ventures operating in Russia consisted of
    a ten-percent interest in Baltic Communications Limited, a one-third
    interest in Sovam, and Sovintel, in which the Company owned a 12.5% interest
    through May 1994 and a 50% interest thereafter.
 
(2) Amounts include minutes between Company affiliates.
 
(3) International and inter-city long distance outgoing minutes not segregated
    in 1994.
 
                                       57
<PAGE>   63
 
     SOVINTEL
 
     GTS owns 50% of Sovintel, a joint venture with Rostelecom, the national
long distance carrier. Sovintel was founded in 1990 by GTS, Rostelecom and GTE
Spacenet, with GTS acquiring GTE Spacenet's interest in 1994. Sovintel markets a
broad range of high quality telecommunications services by (i) directly
providing international direct dial access to over 170 countries and private
line dedicated voice channels and (ii) leveraging the infrastructure and
services of the other GTS ventures, including TeleRoss, TCM and Sovam. In
addition, Sovintel provides and installs for its customers equipment such as
PABXs, key systems and wiring and provides maintenance and other value-added
services. Sovintel customers, which primarily consist of businesses, hotels and
Moscow-based cellular operators, are able to access these telecommunications
services through Sovintel's fully-digital overlay network in Moscow. In
addition, Sovintel has recently commenced construction of a limited network in
St. Petersburg that is interconnected to Sovintel's Moscow network and is
intended to support Sovintel's Moscow clients which have a presence in St.
Petersburg. Sovintel serviced over 40,249 telephone numbers, or "ports," for
business customers and cellular providers and had over 230 employees as of June
30, 1997.
 
     Sovintel has constructed and operates a fully-digital overlay network in
and around Moscow which consists of (i) an approximately 420-kilometer fiber
optic ring, (ii) over 180 PABXs linked to the fiber optic ring, (iii) a
fully-digital microwave network, (iv) a wireless local loop and (v) an
international gateway connected to the fiber optic ring. In addition, Sovintel
leases dedicated international long distance channels. Customers are connected
to the Sovintel network via last mile connections to over 180 PABXs that provide
"points-of-presence" in and around Moscow. The PABXs are connected to the
network through a direct fiber connection or a digital microwave network. Some
of Sovintel's new customers are temporarily connected to the network through a
wireless local loop. The wireless local loop provides a significant competitive
advantage because it allows Sovintel to connect customers to its network more
quickly than alternative methods. As these customers are provided permanent
connections to Sovintel's network through direct connections to the PABXs,
additional customers are rolled onto the wireless local loop.
 
                         [GTS SOVINTEL MOSCOW NETWORK]
 
                                       58
<PAGE>   64
 
     After a customer is connected to the Sovintel network, local telephone
services are provided through the Sovintel fiber optic ring's interconnection
with the switches of either TCM or MTU Inform. These switches provide access to
local telephone service in Moscow through interconnections with the Moscow city
telephone network ("MGTS") and the principal Moscow cellular providers. Sovintel
provides its customers access to domestic long distance service through the
TeleRoss long distance network, or through Rostelecom's network in cities not
currently served by TeleRoss. International long distance service is provided
primarily through the Sovintel international gateway, which transmits
international traffic via dedicated international leased long distance channels.
Sovintel's customers also can receive high speed data services through
Sovintel's interconnection with the Sovam data network. Accordingly, from a
customer's perspective, Sovintel offers a broad range of telecommunication
services.
 
     The following table sets forth certain operating data related to Sovintel's
operations:
 
<TABLE>
<CAPTION>
                                                                                        AT AND FOR THE
                                            AT AND FOR THE YEAR ENDED DECEMBER 31,        SIX MONTHS
                                            --------------------------------------      ENDED JUNE 30,
                                              1994          1995           1996              1997
                                            --------      ---------      ---------      ---------------
<S>                                         <C>           <C>            <C>            <C>
MINUTES OF USE(1)
  International Minutes
     Number of Minutes....................     7,681(2)      10,516         20,839           19,102
     Average Rate Per Minute..............    $ 2.35        $  2.06        $  1.55          $  1.33
  Domestic Long Distance Minutes
     Number of Minutes....................        --(2)       2,047         10,098           10,105
     Average Rate Per Minute..............        --        $  0.86        $  0.65          $  0.57
  Moscow (Local) Fixed Line Minutes
     Number of Minutes....................        --             --             --            1,613
     Average Rate Per Minute..............        --             --             --          $  0.06
  Moscow (Local) Cellular Minutes
     Number of Minutes....................        --         21,478         83,673           52,164
     Average Rate Per Minute..............        --        $  0.06        $  0.08          $  0.07
  Incoming Minutes
     Number of Minutes....................     1,967          3,839         24,306           24,011
     Average Rate Per Minutes.............    $ 0.76        $  0.58        $  0.28          $  0.27
PORTS
  Number of Ports (cumulative)............        --          6,079         29,646           40,249
NUMBER OF PRIVATE LINE CHANNELS
  International...........................         1             26             89              128
  Inter- and Intra-City...................         1             26            103              155
APPROXIMATE EQUIPMENT SALES (THOUSANDS)...    $1,100        $ 1,400        $ 2,200          $ 1,800
</TABLE>
 
- ---------------
 
(1) Minutes in thousands. Amounts include minutes among affiliates.
 
(2) International and domestic long distance outgoing minutes not segregated in
    1994.
 
     Services. Sovintel markets a broad range of high quality telecommunications
services by (i) directly providing international direct dial access to over 170
countries and private line dedicated voice services and (ii) by leveraging the
infrastructure and services of the other GTS ventures. Sovintel's services
include:
 
     - Switched International, Domestic Long Distance and Local
       Services. Customers are provided switched international long distance
       services directly through Sovintel's international gateway in Moscow and
       its leased long distance channels. Domestic long distance services are
       marketed by Sovintel and provided either through the TeleRoss long
       distance network or, where the call destination is not served by
       TeleRoss, through Rostelecom's network. Local call service is provided by
       Sovintel indirectly as a result of its interconnection, through TCM or
       MTU Inform, with the Moscow city telephone network. Based on its
       familiarity with the market, the Company believes that Sovintel's
       services are distinguished by a higher level of quality than those of its
       competitors, particularly with respect to call
 
                                       59
<PAGE>   65
 
       completion rates for its domestic long distance and local call services.
       In addition, the Company trains its employees to provide customer service
       at a level which is comparable to that provided by Western
       telecommunications companies. As a result, the Company believes that
       customers choose Sovintel over its competitors because it has earned a
       reputation for providing high quality telecommunications services through
       an experienced and professional customer service staff.
 
     - Private Line Channels. Private line channels, which are provided over
       dedicated leased lines, are principally utilized by customers with
       high-volume data traffic needs, such as Sovam and large data providers.
       Private line customers have access to intra-city service in Moscow
       through Sovintel's fiber optic ring and to inter-city service between
       Moscow and St. Petersburg via fiber leased by Sovintel, in each case
       benefitting from Sovintel's high quality infrastructure. Private line
       domestic long distance service is provided through TeleRoss and, for
       cities not served by TeleRoss, through Rostelecom. International private
       line service is provided through dedicated leased fiber channels from
       Rostelecom.
 
     - Equipment Sales, Installation Services and Project Planning and
       Management Services. In providing the above services to its customers,
       Sovintel installs and maintains equipment on its customers' premises,
       including PABXs, key systems and wiring. Sovintel also provides project
       planning and management services, including system design and management,
       to its customers.
 
     - World Access Service. Customers are able to access Sovintel's
       international long distance services through the World Access Card, which
       provides customers either direct or calling-card-based portable access to
       domestic and international long distance service. The calling card can be
       used in 14 Russian cities, including Moscow and St. Petersburg, and 23
       countries.
 
     Sovintel complements its service offerings by providing a wide range of
value-added services including operator assistance, maintenance and customer
support and itemized call reporting and billing.
 
     Customers and Pricing. Sovintel's customers consist primarily of
high-volume business and professional customers, such as IBM, Credit Suisse
Group and Reuters, other multinational corporations and Russian enterprises, a
number of premium Moscow hotels and other telecommunications carriers. In
addition, Sovintel is one of the primary providers of domestic and international
long distance service for the major cellular service providers in Moscow,
including VimpelCom, MTS and Moscow Cellular. Sovintel's customers typically
demand a higher level of service than generally available in the market.
 
     The pricing structure for international and domestic long distance calls is
based upon traffic volume and overall market rates, with Sovintel's rates
varying depending on the time and destination of the call. Local calls, other
than calls placed to cellular phones, are completed without charge. Sovintel
expects to continue its practice of not charging to complete local calls unless
and until the MGTS begins to charge for completion of such calls. Sovintel
prices its international long distance services slightly below those of its
principal competitors, and has recently reduced its rates in anticipation of
increased competitive pricing pressures. Sovintel's average revenue per minute
for outgoing international long distance calls has declined from approximately
$2.35 per minute for the year ended December 31, 1994 to approximately $1.33 per
minute for the six months ended June 30, 1997. Sovintel expects increased
pricing pressure from competitors over time. Sovintel prices domestic long
distance services in line with those of its principal competitors. Prices for
domestic long distance services have increased significantly over the last
several years, although such prices stabilized in the second half of 1996.
Sovintel's private line services are priced competitively. Sovintel provides
private line channels by releasing lines it leases from Rostelecom. The lines
are leased by Sovintel from Rostelecom at wholesale rates and leased by Sovintel
to its customers at prices in line with Rostelecom's retail rate.
 
     Customers are billed monthly with larger-volume customers receiving
discounts of up to 30%. Customers using international services, domestic long
distance or data services are billed in U.S. dollars. To the extent permitted by
law, payment is made either in U.S. dollars or in rubles at the ruble/dollar
exchange rate at the time of payment, plus a conversion charge in order to
minimize the impact of currency fluctuations. Sovintel currently bills on an
invoicing system that was internally developed. Currently, the system is
adequate for
 
                                       60
<PAGE>   66
 
Sovintel's present customer base; however, the Company is evaluating
alternatives for upgrading the system in anticipation of future growth.
 
     Sales and Marketing. Sovintel's sales and marketing strategy targets large
multinational and Russian businesses both directly and through contacts with
real estate developers and business center managers in the greater Moscow area.
These developers and managers typically determine which telecommunications
service provider will service their respective properties. By identifying and
building relationships with these developers and managers at an early stage
(typically up to one year prior to the completion of a new building project),
Sovintel seeks to enhance the likelihood of winning the service contract. In
addition to its traditional target market, Sovintel has recently begun to market
its services to smaller businesses. Sovintel utilizes a departmentalized sales
force in order to focus its sale efforts on the different segments within its
target market. The sales force is comprised of 34 sales personnel, including 12
account managers, all of whom specialize in serving specific targeted
industries. Dedicated marketing and customer support personnel provide technical
support, customer service, training, market monitoring and promotional functions
for Sovintel. Sovintel's sales and marketing personnel are paid through a
combination of salary, commissions and incentive bonuses.
 
   
     Ownership and Control. Sovintel is a joint venture between a wholly-owned
entity of GTS and Rostelecom with each having a 50% ownership interest. Under
Sovintel's charter, GTS and Rostelecom each have the right to appoint three of
the six members of Sovintel's managing board. Rostelecom has the right to
nominate the Director General (the highest ranking executive officer at
Sovintel), while GTS has the right to nominate the First Deputy Director General
(the next-highest ranking executive officer at Sovintel). In practice, the
Director General and the First Deputy Director General together perform the role
of a chief executive officer. Certain business decisions, including the adoption
of Sovintel's annual budget and business plan as well as the distribution of
profits and losses require the approval of both GTS and Rostelecom. Neither GTS
nor Rostelecom are obligated to fund Sovintel's operations or capital
expenditures. Losses and profits of Sovintel are allocated to the partners in
accordance with their ownership percentages, in consideration of funds at risk.
See "Management's Discussion and Analysis -- Accounting Methodology -- Profit
and Loss Accounting." The Sovintel joint venture agreement does not have an
expiration date. See "Risk Factors -- Dependence on Certain Local Parties;
Absence of Control."
    
 
     TCM
 
   
     GTS beneficially owns approximately 50% of TCM, a joint venture founded in
1994 that provides a licensed numbering plan and interconnection to the Moscow
city telephone network for carriers needing basic local access service in
Moscow. GTS's partners in TCM are MTU-Inform and a group of entrepreneurs with
extensive telecommunications experience in Russia. TCM is currently licensed to
provide 100,000 numbers in Moscow, of which approximately 40,000 have been
leased. TCM has contracted with MGTS to construct up to an additional 100,000
numbers in several stages over the next five years, subject to obtaining a
license covering the additional numbers and the construction of the applicable
numbering zone in Moscow by MGTS. TCM's switching facilities are fully
integrated with the networks of Rostelecom, Sovintel, and MGTS, allowing it to
provide high quality digital service to its customers.
    
 
     Services. TCM acts as a local gateway by providing numbers and ports to
carriers in Moscow and in outlying regions, including Sovintel, VimpelCom, MTS
and Moscow Cellular, and thus providing interconnectivity to the Moscow city
telephone network. Access to the Moscow city telephone network provides
customers with the higher quality and broader range of services available in
Moscow, such as the services provided by Sovintel. Access from outlying regions
is typically obtained through a domestic long distance service provider such as
TeleRoss. See "-- Sovintel" and "-- TeleRoss."
 
     Customers and Pricing. TCM provides its services on the wholesale level to
primary carriers. VimpelCom is TCM's primary customer and accounts for
substantially all of TCM's revenues and the loss of VimpelCom as a customer
would have a material adverse effect on TCM. TCM also provides ports to Sovintel
and to other network operators including MTS and Moscow Cellular. TCM's ports
are leased principally to carriers in Moscow, although ports are also available
to carriers throughout Russia. Although local access services are priced upon
the basis of supply and demand factors in the local market, in general, for each
port
 
                                       61
<PAGE>   67
 
cellular operators pay an approximately $300 installation fee and a $16 flat
monthly fee plus a per minute charge for traffic while other carriers pay a
larger initial fee of approximately $500 and a monthly fee of approximately $25.
Local access services are typically provided pursuant to five-year contracts
that may be renewed upon expiration for additional one-year periods. TCM has
entered into an agreement with Sovintel pursuant to which billing and collecting
functions for TCM customers are performed by Sovintel, with Sovintel remitting
such amounts (less applicable settlement charges and administrative costs) to
TCM . The rapid growth of cellular services in markets like Moscow has placed a
premium on new numbers, which has translated into attractive prices for these
numbers. TCM, however, believes these prices will decline over time.
 
   
     Ownership and Control. GTS's indirect interest in TCM is represented by its
approximately 52% interest in a holding company, which owns 95% of TCM. This
structure provides GTS with 50% beneficial ownership interest in TCM. Decisions
of the holding company regarding TCM require unanimous board approval and
neither GTS nor its partner in the holding company is obligated to fund
operations or capital expenditures of the holding company. In addition, neither
the holding company nor the 5% minority stakeholder in TCM are obligated to fund
operations or capital expenditures of TCM. At both the holding company and TCM
level, losses and profits are allocated to the partners in accordance with their
ownership percentages, in consideration of funds at risk. See "Management's
Discussion and Analysis -- Accounting Methodology -- Profit and Loss
Accounting." None of the operative charters and agreements relating to the
holding company or TCM have expiration dates. See "Risk Factors -- Dependence on
Certain Local Parties; Absence of Control."
    
 
     TELEROSS
 
     TeleRoss, which began operations in 1995, consists of (i) two wholly-owned
holding companies and a 99% owned subsidiary of GTS that operates a domestic
long distance network (collectively, the "TeleRoss Operating Company") and (ii)
thirteen joint ventures that are 50% beneficially-owned by GTS that originate
traffic and provide local termination of calls (the "TeleRoss Ventures" and,
together with TeleRoss Operating Company, "TeleRoss"). The TeleRoss domestic
long distance network serves fourteen major Russian cities, including Moscow
and, through VSAT technology, 19 customers located outside these cities.
TeleRoss provides digital domestic long distance services and other value-added
services through its own infrastructure as well as access to Sovintel's
international gateway services and access to the Moscow city telephone network
through TCM's switching facilities. Sovam uses the TeleRoss digital channels to
provide regional data service and has co-located its access facilities with
TeleRoss. As of June 30, 1997, TeleRoss employed approximately 187 persons of
which approximately 95 people were based in Moscow and approximately 92 people
were deployed in the regions in which TeleRoss operates.
 
                                       62
<PAGE>   68
 
     TeleRoss's licenses cover the city of Moscow and a total of 39 regions
throughout Russia. Most of the thirteen cities in which TeleRoss primarily
operates are regional capitals, with an aggregate population of approximately
11.5 million. TeleRoss's licenses cover the entire oblast surrounding these
cities, with populations totalling approximately 38.1 million persons, and GTS
intends eventually to extend the reach of the TeleRoss network beyond the
regional capitals to the surrounding areas. The cities in which TeleRoss
currently offers its services are:
 
<TABLE>
<CAPTION>
                                                                1995 POPULATION
                                                    ---------------------------------------
                                                                 (IN MILLIONS)
                                                                 URBAN
                       CITY                         CITY(1)    OBLAST(2)    TOTAL OBLAST(2)
                       ----                         -------    ---------    ---------------
<S>                                                 <C>        <C>          <C>
Arkhangelsk.......................................    0.6         1.2             1.6
Ekaterinburg......................................    1.4         4.1             4.7
Irkutsk...........................................    0.6         2.3             2.9
Khabarovsk........................................    0.6         1.5             1.9
Krasnodar.........................................    0.6         2.6             4.8
Nizhni Novgorod...................................    1.4         2.9             3.7
Novosibirsk.......................................    1.4         2.1             2.8
Syktyvkar.........................................    0.3         0.9             1.3
Tyumen............................................    0.5         2.4             3.1
Ufa...............................................    1.0         2.6             4.0
Vladivostok.......................................    1.2         1.8             2.2
Volgograd.........................................    0.9         2.0             2.6
Voronezh..........................................    1.0         1.5             2.5
                                                     ----        ----            ----
          Total...................................   11.5        27.9            38.1
                                                     ----        ----            ----
</TABLE>
 
- ---------------
 
(1) This column reflects the population residing in cities. Source: GTS estimate
 
(2) This column reflects the urban population in oblast. Source: Rusline
 
(3) This column reflects the total population residing in the oblast, including
    rural population. Source: Rusline
 
     The TeleRoss network architecture involves local city switches connected to
remote earth stations which communicate via satellite to a Moscow-based hub.
This hub consists of the network control center, earth station equipment,
multiplexing equipment and a switch. The earth stations, hub and related
equipment are owned by TeleRoss, which gives TeleRoss the flexibility to
redeploy network assets to other locations as necessary. The hub interconnects
to Sovintel's network providing access to Sovam's data networks, TCM's switching
facilities and Sovintel's international gateway, which transports international
traffic via dedicated international leased satellites and fiber channels and
provides access to Rostelecom's long distance networks. TeleRoss's local joint
venture partners provide interconnection to the local public telephone networks
in each of the thirteen cities it serves. In addition to providing services
through its network, TeleRoss currently serves 19 customers in 18 additional
cities through VSAT technology which links the customers via satellite to the
Moscow hub.
 
                                       63
<PAGE>   69
 
     The following table sets forth certain operating data related to TeleRoss's
operations:
 
<TABLE>
<CAPTION>
                                                            AT AND FOR THE SIX MONTHS ENDED
                                                         --------------------------------------
                                                         JUNE 30,    DECEMBER 31,      JUNE 30,
                                                           1996          1996            1997
                                                         --------    ------------      --------
<S>                                                      <C>         <C>               <C>
MINUTES OF USE(1)
  Domestic Minutes (thousands).........................       827          3,478          7,904
  Average Rate Per Domestic Minute.....................  $   1.01     $     0.99       $   0.76
  International Minutes (thousands)....................        83            189            276
  Average Rate Per International Minute................  $   2.66     $     2.76       $   2.62
NUMBER OF CITIES SERVED................................        10             12             13
WORLD CONNECT DIAL/RUSSIA
  Number of Connect Dial Ports.........................       256            472            861
  Average Revenue Per Port Per Month...................  $    472     $      767       $    460
MOSCOW CONNECT
  Number of Ports......................................        38             49             54
  Average Revenue Per Port Per Month...................  $  1,388     $    1,165       $  1,409
DEDICATED CIRCUITS
  Number of Dedicated Channels.........................        15             33             41
  Average Price Per Channel............................  $  5,200     $    4,553       $  4,606
WORLD ACCESS SERVICE
  Number of World Access Card Users....................     1,674          3,929          4,276
  Average Revenue Per Card Per Month...................  $     52     $       52       $     59
VSAT SERVICES
  Number of VSATs......................................         7             12             20
</TABLE>
 
- ---------------
 
(1) Includes minutes among affiliates.
 
     Services. Through its network and VSAT offerings, TeleRoss offers the
following services:
 
     - Carriers' Carrier Services. TeleRoss provides services as a "carriers'
       carrier," providing domestic long distance carrier services to cellular
       operators, Sovintel, the TeleRoss Ventures' regional partners and
       competitive bypass operators from the cities in which the TeleRoss
       Ventures operate, and to customers in remote cities using VSAT stations.
       These services are provided to and from Moscow, and are provided by
       TeleRoss at wholesale rates competitive with those offered by Rostelecom.
       TeleRoss also provides private line channels to Sovam in cities where the
       TeleRoss Ventures operate. In addition, TeleRoss has recently received a
       license to provide international private line service.
 
     - World Connect Dial/Russia Connect Dial. Customers in TeleRoss's cities
      are provided dedicated local access to the regional TeleRoss switch
      through lines leased from the TeleRoss Venture's regional joint venture
      partner. These customers then have access to the domestic long distance
      service provided by TeleRoss, international long distance service provided
      by Sovintel and are fully integrated into the local phone networks
      operated by the applicable TeleRoss Venture's partner and to the Moscow
      city telephone network through TCM.
 
     - Moscow Connect. Customers are provided with dedicated last mile
       connection over lines leased from the regional joint venture partner
       which lines are connected to a local TeleRoss switch. The TeleRoss
       network and its interconnection to TCM provide customers with a Moscow
       dial tone which allows users in remote locations better access to
       Moscow's advanced telecommunications infrastructure. In addition, Moscow
       Connect service provides better call quality at lower rates for domestic
       and international long distance. Moscow Connect also facilitates
       communications between users and their Moscow-based associates as calls
       can be made to and from Moscow without the use of prefixes and without
       long distance charges accruing to the Moscow-based parties.
 
                                       64
<PAGE>   70
 
     - Dedicated Circuits. Customers are provided with point-to-point clear
       channel circuits within Russia and internationally through the TeleRoss
       backbone and its interconnection with Sovintel's international gateway in
       Moscow. Dedicated circuits are generally used by news services, banks and
       other commercial customers who require high capacity and high quality
       service. This service can be used for voice or data, depending on the
       user's needs. In providing dedicated circuits, TeleRoss competes against
       other alternative communications providers, however, TeleRoss believes
       that it has a distinct price advantage over its competitors because of
       the use of its own infrastructure and the bulk purchase of satellite
       capacity.
 
     - World Access Service. TeleRoss and Sovintel co-market World Access
       Service to their customers in each of the cities they serve through two
       products: World Access Direct and World Access Card. Through World Access
       Direct, TeleRoss customers can access domestic long distance and
       international service anywhere within the customer's city through the
       local telephone network. The World Access Card is a calling card which
       allows TeleRoss customers portable access to domestic long distance and
       international service from 15 Russian cities, including Moscow and St.
       Petersburg, and 23 countries. This service is provided through Sovintel's
       infrastructure.
 
     - VSAT Services. For customers that are located outside the 13 cities
       serviced by the TeleRoss Ventures or that cannot be physically linked to
       TeleRoss's regional switches, TeleRoss offers VSAT service which connects
       these customers directly to TeleRoss's Moscow-based hub through a VSAT
       antenna installed at the customer's location. Both dedicated and switched
       services are provided through these VSAT arrangements.
 
     In addition to continuing the development of its core domestic long
distance business, TeleRoss's strategy includes the development of local access
networks to capitalize on demand for local phone service and to capture
additional customers for its long distance and value-added service offerings.
Outside Moscow, TeleRoss has primarily pursued a strategy whereby it develops
its own intra-city trunking network with copper based or fiber optic facilities
leased from the regional joint venture partners. To date, TeleRoss, in
conjunction with regional joint venture partners, has installed approximately 25
kilometers of fiber optic cable in 3 cities and plans to install an aggregate of
approximately 100 kilometers of additional fiber optic cable in up to an
additional 6 cities over the next 24 to 30 months. Customers who obtain local
phone numbers from TeleRoss's venture partners are directly interconnected to
the local telephone company and to the Company's long distance network and
Sovintel's international gateway and may obtain a broad range of value-added
services offered by the Company.
 
     Customers and Pricing. TeleRoss's customers include businesses and other
telecommunications service providers such as carriers, PTOs, cellular operators,
Sovintel and Sovam. TeleRoss's business customers consist of large multinational
and Russian businesses in each of the regions it services, as well as medium and
small-sized businesses. Between 1993 and mid-1996, consumer prices in TeleRoss's
industry increased significantly as a result of Rostelecom raising its prices in
an effort to raise capital for investment and development of its network
infrastructure, although prices have stabilized over the past six months.
TeleRoss strategically prices its domestic long distance services at a slight
premium over similar services offered by Rostelecom to account for a higher
quality of service, but in line with the prices offered by regional competitors.
 
     Sales and Marketing. TeleRoss markets its services to carriers and
businesses through direct sales channels. TeleRoss employs 27 sales and
marketing personnel, approximately half of which are based in Moscow with the
other half deployed regionally to identify and contact prospective customers.
The Moscow-based sales and marketing personnel are organized into industry
groups in order to better identify and serve customer needs. Each region is
typically served by one or two sales representatives. TeleRoss's sales efforts
are supported by market research and promotional activities carried out at the
joint venture level and tailored to the specific market base of each region.
TeleRoss's marketing strategy is to attract carrier customers by focusing on
those carriers with high volume minutes operating in regions where TeleRoss has
a competitive advantage. Through cross-marketing agreements with Sovintel and
Sovam, TeleRoss markets many of the other service offerings of GTS's Russian
businesses to customers throughout its service regions. Billing
 
                                       65
<PAGE>   71
 
functions and the monitoring of quality control and technical issues are
performed centrally through the Moscow-based hub.
 
   
     Ownership and Control. TeleRoss consists of the TeleRoss Operating Company,
and the 50% beneficially-owned TeleRoss Ventures. GTS controls TeleRoss
Operating Company (which holds the network license) and co-manages the TeleRoss
Ventures under the terms of the applicable TeleRoss Ventures' foundation
agreements and charters. Under some of these charters, GTS generally has the
right to designate the Chairman of the board of directors, and GTS's local
partner has the right to designate the Deputy Chairman, for the first two-year
term (and thereafter GTS and the local partner nominate the Chairman and Deputy
Chairman for approval by the entire board on a rotating basis). While GTS has
significant influence within these ventures, decisions, including the decision
to declare and pay dividends, are generally subject to GTS's partner's approval.
Neither GTS nor its respective joint venture partners are obligated to fund
operations or capital expenditures of the TeleRoss Ventures. Losses and profits
are allocated to the partners in accordance with their ownership percentages, in
consideration of funds at risk. See "Management's Discussion and
Analysis -- Accounting Methodology -- Profit and Loss Accounting. Further, the
foundation agreements and charters do not have expiration dates. See "Risk
Factors -- Dependence on Certain Local Parties; Absence of Control."
    
 
     SOVAM
 
     Sovam is a venture owned 66.7% by GTS and 33.3% by the Institute for
Automated Systems ("IAS"). Sovam was founded in 1990 as a venture equally owned
by GTS and IAS. In 1992, Cable & Wireless acquired a 33% ownership interest in
Sovam, which interest was subsequently acquired by GTS in 1994, bringing GTS's
ownership interest to its current 66.7%. Sovam provides high-speed data
communications services, electronic mail and database access over a high-speed
packet/frame relay network in 29 major Russian and CIS cities. Sovam also offers
Russia On Line, the first Russian language Internet service, which provides
direct access to the Internet as well as access to a wide range of local and
international information services and databases. As of June 30, 1997, Sovam had
approximately 1,748 data service customers and approximately 3,091 Russia On
Line customers. Sovam employed over 100 persons in Moscow and other regions of
the CIS as of June 30, 1997. Sovam provides equipment and maintains marketing
and technical support personnel at each location either through its own
infrastructure or through the infrastructure of TeleRoss.
 
     In addition to serving the Moscow and St. Petersburg markets, Sovam
co-locates its operations with the TeleRoss Ventures, offering its services in
all 13 TeleRoss cities, and also serves 14 additional cities in Russia and the
CIS. Sovam operates under its own license within Russia while services elsewhere
in the CIS are provided through applicable joint venture or local partner
licenses. The local partners of the TeleRoss Ventures provide facilities, assist
in the provision of leased lines to Sovam customers that allow them to connect
with Sovam's local data switches and also provide technical support. Sovam
utilizes Sovintel's international capabilities and, in TeleRoss-served
locations, TeleRoss's satellite overlay network, to take data through its local
data switches and over the leased lines to its customers. Customers may obtain
virtual private data networks without investing in, acquiring, installing and
maintaining their own network nodes and switches.
 
                                       66
<PAGE>   72
 
     The following table sets forth certain operating data related to Sovam's
operations:
 
<TABLE>
<CAPTION>
                                           AT AND FOR THE YEAR ENDED
                                                 DECEMBER 31,            AT AND FOR THE
                                          ---------------------------   SIX MONTHS ENDED
                                           1994      1995      1996      JUNE 30, 1997
                                          -------   -------   -------   ----------------
<S>                                       <C>       <C>       <C>       <C>
BASIC DATA SERVICE
  Percentage of Total Sovam Revenue.....       96%       91%       79%           80%
  Number of Customers...................    1,335     1,587     1,726         1,748
  Average Revenue Per Month Per
     Customer...........................   $  180    $  201    $  446        $  604
  Number of Cities in Service...........        2        11        25            29
EQUIPMENT AND HARDWARE SALES
  Percentage of Total Sovam Revenue.....        4%        8%       14%           10%
RUSSIA ON LINE SERVICE
  Percentage of Total Sovam Revenue.....       --         1%        7%           10%
  Number of Customers...................       --       407     2,340         3,091
  Average Revenue Per Month Per
     Customer...........................       --    $   49    $   52        $   65
</TABLE>
 
     Services. Sovam's service offerings are comprised of data services,
equipment and hardware sales and its Russia On Line services.
 
     - Data Services. Sovam provided high speed connectivity, electronic mail,
       database access and fax services to approximately 1,748 customers as of
       June 30, 1997, in Russia and the CIS. Sovam customers can use electronic
       mail systems to send and receive messages and data and to access public
       and private data networks (including the Internet) worldwide. Customers
       may obtain virtual private data networks without investing in, acquiring,
       installing and maintaining their own network nodes and switches. In
       addition, Sovam offers its customers value-added data services. For
       example, Sovam offers "one-stop shopping" for hardware, software,
       installation and maintenance support and products such as "SovamMail," an
       e-mail service which allows customers to use Sovam's data network to send
       telex or facsimile messages to overseas recipients worldwide. Data
       services are currently available in 29 cities throughout Russia and the
       CIS, including Moscow, St. Petersburg, each of the cities served by
       TeleRoss and some cities outside of the TeleRoss network.
 
     - Equipment and Hardware Sales. Sovam sells communications equipment and
       hardware, and provides related installation, maintenance and support
       functions, to its customers. Sovam's primary customers in the equipment
       and hardware market are banking clients who use the equipment to
       interface with Sovam's network.
 
     - Russia On Line. Russia On Line is the first Russian language, as well as
       the first dual language, graphical user interface online service for
       accessing domestic and international information sources designed to
       appeal to a wide commercial audience. This service, which is distributed
       via GTS's domestic long distance infrastructure, provides customers with
       access to international databases (including the Internet), as well as an
       array of proprietary Russian and English language information services,
       such as news stories and market updates. Sovam had approximately 3,091
       Russia On Line customers as of June 30, 1997. Sovam encountered
       international bandwidth capacity constraints during the fourth quarter of
       1996 which limited growth in Russia On Line sales. Management introduced
       an E-1 channel during the first quarter of 1997 to address this problem.
       Sovam has developed a modified version of Netscape's Internet browser,
       which utilizes the Cyrillic alphabet, as part of its Russia On Line
       package. Sovam's enhanced Russian version of Netscape's browser is
       provided by Sovam to its customers under a distribution agreement with
       Netscape. In addition, Sovam has signed a letter of intent with Microsoft
       whereby Microsoft has agreed to include software access to Russia On Line
       in its Russian version of Windows 97, which had not been released as of
       September 1997. Sovam has also entered into agreements with equipment
       manufacturers, including Dell, Hewlett-Packard and U.S. Robotics, to
       include Russia On Line software with their products.
 
                                       67
<PAGE>   73
 
     Customers and Pricing. Sovam's data communications customers consist
primarily of banking and financial services organizations and large
multinational companies, while Sovam's Russia On Line customers consist of a
wide variety of commercial enterprises. Sovam charges customers an installation
fee when service is commenced and a charge for any equipment which is installed.
Thereafter, customers are billed on a monthly basis for leased line fees, port
access charges and charges for data and Russia On Line services rendered during
the month. Data services are priced on a two-tier structure with high volume
users generally negotiating a flat-rate fee and lower volume uses paying a
volume-based fee which on average was $446 and $604 per subscriber in 1996 and
for the six months ended June 30, 1997, respectively. Russia On Line customers
pay a fixed monthly access charge plus an additional volume-based fee. Customers
are billed in dollars and payment is remitted in rubles and, to the extent
permitted by law, in dollars, with a 5% conversion fee added to
ruble-denominated payments.
 
     Sales and Marketing. Sovam employs a dedicated sales and marketing force
comprised of 20 Russian nationals, 14 of which are based in Moscow with the
remainder deployed in the other Russian and CIS regions. Salespersons are paid a
fixed salary supplemented by sales commissions and performance-based bonuses.
Sovam's sale efforts are focused primarily on the banking and financial
communities and large multinational companies, although small and medium sized
entities are also emerging as potential Sovam customers. Bundled service
packages, which include Sovam's data and Internet service, Sovintel's
international service and TeleRoss's long distance service, are frequently
marketed together in order to offer customers a comprehensive telecommunications
solution. In addition to data communications services, Sovam offers its
customers hardware, installation and maintenance service and is a distributor of
Northern Telecom equipment.
 
   
     Ownership and Control. GTS owns 66.7% of Sovam and IAS owns the remaining
33.3%. The Sovam managing board is comprised of three GTS representatives and
two IAS representatives. Decisions of the managing board are adopted by a
majority vote. Changes to the charter and certain business decisions, including
decisions on distribution of profits and losses, obtaining loans and approving
major transactions, require unanimous approval. Neither GTS nor IAS are
obligated to fund Sovam's operations or capital expenditures. Losses and profits
of Sovam are allocated to the partners in accordance with their ownership
percentages, in consideration of funds at risk. See "Management's Discussion and
Analysis -- Accounting Methodology -- Profit and Loss Accounting. The Sovam
charter does not have an expiration date. See "Risk Factors -- Dependence on
Certain Local Parties; Absence of Control."
    
 
    GTS CELLULAR
 
   
     GTS Cellular operates three distinctly branded cellular businesses in
Russia and Ukraine. In Russia, GTS has a wholly owned subsidiary Vostok Mobile
B.V. ("Vostok Mobile"), which operates eleven AMPS cellular companies in Russian
regions west of the Urals under the trade name Unicel. Vostok Mobile owns
between 50% and 70% of these cellular joint ventures (the "Unicel Ventures") in
Russia. In addition, GTS intends to enter into the cellular markets of
additional Russian regions through its Vostok Mobile venture. GTS also
participates in PrimTelefone, a 50% owned joint venture that operates an NMT-450
network in Vladivostok, Russia. In Ukraine, GTS has an approximately 25%
beneficial interest in Bancomsvyaz which operates a DCS-1800 cellular network in
Kiev, and an international overlay network in Ukraine. GTS Cellular entities
possess licenses covering major Russian and Ukrainian markets (excluding Moscow
and St. Petersburg) with an aggregate 1995 population of approximately 25
million people.
    
 
                                       68
<PAGE>   74
 
     GTS currently offers cellular services in the following regions as of June
30, 1997:
 
<TABLE>
<CAPTION>
                                                                                 URBAN
                                    GTS'S                                      POPULATION       TOTAL
          OPERATING                ECONOMIC                        CITY            IN          OBLAST        NUMBER OF
           COMPANY              INTEREST(1)(4)      CITY       POPULATION(3)   OBLAST(2)    POPULATION(2)   SUBSCRIBERS
          ---------             --------------      ----       -------------   ----------   -------------   -----------
                                                                (MILLIONS)     (MILLIONS)    (MILLIONS)
<S>                             <C>              <C>           <C>             <C>          <C>             <C>
RUSSIA
  Vostok Mobile(4)
     Arkhangelsk Mobile
       Networks...............       31.0%       Arkhangelsk        0.6            1.2           1.6             433
     Astrakhan Mobile.........       31.0%       Astrakhan          0.6            0.7           1.0             930
     Chuvashi Mobile..........       43.4%       Cheboksary         0.5            0.8           1.4             913
     Lipetsk Mobile...........       43.4%       Lipetsk            0.5            0.8           1.2           1,018
     Murmanskaya Mobilnaya
       Set....................       31.0%       Murmansk           0.6            1.1           1.8           1,017
     Penza Mobile.............       37.2%       Penza              0.6            1.0           1.5             496
     Saratov Mobile...........       31.0%       Saratov            0.2            2.0           2.7           1,174
     Parma Mobile.............       31.0%       Syktyvkar          0.3            0.9           1.3             317
     Volgograd Mobile.........       31.0%       Volgograd          0.9            2.0           2.6             955
     Votec Mobile.............       31.0%       Voronezh           1.0            1.5           2.5           1,274
     Mar Mobile...............       31.0%       Yoshkar-ola        0.4            0.5           0.8             349
  PrimTelefone................       50.0%       Vladivostok        1.2            1.8           2.2           3,712
UKRAINE
  Bancomsvyaz.................       24.9%       Kiev               2.6            3.7           4.5             852
                                                                   ----           ----          ----          ------
          Total...............                                     10.0           18.0          25.1          13,494
                                                                   ----           ----          ----          ------
</TABLE>
 
- ---------------
(1) Represents the indirect economic interest of GTS in each entity.
 
(2) Source: Rusline (1995), except Kiev (from Ukraine Ministry of Statistics
    (1995)).
 
(3) Source: GTS estimate (1995).
 
   
(4) At June 30, 1997, Vostok Mobile was a GTS venture which owned between 50%
    and 70% of a series of 11 cellular joint ventures in various regions in
    Russia. At that time GTS held a 62% beneficial interest in Vostok Mobile. In
    October, 1997, the Company purchased the minority interest in Vostok Mobile.
    After the purchase, Vostok Mobile became a wholly owned venture of GTS. GTS
    intends to enter into the cellular markets of additional Russian regions
    through its Vostok Mobile venture.
    
 
                                       69
<PAGE>   75
 
     The following table sets forth certain operating data related to GTS
Cellular's operations:
 
<TABLE>
<CAPTION>
                                                            AT AND FOR THE
                                                              YEAR ENDED
                                                             DECEMBER 31,        AT AND FOR THE
                                                           -----------------    SIX MONTHS ENDED
                                                            1995      1996       JUNE 30, 1997
                                                           ------    -------    ----------------
<S>                                                        <C>       <C>        <C>
  Vostok Mobile
     Total Subscribers...................................     850      6,884          8,930
     Average Revenue Per Subscriber Per Month............      --    $   128        $   145
     Minutes of Use(1)(thousands)........................      --     10,561         12,231
     Population Covered by Licenses (thousands)..........  18,400     18,400         18,400
     Population Covered by Networks (thousands)..........   4,000      6,500          6,500
     Subscriber Penetration of Population Covered by
       Networks..........................................      --       0.11%          0.14%
  PrimTelefone
     Total Subscribers...................................     792      2,822          3,712
     Average Revenue Per Subscriber Per Month............  $  282    $   236        $   193
     Minutes of Use(1)(thousands)........................     725      6,919          5,378
     Population Covered by Licenses (thousands)..........   2,200      2,200          2,200
     Population Covered by Networks (thousands)..........     500      1,175          1,175
     Subscriber Penetration of Population Covered by
       Networks..........................................    0.16%      0.24%          0.32%
  Bancomsvyaz
     Cellular Network
     Total Subscribers...................................      --        121            852
     Average Revenue Per Subscriber Per Month............      --    $    62        $   181
     Minutes of Use(1) (thousands).......................      --          9            967
     Population Covered by Licenses (thousands)..........      --      4,500          4,500
     Population Covered by Networks (thousands)..........      --      1,669          1,669
     Subscriber Penetration of Population Covered by
       Networks..........................................      --       0.01%          0.05%
     Overlay Network
     Minutes of Use(1)(thousands)........................      --         --            721
     Number of Ports.....................................      --         --            293
     Average Revenue Per Minute..........................      --         --        $  0.36
</TABLE>
 
- ---------------
 
(1) Includes minutes among affiliates.
 
     Vostok Mobile. Through Vostok Mobile, GTS participates in eleven cellular
joint ventures in Russia. Vostok Mobile owns between 50% and 70% interests in
each of the eleven Unicel Ventures with regional telephone companies and, in one
instance, a private Russian company, owning the remaining ownership interest.
The Unicel Ventures each operate an AMPS-based cellular network, which was
chosen principally because of the lower licensing fees and equipment costs
associated with AMPS operations. The Company believes that the Unicel Ventures'
AMPS-based networks can be upgraded to digital AMPS ("D-AMPS") for an
incremental capital investment. Cellular networks which utilize digital
technology, such as D-AMPS, DCS and GSM offer several advantages over analog
technology including improved overall signal and sound quality, improved call
security, potentially lower incremental infrastructure costs for additional
subscribers and the ability to provide enhanced data transmission services, such
as facsimile and e-mail. Digital technology also provides increased system
capacity. The ventures intend to convert to D-AMPS at such time as there exists
sufficient competitive pressures and/or market demand for digital services to
merit the additional investment.
 
     AMPS technology is widely used by other cellular networks throughout
Russia, making roaming commercially feasible. The Unicel Ventures have entered
into roaming agreements with other AMPS-based cellular providers, which allow
their subscribers to manually roam throughout Russia. Manual roaming, as opposed
to automated roaming, requires subscribers to notify their local cellular
providers of their travel plans
 
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<PAGE>   76
 
in order to receive roaming capability. Vostok Mobile is currently working with
VimpelCom to develop automated roaming standards which will provide subscribers
with automated roaming capability.
 
     The Unicel Ventures, collectively, are licensed to provide cellular service
to regions with an aggregate population of approximately 18 million people and
the cellular networks of these ventures cover populations of approximately 6.5
million people. Over the next five years, Vostok Mobile plans to expand the
coverage of the cellular networks to approximately 9.8 million people.
 
     The Unicel Ventures are the only cellular operators in many of their
respective regions. Each region, however, has the potential for three licensed
operators, including one operator for each of the AMPS, NMT and GSM cellular
standards, and the Company expects competition to increase in the future as the
Russian economy develops and telephony demands increase. Each of the Unicel
Ventures operates independently within uniform guidelines established by Vostok
Mobile. The Unicel Ventures employ local engineering and marketing personnel,
which helps the ventures maximize their presence in their respective markets and
maintain quality control. Vostok Mobile and its ventures employed over 279
persons as of June 30, 1997, with over 240 persons employed regionally.
 
     PrimTelefone. GTS's cellular operations in Vladivostok are conducted
through PrimTelefone, a 50% owned GTS subsidiary, with the local electrosviaz
owning the remaining 50%. PrimTelefone began operations in 1995 and operates an
NMT-450 network in Vladivostok. PrimTelefone entered and penetrated the
Vladivostok market by leveraging its network design and full interconnection
with the city telephone network. As a result, PrimTelefone's subscriber base has
grown to 3,712 as of June 30, 1997 and PrimTelefone has been able to capture
approximately half of the Vladivostok cellular market. PrimTelefone has also
updated its billing system, which will allow it to offer automated roaming.
Although PrimTelefone has experienced significant growth, it does face
competition. PrimTelefone's only current competitor has recently upgraded its
network for more complete coverage and has been fully interconnected to the city
telephone network and may prove to be more competitive in the future.
PrimTelefone employs approximately 50 persons which include dedicated sales,
marketing and customer service personnel.
 
     PrimTelefone holds a license to provide cellular service to a region having
a population of approximately 2.2 million people and, as of June 30, 1997, its
cellular network covered an area with a population of approximately 1.2 million
people. PrimTelefone plans to expand its network's coverage to approximately 1.7
million people over the next five years.
 
     Bancomsvyaz. GTS operates in Ukraine through a 60% owned intermediate
holding company which holds an approximately 49% interest in Bancomsvyaz, giving
GTS an indirect approximately 25% economic interest in Bancomsvyaz. The
remaining approximately 51% interest in Bancomsvyaz is owned by Bancomservice, a
private company whose principals include telecommunications industry
participants in Ukraine, and a Ukranian national. Bancomsvyaz is co-managed by
GTS and Bancomservice, with Bancomservice appointing the General Director and
GTS appointing the Chief Operating Officer, Chief Financial Officer and two
Business Line directors. The current General Director has been active in the
development of the telecommunications industry in Ukraine. Through Bancomsvyaz,
GTS participates in the operation of a cellular network and an international
overlay network. While Bancomsvyaz's operations are currently concentrated in
the Kiev area, management plans to expand its offerings to other major Ukrainian
population centers, including Odessa, Kharkov and Lviv. Currently, Bancomsvyaz
holds licenses in Kiev and Odessa and is in the process of obtaining additional
licenses in connection with its planned expansion. With over 65 employees,
Bancomsvyaz aggressively markets its services and closely monitors technical and
quality-related issues.
 
     Cellular network. Bancomsvyaz operates a cellular network in Kiev utilizing
DCS-1800 cellular technology, and operates under a cellular license that covers
the Kiev oblast. Bancomsvyaz began cellular operations in 1996 by covering the
city center of Kiev and expanded its coverage to include the entire city in
1997. Management is currently negotiating a clearinghouse agreement with a
European PTO which would give Bancomsvyaz customers automated roaming capability
with all GSM signatories with a roaming agreement with this PTO.
 
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<PAGE>   77
 
     Bancomsvyaz holds a license to provide cellular service to a region having
a population of approximately 4.5 million people and, as of June 30, 1997, its
cellular network covered an area with approximately 1.2 million people.
Bancomsvyaz plans to expand its network's coverage to approximately 3.2 million
people over the next five years.
 
     Overlay network. Bancomsvyaz provides switched traffic service through its
overlay network in Kiev. Bancomsvyaz owns and operates a mobile switch and seven
central offices in the city and also provides last mile connections (which are
primarily copper) from the central offices to customers. Local traffic is routed
to the local telephone network through the mobile switch. International traffic
is routed through a government-owned satellite dish to the GTS-Monaco Access
international gateway. Bancomsvyaz emphasizes its high quality service and
markets primarily to multinational companies, real estate developers and hotels.
Bancomsvyaz is also negotiating with Sovintel to provide a link to Moscow and
plans to offer VSAT-based connections to its network in the future.
 
     Sales and Marketing. The GTS Cellular entities have entered into agreements
with local distributors to more effectively reach their target markets.
Particular emphasis is placed on product branding. Vostok Mobile's sales and
marketing efforts are focused on the branding of its trade name, Unicel, which
is marketed and promoted at the local level by each of the Unicel Ventures. By
promoting the Unicel trade name, local ventures can emphasize their
relationships with Vostok Mobile and the other Unicel Ventures, allowing
customers to view the Unicel Ventures as integrated parts of a large cellular
organization rather than as lone, independent operators. Bancomsvyaz operates
under the trade name Golden Telecom.
 
     Customers and Pricing. GTS Cellular's customers are primarily large,
mid-sized and start-up businesses and wealthy individuals. Increases in the
number of customers for GTS Cellular's ventures is typically linked to the
economic health of the region in which such venture operates. Cellular service
is generally a premium service in the cities in which GTS Cellular operates and
is priced as such. Each venture begins with two tariff plans, a "standard"
tariff plan and a "premium" tariff plan, which includes a fixed amount of
airtime at a discounted per-minute rate. Each plan prices late night and weekend
calls at off-peak rates. The Company expects that prices will decrease as
competition increases. Connection fees are minimized in order to reduce license
fees in AMPS regions (which are partially calculated by reference to connection
fees), as well as to keep market entry costs low. GTS Cellular has benefited
from high margins generated by the sale of handsets, which are marked up in line
with other cellular operators in Russia and the CIS. Value-added services, such
as call forwarding and conference calling, when available, are priced nominally
and discounted when sold in packages. Cellular accounts are recorded in dollars
and customers remit payment in rubles at the exchange rate on the date of the
bill and, in instances permitted by law, in dollars. Ruble accounts generally
are charged a two percent conversion fee and payments in rubles are applied at
the rate of exchange on the date of payment. In order to lessen risks to its
receivables, the Company and its cellular ventures require advance payment from
all customers with prepayments averaging approximately $250 per customer or six
to eight weeks of service.
 
   
     Ownership and Control. GTS Cellular's Russian operations (except for the
Vladivostok operations) are conducted through ventures that are owned between
50% and 70% by Vostok Mobile. GTS currently holds a 62% beneficial interest in
Vostok Mobile. The Company expects to purchase, pending execution of definitive
documentation, the minority interest in Vostok Mobile. After the purchase,
Vostok Mobile will be a wholly owned venture of GTS. GTS Cellular's Vladivostok
and Ukrainian operations are conducted through ventures which require partner
approval for most decisions. Neither GTS nor any of its respective partners in
its Vostok Mobile, Vladivostok or Ukrainian operations are obligated to fund
operations or capital expenditures. Losses and profits of all such ventures are
allocated to the partners in accordance with their ownership percentages, in
consideration of funds at risk. See "Management's Discussion and
Analysis -- Accounting Methodology -- Profit and Loss Accounting. Further, the
applicable foundation agreements and charters do not have expiration dates. See
"Risk Factors -- Dependence on Certain Local Parties; Absence of Control."
    
 
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<PAGE>   78
 
    LICENSES AND REGULATORY ISSUES
 
     Telecommunications operators in Russia are nominally subject to the
regulations of the Regional Communications Committee (the "RCC"). As a practical
matter, national telecommunications authorities of the individual CIS countries
and certain regional and local authorities generally regulate telecommunications
operators in their markets through their power to issue licenses and permits.
 
     The Communications Law sets out a comprehensive legal and regulatory
framework for the sector. It also sets forth general principles for the right to
carry on telecommunications activities, describes government involvement in
telecommunications regulation and operation, establishes the institutional
framework involved in regulation and administration of telecommunications, and
deals with various operational matters, such as ownership of networks,
protection of fair competition, interconnection, privacy and liability. This
institutional framework is implemented by separate legislation.
 
     Licenses to provide telecommunications services are issued by the MOC on
the basis of a decision by the Licensing Commission at the MOC. No new licensing
regulations have been issued since the enactment of the Communications Law and
in practice the MOC continues to issue licenses based on the Licensing
Regulations. Under the Licensing Regulations, licenses for rendering
telecommunications services may be issued and renewed for periods ranging from 3
to 10 years and several different licenses may be issued to one person. Once the
licenses are received, the licensee is required to register its right to hold
and operate under the license with Gossvyaznadzor, the national authority
responsible for monitoring compliance with regulatory and technical norms.
Renewals may be obtained upon application to the MOC and verification by
appropriate government authorities that the licensee has conducted its
activities in accordance with the licenses. Officials of the MOC have fairly
broad discretion with respect to both the issuance and renewal procedures. Both
the Communications Law and the Licensing Regulations provide that a license may
not be transferred. However, regional authorities are sometimes in a practical
position to limit these national authorities. In August 1995, the Russian
government created Svyazinvest, a holding company, to hold the federal
government's interests in the majority of Russian local telecommunications
operators. Such entities at the oblast and krai levels (administrative regions
within Russia) and two cities -- Moscow and St. Petersburg -- exercise
significant control over their respective local telephone networks.
 
     License procedures for the Company's cellular services include frequency
licensing from the MOC through a two step process. A license must first be
obtained from the MOC for permission to operate mobile cellular services on a
commercial basis in a specific standard and frequency bandwidth. Thereafter, an
approval to use specific frequencies within the band must be received from the
State Radio Frequencies Commission. Once the licenses are received,
Gossvyaznadzor confirms the rights of an operator to offer radio frequency
transmissions on specific frequencies, administers type acceptance procedures
for radio communications equipment and monitors compliance with licensing
constraints. In each instance, the Company is required to obtain additional
licenses and permits with respect to the use of equipment and the provision of
services.
 
     Telecommunications laws and regulations in Ukraine are similar in many
respects to those of Russia but are subject to greater risks and uncertainties.
Regulations currently prohibit foreign entities from owning more than 49% of any
telecommunications operating company. GTS's Ukrainian joint venture agreements
provide it with the option of purchasing an additional one percent of the
cellular network if these rules are liberalized. The Ukrainian government has
proposed substantial frequency permit fees in connection with providing GSM
service in Ukraine. Although the government has not imposed additional fees on
Bancomsvyaz's existing DCS-1800 service, there can be no assurance that such
fees will not be imposed in the future.
 
     GTS's subsidiaries and ventures hold the following licenses in Russia and
Ukraine:
 
     Switched Services. In Russia, the Company holds two licenses. The first
license was reissued to Sovintel in November 1996 and authorizes Sovintel to
operate as an international overlay network with the ability to interconnect
with the Moscow region and St. Petersburg public switched telecommunications
network ("PSTN"). This license covers a total of 50,000 subscribers and expires
in May 2000. It was amended in February 1997 to cover the Leningrad region. The
second license was reissued to SFIT, Ltd., a wholly-owned
 
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<PAGE>   79
 
subsidiary of GTS in February 1997, for provision of intercity services in 39
regions and in Moscow with ability to interconnect with the PSTN. In Kiev,
Ukraine, the company holds a license for provision of overlay network services,
including international services, in the name of its affiliate, Bancomsvyaz. In
addition, Sovintel is an ITU recognized private operating agency ("RPOA"), which
enables it to maintain a separate dialing code (7-501) that can be directly
dialed from over 170 countries. Sovintel's status as an RPOA also enables it to
terminate calls directly with other operators.
 
     Leased Circuits. In September 1996 the MOC issued to Sovintel a five-year
license to lease local, intercity and international circuits in the territory of
Moscow, Moscow region and St. Petersburg, valid until September 2001. The total
amount of circuits leased is approximately 300 and may be increased up to a
total authorized capacity of 2,500.
 
     Data Services. In August 1996, the MOC reissued to Sovam a 2 1/2-year
license, effective July 1996, to provide data transmission services via a
dedicated network to a number of oblasts and other regions covering a large
portion of Russia. The license permits a network capacity of not less than 5,000
customers, allows it to interconnect with other data transfer networks in
Russia, and expires January 1, 1999.
 
     Local Access Services. In January 1997, the MOC has licensed TCM to provide
local telephone service in Moscow to not less than 100,000 subscriber local
access lines. The license expires in May 2006. TCM has an agreement with MGTS to
provide up to 200,000 lines, which would require an extension to its license,
when its current capacity is reached.
 
     Cellular Services. In connection with cellular operations, Russian law
apportions the responsibility for regulating and licensing cellular businesses
between national and regional regulators. National telecommunications regulators
have been assigned the responsibility of regulating and licensing cellular
businesses utilizing the GSM and NMT-450 cellular standards prevalent in Europe.
These regulators have auctioned licenses to provide these services to a number
of ventures that have included large, well capitalized western
telecommunications providers such as US WEST and Nokia during the last four
years. Regional telecommunications authorities have been given the rights to
supervise the observance of licenses by cellular businesses utilizing AMPS
cellular standard service, which is prevalent in the United States. However,
AMPS licenses are issued by the MOC. GTS believes that, in many instances,
cellular operators obtaining AMPS standard licenses, particularly those in
second tier cities, pay license fees that are lower than those paid for the GSM
and NMT-450 "national standards". Licenses for cellular providers have a term of
approximately 10 years.
 
     The Company's twelve Russian cellular companies have licenses which expire
between 2005 and 2007. One of the companies initially received an operating
license in 1994, six companies initially received an operating license in 1995
and five companies initially received an operating license in 1996.
 
     Bancomsvyaz holds a license for provision of DCS-1800 mobile services in
the Kiev oblast.
 
     COMPETITION
 
     Overview. GTS faces significant competition in virtually all of its
existing telecommunications businesses in the CIS. Many of the Company's
competitors and potential competitors, which include large multinational
telecommunications companies, have substantially greater financial and technical
resources than the Company and have the ability to operate independently or with
global or local partners and to obtain a dominant position in these markets. The
Company believes that it has a competitive advantage in each of these markets
because of its operating history, its ability to bundle a broad range of
telecommunications services in the region and its ability to make rapid
decisions in pursuing new business opportunities and addressing customer service
needs. The Company also believes that its local partnerships and reliance on
nationals in the management of its businesses and joint ventures provide it with
better knowledge of local political and regulatory structures, cultural
awareness and access to customers.
 
     International Services. Sovintel faces significant competition from more
than ten other existing service providers in Moscow, including Rostelecom and
joint ventures between local parties and multinational telecommunications
providers. Large competitors include the "Combelga" joint venture, an RPOA
operator in which Alcatel and the Belgian PTO participate as foreign investors,
"Comstar", a joint venture between
 
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<PAGE>   80
 
GPT Plessey and MGTS, providing services similar to those provided by the
Company, TelMos, a joint venture between AT&T, MGTS, Global One, through its
Moscow based ventures, and Peterstar, in Petersburg, which is part of the PLDT
group. Several smaller companies, such as DirectNet, and Aerocom provide
high-volume and carrier's carrier services in Moscow. Bancomsvyaz competes in
the switched international traffic market with the Kiev electrosviaz and UTel, a
joint venture that includes Western partners with substantial capital and
technical resources who together hold a dominant share of the Kiev market.The
Company expects that market consolidation will take place among the competitive
field in international services.
 
     Domestic Long Distance Services. The Company believes its major competitors
in the Russian domestic long distance market consist of Rostelecom, the
electrosviazs, including those which are partners in the Company's TeleRoss
Ventures, and a variety of ventures that include Western partners with
substantial financial resources. The most significant of such competitors
include: Global One, through its regional operations; Rustel, a venture that
includes Rostelecom, other Russian partners and International Business
Communication Systems, a Massachusetts telecommunications firm; Belcom, a
private company in which Comsat has a majority interest and which provides VSAT
services primarily to the energy sector; Satcom, a Russian joint venture
licensed to provide local, long distance and international service over private
and public switched networks; Teleport TP, a satellite overlay company jointly
owned by Rostelecom and Petersburg Long Distance that provides satellite
teleports in cities throughout Russia; and Comincom, a Russian private venture.
In the Russian far east, TeleRoss competes with Vostok Telecom, which is owned
by the Japanese companies KDD and NIC and certain Russian partners; and Nakhodka
Telecom, which is owned by Cable & Wireless and certain Russian partners.
 
     GTS both cooperates and competes with Rostelecom. Rostelecom provides only
international and long distance services to international carriers and regional
electrosviazs, and does not provide end-to-end customer services. GTS provides
last mile, account management, and transit services for Rostelecom in Moscow,
and uses Rostelecom channels and switches for both international and long
distance services. GTS provides long distance and international services on an
end-to-end basis, using service elements of Rostelecom, the electrosviazs and
its own resources. However, Rostelecom does compete with Teleross, in that
Teleross provides intercity services to customers, using satellite channels
provided by other state agencies (Intersputnik), and provides transit services
to various electrosviazs, on a traffic overflow basis.
 
     GTS believes that it enjoys a number of competitive advantages in the
Russian domestic long distance market, the most important being the maturity of
its international and data service businesses in Russia. This provides GTS with
access to the services, customers, products, licenses and facilities of its
other businesses. The Company also believes that it has more experienced
management, a more comprehensive strategy to build out a nationwide long
distance network and stronger relationships with many regional telephone
companies and with satellite capacity providers, such as Intersputnik, than most
of its competitors. In addition, the Company believes that it does not have any
significant competitor in the regional inter-city market (i.e., calls between
Russian cities other than Moscow or St. Petersburg).
 
     Data Services. Sovam has several primary competitors in the market for data
services: Global One, which began packet-switched service in Moscow and St.
Petersburg in June 1992, under the Sprint Networks venture; Demos, an Internet
service provider; and Relcom, a cooperative affiliation of computer users that
relies on an older generation of technology that supplies slower and lower-cost
messaging facilities to customers (primarily domestic commodities traders) that
do not require higher levels of service. In addition MCI and Rostelecom have
recently announced their agreement to create a national Internet access network
utilizing Rostelecom's domestic network and MCI's international infrastructure.
Rostelecom has also announced the formation of a new Internet services company
called RTK Internet, with Relcom as its partner. Although Sovam's business has
grown quickly, the Company believes that Global One is the market leader. GTS
believes that other potential competitors, including foreign PSTNs, Infotel,
Infocom and Glasnet, are also active in this market.
 
     Although the Company faces significant competition in this market, it
believes that it enjoys certain competitive advantages, including the ability to
reach a wide area throughout Russia through TeleRoss,
 
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<PAGE>   81
 
innovative service offerings such as Russia On Line, the maturity of its
business in the key banking services segment, high levels of customer service
and support, and high speed digital channels through TeleRoss.
 
     Local Access Services. The Company believes that its major competition in
the Moscow local access market consists of a number of ventures with Western
partners, including Telmos (which includes AT&T), Comstar (which includes GPT
Plessey), and Combelga. However, since TCM has obtained an allocation of up to
100,000 numbers, the Company believes that TCM will account for a substantial
proportion of the new capacity to come onto the market within the next five
years.
 
     Cellular Services. Most Russian cellular markets have the potential for
three licensed operators, including one operator for each of the GSM and NMT-450
cellular standards, which Russia has adopted as national standards, and one
operator using the AMPS cellular standard, which has been set as a regional
standard. Many large Western telecommunications operators, including U S WEST,
Deutsche Telekom, STET, Midcom and Millicom, have participated in auctions for
licenses to provide GSM and NMT-450 cellular service to certain significant
Russian urban centers. In addition, a CDMA auction is likely to occur in the
future which could result in one or more CDMA operators entering the market. In
Ukraine, Bancomsvyaz competes primarily with an NMT operator and a GSM operator
in Kiev. Additional GSM licenses were auctioned off in early 1997 and other GSM
operators may enter the market by year end.
 
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<PAGE>   82
 
WESTERN EUROPE
 
     OVERVIEW
 
   
     GTS seeks to position itself as the leading independent carriers' carrier
within Western Europe through the development of two ventures, H.E.R. and
GTS-Monaco Access. H.E.R. is developing an approximately 18,000 kilometer
pan-European high capacity fiber optic network designed to interconnect a
majority of the largest Western and Central European cities. H.E.R. is currently
operating over an approximately 1500-kilometer portion of the network linking
Brussels and Amsterdam, and London and Paris. Hermes expects the initial five
country network to be placed in operation in the second quarter of 1998 and the
18,000 kilometer network to be operational during the year 2000. H.E.R.'s
objective is to become the leading pan-European carriers' carrier by providing
centrally managed cross-border telecommunications transmission capacity to
telecommunications companies including traditional PTOs and New Entrants. H.E.R.
commenced commercial service over the Brussels-Amsterdam portion of the network
in late 1996. H.E.R. expects to roll out full telecommunications transport
services over approximately 2,900 kilometers of fiber optic cable linking the
cities of London, Rotterdam, Amsterdam, Antwerp, Brussels, Paris, Dusseldorf and
Frankfurt in the second quarter of 1998. GTS-Monaco Access operates an
international gateway in Monaco in partnership with, and utilizing the existing
gateway infrastructure of, the Principality of Monaco and provides transit and
routing of international calls to other telecommunications operators. Through
its H.E.R. and GTS-Monaco Access ventures, GTS is building a new network for
transporting voice, data and multimedia/image traffic for other carriers
throughout Western Europe and for worldwide international voice, data and
multimedia/image traffic that either originates or terminates in, or transits
through, Western Europe.
    
 
     The Company believes that the international segment of the Western European
telecommunications market will be an attractive market for new
telecommunications entrants because of its large size, the high operating costs
and low productivity of current providers, and the barriers to entry created by
the need to control a network and its rights-of-way.
 
   
     The European telecommunications market has historically been dominated by
monopoly PTOs. This system has ensured the development of broad access to
telecommunications services in Europe, but it has also restricted the growth of
high quality and competitively priced pan-European voice and data services. The
current liberalization occurring in Europe is intended to address these
structural deficiencies by breaking down PTO monopolies, allowing new
telecommunications operators to enter the market and increasing the competition
within the European telecommunications market. In March 1996, the European
Commission adopted a directive (the "Full Competition Directive") requiring the
full liberalization of all telecommunications services in most EU member states
by January 1, 1998. The Company expects that full liberalization in these
European countries will lead to the emergence of New Entrants with new and
competitive service offerings. These New Entrants will seek to provide a more
diverse offering of telecommunications services that are priced competitively,
that offer higher value added services to customers, and that are accompanied by
a high level of customer service. H.E.R. expects this increase in competition
will result in lower prices and a substantial increase in the volume of traffic
and range of telecommunication services provided. H.E.R. believes that as a
result of the increased call volume and growth in value added services,
participants in these markets will require significant amounts of new
cross-border telecommunications transport capacity to provide their services.
    
 
     The Hermes network will offer PTOs and New Entrants an attractive
alternative for the transport of cross-border European telecommunications
traffic. In the traditional system, PTOs own and control circuits only within
their national borders, and as a result, cross-border traffic must be passed
from one PTO to another PTO at the national boundary. No one PTO therefore owns
or controls end-to-end cross-border circuit capacity. Consequently, the tariff
for cross-border switched voice traffic is determined by a series of bilateral
settlement agreements between PTOs. This system, known as the accounting rate
mechanism (the "ARM"), is highly complex and has kept the price of cross-border
calls at levels significantly higher than the underlying cost of transport and
terminating calls. Increasing competition, however, is forcing PTOs and New
Entrants to explore alternative means of transporting switched voice traffic
across borders. Full liberalization in 1998 will allow the PTOs and New Entrants
to transport this traffic across borders using dedicated circuits such as those
 
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provided by the Company. The alternative for the transport of this traffic will
be for these competing carriers to build their own transport capacity or use
International Private Leased Circuits ("IPLCs") which are provisioned by
combining half-circuits on the networks of two or more PTOs. The Company
believes that there are a number of problems with these options that will make
H.E.R.'s service offering attractive to these carriers. In particular, building
own transport capacity is unlikely to be an attractive option for most carriers
because of the high traffic volumes required to justify the expense, the need to
focus resources on marketing and customer service, the time commitment and the
regulatory and administrative complexities involved. Significant among these is
obtaining the rights of way along which to construct fiber optic cable across
national borders as these typically do not meet at the border crossing. Those
that do meet are often not available on both sides. Likewise, IPLCs provided by
the PTOs also have a number of disadvantages, including high prices, lack of
end-to-end quality control, lack of redundancy, low quality due to diversity of
network systems and equipment, limited availability of bandwidth and long lead
times for provisioning.
    
 
   
     GTS believes that it is well-positioned to become the leading independent
carriers' carrier within Western Europe as a result of several competitive
advantages. These competitive advantages include H.E.R.'s anticipated early
entry with respect to the provision of services over both a high bandwidth
pan-European network and an international gateway with full PTO recognition
through GTS's partner in Monaco; access to customers early in the development of
their own businesses; cost structures which are not burdened by legacy networks
and historical monopoly operations; and existing partners that will be
developing domestic telecommunications operations.
    
 
   
     H.E.R.
    
 
   
     H.E.R.'s objective is to become the leading pan-European carriers' carrier
by providing cross-border centrally managed telecommunications transmission
capacity to telecommunications companies including PTOs and New Entrants. H.E.R.
intends to offer these target customers a better transport system than is
currently available in Europe with a higher and more consistent level of
transmission quality, redundancy, network functionality and service across
Europe at lower prices. Development of the H.E.R. network is dependent upon,
among other things, H.E.R.'s ability to obtain the necessary financing,
rights-of-way, licenses and other regulatory approvals in a timely and
cost-effective manner. See "Risk Factors -- H.E.R. Network Roll-out."
    
 
   
     H.E.R. is developing an approximately 18,000 kilometer, pan-European high
capacity fiber optic network designed to interconnect a majority of the largest
Western and Central European cities. H.E.R. began initial trials of the
Brussels-Amsterdam portion of the network in the third quarter of 1996 and
commenced commercial service in November 1996. H.E.R. expects to be operational
in the first five countries in the second quarter of 1998 and the 18,000
kilometer network to be operational during the year 2000. Each access point of
the network will be placed in operation as it is linked to the network. H.E.R.
intends to build the network using the most accessible and cost-efficient
infrastructure base in each of the regions served, including using rights-of-way
and existing infrastructure of railways, motorways, pipeline companies,
waterways and power companies. H.E.R. plans a flexible approach to the network
build-out plan and intends to fine-tune the scope, route and design of the
network based upon the evaluation of customer demand.
    
 
   
     H.E.R. expects to continue to roll-out full telecommunications transport
service on the initial network in the first five countries linking London,
Rotterdam, Amsterdam, Antwerp, Brussels, Paris, Dusseldorf and Frankfurt in the
second quarter of 1998. The initial network in the first five countries is
expected to consist of 2,600 kilometers of fiber optic cable covering countries
which, in 1995, originated over 60% of all outgoing calls and terminated over
60% of all incoming calls in the countries to be served by the network. Network
coverage is planned to be expanded to include Munich, Berlin, Geneva, Zurich,
Stockholm, Copenhagen, and Milan in the third quarter of 1998. Additional
extensions of the network to be completed in phases through the year 2000 will
be built-out into Southern and Central Europe. The H.E.R. network is expected to
have points of presence in at least 32 cities in 15 European countries.
    
 
   
     H.E.R. has entered into agreements for the construction and/or lease of
fiber optic routes for the initial network in the first five countries, except
for some of the routes in Germany which are currently under negotiation. H.E.R.
has completed the construction of one of the two undersea cables connecting the
United Kingdom to the
    
 
                                       78
<PAGE>   84
 
   
Netherlands and to Belgium, which were placed in commercial service in November
1997. In France, H.E.R. has reached agreement with an operator of motorways for
the use of approximately 600 kilometers of infrastructure in northern France,
and has agreements with other providers to complete the French segment of the
initial five country network. H.E.R. expects to start commercial service
connecting Paris to Brussels, Amsterdam and London by November 1997. Contracts
have been concluded with respect to the portion of the network connecting
Germany with each of France, the Netherlands and Switzerland.
    
 
   
     H.E.R. continues to negotiate rights-of-way and other infrastructure
arrangements in five other Western European countries representing the remainder
of the Western European portion of the rollout, which negotiations involve
railway and other infrastructure providers. H.E.R. will need to negotiate
similar agreements to complete the network in four Central European countries.
Buildout of the H.E.R. network is subject to numerous risks and uncertainties
that could delay deployment or increase the costs of the network, or make the
network commercially unfeasible. See "Risk Factors -- H.E.R. Network Roll-out."
    
 
   
     H.E.R. was formed on July 6, 1993 by HIT Rail. HIT Rail was incorporated in
1990 by eleven national railways to carry out telecommunications engineering
activities in order to construct and exploit a data communications network for
railway traffic. GTS-Hermes purchased a 34.4% interest in H.E.R. in 1994 and has
increased its interest to 50% in 1995 and to 79% in 1997. GTS-Hermes is a wholly
owned subsidiary of GTS.
    
 
     Business and Marketing Strategy
 
   
     The overall strategy of H.E.R. is to offer PTOs and New Entrants
pan-European cross-border telecommunications transport services to help them, in
turn, more successfully meet the needs of their end-user customers. The H.E.R.
network also provides a vehicle through which a carrier can compete in other
markets where the carrier does not own infrastructure. H.E.R. expects to enter
the market ahead of similar competition and encourage a wide variety of carriers
to use its network with service offerings that meet their needs. H.E.R.'s
primary service offerings are large-capacity circuits for "wholesale" customers
such as PTOs and New Entrants. H.E.R.'s focus on carriers is designed to
complement and not compete with carriers' own business objectives in providing
services to end-users.
    
 
   
     To establish H.E.R. as the leading carriers' carrier for international
telecommunications within Europe, H.E.R. intends to offer its customers
significantly higher quality transmission and extended/advanced network
capabilities at a competitive price by focusing on the following:
    
 
   
          High Capacity International Network Facilities.  The H.E.R. network is
     designed to offer its customers access to high capacity network facilities
     outside their domestic markets, providing cross-border capabilities without
     requiring customers to invest in network infrastructure or being
     constrained by a narrow range of capacity offerings.
    
 
   
          Uniform Network Architecture.  The H.E.R. network is designed to offer
     managed transport services from country to country and across multiple
     countries utilizing a single uniform network, in contrast to services
     currently available that use multiple providers over several networks with
     varying technologies and each under the control of separate, not
     necessarily compatible, network control systems. The H.E.R. network's
     uniform technology enhances service by providing quality and reliability as
     well as uniformity of features throughout the network.
    
 
   
          Diverse Routing.  The H.E.R. network architecture includes diverse,
     redundant routes that are designed to provide high levels of reliability.
     The network is designed to provide availability of over 99.98% for most
     routes and to provide customers with a wide range of telecommunications
     transmission capacity. To achieve this level of reliability without the use
     of a network similar to the H.E.R. network, H.E.R. believes that carrier
     customers would need to purchase additional dedicated circuits to provide
     for redundancy.
    
 
   
          Rapid Provisioning.  H.E.R. services provide access to the network,
     such that additional capacity can be provided to customers on the H.E.R.
     network on a rapid basis. This access provides a level of capabilities that
     H.E.R. believes is unavailable in Western Europe today.
    
 
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<PAGE>   85
 
   
     - Flexibility.  H.E.R. services are focused on providing customers
       flexibility across the network through which the customer may minimize
       risk by enabling network rerouting, eventually even under customer direct
       control.
    
 
   
     - Advanced Technology.  H.E.R. is deploying SDH technology which, by using
       WDM techniques and hardware, is upgradeable and will permit significant
       expansion of transmission capacity without increasing the number of fiber
       pairs in the network. This technology also provides the basis for
       structuring advanced operating features, such as virtual private network
       service and ATM-based services.
    
 
   
     - Innovative Pricing.  Currently the price of E1 equivalent circuits on
       transborder European routes is artificially high and not necessarily
       related to the cost of such circuits. H.E.R. intends to offer competitive
       pricing. H.E.R. will also offer highly tailored contract terms and volume
       discounts, which allow carrier customers to plan more efficiently the
       fixed costs of their service portfolio. Customers can select varying
       capacity, access, guaranteed availability and contract terms at
       competitive prices. Customers sourcing from PTOs are generally limited to
       order from a very narrow set of capabilities offered under inflexible
       pricing plans.
    
 
   
     Although H.E.R. and GTS have relationships with certain PTOs for specific
projects, they do not have wide-ranging alliances with any of the major
consortia or large Western telecommunications companies. Additionally, H.E.R.'s
strategy calls for it to focus on carriers' carrier services, so that it will
not compete with its carrier customers in end user markets. H.E.R. believes that
this independence will make it an attractive service provider for Western
European carriers who may otherwise be reluctant to obtain services from other
providers of intra-European transport that also may be their competitors in the
retail market.
    
 
     SERVICES
 
   
     H.E.R.'s primary service is large capacity cross-border European circuits
provided over an integrated, managed pan-European network structure thus
providing a service for wholesale customers such as PTOs and New Entrants.
H.E.R.'s service is not intended for business or residential end users. The
H.E.R. network will be based on SDH technology, which provides for digital
transmission capability upon which a broad range of advanced functionality may
be built and which offers network availability, flexibility, bandwidth speeds
and error performance not otherwise available to carriers for transport of
telecommunications traffic across national borders in Western Europe. The
network is designed to provide customers with a wide variety of bandwidth
speeds, ranging from VC12/E1 Standard (equivalent to 2.048 Mbps) to STM-1/E4
Standard (equivalent to 155 Mbps) and beyond.
    
 
   
     H.E.R. will provide high quality cross-border transmission services for
licensed telecommunications providers. Services are based on the principle of
adding greater value than currently available in the market while retaining
competitive prices.
    
 
   
     Point-to-Point Transport Service.  The current market for cross-border
transport is served by IPLCs provided by PTOs. IPLCs are formed by combining
half-circuits from two PTOs between customer locations, often with additional
PTOs providing transit segments. Under the IPLC service, overall service quality
guarantees generally are not provided and only a limited range of bandwidth is
available, usually only E1 and in certain instances, E3. The Company believes
that H.E.R.'s Point-to-Point Transport Service will be a major improvement to
the PTO-based approach because it provides a greater range of bandwidths (from 2
Mbps (E1 or VC-12) to 140/155 Mbps (E4 or VC-4)) and allows customers to choose
a service level agreement with guarantees appropriate for their applications,
including guarantees for on-time service delivery and service availability.
    
 
   
     Point-to-Point Transport Service consists of two services, "Integrated" and
"Node-to-Node." The H.E.R. "Integrated" service provides an end-to-end service
between customer-specified locations where the customer can request for H.E.R.
to arrange for "last mile" services from the H.E.R. node location to the
customer's location. The H.E.R. "Node-to-Node" service can be selected when the
customer prefers to provides its own services to reach the local H.E.R. node
location. In Node-to-Node Service, H.E.R.
    
 
                                       80
<PAGE>   86
 
   
guarantees service only on its portion of the network between H.E.R. nodes. Both
services are competitively priced relative to current service offerings. A
premium is charged for the highest guaranteed level of service which
incorporates an end-to-end, fully diverse, protected, "Integrated" service. The
customer can choose flexible contract terms from one to five or more years'
duration, with volume discount schemes designed to ensure that H.E.R. remains a
cost-effective solution.
    
 
   
     Virtual Infrastructure Service.  Carriers and operators that plan to expand
their operations to become pan-European service providers as the European
marketplace is liberalized require a flexible and cost-effective means of
telecommunications transport. To date such service providers obtain
international transport service by leasing IPLCs from PTOs. Leasing IPLCs
requires a carrier to lease channels on a segment-by-segment basis from multiple
PTOs, linking the target cities under arrangements having fixed capacity and
pricing structure for each segment of the carrier's network. Leasing IPLCs has
several disadvantages, including (i) difficulty in obtaining discount/volume
pricing schemes since there is no single provider of pan-European coverage, (ii)
delays in implementation due to numerous contractual negotiations and having to
interconnect numerous IPLCs, (iii) limited availability of pan-European leased
capacity at high bandwidth and (iv) variability of quality due to multiple
operators and the absence of a single uniform network. Operators could also
construct their own network, which is expensive, time-consuming and complex and
which may not be justified by such operators' traffic volume.
    
 
   
     H.E.R.'s Virtual Infrastructure Service will offer a new solution and an
attractive alternative to leasing IPLCs or building infrastructure. This service
will enable H.E.R.'s customers to obtain a uniform pan-European or cross-border
network under one service agreement by allowing the customer to select any
number of cities along the H.E.R. network at a pricing structure based on the
overall amount of leased capacity for the customer's entire network. The key
feature behind Virtual Infrastructure Service is that it gives the customer the
ability to add or reconfigure capacity in 24 hours between locations connected
in the Virtual Infrastructure Service, thereby enabling the customers to respond
almost immediately to changes in traffic. By being able to transfer capacity
among the network routes, H.E.R.'s customers are able to avoid over- and
under-utilization of leased channels. This service offering provides a customer
with the benefits of ownership (rapid provisioning, freedom to rearrange and
control) with a "pay-as-you-go" managed service offering, without the burdens of
up-front investment and costs required to build a network, and without having to
manage the on-going maintenance and operation of the network.
    
 
   
     The service is delivered through pre-installed physical facilities at each
of the customer locations. These facilities are designed to ensure that most
growth or changes in customer requirements can be addressed purely by remote
logical reconfiguration from the H.E.R. Network Operations Center. This remote
network management ability is inherent in SDH technology and allows rapid
provisioning and high quality of service.
    
 
   
RING SERVICE
    
 
   
     Most medium to large carriers and operators purchase network capacity in
excess of actual requirements, and prefer to have physical configuration control
over their networks. The HER 'Ring' service connects multiple customer locations
with multiple VC-4 paths in a ring fashion. The customer has direct control over
the configuration of the VC-3 and VC-12 paths within the ring, and has exclusive
control over the routing. Additional ring capacity can be added with no service
interruption and additional customer locations may be added to the ring with
minimal service interruption. Because H.E.R. is not required to configure 'idle'
bandwidth or to manage the 'SDH subnet' this service can be provided at a very
competitive rate vis-a-vis other point-to-point services.
    
 
   
     Sales and marketing of H.E.R.'s services are conducted through its sales
and marketing department, which includes a director and senior sales managers
responsible for various regions and customer segments. Additionally, H.E.R.
expects that its railway shareholders that develop domestic telecommunications
businesses, or other local network access providers, can provide an effective
distribution channel to smaller carrier customers.
    
 
                                       81
<PAGE>   87
 
     PRICING
 
   
     Currently the price of cross-border pan-European calls are often
significantly higher than the underlying cost of transport and terminating such
calls and higher than the price of intra-country calls or transborder calls to
and from liberalized markets. The low cost of operating the network enables
H.E.R. to attractively and competitively price services in the face of declining
overall tariffs for telecommunication services. H.E.R.'s low-cost basis is due
to, among other things, its use of up-to-date technology without the burden of
legacy networks, which requires fewer employees to operate.
    
 
   
     The term of a typical customer agreement is expected to be from 1 to 3
years. The customer agrees to purchase, and H.E.R. agrees to provide,
cross-border transmission services. In general the customer agrees to pay
certain non-recurring charges and recurring charges on an annual basis, payable
in twelve monthly installments. If the customer terminates the service order
prior to the end of the contract term, it is generally required to pay H.E.R. a
cancellation charge equal to three months service for each of the twelve months
remaining in the contract term. H.E.R. guarantees transmission services to a
certain service level. If such levels are not met or H.E.R. fails to deliver
service by the committed delivery date, the customer is eligible for a credit
against charges otherwise payable in respect of the relevant link.
    
 
     CUSTOMERS
 
   
     H.E.R.'s high capacity, SDH-based fiber optic network is designed to enable
PTOs and New Entrants to integrate high quality, cross-border capacity into
their end user offerings. H.E.R. will target seven major market segments or
customer groups which can be characterized as follows:
    
 
   
        -  Alternative Carriers.  This segment consists of second carriers,
           cable TV and mobile carriers and competitive access providers. These
           new carriers have chosen to compete with the incumbent PTOs in their
           respective countries, and the Company believes that they would look
           very favorably to an alternative such as H.E.R. H.E.R. believes that
           this segment will sustain the largest growth as competition emerges
           in Europe. H.E.R. also believes that non-PTO competitors in Europe
           will prefer to use a non-PTO alternative like H.E.R. to meet their
           cross-border telecommunication transport needs.
    
 
   
        -  Existing PTOs.  This customer segment consists of the traditional
           European PTOs that generally participate in the standard bilateral
           agreements for cross-border connectivity. Hermes provides a vehicle
           for PTOs to compete in non-domestic markets both before and after
           January 1, 1998. Prior to January 1, 1998 when liberalization of the
           provision of switched telephony (reserved traffic) is scheduled to
           occur in the majority of Western European markets, a significant
           market opportunity for H.E.R. exists to provide cross-border
           transport services to PTOs for their non-reserved international
           traffic outside the standard ITU settlement process. As of January 1,
           1998, both reserved and non-reserved traffic can be transported by
           alternative infrastructure providers, thus vastly expanding the
           available PTO market for H.E.R.
    
 
   
        -  Global Consortia of Telecommunications Operators.  Many of the
           largest PTOs and international carriers have pooled resources and
           formed consortia in order to compete more effectively in important
           telecommunications markets such as those in Western Europe
           particularly outside their home markets. Prior to liberalization of
           the provision of switched voice services in Western European markets,
           one of the primary objectives of these consortia is to provide
           non-reserved pan-European services to multinational business
           customers, including X.25/frame relay (high speed data network)
           service and closed-user group voice services. Under the current
           regulatory framework, consortia would otherwise be required to
           purchase leased lines at negotiated retail rates, even within their
           home countries. H.E.R. believes that it provides an attractive
           alternative at better pricing in those environments where such a
           consortium does not already own its infrastructure. Furthermore,
           H.E.R. believes that it is well positioned to provide cross-border
           connectivity between different domestic infrastructures of these
           alliances.
    
 
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<PAGE>   88
 
   
        -  International Carriers.  This customer segment consists of carriers
           whose primary business is to transport traffic between European and
           other international gateways. Such carriers include Teleglobe and
           GTS-Monaco Access. H.E.R. can provide these customers a pan-European
           distribution network to gather and deliver traffic to and from their
           own and other hubs.
    
 
   
        -  Internet Backbone Networks.  Internet backbone networks are a fast
           emerging segment and are expected to generate significant
           requirements for the services H.E.R. offers. These require large
           capacity international connectivity services between Internet nodes
           (point of interconnection between local Internet service providers)
           in all local European markets. The Internet segment is experiencing
           significant growth in demand for transmission capacity.
    
 
        -  Resellers.  Resellers are carriers that do not own transmission
           facilities, but obtain communications services from another carrier
           for resale to the public. Resellers are also a growing segment of the
           market and are expected to increase in conjunction with the
           liberalization of the European telecommunications market. In the
           U.S., for example, resellers were a significant factor in the
           expansion of competition.
 
   
          - Value Added Networks ("VANs") and other Service Providers.  VANs are
           data communications systems in which special service features enhance
           the basic data transmission facilities offered to customers. Many of
           these networks are targeted to the data transfer requirements of
           specific international customer segments such as airlines and
           financial institutions. VANs' basic network transmission requirement
           is to connect data switches or processors. VANs currently purchase
           their own international circuits and build additional resiliency into
           their network infrastructure. H.E.R. will allow them to meet these
           needs cost-effectively, and to extend their services to new markets
           or customers without substantial capital investment.
    
 
   
     H.E.R. expects that additional demand for alternative service providers
will come from increased usage of dedicated circuits for Internet access,
private lines for the deployment of wide-area networks by large corporations,
"single source" local and long distance services by small and medium-sized
businesses and emerging broad band applications such as cable TV programming
distribution (other than broadcast) to the end user.
    
 
     CURRENT OPERATIONS
 
   
     H.E.R. currently operates a limited network connecting the cities of
Brussels and Amsterdam, and London and Paris. H.E.R. is currently operating the
network on the Brussels-Amsterdam, London-Paris links with additional access
points in Antwerp and Rotterdam. H.E.R. began initial trials of a 244 kilometer
portion of the network between Brussels and Amsterdam in the third quarter of
1996 and commenced commercial service in November 1996. H.E.R.'s Network
Operations Center located in Brussels, Belgium and its backup center located in
Antwerp, Belgium are fully operational and house network management and customer
support services which operate 24 hours a day, seven days a week. Billing and
customer service functions are also operational. Currently sixteen customers are
under contract for service on the H.E.R. network, including PTOs, a global
consortium of PTOs, Internet service providers, an international carrier, a VAN
and resellers. H.E.R. provided capacity of approximately 110 E1 equivalent
circuits as of October 31, 1997.
    
 
   
     The type and quality of H.E.R.'s customers validates the concept of the
H.E.R. network, and illustrates the type of customers who will be attracted to
the full network. The success of this limited network also demonstrates the
demand for cross-border transport services.
    
 
     NETWORK DESIGN
 
     Network Architecture.  The network architecture is based on a highly meshed
flat topology which covers a wide geographical area with large distances between
individual network nodes. This architecture allows rerouting of traffic at
electronic speeds in the event of a network failure. This approach also lowers
network cost by allowing each node to be sized to match anticipated traffic
volumes rather than to a standard capacity.
 
                                       83
<PAGE>   89
 
   
Individual nodes can be configured to connect any trunk to any other in the
nodes, thus allowing efficient transmission of traffic. Each node will be
connected to at least two other nodes allowing rerouting of traffic in the event
of a network failure. H.E.R. believes that its network will be the first cross
border pan-European network with such redundancy.
    
 
   
     The H.E.R. network has been designed to be controlled by a single network
management center and supported by advanced operational support systems. A
centralized network center can pinpoint overloaded pathways or malfunctioning
circuitry and reroute traffic much more quickly than networks controlled by
separate network centers operated by PTOs in different countries. H.E.R.
currently uses a single vendor for the supply of transmission equipment and
network management systems. H.E.R.'s advanced operational support systems allow
it to correct network failures and isolate equipment faults with greater speed
and at a lower cost than is the case with heterogeneous multi-operator networks.
Critical elements of the network, including network maintenance and control
systems, are designed with redundancy in order to ensure a high quality of
service. The network design has several important resilience features including:
multiple paths to each node, built-in hardware redundancy and redundant power
supplies. For all network routings, there will be at least two paths. Should
service failure occur on one route, the network is designed to automatically
re-route traffic to another route. H.E.R. believes that these techniques will
result in performance of 99.98 percent or better for premium service customers
for most routes.
    
 
   
     H.E.R. expects to operate the entire network and to own substantially all
of the network equipment as well as some segments of the fiber optic cable. A
substantial part of the fiber is leased on a long-term basis. Long-term leases
for fiber are advantageous to H.E.R. because they reduce the capital expense
burden of building large quantities of capacity before they can be used. Where
H.E.R. leases dark fiber, the infrastructure provider will generally be
responsible for maintaining such fiber optic cable. H.E.R. will enter into
agreements with Alcatel and infrastructure providers and other third parties to
supply and/or maintain the equipment for the H.E.R. network. See "Risk
Factors -- H.E.R. Network Roll-out."
    
 
   
     Network Capacity.  The network will consist of Synchronous Digital
Hierarchy ("SDH") STM-16 links delivered over fiber owned by H.E.R. and dark
fiber leased from infrastructure providers. Each line system and multiplexer
works initially at the 2.5 Gbps (STM-16) level. The most important types of
equipment used or to be used in this network are Add-Drop Multiplexors ("ADMs")
and regulators and a variety of optical amplifiers for boosting optical signals.
    
 
   
     Network Agreements.  H.E.R. has entered into agreements and letters of
intent with various infrastructure providers for construction and/or dark fiber
lease of portions of the H.E.R. network. H.E.R.'s agreements for leases of
portions of the network typically required the infrastructure provider to
provide a certain number of pairs of dark fiber and node and/or regenerator
sites along the network route commencing on certain dates provided by H.E.R. The
term of a lease agreement typically ranges from 10 to 18 years. An agreement
typically contains optical specification standards for the fiber and methods of
testing. H.E.R. is allowed to use the cable for the transmission of messages and
in other ways, including increasing capacity. The infrastructure provider also
provides space for the location of equipment and spare parts and guarantees the
provision of power and other utilities together with environmental controls and
security to ensure the proper functioning of the equipment. The infrastructure
provider is typically responsible for maintenance of the cable and the provision
of first line maintenance to equipment and permits H.E.R. access to such
facilities. Access arrangements to the nodes are also provided so that
connection may be made to H.E.R. customers or to the rest of the network. An
agreement also provides for an annual price for the provision of fiber and for
the facilities and maintenance. The agreements typically provide for termination
by the parties only for material breach, with a 90 day minimum cure period. The
agreements typically contain a transition period after termination of the
agreement to allow H.E.R. to continue to serve its customers until it can reach
agreement with an alternative infrastructure provider.
    
 
   
     Local Access.  Access to the H.E.R. network will be provided to clients
through SDH access lines including at the STM-1 or STM-4 level. However,
customers who continue to use the older PDH technology may also access the
H.E.R. network. In each city, as a H.E.R. POP is deployed, H.E.R. may contract
with a local access network supplier for "last mile" services to customer
locations. H.E.R. will not invest in building
    
 
                                       84
<PAGE>   90
 
   
local access infrastructure but such connectivity can be supplied on a
case-by-case basis via preferred local access partner arrangements. Currently
Telfort in the Netherlands and Belgacom in Belgium are providing local access to
the operating Amsterdam-Brussels route. In London and Paris, H.E.R. has
contracted to connect the H.E.R. network to intra-city networks in those cities.
Pursuant to this agreement, H.E.R. can offer its carrier customers local
connectivity in those cities. Local access network suppliers may also be
interested in H.E.R. for the purpose of linking the business centers in which
they are active. Therefore, the Company believes that the relationships between
H.E.R. and local access network suppliers can benefit both parties. Set forth
below is an illustration of the connection between the H.E.R. network and local
access providers.
    
 
                            [SDH/WDM NETWORK CHART]
 
   
     Network Routes.  The table below sets forth the planning dates as of
October 31, 1997 of the development of routes in the initial network in the
first five countries.
    
 
   
<TABLE>
<CAPTION>
                                      ESTIMATED
                                     COMMERCIAL               TOTAL ROUTE
                                       SERVICE               KILOMETERS OF
FROM              TO              AVAILABILITY DATE              FIBER
- ------------      ----------      -----------------          --------------
<S>               <C>             <C>                        <C>
Amsterdam         Brussels        Operational                     244
Amsterdam         London          November 1997                   458
Brussels          London          November 1997                   474
Paris             Brussels        November 1997                   514
Paris             Frankfurt       April 1998                      764
Frankfurt         Dusseldorf      April 1998                      236
Dusseldorf        Amsterdam       February 1998                   246
</TABLE>
    
 
   
     The Dusseldorf-Amsterdam, Frankfurt-Dusseldorf and Paris-Frankfurt fiber
optic routes are currently under construction. "Under construction" means that
with respect to each of the segments that make up each of these routes, one of
the following is occurring: (i) H.E.R. has contracted to build or is contracting
to build
    
 
                                       85
<PAGE>   91
 
   
the fiber optic cable segment, and (ii) H.E.R. has leased or will lease such
segment of dark fiber optic cable from a third party who has built or is
currently building such segment. The dates set forth above may be subject to
delays due to a variety of factors, many of which are beyond the control of the
Company. See "Risk Factors -- H.E.R. Network Roll-Out."
    
 
   
     H.E.R. is deploying the network along the rights-of-way of several
shareholders as well as the rights-of-way of a variety of alternative sources,
including motorways, waterways, pipelines and utilities. The rights-of-way of
H.E.R.-built portions of the network will be provided pursuant to long-term
leases or other arrangements entered into with railroads, highway commissions,
pipeline owners, utilities or others. H.E.R. generally prefers to use the
infrastructure of its rail-based shareholders when such infrastructure is
available on a timely and commercially reasonable basis. In certain cases,
however, H.E.R. has not been able to reach agreement with such shareholders for
the provision of rights-of-way along their railways, which has resulted in
significant delays to the network buildout. In all cases, it is the policy of
H.E.R. to evaluate multiple alternative infrastructure suppliers in order to
maximize flexibility. As a result of its network development activities to date,
H.E.R. has gained access to infrastructure for its network routes which, in
certain cases, H.E.R. believes will be difficult for its competitors to
duplicate.
    
 
     Competition
 
   
     The European and international telecommunications industries are
competitive. H.E.R.'s success depends upon its ability to compete with a variety
of other telecommunications providers offering or seeking to offer cross-border
services, including (i) the respective PTO in each country in which H.E.R.
operates and (ii) global alliances among some of the world's largest
telecommunications carriers. H.E.R. expects that some of these potential
competitors may also become its customers. H.E.R. believes that the ongoing
liberalization of the European telecommunications market will attract New
Entrants to the market and increase the intensity of competition. Competitors in
the market compete primarily on the basis of price and quality. H.E.R. intends
to focus on these factors and on service innovation as well. H.E.R. business
plan anticipates substantial head-to-head competition as well as indirect
competition.
    
 
     WorldCom, Inc. recently announced plans to construct a pan-European fiber
network, the first phase of which is expected to connect London, Amsterdam,
Brussels and Paris by early 1998. Although the Company believes that the
proposed WorldCom pan-European network is primarily intended to carry WorldCom
traffic, WorldCom has stated that any excess capacity on such network will be
used to provide a competitive carrier's carrier service.
 
   
     If H.E.R.'s competitors, many of whom possess greater technical, financial
and other resources than H.E.R., devote significant resources to the provision
of pan-European, cross-border telecommunications transport services to carriers,
such action could have a material adverse effect on H.E.R.'s business, financial
condition and results of operations. There can be no assurance that H.E.R. will
be able to compete successfully against such new or existing competitors. See
"Risk Factors -- Competition."
    
 
   
     H.E.R. Recapitalization
    
 
   
     H.E.R. has completed a recapitalization (the "H.E.R. Recapitalization"),
wherein H.E.R. extended rights to subscribe to additional shares of H.E.R. to
GTS-Hermes, HIT Rail and the eleven railways comprising the HIT Rail consortium.
Pursuant thereto, GTS-Hermes and two of the eleven railways that comprise the
HIT Rail consortium have exercised their subscription rights, while HIT Rail and
the other nine railways have declined to exercise their subscription rights.
H.E.R. has issued (i) 150,592 shares to GTS-Hermes in exchange for the
conversion of loans and additional consideration, (ii) 24,007 shares to HIT Rail
in exchange for the conversion of loans, (iii) 11,424 shares to Societe
Nationale des Chemins de Fer Belges S.A. de Droit Public/ Nationale Maatschappij
der Belgische Spoorwegen N.V. Van Publiek Recht (the Belgian national railway)
("SNCB/NMBS") and (iv) 4,365 shares to AB Swed Carrier (a wholly owned
subsidiary of SJ, the Swedish national railway). As a result, GTS-Hermes owns
79.08%, HIT Rail owns approximately 12.63%, SNCB/NMBS owns 6% and AB Swed
Carrier owns 2.29% of the issued H.E.R. shares. Pursuant to the H.E.R.
Recapitalization, H.E.R., GTS-Hermes, HIT Rail, SNCB/NMBS and AB Swed Carrier
have executed a new Shareholders Agreement, the principal terms of which are set
forth below.
    
 
                                       86
<PAGE>   92
 
   
     Under the new Shareholders Agreement, actions to be taken by shareholders
will be adopted by a simple majority vote with the exception of certain actions
which will require at least 85% of the votes cast: (i) purchase by H.E.R. of its
own shares and any redemption thereof, (ii) exclusion of preemptive rights in
the case of the issuance of new shares and the transfer of shares held by
H.E.R., except in the event of a public listing of the shares or of new shares
or of an offering of shares or options on new shares (warrants) to professional
investors in order to obtain further funding, (iii) winding up or dissolution of
H.E.R., (iv) any amendment to the articles of association other than those
pertaining to increases in the authorized capital of H.E.R. or to convert H.E.R.
into an N.V. ("Naamloze Vennootschap") to enable a public listing of shares or
new shares, (v) any amendment to the scope of H.E.R.'s business, (vi) the
declaration of dividends and (vii) the admission of new shareholders to the
Shareholders Agreement. In addition, the Shareholders Agreement provides that
(a) if GTS-Hermes is the owner of at least 50% of the issued shares, then it
will have the right to make a binding nomination for the appointment of half of
the members of the Board of Supervisory Directors or (b) if GTS-Hermes is the
owner of at least two-thirds of the issued shares, then it will have the right
to make a binding nomination for the appointment of half of the members of the
Board of Supervisory Directors plus one member more, appointed pursuant to
nominations by all other shareholders. As long as HIT Rail is the owner of at
least one share, HIT Rail will be entitled to make a binding nomination for the
appointment of at least one member of the Supervisory Board. The Shareholders
Agreement also provides that shareholders who participated in the capital
restructuring other than GTS-Hermes and HIT Rail with a shareholding of at least
6.8% subject to adjustment in the discretion of the other shareholders will be
entitled to make a binding nomination for the appointment of one member of the
Board of Supervisory Directors. Shareholders who participated in the capital
restructuring other than GTS-Hermes and HIT Rail who hold fewer than 6.8% of the
issued share capital of H.E.R. will be entitled on a rotating basis to make one
binding nomination for the appointment of a member of the Board of Supervisory
Directors for two-year periods.
    
 
     Articles of Association and Shareholders Agreement
 
     Under the Articles of Association and the Shareholders Agreement, both
GTS-Hermes and HIT Rail have preemptive rights in connection with issuances of
ordinary shares and options on shares to be issued in proportion to the total
nominal value of the shares held by each of them. Preemptive rights can be
exercised for four weeks after the date the notice of the offer is received by
the shareholders.
 
   
     The Shareholders Agreement provides that H.E.R. or its designated vendor
will provide fiber capacity in its network for use by the shareholders of H.E.R.
on fair commercial terms, use, quantity and price to be negotiated on a
bilateral basis. In the Shareholders Agreement, HIT Rail has covenanted to (i)
use its best efforts to establish such commercial agreements between individual
HIT Rail shareholders and H.E.R., to obtain rights of way from individual HIT
Rail shareholders and to cooperate in obtaining such licenses as may advance the
business of H.E.R., (ii) use its best efforts to ensure that the HIT Rail
shareholders cooperate in obtaining such license in accordance with the business
plan of H.E.R. and as may be necessary or advisable in furtherance of H.E.R.'s
business, (iii) will not, so long as both HIT Rail and GTS-Hermes are
shareholders of H.E.R. and for one year after HIT Rail ceases to be a
shareholder, agree with any entity other than GTS-Hermes or H.E.R. to assist or
cooperate in the development of any pan-European telecommunications operator and
(iv) use its best efforts to obtain on H.E.R.'s behalf such materials as may be
required and arrange inspection visits of selected rights of way for the purpose
of making initial cost estimates.
    
 
     The foregoing summary of the Shareholders Agreement does not purport to be
complete and is qualified in its entirety by reference to the Shareholders
Agreement.
 
LICENSES AND REGULATORY ISSUES
 
   
     A summary discussion of the regulatory framework in the countries of the
network in the first five countries and the next five countries into which
H.E.R. expects to develop the network is set forth below. This discussion is
intended to provide a general outline, rather than a comprehensive discussion,
of the more relevant regulations and current regulatory posture of the various
jurisdictions.
    
 
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<PAGE>   93
 
   
     National authorities in individual member states of the EU are responsible
for regulating the operation (and in some cases the construction) of
telecommunications infrastructure. H.E.R. believes that the adoption of the Full
Competition Directive and the various related Directives adopted by the European
Parliament and the Council of the EU have resulted in the removal of most
regulatory barriers to the operation of telecommunications infrastructure in the
countries of the initial network in the first five countries.
    
 
   
     H.E.R. requires licenses, authorizations or registrations in all countries
to operate the network. There can be no assurance that H.E.R. will be able to
obtain such licenses, authorizations or registrations or that H.E.R.'s
operations will not become subject to other regulatory, authorization or
registration requirements in the countries in which it plans to operate.
Licenses, authorizations or registrations have been obtained in the United
Kingdom, the Netherlands, Belgium, France and Germany and an application for a
trial concession has been filed in Switzerland. H.E.R. intends to file
applications in other countries in anticipation of service launch in accordance
with the network roll-out plan.
    
 
   
     On June 28, 1990, the European Commission, in an effort to promote
competition and efficiency in the European Union, issued a directive (the "1990
Directive") requiring EU member states to immediately liberalize all
telecommunication services with the exception of voice telephony to the general
public (basic voice services provided over the public switched voice network).
This step liberalized value added services and voice services over corporate
networks and/or "closed user groups," although the exact definitions of the
terms used in the 1990 Directive were not altogether clear.
    
 
     On July 22, 1993, the Council of EU agreed that all voice telephony
services in EU member states should be liberalized by January 1, 1998 subject to
additional transitional periods of up to five years to allow member states with
less developed networks to achieve the necessary adjustments. It was agreed that
such exemptions would be granted to Spain, Ireland, Greece and Portugal, subject
to formal application and satisfaction of certain requirements. Luxembourg,
because of the small size of its market, would be eligible for a special
transitional period of up to two years.
 
     In April 1995, a communication from the European Commission sought to
clarify the types of services that were liberalized by the 1990 Directive,
stating that the burden of proof as to why a service should be considered
"reserved" and therefore not open to competition should be upon the PTOs and the
regulatory authorities of member states. Along with this statement came the
threat of formal procedures under the Treaty of Rome against member states that
do not implement the 1990 Directive "within a reasonable time." Procedures have
been brought so far against Italy, Greece, Germany and Spain for failing to
apply the requirements of the 1990 Directive.
 
     On March 13, 1996, the European Commission adopted the Full Competition
Directive extending the 1990 Directive to all services, requiring that licensing
procedures for these services be transparent and non-discriminatory, requiring
member states to fully liberalize alternative infrastructure to allow a
competitive market for "non-reserved" services such as data, value added
services and non-public (closed-user group) switched voice services by July 1,
1996 and mandating open competition in all public telecommunications services,
including voice telephony to the general public, by January 1, 1998 (except for
countries to which grace periods were granted in accordance with the 1993
Council Resolution).
 
     On April 10, 1997, the European Parliament and the Council of Ministers
adopted a Directive on a common framework for general authorizations and
individual licenses in the field of telecommunications services, including
networks. Licenses must be awarded through open, non-discriminatory and
transparent procedures and applications will be required to be dealt with in a
timely fashion. The number of licenses may only be restricted to the extent
required to ensure the efficient use of radio frequencies or for the time
necessary to make available sufficient numbers in accordance with EC law.
 
   
     H.E.R. believes that many European countries have revised
telecommunications regulations to comply with the 1990 Directive and the Full
Competition Directive and that such changes will enhance H.E.R.'s ability to
obtain other necessary regulatory approvals for its operations.
    
 
   
     As a multinational telecommunications company, H.E.R. is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations and the interpretation of
    
 
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<PAGE>   94
 
   
such laws and regulations, differ significantly among the jurisdictions in which
H.E.R. operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on H.E.R., that
domestic or international regulators or third parties will not raise material
issues with regard to H.E.R.'s compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on H.E.R. See "Risk Factors -- Government Regulation." The regulatory
framework in certain jurisdictions in which H.E.R. provides its services is
briefly described below.
    
 
UNITED KINGDOM
 
   
     Since the elimination in 1991 of the United Kingdom telecommunications
duopoly consisting of British Telecommunications and Mercury, it has been the
stated goal of Oftel, the United Kingdom telecommunications regulatory
authority, to create a competitive marketplace from which detailed regulation
could eventually be withdrawn. The United Kingdom has already liberalized its
market beyond the requirements of the Full Competition Directive, and most
restrictions on competition have been removed in practice as well as in law.
H.E.R. has received a license from the Secretary of State for Trade and Industry
which grants it the right to run a telecommunications system or systems in the
United Kingdom connected to an overseas telecommunications system and to provide
international services over such systems. Like the licenses granted to other
providers of international facilities-based services, the license granted to
H.E.R. on December 18, 1996 was for an initial six months' duration and
thereafter is subject to revocation on one month's notice in writing. The short
duration of these initial licenses was adopted for administrative convenience on
the opening-up of the United Kingdom market for international facilities-based
services. The Department of Trade and Industry ("DTI") has confirmed that it
intends to replace the initial licenses with new licenses and that it would not
normally expect to revoke an initial license without replacing it with another
license giving an equivalent authorization. The DTI is currently discussing with
license holders the arrangements to put these new licenses into effect and
although the DTI has indicated that the new licenses are expected to be of 25
years duration, there can be no certainty that this will be the case or that the
new licenses will not contain terms or conditions unfavorable to H.E.R.
    
 
THE NETHERLANDS
 
   
     On July 1, 1997 the Dutch government abolished the prohibition on the use
of fixed infrastructure for the provision of public voice telephony, thereby
complying with the requirements of the Full Competition Directive six months
ahead of schedule. On August 1, 1996, H.E.R. was granted a license for the
installation, maintenance and use of a fixed telecommunications infrastructure.
    
 
   
     An entirely new Telecommunications Bill was introduced to the Second
Chamber (the House of Representatives) of the Parliament on September 15, 1997.
The new Telecommunications Act is intended to confirm the full liberalization of
the telecommunications market according to European Community standards. It is
not expected that the new Telecommunications Act will detrimentally affect the
conduct of business by H.E.R.
    
 
BELGIUM
 
   
     Belgium has implemented the "alternative infrastructure" provider provision
of the Full Competition Directive. Full liberalization of competition, including
the provision of voice telephony, requires further legislation which is expected
to be introduced to the legislature in the near future. H.E.R. has obtained,
through a wholly-owned subsidiary, a license from the Belgian regulatory
authority to provide liberalized services using alternative infrastructure and
is currently operating under its license in Belgium on the Brussels-Amsterdam
route. H.E.R. also has authorization to build infrastructure between major
Belgian population centers and the relevant border crossings.
    
 
GERMANY
 
   
     Germany has approved legislation to implement the Full Competition
Directive and remove all remaining restrictions on competition from January
1998. H.E.R. was granted a license by the German regulatory
    
 
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<PAGE>   95
 
   
authorities on July 18, 1997. The license permits H.E.R. to operate the portions
of the network in Germany connecting Dusseldorf, Frankfurt and Stuttgart;
Dusseldorf to the Dutch border; and Stuttgart to the French and Swiss borders.
H.E.R. expects to extend its license in Germany as appropriate in order to
enable it to operate the remaining portions of the network in Germany.
    
 
FRANCE
 
   
     A new regulatory agency, the Autorite de Regulation des Telecommunications
("ART"), was established in France effective January 1, 1997. In 1996, France
approved legislation to implement the Full Competition Directive and to remove
all remaining restrictions on competition from January 1998. H.E.R. applied for
an authorization to operate its network in specific regions of France, which was
approved on October 22, 1997.
    
 
SWITZERLAND
 
   
     The Swiss Parliament has recently passed a new Telecommunications Law which
will enter into force on January 1, 1998. Although Switzerland is not a Member
State of the EU, the effect of the law is largely to mirror the EC
telecommunications liberalization Directives and therefore from that date
existing voice telephony monopoly will be abolished and such services will be
fully liberalized. An independent national regulatory authority has previously
been established. H.E.R. has applied for a trial concession in order to roll out
its network and to provide its services in advance of the full liberalization
coming into effect on January 1, 1998.
    
 
ITALY
 
   
     Although in the past Italy has been dilatory in implementing EC
liberalization measures, Italy enacted legislation on July 31, 1997 which
substantially completes the liberalization of services in accordance with the
Full Competition Directive. The Parliament has also approved the creation of an
independent national regulatory authority for the telecommunications and
audiovisual sectors. The most recent EC liberalization Directives relating to
licensing and interconnection remain to be implemented. H.E.R. intends to apply
for a license to provide its services in due course.
    
 
SPAIN
 
   
     Under the Full Competition Directive Spain was granted the right to request
a delay of up to five years in liberalizing fully its telecommunications market.
However, the Spanish government and the European Commission have agreed that
full liberalization should take place on December 1, 1998. In order to ensure
effective liberalization from that date, the Commission Decision granting the
eleven month extension sets out a timetable of interim measures leading up to
full liberalization. These measures include the passing of legislation
authorizing regional cable operators to provide telecommunications services and
the adoption of a new General Telecommunications Bill effectively transposing EC
Directives into Spanish law. Further RETEVISION, S.A. has been granted a second
national operator's license to compete with the national PTO and Spain has
agreed to grant a third national operator license in early 1998. H.E.R. intends
to apply for a license to provide its services in due course.
    
 
SWEDEN
 
   
     Full liberalization of the Swedish telecommunications market occurred in
1993. A new Telecommunications Act was passed this year to reinforce the powers
of the national regulatory authority, to ensure conformity with EC Directives
and to supplement the pre-existing licensing regime with a general authorization
regime for services other than telephony services, mobile services and leased
lines. H.E.R. intends to register to provide its services in due course.
    
 
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<PAGE>   96
 
DENMARK
 
   
     With the liberalization of infrastructure from July 1, 1997 Denmark has
fully liberalized its telecommunications markets in accordance with the
requirements of the relevant EC Directives. An independent national regulatory
authority has been established. According to the Danish rules, H.E.R. will not
require any regulatory approval in order to install or operate the network in
Denmark.
    
 
  GTS-MONACO ACCESS
 
     GTS owns a 50% interest in and manages GTS-Monaco Access, a joint venture
with the Principality of Monaco created to develop Monaco's existing
international telecommunications infrastructure into a leading international
gateway hub for transport of international traffic to European and overseas
destinations. The Principality has constructed and operates a sophisticated
international gateway infrastructure that includes an international digital
switching center and a satellite earth station to support significant amounts of
carriers' carrier traffic. Through Monaco's network, GTS-Monaco Access is linked
to approximately 170 countries worldwide. GTS believes that this partnership
provides it with the opportunity to build a strong international gateway
operator in lucrative Western European markets.
 
     GTS-Monaco Access offers competitively priced international switching and
transit services, primarily to the "wholesale" international gateway and
carrier-to-carrier portion of the international calling market, as distinguished
from "retail" services offered to end users. Basic service offerings include (i)
international switched traffic; (ii) international private lines; (iii)
facilities management, including billing, customer management and fault
reduction systems; (iv) resale distribution for Internet service providers; and
(v) prepaid calling card platform services.
 
   
     GTS also intends for GTS-Monaco Access to implement additional "advanced
carrier services," including global 0800 services and international free phone.
GTS believes GTS-Monaco Access is well positioned to offer these services,
because of Monaco's infrastructure, and GTS-Monaco Access' low-cost structure,
which results from its relatively low initial investment in its network and its
ability to obtain low-cost access in Western Europe through its joint venture
partner and, potentially, through H.E.R.
    
 
     With the cooperation of Monaco Telecom ("MT"), GTS-Monaco Access is
entitled to exercise the privileges of signatories to international treaties
such as the ITU, and to international satellite agreements, such as Intelsat,
Inmarsat and Eutelsat. Other signatories are generally PTOs and other
quasi-governmental telecommunications entities. GTS-Monaco Access purchases
capacity on international fiber routes at rates available only to recognized
operator which are substantially below the rates charged to other service
providers. These fiber-based facilities are an important element for GTS-Monaco
Access's core network and provide it with capacity that may be leased or resold
to customers. Monaco inaugurated its independent country code, 377, on June 21,
1996, which made it eligible for certain privileges, including special terms
(generally reserved for PTOs) in connection with transmission agreements,
transit agreements, settlements and low-cost accounting rates with select
carriers.
 
   
     GTS's partner in GTS-Monaco Access is an investment fund designated by the
Principality of Monaco to represent its interests. GTS-Monaco Access functions
in cooperation with MT under a commercial agreement governing, among other
things, the terms of use of existing facilities, access to and acquisition of
new international infrastructure, and sales and marketing. GTS exercises
operational control of the joint venture, and provides managerial and financial
support, international telecommunications expertise and strategic planning.
Neither GTS nor its partner is obligated to fund operations or capital
expenditures of GTS-Monaco Access. Losses and profits of GTS-Monaco Access are
allocated to the partners in accordance with their ownership percentages, in
consideration of funds at risk. See "Management's Discussion and Analysis --
Accounting Methodology -- Profit and Loss Accounting." The agreement between
GTS-Monaco Access and MT, by its terms, continues in operation until 2020.
    
 
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     BUSINESS AND MARKETING STRATEGY
 
     GTS's objective is to develop GTS-Monaco Access into a leading
international gateway hub. The Company's strategy to achieve this objective
includes the following:
 
     - Develop Advanced Carrier Services Offerings. GTS-Monaco Access intends to
       develop its "advanced carrier services" offerings to include global 0800
       services and international free phone services, which GTS believes will
       broaden customer relationships, enhance revenues and help to protect it
       from price-based competition.
 
     - Develop Relationships to Broaden Service Offerings. GTS-Monaco Access has
       begun to develop relationships to broaden its service offerings.
       GTS-Monaco Access has entered into agreements with UUNET, one of its
       gateway customers, to provide wholesale Internet access to GTS-Monaco
       Access's carrier customers in a number of Western European countries. The
       agreement allows these services to be "cobranded" with GTS's affiliates.
 
     - Pricing. Price is a critical factor in the market for international
       switching as competition increases due to expanding international
       capacity, advances in technology and falling regulatory barriers. GTS-
       Monaco Access intends to price its services competitively with the
       prevailing price for comparable inter-PTO transit and gateway services.
       GTS-Monaco Access is not bound by legacy systems, infrastructure and
       personnel levels and can, therefore, manage lower cost operations.
 
     - Leverage Non-Aligned Position. Because GTS's Western European activities
       are not allied with any of the major consortia or large Western European
       telecommunications companies, and generally focus on carriers' carrier
       services, GTS-Monaco Access will not compete with its carrier customers
       in consumer markets. This independence should make GTS-Monaco Access an
       attractive service provider for Western European carriers who may
       otherwise be reluctant to obtain services from the larger operators of
       international gateways that are often their competitors in the retail
       market.
 
     - Exploit GTS Synergies. GTS intends to support GTS-Monaco Access by
       allying it with other GTS companies in Europe and the CIS. GTS-Monaco
       Access is expected to realize significant reductions in its cost
       structure through access to low-cost pan-European transmission capacity
       through alternative infrastructure providers such as Hermes. Sovintel and
       C-Datacom International, Inc., GTS's Indian venture, already route
       international traffic through GTS-Monaco Access's gateway.
 
     - Local Points of Presence. Beginning in the first quarter of 1998,
       GTS-Monaco Access intends to establish points of presence in the United
       Kingdom, France and Germany in order to take advantage of the Hermes
       network rollout and negotiate arrangements with local customers and
       suppliers for the pick up and delivery of international traffic.
 
     CUSTOMERS
 
     Targeted customers for GTS-Monaco Access include:
 
     - Non-Aligned PTOs. While some large American and Western European PTOs and
       multinational service providers have joined together in consortia
       designed to compete in a number of large international markets, several
       PTOs have not aligned themselves with any consortium. Many of these PTOs
       lack adequate international switching and transport facilities of their
       own and are located in telecommunications markets that will be
       experiencing significant growth. GTS believes that these providers can be
       persuaded to purchase international services from GTS-Monaco Access,
       rather than from competing consortia (or the individual members of such
       consortia) who control much of the world's current international traffic.
 
     - Mobile Carriers. As regulatory reforms create more competitive Western
       European markets, GTS believes that non-PTO mobile carriers, which
       currently provide only a small percentage of Western European mobile
       telecommunications traffic, will gain increasing market share from mobile
       carriers controlled by PTOs. GTS believes that some of these non-PTO
       mobile carriers will prefer the
 
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<PAGE>   98
 
       "independent" international gateway service offerings of GTS-Monaco
       Access to those of their PTO competitors.
 
     - Internet Service Providers. Growth in Internet usage creates a
       significant opportunity for a nonaligned Internet access provider such as
       GTS-Monaco Access, since many Internet service providers will be in
       direct competition with PTO-owned services in large European markets.
 
     - Second Carriers/Resellers. Second carriers include "established" second
       carriers, some of which have established international links, and
       "emerging" second carriers, which have recently undertaken to challenge
       PTOs. Prior to deregulation of voice telephony in Europe, GTS believes
       that many companies will provide competitive services to, and become
       second carriers in, markets outside their national base and will seek to
       enter new markets quickly without investing in international switching
       capacity.
 
     - Established ("Aligned") PTOs. This customer segment will be a niche
       market for GTS-Monaco Access. For example, carriers maintain a priority
       list in their switches of transit routes to handle overflow traffic
       during peak periods. GTS-Monaco Access may have opportunities for
       incremental revenue by establishing itself as an overflow transit route
       for such carriers. As markets are deregulated and carriers become
       increasingly competitive, traditional friendly correspondent relations
       may become strained, and opportunities may emerge to leverage GTS's
       non-aligned status to route traffic between rivals or to displace
       incumbents for transit relationships.
 
   
     - Other GTS Companies. GTS-Monaco Access currently provides gateway
       services to Sovintel, CDI and other GTS companies that aggregate traffic
       or provide international long distance services. It may also provide
       these services to H.E.R.
    
 
     NETWORK
 
     GTS has enhanced MT's existing technology platform of digital switching,
fiber optic transmission, satellite and submarine cable facilities by
interconnecting this existing network infrastructure to multiple terrestrial
routes covering Europe and to undersea fiber optic cables connecting the
GTS-Monaco Access network to Asia and the Americas. This network is centered
around Monaco's hubbing capabilities for the joint venture target customers and
for GTS's own traffic. GTS-Monaco Access may, in the future, offer advanced
bandwidth management solutions and GSM, paging, and emerging mobile
technologies, as part of the advanced carrier services offered to its customers.
 
   
     The network infrastructure of GTS-Monaco Access is complementary with that
of H.E.R., with each serving the carriers' carrier market from different
perspectives; H.E.R. for bandwidth services and GTS-Monaco Access for switched
call terminations and other carrier services. Beginning in the first quarter of
1998, GTS-Monaco Access intends to establish points of presence in Europe by
co-locating in certain cities served by H.E.R., which will allow GTS-Monaco
Access to terminate traffic through H.E.R. and reduce GTS-Monaco Access's
transmission costs.
    
 
     LICENSES AND REGULATORY ISSUES
 
     Because it operates in coordination with MT, the licensed operator of the
Monaco public network, and in indirect partnership with the government,
GTS-Monaco Access's telecommunications activities in Monaco require no
telecommunications license.
 
     Because the Principality of Monaco is not an EU member state, GTS-Monaco
Access's telecommunications activities in the Principality are not subject to
European law. However, GTS-Monaco Access will have to comply with EU regulation
to the extent it does business in EU member states. The regulatory requirements
established by the EU create general guidelines under which the national
agencies of EU member states regulate. Accordingly, local laws and regulations
may differ significantly among these jurisdictions, and the interpretation and
enforcement of such laws and regulations may vary. Local rules are sometimes
based on the informal views of the local ministries which, in some cases, are
subject to influence by the local PTOs. In certain of the Company's existing and
target markets, there are laws and regulations which affect the number
 
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<PAGE>   99
 
and types of customers which the Company can address. For instance, certain
countries may and do require licenses for communication companies to
interconnect to the public network to originate traffic.
 
     In addition, one of the services provided by GTS-Monaco Access is a form of
transit service, known in the industry as "re-filing." Re-filing is the practice
of routing traffic through a third country in order to take advantage of
disparities in settlement rates between different countries, allowing traffic to
a potential country to be treated as if it originated in the third country that
enjoys lower settlement rates with the destination country, thereby resulting in
lower overall costs on an end-to-end basis. Re-filing is prevalent in the
industry even though the practice is technically in contravention of ITU
regulations. In practice, because of the widespread non-observance of these
regulations, such a contravention normally does not give rise to specific legal
problems. However, their enforceability essentially depends on the status given
to ITU obligations by Member countries' domestic laws. Accordingly, there can be
no assurance that GTS-Monaco Access's re-filing services might not be disrupted
or be the subject of legal process at some time in the future. In such event,
within the EU a defense may be available that the ITU regulations are
anti-competitive and contravene the Treaty of Rome, although there can be no
certainty that such a defense would succeed.
 
     COMPETITION
 
     GTS-Monaco Access faces competition from consortia of telecommunications
operators, large PTOs and other international telephone operators with advanced
network infrastructures, access to large quantities of long-haul capacity and
established customer bases. PTOs currently providing large amounts of
international traffic have already established direct routes, transit
arrangements and correspondent relations and many have excess capacity that they
resell in competition with GTS-Monaco Access.
 
   
     GTS expects that GTS-Monaco Access will be able to compete effectively in
certain identified market segments because most of its targeted customers are in
new and fast growing markets and have not established long-term relationships
with international gateway providers, and because it has equal access to
advanced infrastructure and international fiber routes, potential access to low
cost transport from H.E.R. and an "independent" status that allows it to service
a worldwide range of potential customers.
    
 
CENTRAL EUROPE
 
     In Central Europe, GTS's objective is to become one of the leading
alternative telecommunications providers in the region. GTS currently provides
private data communications services to governmental and commercial customers in
Hungary and the Czech Republic. In the Czech Republic, the Company also provides
outgoing voice services. Through its subsidiary GTS-Hungary, GTS operates a VSAT
network in Hungary, which GTS believes is the largest VSAT network in Central
Europe as measured by number of VSAT sites. In addition, through its subsidiary
EuroHivo, GTS operates a national paging network in Hungary, and through its
subsidiary Czech Net, operates an international gateway and a data services
network in Prague and the Czech Republic. GTS's strategy is to expand its
service offerings as the regulatory environment permits, leveraging its existing
VSAT and international gateway infrastructure where possible and providing a
broad range of services to its target markets.
 
     HUNGARY
 
     GTS-Hungary. GTS-Hungary, a 99% owned subsidiary of GTS, is a leading
provider of customized data services offering high quality, reliable virtual
private network services to customers throughout Hungary and, through other GTS
affiliates, other countries in Central Europe. GTS-Hungary provides these
services through VSATs installed at customer sites throughout the country and a
microwave-based high speed overlay network for points in the Budapest
metropolitan area. Along with these data transmission services, GTS-Hungary
provides high quality customer service including (i) significant system
integration support in the initial implementation of the customers' networks and
in on-going expansion and improvements and (ii) a unique maintenance and
technical support service, which include "rapid response" service calls and
24-hour hub service operations support, which can be backed by financial
guarantees when required.
 
                                       94
<PAGE>   100
 
     As of June 30, 1997, GTS-Hungary's VSAT network consisted of approximately
850 owned and operated VSAT sites which the Company believes makes it the
largest VSAT-based network in Central Europe. GTS believes that its choice of
VSAT technology as a way of quickly deploying a full range of business services
nationwide will allow it to capture key customers and market segments. Such
positioning, the Company believes, will enable GTS-Hungary to expand its service
offerings as the Central European market matures and as regulatory authorities
further privatize and deregulate the telecommunications industry. GTS-Hungary is
undertaking a nationwide expansion of its microwave-based Budapest overlay
network. The expansion will increase GTS-Hungary's revenue base in the region
and provide opportunities to leverage further its other service offerings. There
can be no assurance, however, that the expansion will be completed on a timely
and commercially feasible basis.
 
     The Hungarian state lottery is GTS-Hungary's largest customer, accounting
for more than 56% of GTS-Hungary's VSAT business for the six months ended June
30, 1997. GTS-Hungary has also targeted its VSAT network services to business
customers in the domestic service industry and other government organizations.
Although GTS-Hungary continues to diversify its revenue and customer base, the
loss of the Hungarian state lottery as a customer would have a material adverse
effect on GTS-Hungary's business.
 
     GTS-Hungary generally charges its data services customers a flat monthly
fee for a fixed amount of usage and usage-based fees for use above the
contractual amount. Customers are billed in Hungarian forints (indexed to US
dollars or German marks) on a monthly basis. Pricing is generally determined for
an individual client based upon the size of traffic requirements. In general,
GTS-Hungary's strategy is to minimize the initial customer investment in order
to lower the barriers to purchase, while committing customers to long-term
contracts.
 
     GTS-Hungary's major competitors include BankNet, Hungaro-DigiTel and MATAV,
the Hungarian PTO, each of which operates a network with at least 200 VSAT
sites. MATAV offers a broad range of services and has recently targeted the
business sector that GTS serves. GTS believes that, while some of its
competitors have stronger financial resources, GTS-Hungary remains the leading
VSAT service provider in Hungary in terms of number of VSAT sites, the size and
quality of its infrastructure and the quality of its service. GTS also believes
it has distinguished itself from its competition by its superior customer
service.
 
     Currently, all VSAT licenses in Hungary have been granted under temporary
telecommunications regulations. The temporary licenses prohibit connection to
public telecommunications networks or other international or domestic
data-transmitting systems. In December 1993, GTS received a temporary service
permit to provide data-transfer services utilizing a VSAT-based wireless
communications system throughout Hungary. In March 1997 the government issued
new telecommunications regulations which require all operations with temporary
licenses to apply for permanent licenses by the end of April 1997. GTS-Hungary
has submitted applications for the conversion of its temporary licenses to
permanent ones. While no assurances can be given, GTS expects permanent licenses
to be issued in due course. The failure to receive such licenses would have a
material adverse effect on the business of GTS-Hungary.
 
   
     Neither GTS nor its partner in GTS-Hungary are obligated to fund operations
or capital expenditures of GTS-Hungary. Losses and profits of GTS-Hungary are
allocated to the partners in accordance with their ownership percentages, in
consideration of funds at risk. See "Management's Discussion and Analysis --
Accounting Methodology -- Profit and Loss Accounting. Further, the joint venture
does not have an expiration date.
    
 
   
     EuroHivo. In addition to its network and data services, GTS also provides
nationwide paging services primarily to the retail consumer market through its
70% owned joint venture, EuroHivo. EuroHivo commenced operations in February
1995 providing nationwide paging services based on the all-digital ERMES
standard, a technology deployed by many other paging providers in Europe. To
improve the results of its paging operations, GTS obtained a temporary license
from Hungarian authorities to provide the less expensive POCSAG-standard paging
services and began providing such services in October 1996. GTS has concluded
that EuroHivo is not a core business and is currently exploring alternatives to
divest all or a portion of its interests in EuroHivo. Neither GTS nor its
partner in EuroHivo are obligated to fund operations or
    
 
                                       95
<PAGE>   101
 
   
capital expenditures of EuroHivo. Losses and profits of EuroHivo are allocated
to the partners in accordance with their ownership percentages, in consideration
of funds at risk. See "Management's Discussion and Analysis -- Accounting
Methodology -- Profit and Loss Accounting." Further, the joint venture agreement
does not have an expiration date.
    
 
     CZECH REPUBLIC
 
     Czech Net. CzechNet, a wholly owned subsidiary of GTS, offers the only
alternative international telephony service in the Czech Republic, as well as a
full range of private data services, delivered through a combination of a fully
digital microwave overlay network in Prague, an international satellite gateway
in Prague and GTS-Hungary's VSAT network. Through an intercompany arrangement
with GTS-Hungary, CzechNet provides all of the same VSAT services offered by
GTS-Hungary. In addition, CzechNet offers high-speed Internet access service and
is one of the leading Internet access providers in the Czech Republic. CzechNet
seeks to become the second carrier in the Czech Republic and is also targeting
opportunities in Slovakia, based upon the historic relationship between the
Czech and Slovak markets.
 
     The CzechNet network consists of an earth station linked to GTS-Monaco
Access and to British Telecom, a series of point-to-point and
point-to-multipoint microwave connections providing dedicated access to the
buildings served by CzechNet, and individual VSATs based on, and controlled by,
GTS-Hungary's hub in Budapest.
 
     CzechNet's target customers include real estate developers, hotels and
multinational companies which require international voice or data services or
Internet connectivity, where both GTS's own services and the services of GTS
partners are sold. CzechNet provides outgoing international voice services and
high-speed Internet access to large commercial buildings in Prague. As of June
30, 1997, CzechNet had concluded agreements with building owners to convert
PABXs in 17 buildings in Prague. International voice services are offered at
prices similar to those of the Czech PTO. The pricing reflects the premium
quality of the Company's service offering compared to the Czech PTO, offset by
the inconvenience to customers of maintaining accounts with more than one
carrier and being required to dial longer and more complex numbers. The Czech
market for VSAT services is extremely competitive, with prices at approximately
50% of those in Hungary for basic services. CzechNet plans to pursue customers
who require value-added services which may be offered at higher prices and
better margins.
 
     CzechNet is a wholly owned subsidiary of GTS. It received its operating
licenses in 1994 and began offering services in May 1995. Another business
partner, Sitel, provides CzechNet with technical services, at the Prague hub,
including installation and field support. In Slovakia, CzechNet has partnered
with Sitel to market data services based on the GTS-Hungary VSAT system. For
Internet services, CzechNet has partnered with two organizations: CESNET, a
consortium of Czech universities, and UUNET, for high-speed backbone access.
 
     CzechNet is licensed to provide international satellite and domestic
private voice and data services. The license grants permission to install and
operate up to 150 earth stations and, upon application, an additional 150 earth
stations. The license currently prohibits the provision of switched voice
services and the interconnection to public voice, telex and data networks and
telecommunications networks of other providers.
 
     CzechNet is the only alternative international telephony provider licensed
in the Czech Republic. As such, its only competitor is SPT Telecom, the Czech
PTO. Should SPT decide to compete aggressively with CzechNet, it has the ability
to discount prices below those which could be easily sustained by CzechNet. In
data services, Telecomspol, EuroTel Praha, ACS Brandys, and SPT Telecom are
CzechNet's four major competitors for data services in the Czech Republic. GTS
believes that Telecomspol is backed by Nortel, and is pursuing an aggressive
strategy, pricing its services at or below cost. GTS believes that its
experience in establishing VSAT services in the region and its emphasis on
integrated voice and data services provides CzechNet with a competitive
advantage. Additionally, GTS's transmission facilities and infrastructure in
Hungary and Monaco provide it with a relatively low cost infrastructure and, as
a consequence, greater pricing flexibility than its competitors. With respect to
Internet services, GTS believes that, although this market
 
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<PAGE>   102
 
consists of a large number of small providers and that SPT Telecom will seek to
enter this market, the dedicated, high-speed infrastructure that CzechNet is
installing will provide superior services to its customers.
 
ASIA
 
     Chinese law generally prohibits foreign investment or participation in the
operation of telecommunications services, while Indian law requires foreign
telecommunications operators to conduct certain telecommunications businesses,
including basic switched telephony and cellular services, through joint ventures
that are at least 51% owned by Indian partners. GTS believes that these
restrictive regulations will eventually be liberalized and that its early entry
into these markets and its strong relationships with influential commercial
firms and with local, regional and national-level government entities will
provide it with a strong competitive advantage over competitors that await more
explicit regulatory regimes authorizing direct telecommunications investments.
 
  China
 
   
     GTS participates in the nationwide tourist industry VSAT network through
GTS China Investments LLC, a company in which GTS holds a 75% interest and an
affiliate of the Soros Foundations owns a 25% interest. See "Certain Related
Party Transactions." GTS China Investments LLC holds an indirect 63% interest in
Beijing Tianmu Satellite Communications Technology Co. Ltd. ("Beijing Tianmu"),
which provides technical, operational and financial support for the VSAT
network. In addition, through Shanghai V-Tech Telecommunications Systems Co.,
Ltd. ("V-Tech"), a venture in which GTS holds a 75% interest, the Company
provides financing, operational consulting, technical and engineering services
to a Shanghai-based VSAT network operator. GTS's partner in V-Tech is Shanghai
Science & Technology Investment Corporation, an investment holding company which
was formed by the municipal government of Shanghai and several Shanghai banks
and corporations. The Company also provides management operations and financial
support to a planned cellular network in Shanghai via Shanghai Global
Intelligent TeleSystems Co., Ltd., a Chinese joint venture that is 80% owned by
GTS ("GIT").
    
 
   
     With respect to V-Tech, in addition to the Company's initial equity
contribution of $3.75 million, GTS committed to fund up to an additional $3.0
million (all of which has been funded as of September 30, 1997). The joint
venture expires in April 2015, and profits and losses are allocated according to
ownership interests in consideration of funds at risk. See "Management's
Discussion and Analysis -- Accounting Methodology -- Profit and Loss
Accounting."
    
 
   
     With respect to Beijing Tianmu, in addition to the Company's initial equity
contribution of $8.75 million, GTS is responsible for arranging additional
financing of up to $14.4 million, subject to the approval of the venture's Board
of Directors majority of members of which are elected by GTS. The joint venture
expires in March 2021, and profits and losses are allocated according to
ownership interests, in consideration of funds at risk. See "Management's
Discussion and Analysis -- Accounting Methodology -- Profit and Loss
Accounting."
    
 
   
     With respect to GIT, neither GTS nor its partner are obligated to fund
operations or capital expenditures of GIS. Profits and losses are allocated in
accordance with ownership interests, in consideration of funds at risk. See
"Management's Discussion and Analysis -- Accounting Methodology -- Profit and
Loss Accounting." Further, the joint venture expires in March 2016.
    
 
  India
 
   
     In India, GTS is following the strategy it implemented in Moscow and is
currently pursuing in the Czech Republic, in which it initially penetrates the
telecommunications market by developing satellite-based international gateway
networks to provide telecommunications services to targeted business customers.
GTS's operations in India are conducted through C-Datacom International, Inc.
("CDI"), a wholly owned subsidiary which provides digital international private
line communications to and from India for multiple applications, including data
and voice. While not permitted to provide telephony services, CDI is currently
in
    
 
                                       97
<PAGE>   103
 
the process of installing an international gateway switch adjacent to GTS-Monaco
Access's international gateway for the purpose of handling international
traffic.
 
EMPLOYEES
 
     On June 30, 1997, GTS employed a total of 146 persons. On June 30, 1997,
the joint ventures in which GTS participates employed approximately 1,400
persons. The Company believes its future success will depend on its continued
ability to attract and retain highly skilled and qualified employees. The
Company believes that its relations with its employees are good.
 
     Although GTS's employees are not unionized, unions represent employees of
the Company's railroad partners in Hermes. Under the agreements contemplated
between Hermes and its railroad partners, some of these employees will be
required to construct and maintain certain portions of the Hermes network. There
can be no assurances that unionized employees of Hermes' partners will not
experience labor unrest.
 
PROPERTIES
 
     The Company's physical properties include owned and leased space for
offices, storage and equipment rooms and collocation sites. Additional equipment
rooms will be leased as networks are expanded. GTS maintains regional
headquarters offices in Moscow and Budapest, as well as facilities in McLean,
Virginia and London. Hermes is headquartered just outside of Brussels, Belgium.
 
LITIGATION
 
   
     In addition to routine legal proceedings incidental to the conduct of its
business, the Company, GTS-Hungaro and GTS-Hungary are named as defendants in an
action captioned USH Ventures and USH Telecom, L.L.C. v. Global TeleSystems
Group, Inc. and GTS-Hungaro, Inc., Civil Action No. 97C-08-86, commenced in
August 1997, which is currently pending in the Superior Court of the State of
Delaware in and for New Castle County. The complaint alleges breach of contract
and interference with a business relationship. While it is not possible at this
time to make a meaningful assessment of the outcome of this litigation, based
upon information currently available and upon consultation with counsel, the
Company does not believe that the outcome of this litigation will have a
material adverse effect upon the financial condition of the Company.
    
 
                                       98
<PAGE>   104
 
                                   MANAGEMENT
 
     The directors, executive officers and key employees of the Company, their
positions and their ages are as follows:
 
   
<TABLE>
<CAPTION>
                  Name                     Age                        Positions
                  ----                     ---                        ---------
<S>                                        <C>   <C>
Alan B. Slifka..........................   67    Chairman of the Board of Directors
Gerald W. Thames........................   50    President, Chief Executive Officer and Director
Bruno d'Avanzo..........................   55    Executive Vice President and Chief Operating
                                                 Officer
William H. Seippel......................   41    Executive Vice President of Finance and Chief
                                                 Financial Officer
Jan Loeber..............................   53    Senior Vice President -- H.E.R.
Raymond I. Marks........................   50    Senior Vice President -- Asia
Stewart P. Reich........................   53    Senior Vice President -- Russia
Louis T. Toth...........................   54    Senior Vice President -- Central Europe
Grier C. Raclin.........................   44    Senior Vice President and General Counsel
N.S. Molberger..........................   42    Senior Vice President -- Law and Development
Eileen K. Sweeney.......................   46    Senior Vice President -- Human Resources
Kevin Power.............................   43    Managing Director -- GTS-Monaco Access
Gary Gladstein..........................   52    Director
Michael A. Greeley......................   34    Director
Bernard McFadden........................   63    Director
Stewart J. Paperin......................   49    Director
W. James Peet...........................   42    Director
Jean Salmona............................   61    Director
Morris A. Sandler.......................   50    Director
Joel Schatz.............................   60    Director
Adam Solomon............................   44    Director
</TABLE>
    
 
     Biographical information on each of the foregoing officers follows:
 
     Alan B. Slifka, Chairman of the Board of Directors. Mr. Slifka has served
as a director of GTS since 1990. Mr. Slifka is a New York investment banker and
the Managing Principal of Halcyon/Alan B. Slifka and Company LLC, an equity
asset management firm specializing in nontraditional investments, specifically
corporate event investing. Previously, Mr. Slifka was a partner of L.F.
Rothschild, Unterberg, Towbin from 1961 to 1982. He is a director of Pall
Corporation and is active in other business, civic and philanthropic affairs as
founder, director or officer of numerous for-profit and not-for-profit
corporations and foundations. Mr. Slifka served as acting Chief Executive
Officer of GTS during most of 1993.
 
     Gerald W. Thames, President, Chief Executive Officer and Director. Mr.
Thames joined GTS as Chief Executive Officer in February 1994, and has served as
a director of GTS since February 1994. From 1990 to 1994, Mr. Thames was
President and Chief Executive Officer for British Telecom North America and
Syncordia, a joint venture company focused on the international outsourcing
market. Mr. Thames has spent over 18 years in senior positions with
telecommunications companies, where he was responsible for developing start-up
telecommunications companies, including 15 years with AT&T, where he rose to the
position of General Manager of Network Services for the Northeast Region of AT&T
Communications.
 
     Bruno d'Avanzo, Executive Vice President and Chief Operating Officer. Mr.
d'Avanzo joined GTS as Executive Vice President and Chief Operating Officer in
August 1996. From 1994 to 1996, Mr. d'Avanzo was Executive Vice President and
Chief Operating Officer of Intelsat, the largest telecommunications satellite
operator in the world. From 1991 to 1994, Mr. d'Avanzo was a senior executive
with Olivetti Corporation, serving as Vice President and General
Manager -- Europe and as Vice President -- U.S., Canada and South America. Mr.
d'Avanzo also spent 15 years with Digital Equipment Corporation, a diversified
computer manufacturer where his last position was Vice President -- European
Sales and Marketing.
 
                                       99
<PAGE>   105
 
     William H. Seippel, Executive Vice President of Finance and Chief Financial
Officer. Mr. Seippel joined GTS as Executive Vice President of Finance and Chief
Financial Officer in October 1996. From July 1992 to October 1996, Mr. Seippel
was Vice President -- Finance and Chief Financial Officer of Landmark Graphics.
From August 1990 to July 1992, Mr. Seippel was Director of Finance for Covia,
Inc., an affiliate of United Airlines. From April 1984 to August 1990, Mr.
Seippel held the positions of Group Business Controller (1989 to 1990), Group
Controller Sales/Marketing (1986 to 1989), and Product Line Controller (1984 to
1986) with Digital Equipment Corporation, a diversified computer manufacturer.
 
   
     Jan Loeber, Senior Vice President -- H.E.R. Mr. Loeber joined GTS in
January 1995. From October 1992 to December 1994, Mr. Loeber was a Managing
Director of BT Securities Corporation. From April 1990 to September 1992, Mr.
Loeber held positions as Managing Director of Unitel Ltd. (now One 2 One) in the
United Kingdom, Group President of Nokia North America Inc., Vice President of
ITT Corporation, and Marketing and Product Management Director of ITT Europe.
Mr. Loeber also spent almost 10 years with AT&T, where his last position was
Executive Director, Bell Laboratories. Mr. Loeber has over 22 years of
experience in the telecommunications industry and an additional 9 years of
experience in information technology with the Pentagon, IBM and Chemical Bank of
New York.
    
 
     Raymond I. Marks, Senior Vice President -- Asia. Mr. Marks joined GTS as
Senior Vice President -- Asia in July 1994. From October 1986 to June 1994, Mr.
Marks served as Vice President and General Manager of GTE Spacenet Corporation,
where he had overall responsibility for strategic planning, domestic and
international business development, creation of joint ventures and international
alliances, as well as the worldwide management of the marketing, sales and
technical support organizations. Mr. Marks has also served as Vice President for
the Digital Information Group for MCI Communications Corporation. Mr. Marks has
28 years of experience in the telecommunications and computer industries.
 
     Stewart P. Reich, Senior Vice President -- Russia. Mr. Reich joined GTS as
President -- GTS Russia in September 1997. Since September 1992, Mr. Reich was
President of UTEL, a joint venture of AT&T, Deutsche Telekom, PTT Telecom
(Netherlands), and Ukrtelecom (a Ukrainian telecommunications company) which
provides international and interregional telecommunications services in Ukraine.
From 1982 to 1992, Mr. Reich held various positions at AT&T where his last
position was Financial Manager, AT&T International Communications Switched
Services. Mr. Reich was also employed for 20 years with Western Electric Company
from 1961 to 1981.
 
     Louis T. Toth, Senior Vice President -- Central Europe. Mr. Toth joined GTS
as Senior Vice President -- Central Europe in July 1993. From February 1987 to
July 1991, Mr. Toth served as President of Dynaforce Corporation and as Partner
and General Manager for the pan-European expansion of Andlinger & Company. Mr.
Toth, who is currently based in London, has 23 years of telecommunications
experience with ITT Corporation in Europe, Latin America and Asia.
 
   
     Grier C. Raclin, Senior Vice President and General Counsel. Mr. Raclin
joined GTS as its Senior Vice President and General Counsel in September, 1997.
Prior to joining GTS, Mr. Raclin served as Vice-Chairman and a Managing Partner
of the Washington, D.C. office of Gardner, Carton & Douglas, a 250-attorney,
corporate law firm based in Chicago, Illinois, where his practice was
concentrated in the area of international telecommunications. Mr. Raclin
received his undergraduate and law degrees from Northwestern University and
attended the University of Chicago School of Business Executive Program.
    
 
     N.S. Molberger, Senior Vice President -- Law and Development. Mr. Molberger
joined GTS as General Counsel in July 1993 and served as Vice President and
General Counsel from April 1994 to January 1997. Prior to that, Mr. Molberger
was in private law practice.
 
   
     Eileen K. Sweeney, Senior Vice President -- Human Resources. Ms. Sweeney
joined GTS as Senior Vice President -- Human Resources in November, 1997. Prior
to joining GTS, Ms. Sweeney was President of Global Resource Associates, a
consulting company specializing in international human resource issues. Prior to
that time, Ms. Sweeney spent 10 years with ITT Corporation in a variety of human
resource management positions, including eight years based in Europe and in the
Middle East. Ms. Sweeney holds a Master's Degree in Business Administration from
Simmons Graduate School of Management in Boston.
    
 
                                       100
<PAGE>   106
 
   
     Kevin Power, Managing Director -- GTS Monaco Access. Prior to joining GTS
Monaco Access in October 1995, Mr. Power was Vice President, Carrier Relations
for the Company beginning in November 1994, where he was responsible for
assisting and coordinating the carrier activities of the GTS group of companies.
In 1988, Mr. Power was one of a group of five people who started the commercial
operations of Orion Network Systems and he stayed with the company until the
launch of its first satellite in 1994. His last position there was Vice
President of Carrier Services. Prior to that, he held positions with INTELSAT,
National Economic Research Associates (NERA) and the U.S. Department of
Commerce.
    
 
     Biographical data on each of the directors, other than Mr. Thames, are as
follows:
 
     Gary Gladstein, Director. Mr. Gladstein has served as a director of GTS
since December 1990. Mr. Gladstein is a Managing Director of Soros Fund
Management, an investment advisory firm with which he has been associated since
1985. Mr. Gladstein is also a director of Crystal Oil, Jos. A. Bank Clothier,
Inversiones y Representaciones S.A., Cresud S.A., Emerging Dolphin Fund and
Argentina High Yield and Capital Appreciation Fund Ltd.
 
     Michael A. Greeley, Director. Mr. Greeley has served as a director of GTS
since September 1996. Mr. Greeley is the Senior Vice President of GCC
Investments, Inc., the investment group of GC Companies, Inc. From June 1989 to
July 1994, Mr. Greeley was a Vice President at Wasserstein Perella & Co., Inc.,
an international investment bank, specializing in mergers and acquisitions and
corporate finance transactions. Mr. Greeley is also a director of Teletrac,
Inc., Crescent Communications and American Capital Access Holdings, LLC. By
contractual arrangement, GCC Investments, Inc. has the right to designate one
person for nomination to the Board of Directors until such time as it holds not
less than two and one-half percent of the issued and outstanding shares of the
Common Stock on a fully diluted basis. Mr. Greeley is the designee of GCC
Investments, Inc. to the Board of Directors.
 
     Bernard McFadden, Director. Mr. McFadden has served as a director of GTS
since February 1994. Mr. McFadden currently serves as an independent consultant
for GTS and is a GTS representative on the supervisory board of Hermes. Mr.
McFadden's career in international telecommunications includes 32 years with ITT
Corporation, where he served as President and Chief Executive Officer of ITT's
Telecom International Group, and a four and one-half year assignment as
President and Chief Operating Officer of Alcatel Trade International, S.A.
 
     Stewart J. Paperin, Director. Mr. Paperin has served as a director of GTS
since March 1997. Mr. Paperin serves as Executive Vice President of The Open
Society Institute, a charitable foundation associated with George Soros. Prior
to that, Mr. Paperin was President of Brooke Group International, from 1990 to
1993 where he was responsible for investments in the former Soviet Union. Mr.
Paperin also served as Chief Financial Officer of Western Union Corporation from
1989 to 1990.
 
     W. James Peet, Director. Mr. Peet has served as a director of GTS since
January 1996. Mr. Peet has been affiliated with The Chatterjee Group, an
investment firm, since 1991. Mr. Peet is a director of three public companies:
Viatel Global Communications, Phoenix Information Systems, and Primus
Telecommunications, Inc. and several private companies. Immediately prior to
joining The Chatterjee Group, Mr. Peet spent six years with McKinsey & Company.
 
   
     Jean Salmona, Director. Mr. Salmona has served as a director of GTS since
March 1996. Since 1989, Mr. Salmona has been Chairman and Chief Executive
Officer of CESIA Consulting Group ("CESIA"), a consulting concern based in
France that specializes in information and communications systems and
technologies. Mr. Salmona is also Chairman and Director General, Data for
Development International Association, a nongovernmental organization with
consultative status to the United Nations Economic and Social Council; and a
member of the board of directors of CESYS, a joint venture between CESIA and
COGEMA, the French State company which processes nuclear waste.
    
 
     Morris A. Sandler, Director. Mr. Sandler has served as a director of GTS
since 1990. Mr. Sandler has been a consultant to GTS since November 1995. Prior
to that, Mr. Sandler was Executive Vice President of GTS from February 1994 to
November 1995, and acting Chief Operating Officer from April 1993 to February
1994. From August 1990 to February 1994, Mr. Sandler was an employee of Alan B.
Slifka and
 
                                       101
<PAGE>   107
 
Company. Since November 1995, Mr. Sandler has been a principal of Pennwood
Capital Corporation, a venture capital investment and management firm. He has
served as director of Baltic International USA, Inc. since 1995.
 
     Joel Schatz, Director. Mr. Schatz has served as a director of GTS since the
inception of the Company. Mr. Schatz was a founder of the Company and served as
its President from 1985 to 1991. Mr. Schatz is presently the Chairman and Chief
Executive Officer of Datafusion, Inc., a company developing software to
accelerate knowledge synthesis.
 
     Adam Solomon, Director. Mr. Solomon has served as a director of the Company
since June 1995. Mr. Solomon is also Chairman of Shaker Investments, Inc., a
growth equity investment firm and Chairman of Signature International, L.P., a
venture/development firm whose initial focus is redeveloping existing
residential/golf communities, and a member of the board of directors of MetaSolv
Software, Inc. Prior to that, Mr. Solomon spent eleven years with E.M. Warburg,
Pincus & Co., Inc., where he was Managing Director from 1988 to 1992. While at
E.M. Warburg, Pincus & Co., Inc., Mr. Solomon served as a member of the board of
directors of LCI International, Inc., a regional long-distance carrier.
 
                  EXECUTIVE COMPENSATION AND OTHER INFORMATION
 
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
 
     Each director of GTS receives an annual director's fee of $10,000. In
addition, each director of GTS who attends any meeting of the Board of Directors
is entitled to receive a director's fee of $1,000 for each such meeting, and
each director of GTS who attends a committee meeting is entitled to a directors'
fee of $750 for each such committee meeting.
 
     For the year ended December 31, 1996, the aggregate compensation paid by
the Company to its directors and executive officers for services in all
capacities was approximately $3.1 million.
 
     GTS maintains the Global TeleSystems Group, Inc. Non-Employee Directors'
Stock Option Plan that permits directors to share in the growth of the value of
GTS through the grant and exercise of nonqualified stock options. See "-- Global
TeleSystems Group, Inc. Non-Employee Directors' Stock Option Plan."
 
GLOBAL TELESYSTEMS GROUP, INC. NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
 
     The purpose of the Global TeleSystems Group, Inc. Non-Employee Directors'
Stock Option Plan (the "Directors' Plan") is to permit eligible non-employee
directors of GTS (each a "Non-Employee Director") to share in the growth of the
value of GTS through the grant and exercise of nonqualified stock options.
 
   
     The total number of shares of Common Stock reserved and available for
delivery under the Directors' Plan is 375,000, subject to adjustment upon
certain changes in capitalization. The Directors' Plan is administered by the
compensation committee of the Board of Directors (the "Committee"). Only
directors of GTS who are not employees of GTS or any subsidiary of GTS on the
date on which an option is to be granted are eligible to participate in the
Directors' Plan on such date.
    
 
   
     An option (a "Directors' Option") to purchase 18,000 shares of GTS Common
Stock was granted to each Non-Employee Director on the effective date of the
Directors' Plan and a Director's Option is granted to each new Non-Employee
Director when he or she is first elected or appointed to serve as a director of
GTS. 9,000 of the shares vest six months after the date of grant. An additional
4,500 shares become exercisable on the date six months following the first
annual meeting of GTS's shareholders to occur after such date of grant, and the
remaining 4,500 shares become exercisable on the date six months following the
second annual meeting of GTS's shareholders to occur after such date of grant.
On the date of the third annual meeting of GTS's shareholders following the
grant of the initial Directors' Options to any Non-Employee Director, provided
that such Non-Employee Director remains an incumbent on such date, an additional
Directors' option to purchase 13,500 shares of Common Stock is granted to such
Non-Employee Director. The second Directors' Options become exercisable with
respect to 4,500 shares on the date six months after the date of
    
 
                                       102
<PAGE>   108
 
   
grant, with respect to an additional 4,500 shares on the date six months
following the first annual meeting of GTS's shareholders to occur after such
date of grant, and with respect to the final 4,500 shares on the date six months
following the second annual meeting of GTS's shareholders to occur after such
date of grant.
    
 
   
     Directors' Options are nonqualified stock options which are subject to
certain terms and conditions including those summarized below. The exercise
price per share of Common Stock purchasable under a Directors' Option will be
equal to 100% of the fair market value of Common Stock on the date of grant.
Each Directors' Option will expire upon the earliest of (a) the tenth
anniversary of the date of grant, (b) one year after the Non-Employee Director
ceases to serve as a director of GTS due to death or disability, (except that,
in the case of disability, if the Non-Employee Director dies within that
one-year period, the Directors' Option is exercisable for a period of one year
from the date of death), (c) three months after the Non-Employee Director ceases
to serve as a director of GTS for any reason other than death or disability,
(except that, if the Non-Employee Director dies within that three-month period,
his or her Directors' Options are exercisable for a period of one year from the
date of such death), and (d) three months after the Non-Employee Director ceases
to be employed by GTS if such Non-Employee Director had become an employee of
GTS (except that, if the Non-Employee Director dies within that three-month
period, his or her Directors' Options are exercisable for a period of one year
from the date of such death). Each Directors' Option may be exercised in whole
or in part by giving written notice of exercise to GTS specifying the Directors'
Option to be exercised and the number of shares to be purchased. Such notice
must be accompanied by payment in full of the exercise price in cash or by
surrender of shares of Common Stock or a combination thereof. Directors' Options
granted under the Directors' Plan may not be sold, pledged, assigned or
otherwise disposed of in any manner other than by will or by the laws of descent
and distribution.
    
 
     At the time of grant, the Board of Directors may provide in connection with
any grant made under the Directors' Plan that the shares of Common Stock
received as a result of such grant are subject to a right of first refusal by
GTS.
 
     The Board of Directors may amend, alter, suspend, discontinue or terminate
the Directors' Plan at any time, except that any such action will be subject to
the approval of GTS shareholders at the next annual meeting following such Board
of Directors' action if such shareholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which Common Stock may then be listed or quoted, or if the
Board of Directors determines in its discretion to seek such shareholder
approval.
 
                                       103
<PAGE>   109
 
EXECUTIVE COMPENSATION
 
     The following table sets forth each component of compensation paid or
awarded to, or earned by, the chief executive officer and the four most highly
compensated executive officers other than the chief executive officer serving as
of December 31, 1996 (collectively, the "Named Executive Officers") for the year
ended December 31, 1996.
 
                           SUMMARY COMPENSATION TABLE
 
                              ANNUAL COMPENSATION
 
   
<TABLE>
<CAPTION>
                                                                  LONG-TERM COMPENSATION
                                                                  -----------------------
                                                                          AWARDS
                                                                  -----------------------
                                                                  RESTRICTED   SECURITIES
                                          PAID     OTHER ANNUAL     STOCK      UNDERLYING    ALL OTHER
    NAME AND PRINCIPAL        SALARY     BONUS     COMPENSATION    AWARD(S)     OPTIONS     COMPENSATION
         POSITION              ($)        ($)          ($)           ($)          (#)          ($)(7)
    ------------------       --------   --------   ------------   ----------   ----------   ------------
<S>                          <C>        <C>        <C>            <C>          <C>          <C>
Gerald W. Thames...........  $325,000   $113,750            (1)          -0-     37,500(5)        9,954
Jan Loeber.................   235,000     78,608      74,642(4)     20,000(5)       3.5(6)       12,986
Raymond I. Marks...........   230,091     46,200            (1)          -0-     55,500(5)       13,788
Henry A. Radzikowski.......   208,750     42,000     226,060(2)          -0-     55,500(5)       12,986
Louis T. Toth..............   203,937     40,950      33,602(3)          -0-     43,500(5)       13,004
</TABLE>
    
 
- ---------------
 
(1) Perquisites and other personal benefits paid to the Named Executive Officer
    during fiscal year 1996 were less than the lesser of $50,000 and 10 percent
    of the total of annual salary and bonus reported for the Named Executive
    Officer.
 
   
(2) Mr. Radzikowski received a cost of living allowance totalling $96,000 during
    fiscal year 1996. In addition, GTS paid approximately $122,376 in housing
    expenses on behalf of Mr. Radzikowski. GTS also paid for Mr. Radzikowski's
    personal travel expenses. Mr. Radzikowski was replaced as Chief Executive
    Officer -- CIS and Eastern Europe Operations in January 1997, and he
    resigned from the Company in the second quarter of 1997.
    
 
(3) These amounts represent a cost of living allowance of $27,500 and paid home
    leave of $6,102 paid to Mr. Toth during fiscal year 1996.
 
   
(4) Mr. Loeber received a cost of living allowance and paid home leave during
    fiscal year 1996. H.E.R. provided Mr. Loeber with a tax equalization that
    compensates him for the higher taxes he pays because he resides in Belgium
    instead of the United States. Furthermore, H.E.R. provided Mr. Loeber with a
    housing allowance equal to $31,836 per year (converted from Belgian Francs
    to U.S. Dollars at an exchange rate of BF32.0392 = $1.00). In addition,
    H.E.R. provides Mr. Loeber with the use of a company car.
    
 
(5) Stock options awarded under the 1992 Stock Option Plan.
 
   
(6) Stock options awarded under the GTS-Hermes Plan.
    
 
(7) Amounts hereunder represent premiums paid by GTS for $1,000,000 in term life
    insurance for each Named Executive Officer and contributions by GTS under
    the 401(k) Plan to each Named Executive Officer's account.
 
   
THE GTS 401(k) PLAN
    
 
     The GTS 401(k) Plan (the "401(k) Plan") is a defined contribution
retirement benefit plan that is qualified for favorable tax treatment under
Section 401 of the Code. All employees of GTS, including the Named Executive
Officers, who are at least 21 years of age and have completed the minimum
service requirement are eligible to participate in the 401(k) Plan. The 401(k)
Plan participants may defer pre-tax income by contributing to the plan up to the
maximum amount permitted by law. After-tax contributions are also permitted
under the 401(k) Plan. GTS matches 50% of each participant's pre-tax
contribution to the 401(k) Plan up to 5% of the participant's total
compensation. In addition, GTS may, in its sole discretion and in a
nondiscriminatory manner, contribute additional amounts as profit sharing to
each participant's account.
 
                                       104
<PAGE>   110
 
The amounts that are deposited into each participant's account are invested
among various investment options according to the direction of the participant.
Each participant's pre-tax and after-tax contributions are immediately vested
and nonforfeitable. GTS's matching contribution and profit sharing allocations
to each participant's account do not vest until the participant has completed
three years of service with GTS, at which time the matching contribution and
profit sharing allocations become 100% vested. Each participant is eligible to
begin receiving benefits under the 401(k) Plan on the first day of the month
coincident with or following the attainment of normal retirement age. There is
no provision for early retirement benefits under the 401(k) Plan.
 
THE SFMT, INC. EQUITY COMPENSATION PLAN
 
     The purpose of the SFMT, Inc. Equity Compensation Plan (the "Equity
Compensation Plan") is to attract, retain and motivate key employees, officers
and eligible independent contractors of GTS and to enable such individuals to
own Common Stock and to have a mutuality of interest with other shareholders of
GTS through the grant of restricted stock and other equity-based awards.
 
     The total number of shares of Common Stock that may be issued or
transferred under the Equity Compensation Plan is four percent of the total
number of shares of Common Stock outstanding at the beginning of the calendar
year, subject to certain adjustments, which are described below. This threshold
number may be increased by the number of shares (a) that were issued under the
Equity Compensation Plan with respect to which no dividends were paid and (b)
that were subsequently forfeited, in accordance with the terms of the Equity
Compensation Plan.
 
     The Equity Compensation Plan is administered by the Committee. The chief
executive officer of GTS has the authority to recommend the individuals to whom
awards will be granted, subject to approval by the Committee. The Committee has
full and binding authority to determine the fair market value of the Common
Stock and the number of shares included in any awards, to establish terms and
conditions of any award, to interpret the Equity Compensation Plan, to prescribe
rules relating to the Equity Compensation Plan and to make all other
determinations necessary to administer the Equity Compensation Plan. The
Committee may condition the vesting of restricted stock upon the attainment of
specified performance goals or such other factors as the Committee may determine
in its sole discretion. In the event that the Committee determines, in its sole
discretion, that an award of restricted stock would not be appropriate with
respect to any individual who has been recommended for an award by the chief
executive officer, the Committee has the authority to grant to any such
individual any other variety of equity-based compensation award, including, but
not limited to, phantom stock, phantom units, stock appreciation rights,
performance shares and performance units. The Committee does not, however, have
the authority to grant stock options pursuant to the Equity Compensation Plan.
 
     Grants under the Equity Compensation Plan are determined by the Committee
in its sole discretion. For this reason, it is not possible to determine the
benefits or amounts that will be received by any individual employee or group of
employees in the future. The Equity Compensation Plan will remain effective
until November 14, 2004, unless earlier terminated by GTS.
 
     During a specified period set by the Committee commencing with the date of
any restricted stock award, the participant is not permitted to sell, transfer,
pledge or otherwise encumber shares of restricted stock. Within these limits,
the Committee, in its sole discretion, may provide for the lapse of such
restrictions or may accelerate or waive such restrictions in whole or in part,
based on service, performance and such other factors. Unless the Committee
specifically determines otherwise, a restricted stock award granted under the
Equity Compensation Plan vests one-third on the second anniversary of the date
of grant, one-third on the third anniversary of the date of grant and one-third
on the fourth anniversary of the date of grant.
 
     The Committee may impose such other restrictions on shares of Common Stock
issued under the Equity Compensation Plan, including a right of first refusal by
GTS that requires the participant to offer GTS.
 
     The Equity Compensation Plan provides that, in the event of a change to the
Common Stock (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or
 
                                       105
<PAGE>   111
 
exchange of shares, or other change in the capital structure made without
receipt of consideration), the Board of Directors will preserve the value of
outstanding awards by making certain equitable adjustments in its discretion.
 
     The Board of Directors may amend, alter, suspend, discontinue or terminate
the Equity Compensation Plan at any time, except that any such action will be
subject to the approval of GTS shareholders at the first annual meeting
following such action if such shareholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which Common Stock may then be listed or quoted, or if the
Board of Directors determines in its discretion to seek such shareholder
approval.
 
THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN OF GLOBAL TELESYSTEMS GROUP,
INC.
 
     In 1992, the Board of Directors approved the adoption of the 1992 Stock
Option Plan of Global TeleSystems Group, Inc. (the "1992 Option Plan") for key
employees of GTS. The purpose of the 1992 Option Plan is to enable GTS to
attract and retain the best personnel for positions of substantial
responsibility, to provide additional incentives to employees of GTS and its
subsidiaries and to promote the success of the business of GTS and its
subsidiaries by providing certain employees with an ownership interest in the
Company.
 
     The total number of shares of Common Stock that may be subject to options
granted under the 1992 Option Plan (the "1992 Options") is generally 18.5% of
the total number of shares of Common Stock outstanding at the beginning of the
calendar year.
 
     The 1992 Option Plan is administered by the Committee, which must be
composed of not less than two members of the Board of Directors who are
"non-employee directors" within the meaning of Rule 16b-3 of the Exchange Act.
The Committee has full and binding authority to determine the fair market value
of the Common Stock, the exercise price of options to be granted, the persons to
whom and the times at which options will be granted and the number of shares to
be represented by each option. The Committee also has full and binding authority
to interpret the 1992 Option Plan, to prescribe rules relating to the 1992
Option Plan, to establish terms and conditions of each 1992 Option and to make
all other determinations necessary to administer the 1992 Option Plan.
 
     The 1992 Option Plan will remain effective until November 14, 2004, unless
earlier terminated by GTS. Grants under the 1992 Option Plan are determined by
the Committee in its sole discretion. For this reason, it is not possible to
determine the benefits or amounts that will be received by any individual
employee or group of employees in the future.
 
     The 1992 Option Plan authorizes the grant of both nonqualified options,
which are not qualified for special tax treatment, and incentive stock options
("ISOs"), which qualify for special federal income tax treatment under Section
422 of the Code. The exercise price per share of Common Stock issuable pursuant
to an ISO may not be less than 100% of the fair market value of Common Stock on
the date of grant. Unless otherwise specified in any respective option
agreement, a nonqualified 1992 Option will expire ten years and one day after
the date of grant and an ISO will expire ten years from the date of grant. Each
person granted 1992 Options shall be provided with an option agreement setting
forth the terms of each grant pursuant to the 1992 Option Plan. Unless the
Committee specifically determines otherwise, each 1992 Option vests one-third on
each of the first three anniversaries of the date of grant. The full purchase
price of the shares must be paid, either in cash, by delivery of previously
owned shares, or by withholding of shares having a fair market value equal to
the 1992 Option exercise price. Each 1992 Option expires (a) 30 days after the
option holder ceases to be an employee of GTS for any reason other than death,
disability or retirement, (b) one year from the date of death or disability of
an employee, or (c) 90 days following retirement of the employee. 1992 Options
may not be sold, pledged, assigned or otherwise disposed of in any manner other
than by will or by the laws of descent and distribution.
 
     The Committee may impose such other restrictions on shares of Common Stock
issued under the 1992 Option Plan, including a right of first refusal by GTS. In
addition, if the amount of any payment under
 
                                       106
<PAGE>   112
 
the 1992 Option Plan, either separately or in combination with any other payment
by GTS, would constitute an excess parachute payment within the meaning of
Section 280G of the Code, the total payments payable under the 1992 Option Plan
will be reduced in order to maximize the amount received by the participant
under the 1992 Option Plan in combination with other payments by GTS.
 
     The 1992 Option Plan provides that, in the event of a change to the Common
Stock (whether by reason of merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of shares or exchange
of shares, or other change in the capital structure made without receipt of
consideration), the Board of Directors will, in its discretion, preserve the
value of outstanding 1992 Option Plan awards by making certain equitable
adjustments.
 
     The Board of Directors may amend, alter, suspend, discontinue, or terminate
the 1992 Option Plan at any time, except that any such action will be subject to
the approval of GTS shareholders at the first annual meeting following such
Board of Directors action if such shareholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which Common Stock may then be listed or quoted,
or if the Board of Directors determines in its discretion to seek such
shareholder approval.
 
THE GTS 1996 TOP TALENT RETENTION PROGRAM
 
     GTS implemented the GTS 1996 Top Talent Retention Program (the "Program")
which, for 1996 only, alters the terms offered to certain employees under the
1992 Option Plan. Employees who are offered participation in the Program must
sign a "retention agreement," the terms of which are described below, in order
to receive any 1992 Options during 1996. The Program has been offered to
approximately 28 employees, and it provides that any 1992 Options granted to
such participants will vest as follows: (i) one-half of any 1992 Option granted
under the Program will vest at a rate of 25% per year beginning on the first
anniversary of the initial date of grant and (ii) the remaining portion of any
1992 Option granted under the Program will vest one-quarter according to the
achievement of performance revenue levels, and one-quarter according to the
achievement of price levels of Common Stock, provided that all options will vest
on the fifth anniversary of the date of grant regardless of whether such
performance revenue and pricing levels are attained.
 
        OPTION GRANTS IN THE LAST FISCAL YEAR -- 1992 STOCK OPTION PLAN
 
   
<TABLE>
<CAPTION>
                                          NUMBER OF     % OF TOTAL
                                          SECURITIES     OPTIONS
                                          UNDERLYING    GRANTED TO    EXERCISE OR                 GRANT DATE
                                           OPTIONS     EMPLOYEES IN       BASE       EXPIRATION    PRESENT
                  NAME                    GRANTED(#)   FISCAL YEAR    PRICE($/SH.)      DATE       VALUE($)
                  ----                    ----------   ------------   ------------   ----------   ----------
<S>                                       <C>          <C>            <C>            <C>          <C>
Gerald W. Thames........................   112,500(1)      7.3           10.27        3-30-06     $1,155,000
Henry A. Radzikowski....................    55,500(1)      3.6           10.27        3-30-06        569,800
Louis T. Toth...........................    43,500(1)      2.8           10.27        3-30-06        446,400
Raymond I. Marks........................    55,500(1)      3.6           10.27        3-30-06        569,800
Jan Loeber..............................        --          --              --          --                --
</TABLE>
    
 
- ---------------
 
(1) Stock options were awarded under the 1992 Stock Option Plan. Each option
    vests one-third on each of the first three anniversaries of the date of
    grant.
 
                                       107
<PAGE>   113
 
            AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
            FISCAL YEAR-END OPTION VALUES -- 1992 STOCK OPTION PLAN
 
   
<TABLE>
<CAPTION>
                                           NUMBER OF SECURITIES      VALUE OF UNEXERCISED
                                          UNDERLYING UNEXERCISED     IN-THE-MONEY OPTIONS
                                          OPTIONS AT FY-END(#)(1)      AT FY-END($)(2)
                                          -----------------------    --------------------
                                               EXERCISABLE/              EXERCISABLE/
                  NAME                         UNEXERCISABLE            UNEXERCISABLE
                  ----                         -------------            -------------
<S>                                       <C>                        <C>
Gerald W. Thames........................      575,000/287,501        5,538,540/1,103,336
Henry A. Radzikowski....................       89,801/310,100          857,883/2,679,717
Louis T. Toth...........................      186,549/122,601          1,883,386/788,677
Raymond I. Marks........................      144,996/195,504        1,301,667/1,186,033
Jan Loeber..............................                   --                         --
</TABLE>
    
 
- ---------------
 
(1) No options were exercised during the year ended December 31, 1996.
 
   
(2) Based on $13.33 per share value of Common Stock as of December 31, 1996 less
    the exercise price.
    
 
GTS-HERMES, INC. 1994 STOCK OPTION PLAN
 
   
     The GTS-Hermes, Inc. 1994 Stock Option Plan (the "GTS Hermes Plan") was
adopted by the board of directors of GTS-Hermes, Inc. ("GTS-Hermes") in 1994 to
enable employees of GTS-Hermes and its subsidiaries, including H.E.R., and
affiliates to participate in ownership of GTS-Hermes and to attract and retain
key employees of particular merit. The GTS-Hermes Plan provides for the award of
incentive stock options, nonqualified stock options and stock appreciation
rights. All employees of GTS-Hermes and its subsidiaries, including H.E.R., and
affiliates are eligible to participate in the GTS-Hermes Plan.
    
 
   
     The maximum number of shares authorized with respect to grants of awards
under the GTS-Hermes Plan in each calendar year is 6.5% of the shares of common
stock, par value $0.01 per share, of GTS-Hermes issued and outstanding, and the
aggregate number of shares of stock subject to the GTS-Hermes Plan is 13% of the
total shares of stock issued and outstanding. The GTS-Hermes Plan is
administered by a committee appointed by the board of directors of GTS-Hermes,
which has broad discretion to determine who shall receive awards under the
GTS-Hermes Plan and the characteristics of any award thereunder, including the
price, term and vesting of such award. However, stock appreciation rights may
not be awarded alone and may only be awarded in tandem with an option grant.
    
 
   
     The GTS-Hermes Plan provides that in the event of a change in control, as
defined under the GTS-Hermes Plan, any stock appreciation rights outstanding for
at least six months and any stock options awarded under the GTS-Hermes Plan not
previously exercisable and vested which have been held for at least six months
from the date of grant will become fully vested and exercisable at an adjusted
price to be determined according to the highest sales price per share paid in
any transaction reported or offer made at any time during the preceding 60 days
as determined by the committee.
    
 
   
     The board of directors of GTS-Hermes may amend, alter or discontinue the
GTS-Hermes Plan at any time, provided that the rights of participants are not
impaired.
    
 
   
     H.E.R. intends to establish a stock option plan to replace the GTS-Hermes
Plan for the purpose of incentivizing H.E.R. key employees, in substantially
similar form to the GTS-Hermes Plan. The aggregate number of shares of H.E.R.
stock subject to the proposed plan would be approximately 13% of the total
shares of H.E.R. stock issued and outstanding including options. Grants under
the GTS-Hermes Plan would be converted into grants under the proposed H.E.R.
plan. Upon establishment of such plan, the GTS-Hermes Plan would be terminated.
    
 
                                       108
<PAGE>   114
 
   
          OPTION GRANTS IN THE LAST FISCAL YEAR -- GTS-HERMES PLAN(1)
    
 
<TABLE>
<CAPTION>
                                                                                                       POTENTIAL
                                                                                                  REALIZABLE VALUE AT
                                                                                                     ASSUMED ANNUAL
                                                                                                     RATES OF STOCK
                                          NUMBER OF     % OF TOTAL                                       PRICE
                                          SECURITIES     OPTIONS                                      APPRECIATION
                                          UNDERLYING    GRANTED IN    EXERCISE OR                   FOR OPTION TERM
                                           OPTIONS     EMPLOYEES IN       BASE       EXPIRATION   --------------------
                  NAME                    GRANTED(#)   FISCAL YEAR    PRICE($/SH.)      DATE       5% ($)     10% ($)
                  ----                    ----------   ------------   ------------   ----------   --------   ---------
<S>                                       <C>          <C>            <C>            <C>          <C>        <C>
Jan Loeber..............................                                                              0           0
</TABLE>
 
- ---------------
 
   
(1) Stock options are for GTS-Hermes stock pursuant to the GTS-Hermes Plan. Each
    stock option vests one-third on each of the first three anniversaries of the
    date of grant.
    
 
            AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
   
               FISCAL YEAR-ENDED OPTION VALUES -- GTS-HERMES PLAN
    
 
<TABLE>
<CAPTION>
                                            NUMBER OF SECURITIES         VALUE OF UNEXERCISED
                                           UNDERLYING UNEXERCISED        IN-THE-MONEY OPTIONS
                                            OPTIONS AT FY-END(#)             AT FY-END($)
                                          -------------------------    -------------------------
                  NAME                    EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
                  ----                    -------------------------    -------------------------
<S>                                       <C>                          <C>
Jan Loeber..............................
</TABLE>
 
EMPLOYMENT AGREEMENTS
 
   
     GTS has executed employment agreements (together, the "Employment
Agreements") with all the Named Executive Officers. The agreements with Messrs.
Thames, Radzikowski and Marks include a three-year term of employment commencing
on April 1, 1996. Mr. Radzikowski resigned from the Company in the second
quarter of 1997. The agreements with Mr. Toth and Mr. Loeber include a two-year
term of employment commencing on April 1, 1996 and January 3, 1995,
respectively. All the Employment Agreements provide for the automatic renewal of
the term for additional one-year periods after the initial term unless written
notice of intent to terminate is provided by either party within a stated period
of between 120 and 180 days prior to the renewal date. The salary of each Named
Executive Officer is reviewed yearly and may be increased at the sole discretion
of the Board of Directors. In addition to salary, each Named Executive Officer
is eligible for a performance-based annual bonus, to participate in the GTS 1992
Stock Option Plan (with the exception of Mr. Loeber whose employment agreement
provides him with an option grant under the GTS-Hermes Plan), to receive
standard health and insurance benefits that are provided to executives of GTS
and to be reimbursed for all reasonable expenditures incurred in the execution
of each Named Executive Officer's respective duties. In addition, Mr. Loeber's
employment agreement provides him with 20,000 shares of restricted stock that
vest in an amount of one-third each year for three years beginning on January 1,
1997.
    
 
   
     The performance-related bonuses are discretionary annual bonuses. Mr.
Loeber's bonus is based on a comparison of the projected to the actual
performance of H.E.R. during any given fiscal year. The maximum amount of Mr.
Loeber's bonus is a percentage of his salary that is determined by the Board of
Directors in its sole discretion. The bonus awards for Messrs. Thames, Marks and
Toth are based on the achievement of performance goals by a combination of both
GTS and the pertinent named Executive Officer and are determined each year by
the compensation committee. The amount of the performance-based bonuses awarded
to Messrs. Marks and Toth may equal up to 30% of the executive's salary for the
year. Mr. Thames may receive a performance-based bonus of up to 100% of his
salary for the year.
    
 
     Each Employment Agreement may be terminated by GTS by giving notice of
intent to not extend the term of employment, for cause or as a result of the
Named Executive Officer's permanent disability. In the event that the employment
relationship is terminated due to the employee's disability or death or if GTS
provides notice of its intent not to renew the term of employment, GTS shall pay
to the Named Executive Officer or to the Named Executive Officer's estate, as
the case may be, the salary and bonus for the remaining
 
                                       109
<PAGE>   115
 
portion of the fiscal year in which the termination of employment occurs. In
addition, if the Company provides notice of its intent not to extend the term of
employment, each Named Executive Officer will receive his salary for the greater
of (a) the number of months or days in the notice period and (b) the period
during which the Named Executive Officer remains subject to the restrictive
covenants described below.
 
     Each Employment Agreement includes noncompetition and nonsolicitation
clauses that are effective during the term of employment and for a period of
from four months to one year thereafter. In addition, the Employment Agreements
include an unlimited covenant of confidentiality and nondisclosure. Any dispute
arising under an employment agreement must be resolved through arbitration,
except that each agreement also provides for specific performance and for a
court injunction in the event of a breach by the Named Executive Officer.
 
                       CERTAIN RELATED PARTY TRANSACTIONS
 
     Alan B. Slifka, the Chairman of the Board of Directors, owns an interest in
an office building in New York in which GTS leased office space until the
corporate headquarters were moved to McLean, Virginia on March 1, 1995. GTS
retains a small office space in New York City that is leased from Mr. Slifka on
a monthly basis, and the annual expense for 1996 was $40,600. Mr. Slifka also
has a consulting agreement with GTS pursuant to which he is paid consulting fees
of $100,000 per year.
 
     Bernard McFadden, Director, has a consulting agreement with GTS pursuant to
which he is paid $100,000 in consulting fees each year.
 
   
     In August and September 1997, affiliates of George Soros and Mr. Slifka
purchased 319,149 and 57,015 shares of Common Stock, respectively, at a price of
$15.67 per share in the Company's private stock offering. In addition,
affiliates of Mr. Slifka purchased $2.9 million of Convertible Bonds in
September 1997. Pursuant to the terms of the indenture related to the
Convertible Bonds, the Convertible Bonds will be convertible into such shares of
Common Stock as is equal to the principal amount of such Convertible Bonds
divided by the applicable conversion price, which conversion price shall be
equal to the public offering price of the Common Stock in the Offerings. See
"Description of Certain Indebtedness."
    
 
   
     Affiliates of Soros Fund Management purchased $40 million of notes from GTS
in 1996, which notes bear interest at 10% per annum, in partial consideration of
which (i) W. James Peet was appointed to the Board of Directors and (ii) the
affiliates received warrants to purchase 4,444,443 shares of Common Stock.
Together with their prior equity interests in GTS, these affiliates currently
hold, on a fully diluted basis (excluding shares underlying stock options), in
excess of 26.6% of the Company's Common Stock. In accordance with the terms of
the warrant agreement, the exercise price of the warrants was reduced from
$10.27 per share to $9.33 per share as the outstanding debt had not been repaid
prior to December 31, 1996. In addition, these affiliates collect a monitoring
fee of $40,000 per month, which they will continue to collect until the initial
offering of the Company's securities to the general public. Under certain
agreements, these affiliates have the right to co-invest with GTS in all of its
new ventures throughout Asia, excluding countries in the former Soviet Union,
and pursuant to this right, one of these affiliates holds a 25% interest in GTS
China Investments LLC. See "Business -- Asia -- Operations."
    
 
   
     Affiliates of Capital Research International purchased $30 million of notes
from GTS in 1996, which notes bear interest at 10% per annum, in partial
consideration of which it received warrants to purchase 3,333,333 shares of
Common Stock. In accordance with the terms of the warrant agreement, the
exercise price of the warrants was reduced from $10.27 per share to $9.33 per
share as the outstanding debt had not been repaid prior to December 31, 1996.
    
 
   
     Jean Salmona, a director of GTS, is the Chairman and Chief Executive
Officer of CESIA. CESIA also provides consultancy services for CDI and for
H.E.R. The Company paid $123,685 in 1996 and $0 in both 1995 and 1994 to CESIA
for consulting services related to CDI. In addition, H.E.R. paid $84,270 in 1996
and $0 in both 1995 and 1994 to CESIA for consulting services. Further, the
Company paid $2,314 and $5,443 to CESIA in 1996 and 1997, respectively, pursuant
to the purchase agreement with CESIA related to the CDI business.
    
 
                                       110
<PAGE>   116
 
   
     Pursuant to a 1995 purchase agreement, the Company received its interest in
GTS-Vox Limited in exchange for a note in the principal amount of $693,380
issued to the sellers and certain additional consideration to its partners
payable in the form of either cash or Common Stock based upon its financial
performance. The Company paid the note in 1996. On January 17, 1997, the
agreement was amended such that the consideration would only be in the form of
the issuance of Common Stock and as such, GTS is obligated under these
arrangements to issue up to a maximum of 1,121,640 shares of Common Stock. In
the first quarter of 1997, pursuant to this agreement the Company issued 504,600
common shares, which was valued at the Company's current fair market value of
$13.33 per share. Common Stock issued pursuant to the agreement must be held for
a minimum holding period. In certain circumstances, if GTS's partners are unable
to sell their shares of Common Stock, GTS is obligated to assist in locating a
purchaser for the Common Stock, and, if unable to do so, to repurchase these
shares. GTS's repurchase obligations are at the following prices: (i) if shares
of Common Stock are then being publicly traded, at the trading price of such
shares or (ii) if shares of Common Stock are not then publicly traded, at the
price shares of Common Stock were most recently offered to individual investors
in a private placement, or, if no such private placement has occurred within the
three months preceding the repurchase of such shares, at a price determined by
an independent financial institution to be agreed upon by GTS and the seller. As
a result of their receipt of shares of Common Stock in 1997, the sellers became
shareholders of GTS.
    
 
   
     GTS purchased its interest in PrimTelefone from Commstruct International,
B.V. ("CIBV") for $500,000 cash and 400,000 shares of Common Stock of the
Company, as a result of which CIBV became a stockholder of the Company. Pursuant
to the asset purchase agreement relating to the purchase by GTS of its interest
in PrimTelefone, CIBV has the right to have some or all of its shares of Common
Stock repurchased, which right will terminate on the date when the Company first
sells shares of Common Stock to the public pursuant to an effective registration
statement under the Securities Act, by GTS over a five-year period at the
current fair market value of such shares at the time of such repurchase.
    
 
   
     Baring International Investment Management Limited ("Barings"), whose
affiliates are shareholders of the Company, may designate a non-voting observer
to attend meetings of the Board of Directors of the Company. Barings' observer
status terminates upon the consummation of an initial public offering of the
Company's Common Stock. In April 1996, GTS entered into an agreement with First
NIS Regional Fund SICAF, an affiliate of Barings, to organize GTS Ukrainian
TeleSystems, L.L.C. (the "LLC"), a Delaware limited liability company 60% owned
by GTS, which in turn entered into a stock purchase agreement to acquire 49% of
all the ownership interests in Bancomsvyaz, a Ukrainian limited liability
company. See "Business -- Russia and the CIS." Such acquisition closed in May
1996. By contractual arrangement, Barings designates one member of the board of
directors of Bancomsvyaz. Barings funded $4.5 million to be applied towards the
LLC's purchase of the interest in Bancomsvyaz and for the LLC's $1.5 million
contribution to the registered capital of Bancomsvyaz. Prior to March 1, 1999,
Barings may put its initial investment to GTS for $4.5 million, plus accrued
interest at 13.5% per annum, or, if GTS has consummated an initial public
offering of its Common Stock, may exercise an option to convert such investment
into 438,311 shares of Common Stock at an exercise price of $10.27. In June 1997
the agreement was amended, such that Barings funded an additional $4.1 million
to be applied toward Bancomsvyaz's capital expenditure and operating capital
requirements. On September 30, 2000, Barings may put that portion of its LLC
interest represented by the additional Barings investment to GTS for $4.1
million, or if GTS has consummated an initial public offering of its Common
Stock, may exercise an option to convert such additional investment into 275,000
Shares of Common Stock at an exercise price of $15.00.
    
 
                                       111
<PAGE>   117
 
                             PRINCIPAL STOCKHOLDERS
 
     The following table sets forth certain information regarding ownership of
the Common Stock and rights to acquire Common Stock by stockholders that manage
or own, either beneficially or of record, five percent or more of the Common
Stock of the Company as of June 30, 1997.
 
   
<TABLE>
<CAPTION>
                                                                     June 30, 1997
                                                              ----------------------------
                                                               Number of
                                                                 Shares        Percentage
                                                              Beneficially    Beneficially
                  Name of Beneficial Owner                      Owned(1)        Owned(1)
                  ------------------------                    ------------    ------------
<S>                                                           <C>             <C>
George Soros affiliates.....................................   10,518,642(2)      26.6%
Alan B. Slifka and affiliates...............................    5,191,310(3)      14.8%
Emerging Markets Management.................................    3,179,546(4)       8.1%
Morgan Asset Management.....................................    2,243,316(5)       6.4%
Capital Research International..............................    5,347,620(6)      13.9%
Total of above..............................................   26,480,434
Total shares on a fully diluted basis:......................   42,899,604
</TABLE>
    
 
- ---------------
 
   
(1) The percentage of ownership is based upon 42,911,604 shares, comprised of
    35,183,828 shares of Common Stock issued and outstanding, and warrants to
    purchase 7,777,776 of Common Stock. Excluded from the calculation are:
    162,018 treasury shares; 30,000 shares of restricted Common Stock issued to
    one executive officer of the Company; options to purchase 5,084,730 shares
    of Common Stock issued to employees under the Company's 1992 Option Plan, of
    which 2,939,850 will be vested at December 31, 1997; 670,500 options to
    purchase shares of Common Stock issued to employees prior to the adoption of
    the Company's 1992 Option Plan and to directors and non-employees; and an
    option to convert a debt put right to 438,311 shares of Common Stock.
    
 
   
(2) Comprised of 3,074,199 shares of Common Stock held by the Soros
    Foundation-Hungary; 1,125,000 shares of Common Stock held by the Soros
    Charitable Foundation; 1,125,000 shares and warrants to purchase 3,333,333
    shares of Common Stock held by The Open Society Institute; 500,000 and
    250,000 shares of Common Stock held by Winston Partners II LDC and Winston
    Partners II LLC, respectively; warrants to purchase 375,371, 185,184 and
    555,555 shares of Common Stock held by Winston Partners II LDC, Winston
    Partners II LLC and Chatterjee Fund Management, respectively, all of which
    are affiliates of George Soros.
    
 
   
(3) Included 2,556,128 shares of Common Stock owned by Mr. Slifka and shares of
    Common Stock held in trust for a minor child; 2,513,682 shares of Common
    Stock owned by various Halcyon Partnerships which are managed by
    Halcyon/Alan B. Slifka Management Company LLC, of which Mr. Slifka is the
    Managing Principal and over which Mr. Slifka disclaims beneficial ownership;
    67,500 shares of Common Stock held by GTS 1995 Partners, LP; 4,500 shares of
    Common Stock held by Kevah Konner; and 49,500 shares of Common Stock owned
    by Randolf Slifka, Mr. Slifka's son and a principal of Halcyon/ Alan B.
    Slifka Management Company LLC, over which Mr. Slifka disclaims beneficial
    ownership.
    
 
(4) Shares of Common Stock held by funds managed by Emerging Markets Management.
 
(5) Shares of Common Stock held by funds managed by Morgan Stanley Asset
    Management.
 
   
(6) Includes 2,014,287 shares of Common Stock and warrants to purchase 3,333,333
    shares of Common Stock held by funds managed by affiliates of Capital
    Research International.
    
 
                                       112
<PAGE>   118
 
                      DESCRIPTION OF CERTAIN INDEBTEDNESS
 
   
     In 1996, the Company issued $40 million of notes (the "Chatterjee Notes")
to the Chatterjee Group, an affiliate of George Soros. In connection with the
issuance of the Chatterjee Notes, the Chatterjee Group received warrants (the
"Chatterjee Warrants") to purchase 4,444,443 shares of Common Stock. The
Chatterjee Warrants were initially issued with an exercise price of $10.27 per
share, which exercise price was subsequently reduced to $9.33 per share in
accordance with the terms of the warrant agreement. In addition, The Chatterjee
Group was granted the right to appoint one member to the Board of Directors and
collects a monitoring fee of $40,000 per month, which it will continue to
collect until the Company completes an initial public offering of the Company's
securities. The Chatterjee Group also has the right to co-invest with GTS in all
of its new ventures throughout Asia, excluding countries in the former Soviet
Union, and pursuant to this right has invested and holds a 25% interest in GTS
China Investments LLC. See "Business -- Asia -- Operations." The Chatterjee
Notes bear interest at 10% per annum and the principal is payable in 12
quarterly installments commencing April 1, 1998.
    
 
   
     In 1996, the Company also issued $30 million of notes (the "Capital
Research Notes") to Capital Research International. In connection with the
issuance of the Capital Research Notes, Capital Research International received
warrants (the "Capital Research Warrants") to purchase 3,333,333 shares of
Common Stock. The Capital Research Warrants were initially issued with an
exercise price of $10.27 per share, which exercise price was subsequently
reduced to $9.33 per share in accordance with of the warrant agreement. The
Capital Research Notes bear interest at 10% per annum and the principal is
payable in 12 quarterly installments commencing April 1, 1998.
    
 
     Both the Chatterjee Notes and the Capital Research Notes impose significant
covenants on the Company which covenants, among other things, limit the ability
of the Company and its subsidiaries to incur debt and pay dividends and require
the Company to maintain certain financial ratios.
 
   
     The Company sold approximately $144.8 million bonds ("Convertible Bonds")
in the Convertible Bond Offering. The Convertible Bonds have a three year
maturity and are unsecured, senior subordinated obligations of the Company. The
Convertible Bonds are issued pursuant to an indenture containing certain
covenants for the benefit of the holders of the Convertible Bonds, including,
among other things, covenants limiting the incurrence of indebtedness,
restricted payments, liens, payment restrictions affecting certain subsidiaries
and joint ventures, transactions with affiliates, assets sales and mergers and
combinations. In the event of a change of control of the Company, holders of the
Convertible Bonds have the right to require GTS to purchase such holder's
Convertible Bonds at a price ranging from 106.5 per cent. of the principal
amount if the date of redemption occurs on or before June 30, 1998 to 121.0 per
cent. of the principal amount if the date of redemption occurs after June 30,
1999. The Convertible Bonds bear interest at the rate of 8.75% per annum until
maturity on June 30, 2000.
    
 
     Each Convertible Bond is convertible into such number of shares of Common
Stock as is equal to the principal amount of such Convertible Bond divided by
the applicable Conversion Price. The applicable Conversion Prices shall be
determined as follows: (i) where a Complying Public Equity Offering has not been
preceded since the issuance of the Convertible Bonds by a Non-Complying Equity
Offering, the Conversion Price shall equal the per share price to the public in
the Complying Public Equity Offering, provided, however, that a 7% or 15%
discount will be given to Convertible Bond holders from the per share price to
the public if the Complying Public Equity Offering occurs during the second or
third year, respectively, from the date of issuance of the Bonds; (ii) where a
Complying Public Equity Offering has been preceded by one or more Non-Complying
Equity Offerings since the issuance of the Convertible Bonds, the Conversion
Price shall equal the lower of (a) the dollar-weighted average conversion price
for all of such Non-Complying Equity Offerings and the Complying Public Equity
Offering (as calculated for each such offering at the gross per share offering
price for the applicable offering, provided, however, that a 7% or 15% discount
will be included in the calculation if the closing dates of such offerings occur
during the second or third year, respectively from the date of issuance of the
Convertible Bonds) and (b) the conversion price for the Complying Public Equity
Offering (as calculated in (i) above); (iii) where a Non-Complying Public Equity
Offering of at least $50 million, which is not a Complying Public Equity
Offering solely by reason of the offering's failure to satisfy
 
                                       113
<PAGE>   119
 
the $100,000,000 offering size condition for a Complying Public Equity Offering,
has not been preceded by a Complying Public Equity Offering since the issuance
of the Bonds and has been preceded by one or more Non-Complying Equity
Offerings, the Conversion Price shall equal the lower of (a) the dollar-weighted
average conversion price for all of such Non-Complying Equity Offerings and the
Non-Complying Public Equity Offering (as calculated for each Non-Complying
Public Equity Offering at the per share offering price for the applicable
offering, provided, however, that a 7% or 15% discount will be included in the
calculation if the closing dates of such offerings occur during the second or
third year, respectively from the date of issuance of the Convertible Bonds) and
(b) the conversion price for the Non-Complying Public Equity Offering alone or
(iv) in the case of any other Non-Complying Equity Offering not provided for in
clause (iii) above, where no Complying Public Equity Offering has occurred since
the issuance of the Convertible Bonds, the Conversion Price shall equal the
lowest conversion price calculated for each Non-Complying Equity Offering (as
calculated for each such offering at the gross per share offering price
provided, however, that a 7% or 15% discount will be included in the calculation
if the closing dates of such offerings occur during the second or third year
from the date of issuance of the Convertible Bonds).
 
     There shall be excluded from the calculation of the applicable Conversion
Price any private equity offerings of Common Stock (made pursuant to an
exemption from registration under the Securities Act) aggregating no more than
$100 million in gross proceeds if such offering or offerings are consummated on
or prior to December 31, 1997 and certain private sales of the Common Stock to a
strategic purchaser so long as there has occurred a Complying Public Equity
Offering or a Non-Complying Equity Offering.
 
     Outstanding Convertible Bonds are, subject to certain conditions,
redeemable at the option of the Company on or after the second anniversary of a
Complying Public Equity Offering, at the principal amount thereof plus accrued
interest, if any. At maturity the Convertible Bonds will be redeemed at their
principal amount plus accrued interest; however, in the event that a Complying
Public Equity Offering has not occurred, outstanding Convertible Bonds will be
redeemed at 121% of their principal amount, plus accrued interest, if any.
 
     A "Complying Public Equity Offering" means a public offering of Common
Stock where, immediately following completion thereof, (a) the following
conditions are met: (i) the Company has made public offerings of Common Stock
with a cumulative public offering price of at least $100,000,000 to an aggregate
of not less than 50 purchasers; (ii) the Common Stock has been listed or shall
be listed in connection with the offering on either the New York Stock Exchange,
the London Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; and (iii) the Company shall have registered additional shares of Common
Stock from private offerings of Common Stock (made pursuant to an exemption from
registration under the Securities Act) with a market value of at least
$100,000,000 calculated using the offering price in the Complying Public Equity
Offering and (b) the aggregate number of shares of Common Stock sold thereby,
together with any Common Stock sold in any prior public offerings plus the
number of shares of Common Stock into which the Convertible Bonds may be
converted (calculated as if such conversion were to be effected on the date of
determination) does not exceed 50 percent of the total number of shares of
Common Stock outstanding on a fully diluted basis. A "Non-Complying Public
Equity Offering" means a public equity offering of Common Stock which satisfies
all of the conditions specified in (a) above, except that the cumulative public
offering price is less than $100,000,000. A "Non-Complying Equity Offering"
means (i) a private offering of Common Stock or (ii) a public offering of Common
Stock that is not a Complying Public Equity Offering.
 
   
     H.E.R. sold $265 million aggregate principal amount of 11 1/2% Senior Notes
due 2007 ("H.E.R. Notes") in August, 1997. The H.E.R. Notes have a ten year
maturity and are unsecured, senior obligations of H.E.R. H.E.R. placed
approximately $56.5 million of the net proceeds of the Offering in escrow for
the first two years' interest payments on the H.E.R. Notes. The H.E.R. Notes
were issued pursuant to an indenture containing certain covenants for the
benefit of the holders of H.E.R. Notes, including, among other things, covenants
limiting the incurrence of indebtedness, restricted payments, liens, payment
restrictions affecting certain subsidiaries and joint ventures, transactions
with affiliates, assets sales and mergers. The H.E.R. Notes are redeemable in
whole or part, at the option of H.E.R. at any time on or after August 15, 2002
at a price ranging from 105.75 percent to 100.0 percent of the principal amount.
    
 
                                       114
<PAGE>   120
 
   
     The H.E.R. Notes are also redeemable at any time or from time to time prior
to August 15, 2000 at a redemption price equal to 111.5% of the principal amount
of the H.E.R. Notes so redeemed, plus accrued and unpaid interest thereon, if
any, to the date of redemption with the net cash proceeds of one or more public
equity offerings or strategic equity investments resulting in aggregate gross
cash proceeds to H.E.R. of at least $75 million. In the event of a change of
control of H.E.R., holders of the H.E.R. Notes have the right to require H.E.R.
to purchase such holder's H.E.R. Notes at a price equal to 101% of the aggregate
principal amount.
    
 
                                       115
<PAGE>   121
 
                          DESCRIPTION OF CAPITAL STOCK
 
   
     The Company's authorized capital stock consists of 135,000,000 shares of
Common Stock, par value $0.10 per share, of which 37,378,785 shares were issued
and outstanding as of October 1, 1997, and 10,000,000 shares of preferred stock,
par value $1.00 per share (the "Preferred Stock"), none of which is outstanding.
The following summary of the rights, privileges, restrictions and conditions of
each of the classes of shares issued by the Company does not purport to be
complete and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Certificate of Incorporation and By-laws, and to
the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL").
    
 
COMMON STOCK
 
   
     Holders of Common Stock are entitled to one vote for one share held of
record on all matters upon which shareholders have the right to vote. There are
no cumulative voting rights. All issued and outstanding shares of Common Stock
are, and the Offered Shares, when issued and paid for, will be, validly issued,
fully paid and non-assessable. Holders of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available for that purpose. See "Dividend Policy." Upon
dissolution, holders of Common Stock are entitled to share pro rata in the
assets of the Company remaining after payment in full of all of its liabilities
and obligations, including payment of the liquidation preference, if any, of any
Preferred Stock then outstanding.
    
 
PREFERRED STOCK
 
     The Board of Directors may authorize the issuance of one or more series of
Preferred Stock having such rights, including voting, conversion and redemption
rights, and such preferences, including dividend and liquidation preferences, as
the Board may determine, without further action by the stockholders of the
Company.
 
   
     The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of Common Stock. For example, the issuance of
Preferred Stock could result in a series of securities outstanding that would
have preferences over the Common Stock with respect to dividends and in
liquidation and that could, upon conversion or otherwise, enjoy all the rights
appurtenant to the Common Stock.
    
 
PRIOR PURCHASE AGREEMENTS
 
     The Company and certain investors ("Prior Shareholders") have previously
entered into stock purchase agreements on (i) April 23, 1993 (the "1993 Stock
Purchase Agreement"), (ii) April 22, 1994 and June 17, 1994 (collectively, the
"1994 Stock Purchase Agreements"), (iii) a series of dates in 1995 (the "1995
Stock Purchase Agreements"), (iv) a series of dates in 1996 (the "1996 Stock
Purchase Agreements"), (v) a series of dates in 1997 (the "1997 Stock Purchase
Agreements" and, together with the 1993 Stock Purchase Agreement, the 1994 Stock
Purchase Agreements, the 1995 Stock Purchase Agreements and the 1996 Stock
Purchase Agreements, the "Prior Purchase Agreements"). The Prior Purchase
Agreements contain, among other things, certain registration and other rights
granted by the Company with respect to such Common Stock described below.
 
   
     Registration Rights. Pursuant to the terms of the Prior Purchase
Agreements, Prior Shareholders holding an aggregate of 19,593,901 shares of
Common Stock are entitled to certain demand registration rights with respect to
the Common Stock held by them ("Demand Registration Rights") following the
initial offering of the Company's securities to the general public. In addition
to the Demand Registration Rights, Prior Shareholders are, subject to certain
limitations, entitled to register shares of Common Stock in connection with a
registration statement prepared by the Company to register its equity
securities. Holders who purchased pursuant to the 1993 Stock Purchase Agreement
may also register their shares of Common Stock in connection with a registered
sale of Common Stock by a Major Shareholder (as that term is defined in the 1993
Stock Purchase Agreement). All of the registration rights of the Prior
Shareholders are subject to certain conditions and limitations described in the
Prior Purchase Agreements.
    
 
                                       116
<PAGE>   122
 
     Rights of First Refusal and Tag-Along Rights. Under the Prior Purchase
Agreements, Prior Shareholders have certain rights of first refusal to purchase
pro rata any issue of New Securities (as that term is defined in the Prior
Purchase Agreements) which the Company thereafter may from time to time propose
to issue and sell, other than in connection with certain types of transactions
and to certain types of excluded purchasers. Termination of such rights will
occur upon the earlier of the closing of an initial public offering pursuant to
an effective registration statement under the Act or, as to any Prior
Shareholder, when such Prior Shareholder no longer owns all the shares it
originally purchased.
 
     The Prior Purchase Agreements further provide that, in the case of a sale
by the Major Shareholders as a group of all their Major Shareholders' Shares (as
those terms are defined in the Prior Purchase Agreements), holders under the
Prior Purchase Agreements may elect to participate in that sale as well.
 
   
SECTION 145 OF DGCL AND CERTAIN CHARTER PROVISIONS
    
 
   
     Section 145 of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Section 145 further provides that a corporation similarly
may indemnify any such person serving in any such capacity who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor, against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
    
 
   
     Section 102(b)(7) or the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
    
 
   
     The Company's Certificate of Incorporation (the "Certificate") provides
that the Company's Directors shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided, however, that such exculpation from liabilities is not permitted with
respect to liability arising from items described in clauses (i) through (iv) in
the preceding paragraph. The Certificate and the Company's By-Laws further
provide that the Company shall indemnify its directors and officers to the
fullest extent permitted by the DGCL.
    
 
   
     The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
    
 
                                       117
<PAGE>   123
 
   
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW AND CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION
    
 
     Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder", which is defined as a person who,
together with any affiliates or associates of such person, beneficially owns,
directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value in excess of 10% of the consolidated assets
of the corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder becomes an interested stockholder, unless (i)
the business combination is approved by the corporation's board of directors
prior to the date the interested stockholder becomes an interested stockholder,
(ii) the interested stockholder acquired at least 85% of the voting stock of the
corporation (other than stock held by directors who are also officers or by
certain employee stock plans) in the transaction in which it becomes an
interested stockholder or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
 
   
     In addition, the Company's Certificate of Incorporation grants the Board of
Directors of the Company the authority to issue up to 10,000,000 shares of
preferred stock in one or more series and to determine the rights, voting
powers, dividend rate, conversion rights, redemption price, liquidation
preference and other terms of such preferred stock without any further vote or
action by the stockholders. The foregoing provisions of Section 203 of the DGCL
and the Company's Certificate of Incorporation, and any issuance of preferred
stock with voting or conversion rights, may adversely affect the voting power of
the holders of Common Stock and may have the effect of delaying or preventing a
change of control of the Company or adversely affect the market price of the
Company's Common Stock.
    
 
                                       118
<PAGE>   124
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
   
     Upon the completion of the Offerings, there will be           shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option and excluding 9,896,019 shares covered by vested options
and warrants outstanding at June 30, 1997. Of the outstanding shares, the
          shares registered in the Offerings and 13,582,764 additional shares
will be freely tradable without restriction under the Securities Act, except
that any shares purchased in the Offerings by "affiliates" of the Company may
generally only be resold in compliance with applicable provisions of Rule 144.
Beginning 90 days after the date of this Prospectus, an additional 23,361,744
shares will be eligible for sale in the public market, subject to compliance
with applicable provisions of Rule 144.
    
 
     The Company and its directors, executive officers and certain stockholders
have agreed, subject to certain exceptions, not to (i) grant any option to
purchase or otherwise transfer or dispose of any Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other agreement or transaction that transfers, in whole or in
part, the economic consequences of ownership of the Common Stock without the
prior written consent of Merrill Lynch for a period of 180 days after the date
of this Prospectus. See "Underwriting." The shares covered by the lock-up
agreements include approximately      shares of Common Stock that would
otherwise have become immediately eligible for resale in the public market upon
completion of the Offerings and approximately           shares of Common Stock
that would otherwise have become eligible for resale in the public market
beginning 90 days after the date of this Prospectus, subject to the requirements
of Rule 144.
 
     In general, under Rule 144 as currently in effect, beginning 25 days after
the date of this Prospectus, a person (or persons whose shares of the Company
are required to be aggregated) who has been deemed to have owned shares of an
issuer for at least one year, including an "affiliate," is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the then outstanding number of shares of such class or the
average weekly trading volume in composite trading in all national securities
exchanges during the four calendar weeks preceding the filing of the required
notice of such sale. A person (or persons whose shares of the Company are
required to be aggregated) who is not deemed an affiliate of an issuer at the
time of the sale and for at least three months prior to the sale and who has
owned shares for at least two years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above. Affiliates
continue to be subject to such limitations. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, such issuer.
 
     The Offerings will constitute a Complying Public Equity Offering under the
terms of the Convertible Bonds. As a result, the Convertible Bonds will be
convertible into Common Stock at any time and from time to time following the
completion of the Offerings. Assuming a public offering price of           , the
Convertible Bonds initially will be convertible into           shares of Common
Stock. See "Description of Certain Indebtedness."
 
   
     The holders of approximately 31,224,790 shares of Common Stock, warrants to
purchase 7,777,776 shares of Common Stock and shares of Common Stock received by
holders of Convertible Bonds upon conversion are entitled to certain demand and
piggy-back registration rights in respect of their shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Common Stock. See "Description of Capital
Stock -- Prior Purchase Agreements -- Registration Rights."
    
 
     Prior to the Offerings, there has been no established market for the Common
Stock and no predictions can be made about the effect, if any, that future sales
of Common Stock or the availability of the Common Stock for sale would have on
the market price prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, may have an adverse impact on the market price for the Common Stock.
 
                                       119
<PAGE>   125
 
                 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
                            TO NON-U.S. STOCKHOLDERS
 
     The following is a summary of the principal United States federal income
and estate tax considerations with respect to the ownership and disposition of
shares of Common Stock by "Non-U.S. Holders." This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations thereunder and administrative and judicial interpretations
thereof (all as currently in effect and all of which are subject to change,
possibly with retroactive effect). This summary does not address all United
States federal income and estate tax consequences that may be relevant to a
non-U.S. Holder in light of its particular circumstances or to certain Non-U.S.
Holders that may be subject to special treatment under United States federal
income tax laws, such as banks, insurance companies, tax-exempt entities and
certain United States expatriates. Furthermore, the following discussion does
not discuss any aspects of foreign, state or local taxation. As used herein, the
term "Non-U.S. Holder" means a holder of Common Stock that for U.S. federal
income tax purposes is not (i) a citizen or individual resident of the United
States; (ii) a corporation or partnership created or organized in or under the
laws of the United States or any political subdivision thereof; (iii) an estate
the income of which is subject to United States federal income tax regardless of
its source; or (iv) a trust if both: (A) a court within the United States is
able to exercise primary supervision over the administration of the trust and
(B) one or more United States persons have the authority to control all
substantial decisions of the trust. EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO
CONSULT ITS OWN TAX ADVISER WITH RESPECT TO THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS
WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR OTHER
TAXING JURISDICTION.
 
DIVIDENDS
 
     Dividends that are paid by a U.S. corporation to a Non-U.S. Holder and that
are not effectively connected with a trade or business carried on by such
Non-U.S. Holder in the United States (or, if certain tax treaties apply,
attributable to a permanent establishment therein maintained by the Non-U.S.
Holder) generally are subject to a 30% U.S. withholding tax. Relief from such
withholding exists with respect to dividends paid to Non-U.S. Holders by a U.S.
corporation (an "80/20 company") if at least 80% of the gross income derived by
such corporation (either directly or through certain of its subsidiaries) during
the applicable testing period is "active foreign business income," as defined in
section 861 of the Code. Under the provisions of the Code applicable to 80/20
companies, the proportion of an 80/20 company's dividends equal to such
company's total gross income from foreign sources over its total gross income is
exempt from U.S. withholding tax. At present, the Company believes that it
qualifies as an 80/20 company. However, the 80% active foreign business income
test is applied on a periodic basis, and operations and business plans of the
Company may change in subsequent taxable years. Therefore, no assurances can be
made regarding the Company's future status as an 80/20 company. If, for any
period or periods, the Company fails to satisfy the requirements applicable to
an 80/20 company, the withholding agent generally would be required to withhold
tax from all distributions paid on the Common Stock regardless of the Company's
earnings and profits. Holders could, however, apply for refunds if such Common
Stock's share of the Company's earnings and profits is less than the amount of
the distributions. Additionally, the rate of withholding may be reduced to the
extent provided by a tax treaty between the United States and the country of
which the Non-U.S. Holder is a resident for tax purposes.
 
     Dividends effectively connected with a trade or business carried out in the
United States by such Non-U.S. Holders or attributable to a permanent
establishment in the United States of such Non-U.S. Holder generally will not be
subject to U.S. withholding tax and generally will be subject to United States
federal income tax on a net income basis in the same manner as if the Non-U.S.
Holder were a resident of the United States. A Non-U.S. Holder that is a
corporation may be subject to an additional branch profits tax at a rate of 30%
(or such lower rate as may be specified by an applicable treaty). A Non-U.S.
Holder of Common Stock may be required to comply with certain certification and
disclosure requirements in order to claim an exemption from or a reduction of
withholding under the rules described herein.
 
                                       120
<PAGE>   126
 
GAIN ON DISPOSITION
 
     A Non-U.S. Holder generally will not be subject to United States federal
income tax (and no tax will generally be withheld) on any gain recognized upon
the disposition of Common Stock unless (i) the gain is effectively connected
with the conduct of a trade or business within the United States of the Non-U.S.
Holder and, if certain tax treaties apply, attributable to a permanent
establishment maintained within the United States by the Non-U.S. Holder; (ii)in
the case of a Non-U.S. Holder who is a nonresident alien individual and who
holds shares as capital assets, such individual is present in the United States
for 183 days or more in the taxable year of the disposition and certain other
conditions are satisfied; or (iii) the Company is or has been a "U.S. real
property holding corporation" for United States federal income tax purposes
(which the Company does not believe that it has been, or is likely to become).
 
BACKUP WITHHOLDING
 
     Payments in respect of Common Stock may be subject to a 31% U.S. backup
withholding tax. Backup withholding will not apply, however, to a holder who
furnishes a correct taxpayer identification number or certificate of foreign
status and makes any other required certification or who is otherwise exempt
from backup withholding. Backup withholding is not an additional tax and may be
claimed as a credit against the U.S. federal income tax liability, if any, of a
Non-U.S. Holder, provided that the required information is furnished to the U.S.
Internal Revenue Service.
 
FEDERAL ESTATE TAX
 
     Shares of Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as defined for United States federal estate tax
purposes) of the United States at the time of death will be includable in the
individual's gross estate for United States federal estate tax purposes unless
an applicable estate tax treaty provides otherwise and, therefore, may be
subject to United States federal estate tax.
 
                                       121
<PAGE>   127
 
                                  UNDERWRITING
 
     Subject to the terms and conditions set forth in a U.S. purchase agreement
(the "U.S. Purchase Agreement") among the Company and each of the underwriters
named below (the "U.S. Underwriters") and concurrently with the sale of
          shares of Common Stock to the International Managers (as defined
below), the Company has agreed to sell to each of the U.S. Underwriters, and
each of the U.S. Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette Securities
Corporation, UBS Securities LLC, Lehman Brothers Inc. and Furman Selz LLC are
acting as representatives (the "U.S. Representatives"), has severally agreed to
purchase from the Company, the number of shares of Common Stock set forth
opposite its name below.
 
<TABLE>
<CAPTION>
                                                               NUMBER
                     U.S. UNDERWRITERS                        OF SHARES
                     -----------------                        ---------
<S>                                                           <C>
Merrill Lynch, Pierce, Fenner & Smith
             Incorporated...................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
UBS Securities LLC..........................................
Lehman Brothers Inc.........................................
Furman Selz LLC.............................................
 
              Total.........................................
</TABLE>
 
     The Company has also entered into an international purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International, UBS
Limited, Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers
and ING Bank N.V. are acting as representatives (the "International
Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of
shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the Company has agreed to sell to the International Managers, and the
International Managers severally have agreed to purchase, an aggregate of
       shares of Common Stock. The initial public offering price per share and
the underwriting discount per share of Common Stock are identical under the U.S.
Purchase Agreement and the International Purchase Agreement.
 
     In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers, respectively have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all the shares of
Common Stock offered hereby, if any are purchased. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated. The sale of Common Stock to the U.S.
Underwriters is conditioned upon the sale of shares of Common Stock to the
International Managers, and vice versa.
 
     The Company has appointed Merrill Lynch & Co. as Global Coordinator and UBS
Securities LLC as Co-Global Coordinator of the Offerings. Merrill Lynch & Co. is
the bookrunner of the Offerings.
 
     The U.S. Underwriters and the International Managers have entered into an
Intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price set forth on the cover
 
                                       122
<PAGE>   128
 
page of this Prospectus, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Common Stock will not offer to sell or sell
shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to
persons they believe intend to resell to persons who are non-U.S. or
non-Canadian persons, and the International Managers and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to U.S. persons or Canadian persons or to persons they believe intend to
resell to U.S. persons or Canadian persons, except, in each case, for
transactions pursuant to the Intersyndicate Agreement.
 
     The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $          per share of Common Stock. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $          per share of
Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
 
   
     The Company, its directors, executive officers and certain stockholders
have agreed, subject to certain exceptions, not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Common Stock or any
securities convertible into or exchangeable or exercisable for any shares of
Common Stock or request the filing of any registration statement under the
Securities Act, with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of Common Stock,
whether any such swap transaction is to be settled by delivery of the Common
Stock or other securities, in cash or otherwise without the prior written
consent of Merrill Lynch, on behalf of the Underwriters, for a period of 180
days after the date of this Prospectus. In addition, all existing stockholders
have agreed not to make any demand for or exercise any rights with respect to
the registration of Common Stock and have waived all rights (including demand
and "piggyback" registration rights) to register securities owned by them for
such 180 day period and rights to purchase additional shares of Common Stock in
connection with the Offerings. See "Shares Eligible for Future Sale."
    
 
     The Company has granted an option to the U.S. Underwriters, exercisable for
30 days after the date of this Prospectus, to purchase up to an aggregate of
          additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The U.S. Underwriters may exercise this option only to cover over-allotments, if
any, made on the sale of the Common Stock offered hereby. To the extent that the
U.S. Underwriters exercise this option, each U.S. Underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares of
Common Stock proportionate to such U.S. Underwriter's initial amount reflected
in the foregoing table. The Company has also granted an option to the
International Managers, exercisable for 30 days after the date of this
Prospectus, to purchase up to an additional           shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to U.S.
Underwriters.
 
     Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined through negotiations between the Company and the U.S.
Representatives. Among the factors considered in determining the initial public
offering price, in addition to prevailing market conditions, are the financial
and operating history and condition of the Company, an assessment of the
Company's business and financial prospects, the Company's management, the
prospects for the industry in which the Company operates and the recent market
prices of securities of companies in industries similar to that of the Company.
The initial public offering price set forth on the cover page of this Prospectus
should not, however, be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the offering made hereby at or above the initial public
offering price.
 
                                       123
<PAGE>   129
 
     The Company has agreed to indemnify the several U.S. Underwriters and the
International Managers against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
 
     The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
 
     Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
 
     If the Underwriters create a short position in the Common Stock in
connection with the Offerings, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S.
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
 
     The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the Underwriters and
selling group members who sold those shares as part of the Offering.
 
     In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
 
     Neither the Company nor any of the Underwriters makes any representation or
prediction, however, as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transaction or
that such transactions, once commenced, will not be discontinued without notice.
 
     Application will be made to list the Common Stock on the Nasdaq National
Market under the symbol "GTSG" and for listing on the              Stock
Exchange.
 
     Certain of the Underwriters have been engaged from time to time, and may in
the future be engaged, to perform financial advisory and other investment
banking services to the Company and its affiliates. In connection with rendering
such services in the past, such Underwriters have received customary
compensation, including reimbursement of related expenses.
 
                                 LEGAL MATTERS
 
     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Shearman & Sterling, New York, New York and for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
 
                                       124
<PAGE>   130
 
                                    EXPERTS
 
     The consolidated financial statements of Global TeleSystems Group, Inc. as
of December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, included in this Prospectus appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young, LLP,
independent auditors, as set forth in their report appearing elsewhere herein
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
 
     The consolidated financial statements of EDN Sovintel as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, included in this Prospectus appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young (CIS) Ltd., independent auditors
as set forth in their report appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
 
     The consolidated financial statements of Hermes Europe Railtel B.V. as of
December 31, 1996 and 1995, and for each of the two years in the period ended
December 31, 1996, included in this Prospectus appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young Reviseurs
d'Entreprises S.C.C., independent auditors, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
 
                                       125
<PAGE>   131
 
                         INDEX TO FINANCIAL STATEMENTS
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                         YEAR END FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-3
Consolidated Balance Sheets as of December 31, 1995 and
  1996......................................................  F-4
Consolidated Statements of Operations for the years ended
  December 31, 1994, 1995, and 1996.........................  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1994, 1995, and 1996.........................  F-6
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 1994, 1995, and 1996.............  F-7
Notes to Consolidated Financial Statements..................  F-8
 
               SECOND QUARTER FINANCIAL STATEMENTS
 
Condensed, Consolidated Balance Sheets as of December 31,
  1996 and June 30, 1997....................................  F-26
Condensed, Consolidated Statements of Operations for the six
  months ended June 30, 1996 and 1997.......................  F-27
Condensed, Consolidated Statements of Cash Flows for the six
  months ended June 30, 1996 and 1997.......................  F-28
Notes to Condensed, Consolidated Financial Statements.......  F-29
</TABLE>
 
                           EDN SOVINTEL
                  YEAR END FINANCIAL STATEMENTS
 
Report of Ernst & Young (CIS) Limited, Independent
  Auditors..................................................  F-34
Balance Sheets as of December 31, 1996 and 1995.............  F-35
Statements of Income and Retained Earnings for the years
  ended December 31, 1996, 1995, and 1994...................  F-36
Statements of Cash Flows for the years ended December 31,
  1996, 1995, and 1994......................................  F-37
Notes to Financial Statements...............................  F-38
 
               SECOND QUARTER FINANCIAL STATEMENTS
 
Condensed Balance Sheets as of December 31, 1996 and June
  30, 1997..................................................  F-47
Condensed Statements of Operations for the six months ended
  June 30, 1996 and 1997....................................  F-48
Condensed Statements of Cash Flows for the six months ended
  June 30, 1996 and 1997....................................  F-49
Notes to Condensed Financial Statements.....................  F-50
 
                                       F-1
<PAGE>   132
                    HERMES EUROPE RAILTEL B.V.
                  YEAR END FINANCIAL STATEMENTS
Report of Ernst & Young Reviseurs d'Entreprises S.C.C.,
  Independent Auditors......................................  F-53
Consolidated Balance Sheets as of December 31, 1995 and
  1996......................................................  F-54
Consolidated Statements of Operations for the years ended
  December 31, 1994, 1995 and 1996 and from inception (July
  6, 1993) to December 31, 1996.............................  F-55
Consolidated Statements of Cash Flows for the years ended
  December 31, 1994, 1995 and 1996 and from inception (July
  6, 1993) to December 31, 1996.............................  F-56
Consolidated Statements of Shareholders' Equity from
  inception (July 6, 1993) to December 31, 1993 and for the
  years ended December 31, 1994, 1995 and 1996..............  F-57
Notes to Consolidated Financial Statements..................  F-58
 
               SECOND QUARTER FINANCIAL STATEMENTS
Condensed, Consolidated Balance Sheets as of December 31,
  1996 and June 30, 1997....................................  F-67
Condensed, Consolidated Statements of Operations for the six
  months ended June 30, 1996 and 1997.......................  F-68
Condensed, Consolidated Statements of Cash Flows for the six
  months ended June 30, 1996 and 1997.......................  F-69
Notes to the Condensed Consolidated Financial Statements....  F-70
 
                                       F-2
<PAGE>   133
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors
Global TeleSystems Group, Inc.
 
     We have audited the accompanying consolidated balance sheets of Global
TeleSystems Group, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, cash flows, and shareholders' equity for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Global
TeleSystems Group, Inc. at December 31, 1995 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
 
                                            /s/ ERNST & YOUNG LLP
 
Washington, D.C.
March 31, 1997
 
                                       F-3
<PAGE>   134
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
   
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1995        1996
                                                              --------    ---------
                                                                 (IN THOUSANDS,
                                                               EXCEPT SHARE DATA)
<S>                                                           <C>         <C>
Current assets
  Cash and cash equivalents.................................  $  9,044    $  57,874
  Accounts receivable, less allowance for doubtful accounts
     of $30 and $782 at December 31, 1995 and 1996..........     2,972        8,920
  Restricted cash...........................................        --       13,627
  Prepaid expenses..........................................     1,932        2,537
  Other assets..............................................     4,189        2,187
                                                              --------    ---------
          Total current assets..............................    18,137       85,145
Notes receivable............................................        84          209
Property and equipment, net.................................    29,523       35,463
Investments in and advances to ventures.....................    56,153      104,459
Goodwill and intangible assets, net of accumulated
  amortization of $1,983 and $3,916 at December 31, 1995 and
  1996......................................................     8,681        9,548
Restricted cash.............................................     3,043        2,554
                                                              --------    ---------
          TOTAL ASSETS......................................  $115,621    $ 237,378
                                                              ========    =========
 
                       LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities
  Accounts payable..........................................  $  8,705    $   6,761
  Accrued compensation......................................     2,339        3,151
  Other accrued expenses....................................     6,029        5,299
  Debt maturing within one year.............................    14,580       27,437
  Other current liabilities.................................       957        2,040
                                                              --------    ---------
          Total current liabilities.........................    32,610       44,688
Long-term debt, less current portion (principally related
  party debt)...............................................    12,874       58,110
Taxes and other non-current liabilities.....................     9,542       14,664
                                                              --------    ---------
          TOTAL LIABILITIES.................................    55,026      117,462
Commitments and contingencies
Minority interest...........................................     1,936        1,915
Common stock, subject to repurchase (216,667 shares
  outstanding)..............................................     3,337        4,333
                               SHAREHOLDERS' EQUITY
 
Preferred stock, $0.0001 par value (10,000,000 shares
  authorized; none issued and outstanding)..................        --           --
Common stock, $0.0001 par value (40,000,000 and 60,000,000
  shares authorized; 17,469,839 and 23,059,404 shares issued
  and outstanding, net of 50,000 and 77,759 shares of
  treasury stock at December 31, 1995 and 1996).............         2            2
Additional paid-in capital..................................   114,762      241,725
Cumulative translation adjustment...........................    (1,535)      (2,161)
Accumulated deficit.........................................   (57,907)    (125,898)
                                                              --------    ---------
          TOTAL SHAREHOLDERS' EQUITY........................    55,322      113,668
                                                              --------    ---------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........  $115,621    $ 237,378
                                                              ========    =========
</TABLE>
    
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-4
<PAGE>   135
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1994        1995        1996
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
Revenues, net:
  Telecommunication and other services.....................  $  1,295    $  5,979    $ 19,210
  Equipment sales..........................................     1,173       2,433       4,907
                                                             --------    --------    --------
                                                                2,468       8,412      24,117
                                                             --------    --------    --------
Operating costs and expenses:
  Cost of revenues:
     Telecommunication and other services..................     1,474       8,150      14,741
     Equipment sales.......................................       971         246       4,200
  Selling, general and administrative......................    12,863      41,014      52,928
  Equity in losses of ventures.............................       135       7,871      10,150
                                                             --------    --------    --------
                                                               15,443      57,281      82,019
                                                             --------    --------    --------
Loss from operations.......................................   (12,975)    (48,869)    (57,902)
Other income/(expense):
  Other non-operating income...............................        --      10,270          --
  Interest income..........................................     1,189       2,177       3,569
  Interest expense.........................................      (100)       (728)    (11,122)
  Foreign currency losses..................................       (99)       (685)     (1,176)
                                                             --------    --------    --------
                                                                  990      11,034      (8,729)
                                                             --------    --------    --------
Net loss before income taxes...............................   (11,985)    (37,835)    (66,631)
Income taxes...............................................        --       2,565       1,360
                                                             --------    --------    --------
Net loss...................................................  $(11,985)   $(40,400)   $(67,991)
                                                             ========    ========    ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-5
<PAGE>   136
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1994        1995        1996
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
OPERATING ACTIVITIES
Net loss...................................................  $(11,985)   $(40,400)   $(67,991)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization............................       576       3,721       7,444
  Amortization of discount on note payable.................        --          --       3,598
  Equity in losses of ventures, net of dividends
     received..............................................       135       7,871      11,123
  Other non-operating income...............................        --     (10,270)         --
  Deferred interest........................................        --          --       6,583
  Other....................................................         8       1,960         729
  Changes in assets and liabilities, excluding effects of
     acquisitions and ventures:
     Accounts receivable...................................       (15)     (1,396)     (6,698)
     Prepaid expenses......................................        --        (438)       (605)
     Accounts payable and accrued expenses.................     4,184      12,647      (1,862)
     Other changes in assets and liabilities...............    (7,615)     19,744       8,207
                                                             --------    --------    --------
Net cash used in operating activities......................   (14,712)     (6,561)    (39,472)
INVESTING ACTIVITIES
  Investments in and advances to ventures..................   (14,213)    (45,102)    (54,932)
  Purchases of property and equipment......................    (6,375)    (23,084)    (10,987)
  Restricted cash..........................................      (500)     (2,543)    (13,138)
  Acquisitions, net of cash acquired.......................        --      (1,871)         --
  Goodwill and other intangibles...........................        --      (6,960)     (3,264)
  Other investing activities...............................        --       2,069        (125)
                                                             --------    --------    --------
Net cash used in investing activities......................   (21,088)    (77,491)    (82,446)
FINANCING ACTIVITIES
  Proceeds from debt.......................................        --      23,325      63,599
  Net proceeds from issuance of common stock...............    62,108      42,175     107,775
  Other financing activities...............................      (190)       (750)         --
                                                             --------    --------    --------
Net cash provided by financing activities..................    61,918      64,750     171,374
Effect of exchange rate changes on cash and cash
  equivalents..............................................      (124)     (1,289)       (626)
                                                             --------    --------    --------
Net increase (decrease) in cash and cash equivalents.......    25,994     (20,591)     48,830
Cash and cash equivalents at beginning of year.............     3,641      29,635       9,044
                                                             --------    --------    --------
Cash and cash equivalents at end of year...................  $ 29,635    $  9,044    $ 57,874
                                                             ========    ========    ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-6
<PAGE>   137
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
 
<TABLE>
<CAPTION>
                                         COMMON STOCK     ADDITIONAL   CUMULATIVE                      TOTAL
                                        ---------------    PAID-IN     TRANSLATION   ACCUMULATED   SHAREHOLDERS'
                                        SHARES   AMOUNT    CAPITAL     ADJUSTMENT      DEFICIT        EQUITY
                                        ------   ------   ----------   -----------   -----------   -------------
                                                                     (IN THOUSANDS)
<S>                                     <C>      <C>      <C>          <C>           <C>           <C>
Balance at December 31, 1993..........   6,153    $  1     $ 10,328      $  (122)     $  (5,522)     $  4,685
  Proceeds from the sale of common
     stock, net of expense of
     $3,649...........................   7,667      --       62,082           --             --        62,082
  Other...............................      34      --           26           --             --            26
  Translation adjustment..............      --      --           --         (124)            --          (124)
  Net loss............................      --      --           --           --        (11,985)      (11,985)
                                        ------    ----     --------      -------      ---------      --------
Balance at December 31, 1994..........  13,854       1       72,436         (246)       (17,507)       54,684
  Proceeds from the sale of common
     stock, net of expenses of
     $3,680...........................   3,394       1       42,137           --             --        42,138
  Issuance of 370 warrants in
     connection with debt financing...      --      --          564           --             --           564
  Issuance of common stock, subject to
     repurchase.......................     267      --           --           --             --            --
  Accretion of common stock, subject
     to repurchase....................      --      --         (412)          --             --          (412)
  Other...............................     (45)     --           37           --             --            37
  Translation adjustment..............      --      --           --       (1,289)            --        (1,289)
  Net loss............................      --      --           --           --        (40,400)      (40,400)
                                        ------    ----     --------      -------      ---------      --------
Balance at December 31, 1995..........  17,470       2      114,762       (1,535)       (57,907)       55,322
  Proceeds from the sale of common
     stock, net of expenses of
     $3,567...........................   5,566      --      107,744           --             --       107,744
  Net issuance of 4,815 warrants in
     connection with debt financing...      --      --       20,184           --             --        20,184
  Accretion of common stock, subject
     to repurchase....................      --      --         (996)          --             --          (996)
  Other...............................      23      --           31           --             --            31
  Translation adjustment..............      --      --           --         (626)            --          (626)
  Net loss............................      --      --           --           --        (67,991)      (67,991)
                                        ------    ----     --------      -------      ---------      --------
Balance at December 31, 1996..........  23,059    $  2     $241,725      $(2,161)     $(125,898)     $113,668
                                        ======    ====     ========      =======      =========      ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-7
<PAGE>   138
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1:  NATURE OF BUSINESS OPERATIONS
 
     Global TeleSystems Group, Inc. ("GTS" or the "Company"), is a provider of a
broad range of telecommunications services to businesses, other
telecommunications service providers and consumers through its operation of
voice and data networks, international gateways, local access and cellular
networks and the provision of various value-added services in the Commonwealth
of Independent States ("CIS"), primarily Russia, Central Europe, and India and
China ("Asia"). The Company, through two of its ventures, is also building a new
infrastructure for transporting international voice, data and video traffic for
other carriers throughout Western Europe and for worldwide international voice,
data and video traffic that either originates or terminates in, or transits
through, Western Europe. See further discussion of the Company's business
operations within Note 3, "Investments In and Advances to Ventures," and Note
13, "Segment Information and Certain Geographical Data."
 
     Certain of the Company's ventures are in the early stages of operations in
the telecommunications industry. The Company's businesses are developing
rapidly; some in countries with an emerging economy which by nature have an
uncertain economic, political and regulatory environment. The general risks of
operating businesses in the CIS and other developing countries include the
possibility for rapid change in government policies, economic conditions, the
tax regime and foreign currency regulations.
 
     The ultimate recoverability of the Company's investments in and advances to
ventures is dependent on many factors including, but not limited to, the
economies of the countries in which it does business; the ability of the Company
to maintain the necessary telecommunications licenses; and the ability of the
Company to obtain sufficient financing to continue to meet its capital and
operational commitments.
 
     The Company had a working deficit of approximately $14.5 million and
working capital of approximately $40.5 million as of December 31, 1995 and 1996,
respectively. The Company has an accumulated deficit of $125.9 million as of
December 31, 1996, including a net loss of approximately $68.0 million for the
year then ended. During 1997, the Company expects to incur substantial
expenditures to fund the working capital requirements of its ventures, to
provide for capital equipment for certain of its ventures, and to engage in new
development and acquisitions. The Company's working capital at December 31,
1996, plus its anticipated cash flows from operations for 1997, will not be
sufficient to meet such objectives as presently planned.
 
     Management recognizes that the Company must generate additional capital
resources in order to continue its operations and meet its new development
initiatives. The Company is pursuing other equity and debt financing sources and
has entered into substantive negotiations with various financial institutions in
order to obtain further debt and/or equity financing. The Company has also
retained independent consultants to assist it in identifying other entities
interested in entering into strategic partnerships relative to its
telecommunications properties and new development initiatives. If the Company is
not successful in closing debt or equity financing, the Company will be required
to curtail new development initiatives, sell certain assets or a combination of
these actions.
 
     The financial statements have been prepared on the basis of accounting
principles applicable to a going concern which assumes that the Company will
continue operations in the foreseeable future and will be able to realize its
assets and discharge its liabilities in the normal course of operations. If the
going concern assumptions were not appropriate for these financial statements,
then adjustments would have been necessary in the carrying value of assets and
liabilities and the reported revenues and expenses.
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     Wholly-owned subsidiaries and majority owned ventures where the Company has
unilateral operating and financial control are consolidated. Those ventures
where the Company exercises significant influence, but does
 
                                       F-8
<PAGE>   139
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
   
not exercise unilateral operating and financial control are accounted for by the
equity method. The Company has certain majority-owned ventures that are
accounted for by the equity method as a result of super majority voting
conditions or other governmentally imposed uncertainties so severe that they
prevent the Company from obtaining unilateral control of the venture. If the
Company has little ability to exercise significant influence over a venture, the
venture is accounted for by the cost method. All significant intercompany
accounts and transactions are eliminated upon consolidation.
    
 
     The Company recognizes profits and losses in accordance with its underlying
ownership percentage or allocation percentage as specified in the agreements
with its partners; however, the Company recognizes 100% of the losses in
ventures where the Company bears all of the financial risk. When such ventures
become profitable, the Company recognizes 100% of the profits until such time as
the excess losses previously recognized have been recovered.
 
  Reclassifications
 
     Certain reclassifications have been made to the 1994 and 1995 consolidated
financial statements in order to conform to the 1996 presentation.
 
  Cash and Cash Equivalents
 
     The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. The Company
had $3.0 million and $16.2 million of restricted cash at December 31, 1995 and
1996, respectively. The restricted cash is primarily related to required
collateral on debt obligations for equipment purchases (see Note 5, "Debt
Obligations").
 
  Property and Equipment
 
     Property and equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the estimated lives ranging from five to seven years
for telecommunications equipment and three to five years for furniture, fixtures
and equipment and other property. Construction in process reflects amounts
incurred for the configuration and build-out of telecommunications equipment and
telecommunications equipment not yet placed into service. Maintenance and
repairs are charged to expense as incurred.
 
  Goodwill and Intangible Assets
 
   
     Goodwill represents the excess of acquisition costs over the fair market
value of the net assets of acquired businesses and is being amortized on a
straight-line basis over their estimated useful lives ranging from three to ten
years. Intangible assets, principally telecommunications service contracts,
licenses and deferred financing costs, are amortized on a straight-line basis
over the lesser of their estimated useful lives, generally three to fifteen
years or their contractual term. In accordance with APB 17, "Intangible Assets,"
the Company continues to evaluate the amortization period to determine whether
events or circumstances warrant revised amortization periods. Additionally, the
Company considers whether the carrying value of such assets should be reduced
based on the future benefits of its intangible assets.
    
 
  Long-Lived Assets
 
     Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance
with SFAS No. 121, long-lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation
 
                                       F-9
<PAGE>   140
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on such impairment indicators as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability measurements, as
well as other external market conditions or factors that may be present. If such
impairment indicators are present or other factors exist that indicate that the
carrying amount of the asset may not be recoverable, the Company determines
whether an impairment has occurred through the use of an undiscounted cash flows
analysis of assets at the lowest level for which identifiable cash flows exist.
If an impairment has occurred, the Company recognizes a loss for the difference
between the carrying amount and the estimated value of the asset. The fair value
of the asset is measured using quoted market prices or, in the absence of quoted
market prices, fair value is based on an estimate of discounted cash flow
analysis. During the years ended December 31, 1995 and 1996, the Company's
analyses indicated that there was not an impairment of its long-lived assets.
 
  Income Taxes
 
     The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the basis as reported in the consolidated financial
statements. The Company does not provide for deferred taxes on the undistributed
earnings of its foreign companies, as such earnings are intended to be
permanently reinvested in those operations.
 
  Foreign Currency Translation
 
     The Company follows a translation policy in accordance with SFAS No. 52,
"Foreign Currency Translation." In most instances, the local currency is
considered the functional currency for the Company's subsidiaries and ventures,
except for operations in the CIS where the U.S. dollar has been designated as
the functional currency. Assets and liabilities of these subsidiaries and
ventures are translated at the rates of exchange at the balance sheet date.
Income and expense accounts are translated at average monthly rates of exchange.
The resultant translation adjustments are included in the cumulative translation
adjustment, a separate component of shareholders' equity. Gains and losses from
foreign currency transactions of these subsidiaries and ventures are included in
the operations of the subsidiary or venture.
 
     For those ventures operating in the CIS, the temporal method for
translating assets and liabilities is used. Accordingly, monetary assets and
liabilities are translated at current exchange rates while non-monetary assets
and liabilities are translated at their historical rates. Income and expense
accounts are translated at average monthly rates of exchange. The resultant
translation adjustments are included in the operations of the subsidiaries and
ventures.
 
  Revenue Recognition
 
   
     The Company records as revenue the amount of telecommunications services
rendered, as measured primarily by the minutes of traffic processed, after
deducting an estimate of the traffic which will be neither billed nor collected.
Revenue from service or consulting contracts is accounted for when the services
are provided. Equipment sales and installation revenue is generally recognized
upon shipment and the installation of the equipment. Billings received in
advance of service being performed are deferred and recognized as revenue as the
service is performed.
    
 
  Fair Value of Financial Instruments
 
     The Company believes that the carrying amount of its assets and liabilities
reported in the balance sheets approximates their fair value.
 
                                      F-10
<PAGE>   141
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Off Balance Sheet Risk and Concentration of Credit Risk
 
     Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and accounts and
notes receivable. The Company maintains most of its cash and cash equivalents in
one high-quality U.S. financial institution. The Company extends credit to
various customers and establishes an allowance for doubtful accounts for
specific customers that it determines to have significant credit risk. The
Company provides allowances for potential credit losses when necessary.
 
     The Company does not now hedge against foreign currency fluctuations,
although the Company may implement such practices in the future. Under current
practices, the Company's results from operations could be adversely affected by
fluctuations in foreign currency exchange rates.
 
  Stock Based Compensation
 
     SFAS No. 123, "Accounting for Stock-Based Compensation," establishes a fair
value method of accounting for employee stock options and similar equity
instruments. The fair value method requires compensation cost to be measured at
the grant date based on the value of the award and is recognized over the
service period. SFAS No. 123 allows companies to either account for stock-based
compensation under the new provisions of SFAS No. 123 or under the provisions of
APB 25. The Company will continue accounting for its stock-based compensation in
accordance with the provisions of APB 25 and will present pro forma disclosures
of net loss as if the fair value method has been adopted.
 
  Uses Of Estimates In Preparation Of Financial Statements
 
     The preparation of these consolidated financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect amounts in the financial statements and
accompanying notes and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
NOTE 3:  INVESTMENTS IN AND ADVANCES TO VENTURES
 
     The Company has various investments in ventures that are accounted for by
the equity method (see Note 2, "Summary of Significant Accounting Policies").
The Company's ownership percentages in its equity method investments range from
49% to 80%. The Company has no investments in ventures that are accounted for by
the cost method.
 
     The components of the Company's investments in and advances to ventures are
as follows:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1995        1996
                                                              -------    --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Equity in net assets acquired...............................  $18,664    $ 41,105
Excess of investment cost over equity in net assets
  acquired, net of amortization on $1.7 million and $4.3
  million at December 31, 1995 and 1996, respectively.......    8,577      11,288
Accumulated losses recognized...............................   (6,267)    (13,840)
Dividends...................................................       --        (973)
Cash advances and other.....................................   35,179      66,879
                                                              -------    --------
          Total investments in and advances to ventures.....  $56,153    $104,459
                                                              =======    ========
</TABLE>
 
                                      F-11
<PAGE>   142
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3:  INVESTMENTS IN AND ADVANCES TO VENTURES (CONTINUED)
     In applying the equity method of accounting, the Company's policy is to
amortize the excess of investment cost over equity in net assets acquired based
upon an assignment of the excess to the fair value of the venture's identifiable
tangible and intangible assets, with any unassigned amounts designated as
goodwill. The Company then amortizes the allocated costs in accordance with its
policies defined in Note 2, "Summary of Significant Accounting Policies." The
Company periodically evaluates the recoverability of their equity investments
and if a circumstance arises where a loss in value is considered to be other
than temporary, the Company will record a write-down of excess investment cost.
 
     In addition, the Company has financed the operating and investing cash flow
requirements of several of its ventures, in the form of cash advances. The
Company anticipates that these ventures will generate sufficient cash inflows
for the repayment of the cash advances, as their businesses mature. Also, due to
the long-term nature of anticipated repayment period and the potential risk
associated with the repatriation of the cash advances, the Company has
aggregated its investments in and cash advances to the ventures.
 
     Further, the Company's share of the venture's foreign currency translation
adjustments is reflected in the investment accounts.
 
     Changes in the investments in and advances to ventures are as follows:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1995        1996
                                                              -------    --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Balance, at beginning of year...............................  $13,841    $ 56,153
                                                              -------    --------
Equity in net assets acquired...............................   13,888      22,441
Excess of investment cost over equity in net assets
  acquired..................................................    5,646       5,288
Dividends...................................................                 (973)
Cash advances and other.....................................   30,649      31,700
                                                              -------    --------
                                                               50,183      58,456
Equity ownership in losses..................................   (4,224)     (3,122)
Excess losses recognized over amount attributable to
  ownership interest........................................   (2,709)     (4,451)
Amortization of excess of investment cost over equity in net
  assets acquired...........................................     (938)     (2,577)
                                                              -------    --------
                                                               (7,871)    (10,150)
                                                              -------    --------
Balance, at end of year.....................................  $56,153    $104,459
                                                              =======    ========
</TABLE>
 
   
     Investments accounted for under the equity method and the percentage
interest owned consist of the following:
    
 
   
<TABLE>
<CAPTION>
                                                              OWNERSHIP
                 EQUITY OWNED SUBSIDIARIES                        %
                 -------------------------                    ---------
<S>                                                           <C>
EDN Sovintel................................................       50%
Sovam Teleport..............................................       67%
Bancomsvyaz.................................................       49%
GTS Ukrainian TeleSystems, L.L.C............................       50%
GTS Vox Limited.............................................    52.64%
TeleRoss Ventures -- 13 joint ventures in various regions in
  the CIS...................................................       50%
Vostok Ventures -- 11 joint ventures in various regions in
  the CIS...................................................    31-43%
PrymTelefon.................................................       50%
Hermes Europe Railtel B.V...................................       50%
GTS Monaco Access S.A.M.....................................       50%
Eurohivo....................................................       70%
Sitel-VSAT s.r.o............................................       49%
Shanghai V-Tech Telecommunications Systems Co., Ltd.........       75%
Beijing Global Tong Da Telecommunications Co................       55%
GTS China Investments, L.L.C................................       75%
Beijing Tianmu Satellite Communications Tech................       47%
Shanghai Global Intelligent TeleSystems Co., Ltd............       80%
</TABLE>
    
 
                                      F-12
<PAGE>   143
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3:  INVESTMENTS IN AND ADVANCES TO VENTURES (CONTINUED)
     Associated with the Company's investment in new business ventures during
1995, the Company is obligated to pay additional consideration, a maximum of
$6.0 million in either cash or in the Company's common stock, if the venture
achieves specific financial performance objectives subsequent to 1995. The
Company will recognize any additional consideration paid under this agreement as
goodwill, as the amount would represent incremental excess of investment cost
over equity in net assets of the underlying investment venture. As of December
31, 1996, the maximum amount of the Company's common stock that would be issued
pursuant to this agreement is 149,920 shares. This agreement was amended
subsequent to year end (see Note 5, "Debt Obligations," and Note 14, "Subsequent
Events").
 
     Additionally, one of the venture agreements that the Company entered into
during 1995 provided that the Company's partner had a put right with regard to
its ownership interest in the investment venture. The put right becomes
effective in 1997 and stipulates a fair value amount that is determined
utilizing a formula based on the financial performance of the venture.
 
     The following tables present condensed financial information of the
Company's ventures that are accounted for by the equity method of accounting as
of December 31, 1995 and 1996. See further financial information of the
Company's business operations within Note 13, "Segment Information and Certain
Geographical Data."
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31, 1995
                                     ----------------------------------------------------------
                                     MAJORITY OWNED    50% OR LESS OWNED    TOTAL EQUITY METHOD
     EQUITY METHOD ENTITIES             VENTURES           VENTURES              VENTURES
     ----------------------          --------------    -----------------    -------------------
                                                           (IN THOUSANDS)
<S>                                  <C>               <C>                  <C>
Revenue..........................       $ 4,966             $49,085               $54,051
Gross margin.....................         1,096              19,944                21,040
Net loss.........................        (5,156)             (1,224)               (6,380)
Equity in net losses.............        (5,136)             (1,797)               (6,933)
Current assets...................         5,188              27,074                32,262
Total assets.....................        17,343              79,486                96,829
Current liabilities..............         9,214              38,411                47,625
Total liabilities................        14,395              54,734                69,129
Net assets.......................         2,948              24,752                27,700
Ownership interest in equity in
  net assets.....................         2,595              12,511                15,106
</TABLE>
 
<TABLE>
<CAPTION>
                                                    YEAR ENDED DECEMBER 31, 1996
                                     ----------------------------------------------------------
                                     MAJORITY OWNED    50% OR LESS OWNED    TOTAL EQUITY METHOD
      EQUITY METHOD ENTITIES            VENTURES           VENTURES              VENTURES
      ----------------------         --------------    -----------------    -------------------
                                                           (IN THOUSANDS)
<S>                                  <C>               <C>                  <C>
Revenue............................     $36,202            $107,270              $143,472
Gross margin.......................      17,109              45,937                63,046
Net loss...........................      (1,178)             (8,460)               (9,638)
Equity in net losses...............      (1,091)             (6,482)               (7,573)
Current assets.....................      27,293              50,689                77,982
Total assets.......................      48,174             146,483               194,657
Current liabilities................      19,416              68,474                87,890
Total liabilities..................      24,987             102,332               127,319
Net assets.........................      23,187              44,151                67,338
Ownership interest in equity in net
  assets...........................      14,912              19,513                34,425
</TABLE>
 
                                      F-13
<PAGE>   144
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 4:  SUPPLEMENTAL BALANCE SHEET INFORMATION
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1995       1996
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Accounts receivable consists of:
  Trade accounts receivable.................................  $ 1,026    $ 6,769
  Value added taxes receivable..............................    1,082      1,971
  Other receivables.........................................      894        962
                                                              -------    -------
                                                                3,002      9,702
  Less: allowance for doubtful accounts.....................       30        782
                                                              -------    -------
          Total accounts receivable, net....................  $ 2,972    $ 8,920
                                                              =======    =======
Property and equipment, net consists of:
  Telecommunications equipment..............................  $ 9,296    $28,302
  Furniture, fixtures and equipment.........................    4,111      5,877
  Other property............................................      658        837
  Construction in process...................................   17,555      7,009
                                                              -------    -------
                                                               31,620     42,025
  Less: accumulated depreciation............................    2,097      6,562
                                                              -------    -------
          Total property and equipment, net.................  $29,523    $35,463
                                                              =======    =======
</TABLE>
 
NOTE 5:  DEBT OBLIGATIONS
 
     Company debt consists of:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1995       1996
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Debt obligations, with principal payments beginning April 1,
  1998 and maturing on March 31, 2001 at 10% interest, net
  of unamortized discount for 5,185 warrants issued.........  $    --    $59,079
Promissory notes, due on demand at 10% interest.............    9,941      7,887
Interim financing, due June 6, 1996 at 10% interest, net of
  unamortized discount for 370 warrants issued..............    9,481         --
Notes payable, acquisition..................................    2,406      5,201
Other financing agreements (interest at 7% to 13.5% as of
  December 31, 1996)........................................    5,626     13,380
                                                              -------    -------
                                                               27,454     85,547
  Less: debt maturing within one year.......................   14,580     27,437
                                                              -------    -------
          Total long-term debt..............................  $12,874    $58,110
                                                              =======    =======
</TABLE>
 
     In 1996, the Company entered into long-term obligations ("Debt
Obligations"), totaling $70.0 million, with lenders (the "Lenders"). The Lenders
are affiliated with and are considered related parties to the Company, as a
result of their ownership of the Company's common stock (see Note 12, "Related
Party Transactions," for further discussion). The Debt Obligations require
principal payments beginning in the third year, to maturity in the fifth year.
The Debt Obligations bear an interest rate of 10.0% and require interest
payments beginning in the first fiscal quarter subsequent to the date of
issuance. At the discretion of the Company, the interest payments can be
deferred until the time the Company is obligated to begin making the principal
payments. Further, in connection with the Debt Obligations, the Company issued
5,185,184
 
                                      F-14
<PAGE>   145
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 5: DEBT OBLIGATIONS (CONTINUED)
warrants, valued at $20.7 million, to purchase the Company's common stock. In
accordance with the terms of the warrant agreement, the exercise price of the
warrants was reduced from $15.40 per share to $14.00 per share, as the
outstanding debt had not been repaid prior to December 31, 1996. The warrants
may be exercised up to six years after the date of the relevant agreements. Upon
the consummation of these Debt Obligations, the Company repaid in full the
outstanding $9.5 million interim financing ("Interim Financing") balance
outstanding at December 31, 1995, and the 370,370 warrants associated with the
interim financing were canceled. The Company entered into the $10.0 million
Interim Financing in December 1995 in order to provide the Company sufficient
working capital to meet its contractual obligations, until a larger dollar
amount and longer-term maturity debt could be finalized between the Company and
the Lenders. The Company is subject to certain restrictive covenants pursuant to
these Debt Obligations, including restrictions on the payment of dividends and
indebtedness to affiliated ventures.
 
     In contemplation of securing more permanent financing, the Company entered
into a series of short-term promissory notes, totaling $9.9 million as of
December 31, 1995, with a network equipment provider. In 1996, a wholly-owned
subsidiary of the Company entered into a credit agreement ("Credit Agreement")
totaling $30.7 million with a bank which will provide loans to eleven cellular
ventures within the CIS region for the purchase of certain equipment and
services. Funding under this facility is currently awaiting the finalization of
certain conditions precedent. As a result of the delays in funding under the
Credit Agreement, the Company was required to pay down $2.0 million of the $9.9
million indebtedness. In addition, the Company issued a Letter of Credit for
$12.2 million as collateral for the existing indebtedness and for future
procurements of equipment from the network equipment provider. This letter of
credit was utilized for drawdown purposes upon expiration at March 31, 1997, due
to the continued delays in finalizing the conditions precedent.
 
     In connection with a purchase of a venture during 1995, the Company is
required to pay additional consideration through 1998, either in cash or shares
of the Company's common stock, based upon the actual earnings of the venture. As
of December 31, 1996, the Company determined that additional purchase payments
of $4.5 million would be payable in 1997 as a result of the venture's operating
results for the year ended December 31, 1996. Consequently, the total amount
outstanding is $5.2 million based on the venture's 1995 and 1996 operating
results. The purchase agreement related to acquiring this venture was amended
subsequent to year end, resulting in the note payable being replaced with shares
of the Company's common stock (see Note 14, "Subsequent Events," for further
discussion).
 
     Certain of the Company's consolidated ventures maintain credit facilities
for their local operations. Borrowings under such credit facilities bear
interest at prevailing negotiated market rates.
 
   
     During 1996, the Company entered into a financing agreement with a
shareholder of the Company for $4.5 million. The outstanding amount accrues
interest at a rate of 13.5% per annum and is payable upon demand. The
outstanding amount may be converted into 292,207 shares of the Company's common
stock upon completion of an initial public offering of the Company's common
stock. The outstanding amount has been included in "Other financing agreements."
    
 
     Aggregate maturities of long-term debt, as of December 31, 1996, are as
follows: 1997 -- $27.4 million, 1998 -- $19.3 million, 1999 -- $25.0 million,
2000 -- $24.6 million and $6.4 million thereafter.
 
     The Company paid interest of $0.1 million, $0.7 million and $0.2 million in
1994, 1995 and 1996, respectively.
 
     The Company is pursuing other equity and debt financing sources to
refinance all or a portion of its indebtedness and expansion through sales of
additional debt or equity securities of the Company.
 
     The Company's non-cash financing activities for the year ended December 31,
1996, included the following: $6.2 million of accrued interest rolled into a
note payable with principal payments beginning April 1,
 
                                      F-15
<PAGE>   146
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 5: DEBT OBLIGATIONS (CONTINUED)
1998 and maturing on March 31, 2001 and $3.6 million of amortization on the
discount of a note payable with principal payments beginning April 1, 1998 and
maturing on March 31, 2001. No significant non-cash financing activities were
incurred for the years ended December 31, 1994 and 1995.
 
NOTE 6:  SHAREHOLDERS' EQUITY
 
  Common Stock
 
     The following table summarizes the Company's equity private placements:
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                               --------------------------------------------
                                               SHARES ISSUED    SHARE PRICE    NET PROCEEDS
                                               -------------    -----------    ------------
                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                            <C>              <C>            <C>
1994.........................................    7,666,579      $7.00-10.00      $ 62,082
1995.........................................    3,393,917            13.50        42,138
1996.........................................    5,565,688            20.00       107,744
</TABLE>
 
     During 1995, the Company issued 266,667 shares of common stock to an
independent third party in connection with the purchase of an interest in a
venture within the CIS region. At the discretion of the holder of these shares,
the Company is obligated to repurchase these shares at the prevailing fair
market value of the Company's common stock on the date of repurchase. During
1995, the Company repurchased 50,000 shares at $15.00 per share and the
repurchased shares became treasury stock. Additionally, the Company has accreted
the value of the outstanding common stock subject to repurchase (216,667 shares
on December 31, 1995 and 1996), to the fair value of the Company's common stock
as of December 31, 1995 and 1996 ($15.40 and $20.00 per share, respectively).
 
     During 1996, the Company entered into the Debt Obligations totaling $70.0
million with the Lenders. In connection with the Debt Obligations, the Company
issued 5,185,184 warrants to purchase common stock at $15.40 per share. The
exercise price of the warrants was automatically reduced to $14.00 per share as
of December 31, 1996, because the Debt Obligations remained outstanding. The
warrants expire during the first and second quarters of 2002.
 
     The Company does not intend to pay dividends on common stock in the
foreseeable future. In addition, certain of the Company's financing agreements
include covenant restrictions precluding the payment of dividends by the
Company.
 
     The Company has reserved 9,049,632 shares of common stock for issuance upon
conversion of the exercise of outstanding and future stock options, warrants and
common stock put rights.
 
  Preferred Stock
 
     As of December 31, 1995 and 1996, there were 10,000,000 shares of $0.0001
par value preferred stock authorized, with rights and preferences to be
determined by the Board of Directors. As of December 31, 1995 and 1996, no
shares of preferred stock had been issued.
 
NOTE 7:  STOCK OPTION PLANS
 
  Employee Stock Options
 
     The Company applies the provisions of APB 25 in accounting for its stock
option incentive plans. The effect of applying SFAS No. 123 on the net loss as
reported is not representative of the effects on reported net loss for future
years due to the vesting period of the stock options and the fair value of
additional stock options in future years. Had compensation expense been
determined in accordance with the methodology of SFAS
 
                                      F-16
<PAGE>   147
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 7:  STOCK OPTION PLANS (CONTINUED)
No. 123, the Company's net loss in 1995 and 1996 would have been approximately
$40.9 million and $69.4 million, respectively. The fair value of options granted
during 1995 and 1996 are estimated as $3.28 and $4.39 per share, respectively,
on the date of grant using the minimum value option pricing model with the
following assumptions: dividend yield 0%, risk free interest rate of 5.50% for
1995 and 6.13% for 1996, and an expected life of five years.
 
     The Company maintains the 1992 Stock Option Plan and the Non-Employee
Directors Stock Option Plan ("the Option Plans"). As of December 31, 1996, the
maximum number of shares of common stock available for grant under the Option
Plans were 4,515,990. All options granted under the Option Plans are at exercise
prices that are at least equal to the fair market value of common stock at the
date of grant. Generally, all options granted under the Option Plans vest over a
three year period from the date of grant and expire ten years from the date of
grant.
 
     Additional information with respect to Stock Option activity is summarized
as follows:
 
<TABLE>
<CAPTION>
                                                  YEARS ENDED DECEMBER 31,
                            ---------------------------------------------------------------------
                                    1994                    1995                    1996
                            ---------------------   ---------------------   ---------------------
                                        WEIGHTED-               WEIGHTED-               WEIGHTED-
                                         AVERAGE                 AVERAGE                 AVERAGE
                                        EXERCISE                EXERCISE                EXERCISE
                             SHARES       PRICE      SHARES       PRICE      SHARES       PRICE
                            ---------   ---------   ---------   ---------   ---------   ---------
<S>                         <C>         <C>         <C>         <C>         <C>         <C>
Outstanding at beginning
  of year.................    278,000     $3.37     1,621,200    $ 5.47     2,261,600    $ 6.38
Options granted...........  1,343,200      5.91       787,200     13.63     1,070,308     16.60
Options exercised.........                            (18,667)     6.69       (37,665)    10.04
Options canceled or
  expired.................                           (128,133)     5.36       (73,002)    13.09
                            ---------               ---------               ---------
Outstanding at end of
  year....................  1,621,200      5.47     2,261,600      6.38     3,221,241     10.94
                            =========               =========               =========
Options exercisable at
  year-end................    269,684     $3.60       656,962    $ 5.02     1,292,155    $ 6.77
                            =========               =========               =========
</TABLE>
 
     The following table summarizes information about stock options outstanding
at December 31, 1996:
 
<TABLE>
<CAPTION>
                                              OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                      ------------------------------------   ----------------------
                                                     WEIGHTED
                                                      AVERAGE
                                                     REMAINING    WEIGHTED                 WEIGHTED
                                                    CONTRACTUAL   AVERAGE                  AVERAGE
                                        NUMBER         LIFE       EXERCISE     NUMBER      EXERCISE
      RANGE OF EXERCISE PRICE         OUTSTANDING   (IN YEARS)     PRICE     EXERCISABLE    PRICE
      -----------------------         -----------   -----------   --------   -----------   --------
<S>                                   <C>           <C>           <C>        <C>           <C>
$2.125 to $4.125....................   1,085,667         7         $ 4.02       822,331     $ 3.99
$7.00 to $13.50.....................     892,966         8          11.77       412,431      11.14
$15.00 to $20.00....................   1,242,608         9          16.39        57,393      15.07
                                       ---------                              ---------
                                       3,221,241         8         $10.94     1,292,155     $ 6.77
                                       =========                              =========
</TABLE>
 
     In addition, prior to the establishment of the Option Plans, certain
options were granted in 1991 to certain key employees and former employees to
purchase 781,500 shares of the Company's common stock at an exercise price of
$0.80 per share. All options were granted at an exercise price equal to the fair
value of the underlying common stock at the date of grant. The options vested in
equal increments over a three year period. During 1993, 402,000 of the options
were canceled and in 1994, 33,500 options were exercised, leaving 346,000 fully
vested options outstanding at December 31, 1995 and 1996.
 
                                      F-17
<PAGE>   148
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 7:  STOCK OPTION PLANS (CONTINUED)
     During 1996, the Company issued 5,000 options to an individual that is
neither an employee nor a director, outside of the Option Plans. The options
were granted at an exercise price equal to the fair value of the underlying
common stock at the date of grant, $15.40 per share. The options are fully
vested, and as such, can be exercised at any time subject to a four-year
expiration from the grant date.
 
     Certain of the Company's ventures have stock option plans, or similar
agreements, in place or in the process of being implemented for key officers and
employees. No significant amounts of compensation expense have been recognized
or are contemplated under these plans, nor is the ownership dilution caused by
such plans expected to be significant.
 
  Equity Compensation Plan
 
     In November 1994, the GTS Equity Compensation Plan ("Equity Compensation
Plan") was approved by the Board of Directors to award officers, key employees
and eligible independent contractors of the Company, grants of restricted stock
or other equity based awards. Under the Equity Compensation Plan, up to 4.0% of
the total number of shares of the Company's common stock outstanding at the
beginning of the year are available for granting purposes. As of January 1,
1997, 698,794 represents the maximum number of Company common shares that are
available for grant under the Equity Compensation plan. A committee selected by
the Board of Directors shall establish, within the provisions of the Equity
Compensation Plan, the number of shares to be awarded, the terms and conditions
of the restricted stock, and the purchase price for the restricted stock. As of
December 31, 1996, there were options outstanding to purchase 20,000 shares of
restricted stock at $10.00 per share.
 
NOTE 8:  EMPLOYEE BENEFIT PLAN
 
     The Company has a 401(k) retirement savings plan (the "Savings Plan")
covering all U.S. citizen employees. The Savings Plan qualifies under section
401(k) of the Internal Revenue Code and as such, participants may defer pretax
income in accordance with federal income tax limitations. The Company provides a
50.0% matching contribution on the first 5.0% contributed by the employee. The
Company may also, at its discretion, make non-matching contributions. Both
matching and non-matching contributions by the Company vest 100% after three
years of service. The Company's expense under the Savings Plan was less than
$0.1 million, $0.1 million, and $0.2 million for the years ended December 31,
1994, 1995 and 1996, respectively. The Company made no discretionary
(non-matching) contributions in 1994, 1995 or 1996.
 
NOTE 9:  OTHER NON-OPERATING INCOME
 
   
     Favorably affecting the 1995 results was the non-recurring $10.3 million
gain the Company recognized as a result of its cash settlement of certain claims
with a third party in 1995.
    
 
NOTE 10:  INCOME TAXES
 
     The components of loss before income taxes and minority interest were as
follows:
 
<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1994        1995        1996
                                                     --------    --------    --------
                                                              (IN THOUSANDS)
<S>                                                  <C>         <C>         <C>
Pretax loss:
  Domestic.........................................  $ (8,996)   $(22,398)   $(41,554)
  Foreign..........................................    (2,989)    (15,437)    (25,077)
                                                     --------    --------    --------
                                                     $(11,985)   $(37,835)   $(66,631)
                                                     ========    ========    ========
</TABLE>
 
                                      F-18
<PAGE>   149
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 10:  INCOME TAXES (CONTINUED)
     In 1995 and 1996, the Company recorded $2.6 million and $1.4 million,
respectively, in income tax expense that related exclusively to its current
provision for foreign taxes. The Company did not have income tax expense for
1994.
 
     The reconciliation of the U.S. statutory federal tax rate of 34.0% to the
Company's effective tax rate is as follows:
 
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                ----------------------------------------
                                                       1995                  1996
                                                ------------------    ------------------
                                                 AMOUNT    PERCENT     AMOUNT    PERCENT
                                                --------   -------    --------   -------
                                                             (IN THOUSANDS)
<S>                                             <C>        <C>        <C>        <C>
Taxes at U.S. statutory rates.................  $(12,865)    34.0%    $(22,655)    34.0%
Foreign operating losses generating no tax
  benefit.....................................     6,550    (17.3)       8,526    (12.8)
Domestic operating losses generating no tax
  benefit.....................................     6,315    (16.7)      14,129    (21.2)
Other -- net..................................     2,565     (6.8)       1,360     (2.1)
                                                --------    -----     --------    -----
                                                $  2,565     (6.8)%   $  1,360     (2.1)%
                                                ========    =====     ========    =====
</TABLE>
 
     Deferred tax assets and liabilities are recorded based on temporary
differences between earnings as reported in the financial statements and
earnings for income tax purposes. The following table summarizes major
components of the Company's deferred tax assets and liabilities:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1995        1996
                                                              -------    --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards..........................  $10,106    $ 20,720
  Other deferred tax assets.................................      245       1,326
                                                              -------    --------
          Total deferred tax asset..........................   10,351      22,046
                                                              -------    --------
Deferred tax liabilities:
  Depreciation..............................................       34         358
  Other deferred tax liabilities............................      690         803
                                                              -------    --------
          Total deferred tax liability......................      724       1,161
                                                              -------    --------
Net deferred tax asset......................................    9,627      20,885
  Less: valuation allowance.................................   (9,627)    (20,885)
                                                              -------    --------
          Total.............................................  $    --    $     --
                                                              =======    ========
</TABLE>
 
     As of December 31, 1996, the Company had net operating loss carryforwards
for U.S. federal income tax purposes of approximately $60.9 million expiring in
fiscal years 2003 through 2011. Because of the "change in ownership" provisions
of the Tax Reform Act of 1986, the utilization of the Company's net operating
loss carryforwards will be subject to an annual limitation.
 
     The Company's investment in EDN Sovintel is treated for U.S. tax purposes
as a partnership and, therefore, the Company's share of EDN Sovintel's income or
loss flows through to the Company's consolidated federal income tax return on a
current basis. Undistributed earnings of the Company's other foreign investments
are considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state income taxes, or foreign withholding taxes has been made.
Upon distribution of those earnings, the Company would be subject to foreign
withholding taxes and U.S. income taxes (subject to reduction for foreign tax
credits).
 
                                      F-19
<PAGE>   150
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 10:  INCOME TAXES (CONTINUED)
     Certain ventures in the CIS and Hungary are operating under tax holidays
granted by the local governments. Tax holidays are for periods ranging from up
to five years to several years after achieving profitability under local tax
regulations. In addition to these tax holidays, certain of the Company's foreign
ventures have foreign tax loss carryforwards in excess of $25.0 million. The
Company's financial statements do not reflect any provision for benefits that
might be associated with such loss carryforwards.
 
NOTE 11:  COMMITMENTS AND CONTINGENCIES
 
  Operating Leases
 
     Operating lease commitments are primarily for office space and equipment.
Rental expense aggregated $0.7 million, $2.0 million and $2.2 million for the
years ended December 31, 1994, 1995 and 1996, respectively.
 
     Future minimum lease payments under these non-cancelable operating leases
with terms of one year or more, as of December 31, 1996, are as follows:
1997 -- $2.0 million, 1998 -- $1.4 million, 1999 -- $1.3 million, 2000 -- $0.3
million and $1.1 million thereafter.
 
  Other Commitments and Contingencies
 
     The Company has made commitments to certain of its ventures for future
contract obligations amounting to $8.8 million.
 
     In the ordinary course of business, the Company has issued financial
guarantees on debt and equities for the benefit of certain of its
non-consolidated ventures. The total amount guaranteed at December 31, 1996 was
approximately $3.0 million. In addition, certain ventures are currently
negotiating other financing instruments in which the Company will guarantee upon
perfection of the obligations.
 
     See Note 5, "Debt Obligations," for additional disclosures associated with
the Company's 1996 transactions with its financing activities.
 
  Major Customers
 
   
     In 1995, the Company had one major customer, a foreign governmental agency
in Central Europe, representing $2.7 million, or 32.1%, of total revenue. In
1996, the Company had two major customers, a foreign governmental agency in
Central Europe and a customer in the CIS, representing $3.8 million, or 15.8%,
of total revenue, and $2.6 million, or 10.8%, of total revenue, respectively.
There were no major customers in 1994.
    
 
  Tax Matters
 
     The taxation system in Russia ("Russian Taxes") is evolving as the central
government transforms itself from a command to a market oriented economy. The
Russian Federation has introduced and continues to introduce new tax and royalty
laws and related regulations. These laws and regulations are not always clearly
written and their interpretation is subject to the opinions of the local tax
inspectors, Central Bank officials and the Ministry of Finance. Instances of
inconsistent opinions between local, regional and federal tax authorities and
between the Central Bank and Ministry of Finance are not unusual.
 
     The Company's policy is to accrue for contingencies in the accounting
period in which a liability is deemed probable and the amount is reasonably
determinable. In this regard, because of the uncertainties associated with the
Russian Taxes, the Company's Russian Taxes may be in excess of the estimated
amount expensed to date and accrued at December 31, 1995 and 1996. It is the
opinion of management that the ultimate resolution of the Company's Russian Tax
liability, to the extent not previously provided for, will not have a material
effect on the financial condition of the Company. However, depending on the
amount and
 
                                      F-20
<PAGE>   151
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 11:  COMMITMENTS AND CONTINGENCIES (CONTINUED)
timing of an unfavorable resolution of this contingency, it is possible that the
Company's future results of operations or cash flows could be materially
affected in a particular period.
 
     In various foreign jurisdictions, the Company is obligated to pay value
added taxes ("VAT") on the purchase or importation of assets, and for certain
other transactions. In many instances, VAT can be offset against VAT the Company
collects and otherwise would remit to the tax authorities, or may be refundable.
Because the law in some jurisdictions is unclear, the local tax authorities
could assert that the Company is obligated to pay additional amounts of VAT. In
the opinion of management, any additional VAT the Company may be obligated to
pay would not be material.
 
  Other Matters
 
     In the ordinary course of business, the Company may be party to various
legal and tax proceedings, and subject to claims, certain of which relate to the
developing markets and evolving fiscal and regulatory environments in which the
Company operates. In the opinion of management, the Company's liability, if any,
in all pending litigation, other legal proceeding or other matter other than
what is discussed above, will not have a material effect upon the financial
condition, results of operations or liquidity of the Company.
 
NOTE 12:  RELATED PARTY TRANSACTIONS
 
     As discussed within Note 5, "Debt Obligations," the Company entered into an
Interim Financing agreement and Debt Obligations during 1995 and 1996,
respectively, with the Lenders. The Lenders are shareholders of the Company. As
part of these transactions, the Company provided one of the Lenders with the
opportunity, at its discretion, to co-invest with the Company in all of the
Company's new ventures within the Asia region.
 
     The Company has entered into certain consulting agreements with directors
of the Company and paid $0.1 million, $0.2 million and $0.2 million in 1994,
1995 and 1996, respectively, pursuant to those agreements.
 
     The Company had notes receivable due from employees aggregating $0.2
million and $0.1 million in 1995 and 1996, respectively, with no single amount
due from any individual in excess of $0.1 million.
 
     The Company derived revenue from affiliates of $3.3 million in 1996. There
was no significant revenue earned from affiliate sales in 1995 and 1994.
 
                                      F-21
<PAGE>   152
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 13:  SEGMENT INFORMATION AND CERTAIN GEOGRAPHICAL DATA
 
     The Company operates predominantly in a single industry segment, the
telecommunications industry. The industry consists of a wide range of
telecommunications services to international business customers, including long
distance voice and data services and electronic messaging services.
 
   
     The following tables present financial information by geographic area for
1994, 1995 and 1996. Transfers between geographic areas were not considered
material for disclosure purposes.
    
 
   
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 1994
                                    ------------------------------------------------------------------
                                                                                CORPORATE
                                    WESTERN               CENTRAL                OFFICE &
                                     EUROPE      CIS       EUROPE     ASIA     ELIMINATIONS    TOTAL
                                    --------   --------   --------   -------   ------------   --------
                                                              (IN THOUSANDS)
<S>                                 <C>        <C>        <C>        <C>       <C>            <C>
Total revenue.....................  $     --   $     --   $  1,295   $    --     $  1,173     $  2,468
Gross margin......................        --         --       (179)       --          202           23
Operating loss....................      (546)    (1,802)    (1,122)       --       (9,505)     (12,975)
Net loss..........................      (423)      (939)    (1,661)       --       (8,962)     (11,985)
Identifiable assets...............     2,173     15,423      9,297        --       35,064       61,957
Liabilities.......................        --      3,921      6,501        --       (3,157)       7,265
Net assets........................     2,173     11,502      2,796        --       38,221       54,692
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 1995
                                    ------------------------------------------------------------------
                                                                                CORPORATE
                                    WESTERN               CENTRAL                OFFICE &
                                     EUROPE      CIS       EUROPE     ASIA     ELIMINATIONS    TOTAL
                                    --------   --------   --------   -------   ------------   --------
                                                              (IN THOUSANDS)
<S>                                 <C>        <C>        <C>        <C>       <C>            <C>
  Total revenue...................  $    179   $  3,838   $  4,361   $   140     $   (106)    $  8,412
  Gross margin....................      (318)      (949)     1,380         9         (106)          16
  Operating loss..................    (5,469)   (16,681)    (6,312)   (4,831)     (15,576)     (48,869)
  Net loss........................    (5,452)   (19,415)    (7,091)   (4,771)      (3,671)     (40,400)
  Identifiable assets.............     5,898     73,816     15,639     9,167       11,101      115,621
  Liabilities.....................    11,766     78,440     26,834    13,936      (75,950)      55,026
  Net (liabilities)/assets........    (5,868)    (4,624)   (11,195)   (4,769)      87,051       60,595
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 1996
                                    ------------------------------------------------------------------
                                                                                CORPORATE
                                    WESTERN               CENTRAL                OFFICE &
                                     EUROPE      CIS       EUROPE     ASIA     ELIMINATIONS    TOTAL
                                    --------   --------   --------   -------   ------------   --------
                                                              (IN THOUSANDS)
<S>                                 <C>        <C>        <C>        <C>       <C>            <C>
  Total revenue...................  $     --   $ 12,696   $  9,355   $ 1,561     $    505     $ 24,117
  Gross margin....................        --        811      3,292       652          421        5,176
  Operating loss..................   (10,679)   (14,608)    (4,651)   (5,057)     (22,907)     (57,902)
  Net loss........................   (10,700)   (15,572)    (5,295)   (4,951)     (31,473)     (67,991)
  Identifiable assets.............    19,607     96,773     17,339    14,973       88,686      237,378
  Liabilities.....................    35,728    116,961     33,826    24,753      (93,806)     117,462
  Net (liabilities)/assets........   (16,121)   (20,188)   (16,487)   (9,780)     182,492      119,916
</TABLE>
    
 
                                      F-22
<PAGE>   153
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 14:  SUBSEQUENT EVENTS
 
  Equity Transactions
 
     As previously discussed in Note 5, "Debt Obligations," in connection with a
purchase of a venture during 1995, the Company may be required to pay additional
consideration through 1998, either in cash or shares of the Company's common
stock, based on the actual earnings of the venture. On January 17, 1997, the
purchase agreement related to acquiring this venture was amended. As a result,
the consideration associated with the 1996 performance was modified and the
notes payable of $5.2 million was replaced and additional consideration was paid
by the issuance of 336,400 shares of the Company's common stock valued at $20.00
per share.
 
   
     As previously discussed in Note 6, "Shareholders' Equity," the Company
issued, as additional consideration, 266,667 shares of the Company's common
stock to an independent third party as a result of the Company's investment in a
venture within the CIS region. On March 13, 1997, the Company repurchased 21,667
shares at $20.00 per share and these repurchased shares became treasury shares.
The Company will be required to repurchase the remaining shares on an equal
basis over the next three years which requirement will terminate on the date
when the Company first sells shares of Common Stock to the public pursuant to an
effective registration statement under the Securities Act.
    
 
     As a result of a share offering of one of the Company's equity method
business ventures in early 1997, the Company's investment in the business
venture may increase from 50.0% to between 52.0% and 77.0%, depending on the
equity subscribed for by the other investors. The share offering is expected to
be completed in the second quarter of 1997. In addition, effective January 1,
1997, the Company will recognize 100% of the losses of this venture due to the
Company's becoming the financing partner. The Company would have recognized
additional losses of $3.3 million and $8.2 million in 1995 and 1996,
respectively, had the Company been considered the financing partner. There would
not have been significant additional losses in 1994.
 
                                      F-23
<PAGE>   154
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                  CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
                         FOR THE SECOND QUARTER OF 1997
                                   UNAUDITED
 
                                      F-24
<PAGE>   155
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                     CONDENSED, CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JUNE 30,
                                                                  1996          1997
                                                              ------------    ---------
                                                                   (IN THOUSANDS,
                                                                 EXCEPT SHARE DATA)
<S>                                                           <C>             <C>
                                        ASSETS
Current assets
  Cash and cash equivalents.................................   $  57,874      $  14,587
  Accounts receivable, less allowance for doubtful accounts
     of $782 and $1,366 at December 31, 1996 and June 30,
     1997...................................................       8,920         11,216
  Restricted cash...........................................      13,627          1,469
  Prepaid expenses..........................................       2,537          3,155
  Finished goods, net.......................................         949          1,813
  Other assets..............................................       1,238          1,475
                                                               ---------      ---------
          Total current assets..............................      85,145         33,715
Notes receivable............................................         209            376
Property and equipment, net of accumulated depreciation of
  $6,562 and $9,198 at December 31, 1996 and June 30,
  1997......................................................      35,463         35,415
Investments in and advances to ventures.....................     104,459        117,123
Goodwill and intangible assets, net of accumulated
  amortization of $3,916 and $5,975 at December 31, 1996 and
  June 30, 1997.............................................       9,548          9,506
Restricted cash.............................................       2,554          2,205
                                                               ---------      ---------
          TOTAL ASSETS......................................   $ 237,378      $ 198,340
                                                               =========      =========
 
                         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable..........................................   $   6,761      $   4,067
  Accrued expenses..........................................       8,450          7,820
  Debt maturing within one year.............................      27,437         19,665
  Other current liabilities.................................       2,040          1,541
                                                               ---------      ---------
          Total current liabilities.........................      44,688         33,093
Long-term debt, less current portion........................      58,110         64,425
Taxes and other non-current liabilities.....................      14,664         18,067
                                                               ---------      ---------
          TOTAL LIABILITIES.................................     117,462        115,585
Commitments and contingencies
Minority interest...........................................       1,915          1,894
Common stock, subject to repurchase (216,667 and 195,000
  shares outstanding at December 31, 1996 and June 30,
  1997).....................................................       4,333          4,583
 
                                 SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value (10,000,000 shares
  authorized; none issued and outstanding)..................          --             --
Common stock, $0.0001 par value (60,000,000 shares
  authorized; 23,059,404 and 23,546,438 issued and
  outstanding, net of 77,759 and 123,184 shares of treasury
  stock at December 31, 1996 and June 30, 1997).............           2              2
Additional paid-in capital..................................     241,725        246,720
Cumulative translation adjustment...........................      (2,161)        (4,859)
Accumulated deficit.........................................    (125,898)      (165,585)
                                                               ---------      ---------
          TOTAL SHAREHOLDERS' EQUITY........................     113,668         76,278
                                                               ---------      ---------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........   $ 237,378      $ 198,340
                                                               =========      =========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-25
<PAGE>   156
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                                1996        1997
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Revenues, net:
  Telecommunication and other services......................  $  7,212    $ 15,856
  Equipment sales...........................................     1,503       1,439
                                                              --------    --------
                                                                 8,715      17,295
Cost of revenues:
  Telecommunication and other services......................     6,730      11,808
  Equipment sales...........................................     1,110       1,155
                                                              --------    --------
          Total cost of revenues............................     7,840      12,963
                                                              --------    --------
Gross margin................................................       875       4,332
Operating expenses:
  Selling, general and administrative.......................    19,096      23,749
  Depreciation and amortization.............................     3,478       2,326
  Non-income taxes..........................................       616       1,000
                                                              --------    --------
          Total operating expenses..........................    23,190      27,075
Equity in losses of ventures................................     5,433      10,167
                                                              --------    --------
Loss from operations........................................   (27,748)    (32,910)
Other income/(expense):
  Interest income...........................................       795       2,162
  Interest expense..........................................    (3,971)     (7,163)
  Foreign currency losses...................................      (613)       (959)
                                                              --------    --------
                                                                (3,789)     (5,960)
Net loss before taxes.......................................   (31,537)    (38,870)
Income taxes................................................       662         817
                                                              --------    --------
Net loss....................................................  $(32,199)   $(39,687)
                                                              ========    ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-26
<PAGE>   157
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                                1996        1997
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
OPERATING ACTIVITIES
Net loss....................................................  $(32,199)   $(39,687)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................     4,015       4,478
  Amortization of discount on note payable..................     1,463       2,377
  Equity in losses of ventures..............................     5,433      10,167
  Deferred interest.........................................     2,636       3,869
  Other.....................................................       537         563
  Changes in assets and liabilities:
     Accounts receivable....................................    (3,944)     (2,880)
     Prepaid expenses.......................................    (1,045)       (618)
     Finished goods.........................................      (902)       (864)
     Accounts payable and accrued expenses..................    (5,219)     (3,324)
     Other changes in assets and liabilities................     3,262       2,667
                                                              --------    --------
Net cash used in operating activities.......................   (25,963)    (23,252)
INVESTING ACTIVITIES
  Investments in and advances to ventures...................   (17,215)    (12,873)
  Purchases of property and equipment.......................    (6,630)     (3,127)
  Restricted cash...........................................      (762)        315
  Goodwill and other intangibles............................    (2,116)     (1,261)
  Other investing activities................................      (999)       (167)
                                                              --------    --------
Net cash used in investing activities.......................   (27,722)    (17,113)
FINANCING ACTIVITIES
  Proceeds from debt........................................    61,571         308
  Common stock repurchased for treasury.....................        --        (433)
  Other financing activities................................       127         (99)
                                                              --------    --------
Net cash provided by (used in) financing activities.........    61,698        (224)
Effect of exchange rate changes on cash and cash
  equivalents...............................................       (70)     (2,698)
                                                              --------    --------
Net increase (decrease) in cash and cash equivalents........     7,943     (43,287)
Cash and cash equivalents at beginning of period............     9,044      57,874
                                                              --------    --------
Cash and cash equivalents at end of period..................  $ 16,987    $ 14,587
                                                              ========    ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-27
<PAGE>   158
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
             NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1. FINANCIAL PRESENTATION AND DISCLOSURES
 
     In the opinion of management, the accompanying unaudited condensed,
consolidated financial statements of Global TeleSystems Group, Inc. (the
"Company") contain all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the Company's financial position as of
December 31, 1996, June 30, 1997 and pro forma at June 30, 1997 (see Note 5,
"Subsequent Events"), and the results of operations and cash flows for the
periods indicated.
 
     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Material intercompany affiliate account
transactions have been eliminated; however, other adjustments may have been
required had an audit been performed. It is suggested that these financial
statements be read in conjunction with the Company's 1996 audited consolidated
financial statements and the notes related thereto. The results of operations
for the six months ended June 30, 1997, may not be indicative of the operating
results for the full year.
 
     The Company's operations are carried out through alliances with strategic
local partners in the form of venture arrangements. Wholly-owned subsidiaries
and majority-owned ventures where the Company has unilateral operating and
financial control are consolidated within the Company's financial results and
operations. Those ventures where the Company exercises significant influence,
but does not exercise unilateral operating and financial control, are accounted
for by the equity method. The Company has certain majority-owned investments
that are accounted for by the equity method as a result of super-majority voting
conditions or other governmentally imposed uncertainties so severe that they
prevent the Company from obtaining unilateral control of the venture. If the
Company has little ability to exercise significant influence over the ventures,
those ventures are accounted for by the cost method.
 
   
     The Company recognizes profits and losses in accordance with its underlying
ownership percentage or allocation percentage as specified in the agreements
with its partners; however, the Company recognizes 100% of the losses in
ventures where the Company bears all of the financial risk. When such ventures
become profitable, the Company recognizes 100% of the profits until such time as
the excess losses previously recorded have been recovered. As a result of this
policy, the Company recognized excess losses of $2.1 million, and $7.8 million
in its results of operations for the six months ended June 30, 1996 and 1997,
respectively. In addition, effective January 1, 1997, the Company recognizes
100% of the losses of one of its ventures which is accounted for by the equity
method, Hermes Europe Railtel, B.V. ("H.E.R."), due to the Company becoming the
financing partner. As a result, the Company recognized additional losses of $5.0
million for the six months ended June 30, 1997. The Company would have
recognized additional losses of $3.5 million for the six months ended June 30,
1996, had the Company been considered the financing partner. Moreover,
subsequent to June 30, 1997, as a result of a recapitalization initiated by
H.E.R. (the "H.E.R. Recapitalization"), the Company's ownership of H.E.R.
increased from 50.0% to 86.2% (see Note 14, "Subsequent Events").
    
 
2. DEBT OBLIGATIONS
 
     During 1996, in connection with a purchase agreement involving a venture in
the CIS region, the Company agreed to buy-out the other partner's interest in
this venture. The initial capital infusion by both partners in 1996 was for $4.5
million each. The Company's obligation to pay the other partner was payable upon
demand. In June 1997, an additional $4.1 million was contributed by each partner
and the Company was obligated to pay the other partner $4.1 million by September
30, 2000. Included in the buy-out agreement, the outstanding obligation of $8.6
million may be converted into 475,540 shares of the Company's stock upon
completion of an initial public offering of the Company's common stock.
 
                                      F-28
<PAGE>   159
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
      NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
2. DEBT OBLIGATIONS (CONTINUED)
     In connection with a purchase of a venture during 1995, the Company is
required to pay additional consideration through 1998, either in cash or shares
of the Company's common stock, based upon the actual earnings of the venture.
During the first quarter of 1997, the purchase agreement related to acquiring
this venture was amended and the notes payable of $5.2 million were replaced and
additional consideration was paid by the issuance of 336,400 shares of the
Company's common stock valued at $20.00 per share.
 
3. EQUITY TRANSACTIONS
 
     At December 31, 1996, the Company had 216,667 shares of common stock
subject to repurchase, valued at $20.00 per common share. These shares were
originally issued in 1995 by the Company in connection with the acquisition of
an interest in a venture. In March 1997, the Company repurchased 21,667 shares
at $20.00 per share, and these shares became treasury stock. The Company will be
required to repurchase the remaining shares on an equal basis over the next
three years unless the Company has completed a complying public equity offering.
At June 30, 1997, the remaining 195,000 shares of common stock subject to
repurchase was valued at $23.50 per common share, reflecting the accretion in
the Company's stock value since December 31, 1996.
 
   
4. SUBSEQUENT EVENTS
    
 
  Financing Transactions
 
   
     In July 1997, the Company issued $144.8 million senior subordinated
convertible bonds (the "Bonds") due June 30, 2000. The Bonds constitute direct,
unsecured senior subordinated obligations of the Company and rank senior in
right of payment to all subordinated indebtedness after existing debt of $84.1
million. Upon completion of a complying public equity offering as defined in the
Bond agreement (an "Offering") or in certain other circumstances as defined in
the Bond agreement, the Bonds may be converted at the option of the holders from
time to time, in whole or in part, prior to the close of business on June 30,
2000, into shares of the Company's common stock, par value $0.0001 per share.
The Bonds will be convertible into such number of shares of Common Stock as is
equal to the principal amount of such Bonds divided by the applicable conversion
price, which conversion price shall be equal to the public offering price of the
Common Stock in the Offering. The Bonds bear interest payable semiannually at a
rate of 8.75% for the first year, 9.25% for the second year and 9.75% for the
final year. In the event of an Offering, the interest rate will remain at the
interest rate prevailing at the time of the Offering until maturity. In the
event that an Offering has not occurred by the maturity date, the Bonds will be
redeemed at 121 percent of their principal amount.
    
 
   
     Subsequent to June 30, 1997, H.E.R. initiated a debt offering that is
expected to raise $265 million through a series of senior notes due August 15,
2007 ("Senior Notes"). The Senior Notes will be general unsecured obligations of
H.E.R., with interest payable semi-annually at a rate of 11.5%. Approximately
$56.5 million of the net proceeds of the offering will be held in escrow for the
first four semi-annual interest payments commencing in 1998. The offering was
completed August 15, 1997.
    
 
  Hermes Recapitalization
 
   
     As of June 30, 1997, H.E.R. is 50% owned by a wholly-owned subsidiary of
the Company and 50% owned by HIT Rail B.V. ("HIT Rail"), a consortium of eleven
European railway companies. In an effort to increase its equity by means of the
contribution of fiber optic cable leases and/or cash by the Company, HIT Rail,
and the individual shareholders of HIT Rail, H.E.R. initiated the H.E.R.
Recapitalization, which is expected to be completed by the end of August, 1997.
The first phase of the Hermes Recapitalization was completed on July 7, 1997 and
resulted in the Company receiving shares of H.E.R.'s common stock in exchange
for the
    
 
                                      F-29
<PAGE>   160
 
                         GLOBAL TELESYSTEMS GROUP, INC.
 
      NOTES TO CONDENSED, CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                                  (UNAUDITED)
 
   
4. SUBSEQUENT EVENTS (CONTINUED)
    
   
conversion of approximately $28.4 million of loans and the contribution of ECU
46.0 million (approximately $51.1 million), which will be paid by the Company to
H.E.R. by September 30, 1997. HIT Rail received shares of H.E.R.'s common stock
in exchange for the conversion of approximately $14.0 million of loans. As a
result of the completion of the first phase of the H.E.R. Recapitalization, the
Company owns 86.2% of H.E.R. and HIT Rail owns 13.8%.
    
 
   
     Additional phases of the H.E.R. Recapitalization are expected to include
the conversion of loans of approximately $6.1 million advanced to H.E.R. by two
of the individual railways of the HIT Rail consortium, as well as the
contribution of fiber optic cable leases. If all parties participate in the
H.E.R. Recapitalization as currently expected, the Company will own 79.1% of
H.E.R. and the two exercising railways (collectively) and HIT Rail will own 8.3%
and 12.6% of H.E.R., respectively. In accordance with Statement of Financial
Accounting Standards No. 94, "Consolidation of All Majority-Owned Subsidiaries,"
H.E.R. will be consolidated into the Company's financial statements upon
finalization of the H.E.R. Recapitalization and execution of a new shareholders
agreement.
    
 
  Equity Transactions
 
     The Company completed a private placement offering in September 1997 and
issued approximately 1,672,000 shares of the Company's common stock at
approximately $23.50 per share, for aggregate gross proceeds of $39.3 million.
 
  Pro Forma Financial Information
 
   
     Presented below is an unaudited balance sheet which sets forth historical
information as adjusted to give effect to the financing transactions, H.E.R.
Recapitalization, and equity transactions discussed above, including the effect
of consolidating H.E.R. The adjustments assume that these transactions occurred
on June 30, 1997.
    
 
<TABLE>
<CAPTION>
                        UNAUDITED                           REPORTED    ADJUSTMENTS    PRO FORMA
                        ---------                           --------    -----------    ---------
                                                                       (IN THOUSANDS)
<S>                                                         <C>         <C>            <C>
Cash and cash equivalents.................................  $ 14,587     $369,659      $384,246
Other current assets......................................    19,128       36,137        55,265
Other assets..............................................   164,625       66,602       231,227
                                                            --------     --------      --------
          Total assets....................................  $198,340     $472,398      $670,738
                                                            ========     ========      ========
Current liabilities.......................................  $ 33,093     $ 10,008      $ 43,101
Long-term debt, less current portion......................    64,425      410,239       474,664
Other liabilities.........................................    18,067            8        18,075
                                                            --------     --------      --------
          Total liabilities...............................   115,585      420,255       535,840
Mezzanine debt............................................        --        6,142         6,142
Minority interest.........................................     1,894       10,083        11,977
Common stock, subject to repurchase.......................     4,583           --         4,583
Shareholders' equity......................................    76,278       35,918       112,196
                                                            --------     --------      --------
          Total liabilities and shareholders' equity......  $198,340     $472,398      $670,738
                                                            ========     ========      ========
</TABLE>
 
                                      F-30
<PAGE>   161
 
                                  EDN SOVINTEL
 
                              FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
                                      F-31
<PAGE>   162
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors and Owners
EDN Sovintel
 
     We have audited the accompanying balance sheets of EDN Sovintel as of
December 31, 1996 and 1995, and the related statements of income and retained
earnings, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of EDN Sovintel at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in period ended December 31, 1996, in conformity with accounting
principles generally accepted in the United States of America.
 
     We have also audited the financial statements of the Company at December
31, 1996, 1995 and 1994 and for each of the three years ended December 31, 1996,
not presented herewith, prepared in compliance with the regulations for
bookkeeping and accounting for income tax and statutory reporting purposes in
the Russian Federation on which we expect to report separately for the 1996
audited financial statements and have reported separately for the 1995 and 1994
financial statements. The significant differences between the accounting
principles applied for preparing the statutory financial statements and
accounting principles generally accepted in the United States of America are
summarized in Note 2, "Basis of Presentation."
 
                                            Ernst & Young (CIS) Ltd.
 
   
Moscow, Russia
    
February 21, 1997
 
                                      F-32
<PAGE>   163
 
                                  EDN SOVINTEL
 
                                 BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1996       1995
                                                              -------    -------
                                                               (IN THOUSANDS OF
                                                                 US DOLLARS)
<S>                                                           <C>        <C>
Current assets:
  Cash and cash equivalents.................................  $ 3,606    $ 3,094
  Cash deposit with related party...........................      476
  Accounts receivable, net of allowances....................   15,329      7,400
  Due from affiliates.......................................    1,879      1,196
  Inventories...............................................    1,749        938
  Prepaid expenses and other assets.........................    2,328      1,540
                                                              -------    -------
          Total current assets..............................   25,367     14,168
Property and equipment, net.................................   27,709     21,349
Deferred expenses...........................................    1,080      1,215
                                                              -------    -------
          Total assets......................................  $54,156    $36,732
                                                              =======    =======
 
                      LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
  Note due shareholder......................................  $ 5,700    $ 5,500
  Trade payables............................................    8,382      8,761
  Accrued liabilities and other payables....................    1,130        701
  Taxes accrued or payable..................................    1,086      1,019
  Amounts due to shareholder and affiliates.................    5,703      2,664
  Current portion of amount due to partner in commercial
     venture................................................    1,350
  Current portion of long-term debt.........................                 694
                                                              -------    -------
          Total current liabilities.........................   23,351     19,339
Amount due to partner in commercial venture.................               1,350
Commitments and contingencies
Shareholders' equity:
  Capital contributions.....................................    2,000      2,000
  Retained earnings.........................................   28,805     14,043
                                                              -------    -------
          Total shareholders' equity........................   30,805     16,043
                                                              -------    -------
          Total liabilities and shareholders' equity........  $54,156    $36,732
                                                              =======    =======
</TABLE>
 
                            See accompanying notes.
 
                                      F-33
<PAGE>   164
 
                                  EDN SOVINTEL
 
                   STATEMENTS OF INCOME AND RETAINED EARNINGS
 
   
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1996       1995       1994
                                                              -------    -------    -------
                                                              (IN THOUSANDS OF US DOLLARS)
<S>                                                           <C>        <C>        <C>
Revenues, net:
  Service revenues..........................................  $63,488    $29,920    $19,674
  Installation revenues.....................................    9,312     12,981          0
  Product sales.............................................    2,240      1,391      1,054
                                                              -------    -------    -------
                                                               75,040     44,292     20,728
                                                              -------    -------    -------
Cost of revenues:
  Service costs.............................................   37,884     18,545     11,814
  Cost of installation......................................    4,656      6,491          0
  Cost of products..........................................    1,370      1,211        705
                                                              -------    -------    -------
                                                               43,910     26,247     12,519
                                                              -------    -------    -------
Gross profit................................................   31,130     18,045      8,209
Selling, general and administrative expenses................   10,291      7,145      4,644
Interest expense............................................      638        703        612
Interest income.............................................      (87)       (59)       (24)
Other loss (income).........................................      120        (98)      (113)
Foreign exchange loss on net monetary items.................      252        112        467
                                                              -------    -------    -------
Income before taxes.........................................   19,916     10,242      2,623
Income taxes................................................    5,154      2,594
                                                              -------    -------    -------
Net income..................................................   14,762      7,648      2,623
Retained earnings, beginning of year........................   14,043      6,395      3,772
                                                              -------    -------    -------
Retained earnings, end of year..............................  $28,805    $14,043    $ 6,395
                                                              =======    =======    =======
</TABLE>
    
 
                            See accompanying notes.
 
                                      F-34
<PAGE>   165
 
                                  EDN SOVINTEL
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                1996       1995       1994
                                                              --------    -------    -------
                                                               (IN THOUSANDS OF US DOLLARS)
<S>                                                           <C>         <C>        <C>
Operating activities
  Net income................................................  $ 14,762    $ 7,648    $ 2,623
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization..........................     3,638      2,448      1,929
     Provision for doubtful accounts........................       678        132        303
     Write-off of accounts receivable.......................      (147)      (492)
     Write-down of network equipment and inventories........       100        196        170
     Foreign exchange loss..................................       252        112        467
  Changes in operating assets and liabilities:
     Accounts receivable, net of allowances.................    (8,460)    (2,759)      (358)
     Due from affiliates....................................      (683)    (1,011)      (172)
     Inventories............................................      (911)      (309)        77
     Advances to related party..............................                            (376)
     Prepaid expenses and other assets......................    (1,054)      (307)      (712)
     Trade payables.........................................      (193)     2,983      2,176
     Accrued liabilities and other payables.................       429        586       (591)
     Taxes accrued or payable...............................       207        876
     Amounts due to shareholder and affiliates..............     3,039      2,165        499
     Other..................................................                            (132)
                                                              --------    -------    -------
          Net cash provided by operating activities.........    11,657     12,268      5,903
Investing activities -- Purchases of and advances for
  property and equipment....................................    (9,863)    (9,259)    (5,729)
Financing activities
  Borrowings from shareholder...............................    11,300     11,888      2,883
  Repayments to shareholder.................................   (11,100)    (9,271)
  Repayments of long-term debt..............................      (694)    (3,979)    (3,979)
  Increase in cash deposited with related party.............      (476)
                                                              --------    -------    -------
          Net cash used in financing activities.............      (970)    (1,362)    (1,096)
Effect of exchange rate changes on cash and cash
  equivalents...............................................      (312)                 (220)
                                                              --------    -------    -------
Net increase (decrease) in cash and cash equivalents........       512      1,647     (1,142)
Cash and cash equivalents at beginning of year..............     3,094      1,447      2,589
                                                              --------    -------    -------
Cash and cash equivalents at end of year....................  $  3,606    $ 3,094    $ 1,447
                                                              ========    =======    =======
</TABLE>
 
                            See accompanying notes.
 
                                      F-35
<PAGE>   166
 
                                  EDN SOVINTEL
 
                         NOTES TO FINANCIAL STATEMENTS
              (US DOLLAR AMOUNTS IN TABLES EXPRESSED IN THOUSANDS)
 
1. DESCRIPTION OF BUSINESS
 
     EDN Sovintel (the "Company") was created in August 1990 to design,
construct, and operate a telecommunications network in Moscow. This network
provides worldwide communications services, principally to major hotels,
business offices and mobile communication companies. Telecommunications services
are subject to local licensing. The Company's license for international,
intercity and local calls was most recently renewed on November 4, 1996 and is
valid until January 5, 2000. The Company received a license for leased lines on
September 20, 1996 valid for 5 years. The Company began operating in December
1991, providing services under long-term contracts payable in US dollars.
 
     The Company initially registered as a limited liability Russian-American
joint venture. The venture re-registered as a limited liability Russian company
in October 1992. The Company is fifty-percent owned by Open Joint Stock Company
"Rostelecom", an intercity and long-distance carrier which is 51% owned by the
Russian Government, and fifty-percent owned by Sovinet, a US general
partnership, owned by two wholly-owned Global TeleSystems Group, Inc. ("GTS")
subsidiaries.
 
2. BASIS OF PRESENTATION
 
     The Company maintains its records and prepares its financial statements in
Russian roubles in accordance with the requirements of Russian accounting and
tax legislation. The accompanying financial statements differ from the financial
statements used for statutory purposes in Russia in that they reflect certain
adjustments, not recorded on the Company's books, which are appropriate to
present the financial position, results of operations and cash flows in
accordance with generally accepted accounting principles in the United States of
America ("US GAAP"). The principal adjustments are related to foreign currency
translation, and depreciation and valuation of property and equipment.
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Use of Estimates
 
     The preparation of financial statements, in conformity with US GAAP,
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
 
  Foreign Currency Translation
 
     The Company's functional currency is the US dollar because the majority of
its revenues, costs, property and equipment purchased, and debt and trade
liabilities are either priced, incurred, payable or otherwise measured in US
dollars. Accordingly, transactions and balances not already measured in US
dollars (primarily Russian roubles) have been remeasured into US dollars in
accordance with the relevant provisions of US Financial Accounting Standard
("FAS") No. 52, "Foreign Currency Translation".
 
     Under FAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from remeasurement of monetary assets and liabilities that are not denominated
in US dollars are credited or charged to operations.
 
     The rouble is not a convertible currency outside the territory of Russia.
Within Russia its official exchange rates were determined principally through
trading on Moscow Interbank Currency Exchange ("MICEX") until May 17, 1996.
Although MICEX rates did occasionally diverge from market rates, they were
generally considered to be a reasonable approximation. Beginning May 17, 1996,
official exchange rates
 
                                      F-36
<PAGE>   167
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
were determined daily by the Central Bank of Russia ("CBR") and are generally
considered to be a reasonable approximation of market rates. The translation of
rouble denominated assets and liabilities into US dollars for the purpose of
these financial statements does not indicate that the Company could realize or
settle in US dollars the reported values of the assets and liabilities.
Likewise, it does not indicate that the Company could return or distribute the
reported US dollar values of capital and retained earnings to its shareholders.
 
     The exchange rate used for translation purposes is the CBR rate as of
December 31, 1996 and the MICEX rate as of December 31, 1995 and 1994. The rates
at December 31, 1996, 1995 and 1994 for one US dollar were RUR 5,560, RUR 4,640
and RUR 3,550, respectively. At February 21, 1997, the CBR rate had changed to
RUR 5,665. The effect of this devaluation of the rouble on monetary assets and
liabilities has not been determined.
 
  Cash and Cash Equivalents
 
     Cash and cash equivalents consist of cash on hand and in the bank.
 
  Accounts Receivable
 
     Accounts receivable are shown at their net realizable value which
approximates their fair value. Accounts receivable are shown in the balance
sheet net of an allowance for uncollectible accounts of $900,000 and $369,000 at
December 31, 1996 and 1995, respectively.
 
  Inventories
 
     Inventories consist of telecommunications equipment held for resale and are
stated at the lower of cost or market. Cost is computed on a weighted average
basis.
 
  Property and Equipment
 
     Property and equipment are recorded at their historical cost. Depreciation
and amortization are provided on the straight-line method over the following
estimated useful lives:
 
<TABLE>
<S>                                                         <C>
Network equipment.......................................     10 years
Other property and equipment............................    3-5 years
</TABLE>
 
     There is no depreciation charge for construction-in-progress. Depreciation
commences upon completion of the related project.
 
  Deferred Expenses
 
     Deferred expenses represent the Company's interest in the historical cost
of network equipment owned by MTU Inform, a partner in a commercial venture
(Note 8). These expenses are amortized over the equipment's useful life of 10
years.
 
  Revenue Recognition and Taxes on Revenue
 
   
     Service revenues from telecommunication traffic and periodic fixed fees are
recognized in the period in which the traffic occurs or the fixed fee earned.
Installation revenues represent connection fees and are recognized in the period
of installation. Product sales are recognized in the period in which the
products are sold. Revenues are stated net of any value-added taxes ("VAT")
charged to customers. Certain other taxes on revenues were charged at rates
ranging from 1.5% to 4.0% over the three year period ending December 31, 1996
and amounted to $2,792,000, $1,166,000 and $336,000 in 1996, 1995 and 1994,
respectively, and are charged to selling, general and administrative expenses.
    
 
                                      F-37
<PAGE>   168
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
  Advertising
 
     The Company expenses the cost of advertising as incurred. Advertising
expenses for the years ended December 31, 1996, 1995 and 1994 were $512,000,
$395,000 and $270,000, respectively, and are included in selling, general and
administrative expenses.
 
  Investment Incentive Deductions
 
     Russian legislation allows for certain additional tax deductions related to
new asset investments. These deductions are accounted for as a reduction to
current income taxes in the year in which they arise.
 
  Income Taxes
 
     The Company computes and records income taxes in accordance with FAS No.
109, "Accounting for Income Taxes".
 
  Government Pension Funds
 
     The Company contributes to the Russian Federation state pension fund,
social fund, medical insurance fund, unemployment charters and transport fund on
behalf of all its Russian employees. Contributions were 40.5%, 41.0% and 40.0%
for 1996, 1995 and 1994, respectively.
 
  Fair Value of Financial Instruments
 
     The fair value of financial instruments included in current assets and
liabilities is considered to be the carrying value.
 
  Comparative figures
 
     Certain of the 1995 comparative figures have been reclassified to conform
to the presentation adopted in the current year.
 
4. PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following as of December 31:
 
<TABLE>
<CAPTION>
                                                               1996       1995
                                                              -------    -------
<S>                                                           <C>        <C>
Network equipment...........................................  $31,251    $20,875
Other property and equipment................................    3,108      2,740
                                                              -------    -------
                                                               34,359     23,615
Accumulated depreciation and amortization...................   (9,380)    (5,877)
Construction-in-progress....................................    1,796      1,539
Network equipment and advances for network equipment not yet
  in service................................................      934      2,072
                                                              -------    -------
Net book value..............................................  $27,709    $21,349
                                                              =======    =======
</TABLE>
 
     Total depreciation and amortization expense on property and equipment for
1996, 1995 and 1994 was $3,503,000, $2,253,000 and $1,720,000, respectively.
 
                                      F-38
<PAGE>   169
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
5. INCOME TAXES
 
     The Russian Federation was the only tax jurisdiction in which the Company's
income was taxed. The income tax expense reported in the accompanying statements
of operations for the years ended December 31, 1996, 1995 and 1994 represents
the provision for taxes currently payable.
 
     The following is a reconciliation of the tax basis and book basis of the
taxable income reported in the Russian statutory financial statements to the
income before taxes reported in the accompanying financial statements presented
in accordance with US GAAP for the years ended December 31:
 
<TABLE>
<CAPTION>
                                           1996      1995      1994
                                          -------   -------   ------
<S>                                       <C>       <C>       <C>
Taxable income (loss) reported for
  Russian tax purposes..................  $14,726   $ 7,411   $
  Investment incentive deductions.......    9,030     7,220
  Tax loss carry-forwards utilized......      113
  Net permanent difference related to
     revenues and expenses incurred in
     the ordinary course of business
     which are not assessable or
     deductible for Russian tax
     purposes...........................   (1,174)   (2,595)    (948)
                                          -------   -------   ------
Russian income (loss) before taxes......   22,695    12,036     (948)
Adjustments to present financial
  statements in accordance with US GAAP:
  Reversal of excess depreciation due to
     statutory revaluations.............   (1,497)     (293)    (285)
  Depreciation rate differences.........     (424)     (236)     (98)
  Allowances for uncollectible
     accounts...........................      369      (132)    (129)
  Inventory allowance...................     (100)     (249)     (29)
  Accrual of deductible expenses........   (2,437)   (1,339)    (659)
  Accrual of revenue....................    1,093        19
  Foreign exchange differences..........      280     1,425    5,665
  Other non-deductible accruals.........      (63)     (989)    (894)
                                          -------   -------   ------
Income before taxes under US GAAP.......  $19,916   $10,242   $2,623
                                          =======   =======   ======
</TABLE>
 
     The Company operated under a two-year income tax holiday in 1994 and 1993.
As such, no Russian tax calculations or tax filings were made or reported.
 
     A reconciliation between the statutory rate and the effective income tax
rate is as follows for the years ended December 31:
 
<TABLE>
<CAPTION>
                                           1996      1995      1994
                                          -------   -------   -------
<S>                                       <C>       <C>       <C>
Income tax expense computed on financial
  income taxes at statutory tax rate of
  35% for 1996 and 1995 and 38% for
  1994..................................  $ 6,970   $ 3,585   $   997
Tax effect of permanent differences:
  Investment incentive deductions.......   (3,161)   (2,594)
  Tax loss carryforwards utilized.......      (40)
  Other permanent differences...........      411       805       360
  Adjustments made to compute income
     before taxes for US GAAP financial
     reporting..........................      813       555    (1,548)
Temporary differences not recognised as
  measured by the change in the
  valuation allowance...................      161       243       191
                                          -------   -------   -------
Income tax expense reported in the
  financial statements..................  $ 5,154   $ 2,594   $
                                          =======   =======   =======
</TABLE>
 
                                      F-39
<PAGE>   170
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
5. INCOME TAXES -- (CONTINUED)
     The deferred tax balances are calculated by applying the statutory tax
rates in effect at the respective balance sheet dates to the temporary
differences between the tax basis of assets and liabilities and the amount
reported in the accompanying financial statements, and consist of the following
at December 31:
 
<TABLE>
<CAPTION>
                                                              1996     1995    1994
                                                             -------   -----   -----
<S>                                                          <C>       <C>     <C>
Deferred tax assets (liabilities):
  Depreciation.............................................  $   300   $ 151   $  74
  Inventory write-downs and allowances.....................      235     147      11
  Accrual of expenses......................................      898     469     284
  Accrual of revenue.......................................     (383)     (7)
  Allowance for uncollectible accounts.....................              129     277
                                                             -------   -----   -----
Deferred tax assets........................................    1,050     889     646
Valuation allowance for deferred tax assets................   (1,050)   (889)   (646)
                                                             -------   -----   -----
Net deferred tax assets....................................  $    --   $  --   $  --
                                                             =======   =====   =====
</TABLE>
 
   
     For financial reporting purposes, a valuation allowance has been recognised
to reflect management's estimate of the deferred tax assets that are less likely
than not to be realized. Management's estimate of the recoverability of the
deferred tax assets is based on the Company's limited history of profitable
operations as well as the uncertainties surrounding the tax and legal systems in
Russia (see Note 11).
    
 
     Unexpired tax loss carryforwards at December 31, 1996 amount to $113,000
and is available in and expires in 1997.
 
     The Company paid Russian profits tax of $5,849,000 and $2,660,000 in 1996
and 1995, respectively, and no taxes in 1994.
 
6. NOTE DUE TO SHAREHOLDER AND LONG-TERM DEBT
 
     In October 1995, the Company entered into a $5,000,000 credit facility with
Sovinet, one of the Company's shareholders. It was subsequently increased to
$7,000,000. In January of 1997, this facility was repaid and on January 16,
1997, a new six-month facility was established with GTS Finance, Inc. for
$7,000,000. The loan bears interest at a rate equal to the then current six
month LIBOR rate (5.6% as of December 31, 1996) plus 5.0 percent per annum. As
of December 31, 1996 and 1995, the outstanding borrowings under this agreement
were $5,700,000 and $5,500,000, respectively.
 
     In April 1991, the Company entered into a $5,300,000 credit facility with
Barclays Bank PLC and International Moscow Bank. This loan was fully repaid
during 1996.
 
     The Company believes that the carrying value of the above loans approximate
their fair values.
 
     The Company paid interest of $403,000, $576,000 and $472,000 in 1996, 1995
and 1994, respectively.
 
                                      F-40
<PAGE>   171
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
7. SHAREHOLDERS' EQUITY
 
     The Company's capital structure as specified in its charter capital
document as of December 31 is as follows:
 
<TABLE>
<CAPTION>
                                             1996          1995
                                          ----------    ----------
<S>                                       <C>           <C>
Registered capital in Russian roubles:
  Rostelecom............................     600,000       600,000
  Sovinet...............................     600,000       600,000
                                          ----------    ----------
                                           1,200,000     1,200,000
                                          ==========    ==========
Historical value of the Company's
  capital in US dollars.................  $    2,000    $    2,000
                                          ==========    ==========
</TABLE>
 
     As a Russian limited liability company, the Company has no capital stock;
rather, it has only contributed and locally registered capital in accordance
with its charter. As such, no earnings per share data are presented in these
financial statements.
 
     Retained earnings available for distribution at December 31, 1996 amounted
to 84 billion roubles or approximately $15,108,000 at applicable year-end
exchange rates.
 
8. RELATED PARTY TRANSACTIONS
 
     Transactions and balances with Rostelecom (one of the Company's
shareholders) and its affiliates were, as of and for the years ending December
31, as follows:
 
<TABLE>
<CAPTION>
                                           1996      1995     1994
                                          ------    ------    ----
<S>                                       <C>       <C>       <C>
Sales...................................  $1,525    $   62
Telecommunication lease and traffic
  costs.................................   4,586     1,506    $410
Amounts due to shareholder and
  affiliates............................     656       460
Cash deposit with related party.........     476
</TABLE>
 
     At the request of Rostelecom, a shareholder, the Company placed a deposit
of 2.65 billion roubles in August 1996 with a Russian bank related to this
shareholder. The bank deposit agreement states a deposit term of one year. The
deposit earns interest quarterly at a rate of 15% per annum plus any devaluation
losses against the US dollar up to a maximum of 4.8% per quarter. Management is
aware that the deposited amount collateralizes certain obligations of the
shareholder.
 
     Transactions and balances with Sovinet (one of the Company's shareholders),
GTS and affiliates were, as of and for the years ending December 31, as follows:
 
<TABLE>
<CAPTION>
                                           1996      1995      1994
                                          ------    ------    ------
<S>                                       <C>       <C>       <C>
Sales...................................  $3,115    $1,041    $  172
Management service fees and
  reimbursements of expenses of
  expatriate staff......................     927     2,062       499
Balances due under credit facility......   5,700     5,500     2,883
Interest expense........................     626       461        65
Amounts due from affiliates.............   1,879     1,196       185
Amounts due to shareholder and
  affiliates............................   5,047     2,204       499
</TABLE>
 
                                      F-41
<PAGE>   172
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
8. RELATED PARTY TRANSACTIONS -- (CONTINUED)
     Transactions and balances with MTU Inform, an entity with which the Company
entered into a commercial agreement to co-develop and operate a "258" phone
exchange were, as of and for the years ending December 31, as follows:
 
<TABLE>
<CAPTION>
                                           1996       1995      1994
                                          -------    -------    ----
<S>                                       <C>        <C>        <C>
Telecommunication settlement and rent
  expense...............................  $15,889    $10,491
Balances in trade payables..............    1,237      2,184
Balance of amount due to partner in
  commercial venture....................    1,350      1,350
Balances in prepaid expenses and other
  assets................................                        $376
</TABLE>
 
     The Company also has an interest in the cost of the related network
equipment owned by MTU Inform, which is reflected in the balance sheet as
deferred expenses.
 
9. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
 
     Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash deposits and trade accounts
receivables. The Company deposits its available cash with several Russian
financial institutions. The Company's sales and accounts receivable are made to
and due from a variety of international and Russian business customers. As of
December 31, 1996, two customers accounted for 17% and 16% of revenues and 25%
and 10% of accounts receivable, respectively. As of December 31, 1995, these
same two customers accounted for 1% and 14% of revenues and 10% and 11% of
accounts receivable, respectively. The Company did not have significant
activities with these customers during 1994. However, during 1994, a different
customer accounted for 14% of revenues. The Company has no other significant
concentrations of credit risk.
 
10. COMMITMENTS
 
     The Company has several cancelable operating leases for office and
warehouse space and telecommunications lines with terms ranging from one to five
years.
 
     Total rent expense for 1996, 1995 and 1994 was $2,123,000, $1,068,000 and
$1,058,000, respectively.
 
11. CONTINGENCIES
 
     The tax and legal systems in Russia are evolving as Russia and its central
government transform from a command to a market oriented economy. The Russian
Federation has and continues to introduce laws, decrees and related regulations.
These laws, decrees and regulations are not always clearly written and are, at
times, conflicting. In addition, their interpretation is subject to the opinions
of a variety of local, regional and federal tax inspectors, Central Bank
officials and the Ministry of Finance. Instances of inconsistent opinions among
and between these authorities are not unusual.
 
     The Company's policy is to accrue contingencies in the accounting period in
which a loss is deemed probable and the amount is reasonably determinable. In
this regard, because of the uncertainties associated with the Russian tax and
legal systems, the ultimate taxes as well as penalties and interest, if any,
assessed may be in excess of the amount expensed to date and accrued at December
31, 1996. It is the opinion of management, that the ultimate resolution of the
Company's Russian tax liability and potential loss contingencies, to the extent
not previously provided for, will not have a material effect on the financial
condition of the Company. However, depending on the amount and timing of an
unfavorable resolution of this contingency, it is possible that the Company's
future results of operations or cash flows could be materially affected in a
particular period.
 
                                      F-42
<PAGE>   173
 
                                  EDN SOVINTEL
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
11. CONTINGENCIES -- (CONTINUED)
     The Company's operations and financial position will continue to be
affected by Russian political developments including the application of existing
and future legislation, tax regulations, cancellations or non-renewal of license
rights, and expropriation of property. The Company does not believe that these
contingencies, as related to its operations, are any more significant than those
of similar enterprises in Russia.
 
                                      F-43
<PAGE>   174
 
                                  EDN SOVINTEL
 
                         CONDENSED FINANCIAL STATEMENTS
                         FOR THE SECOND QUARTER OF 1997
                                   UNAUDITED
 
                                      F-44
<PAGE>   175
 
                                  EDN SOVINTEL
 
                            CONDENSED BALANCE SHEETS
                                  (UNAUDITED)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JUNE 30,
                                                                  1996          1997
                                                              ------------    --------
                                                                   (IN THOUSANDS)
<S>                                                           <C>             <C>
Current assets
  Cash and cash equivalents.................................    $ 3,606        $ 3,160
  Accounts receivable, less allowance for doubtful accounts
     of $900 and $1,252 at December 31, 1996 and June 30,
     1997...................................................     15,329         22,400
  Restricted cash...........................................        476            498
  Due from affiliated companies.............................      1,879          2,256
  Inventory.................................................      1,749          1,871
  Prepaid expenses and other assets.........................      2,328          3,857
                                                                -------        -------
          Total current assets..............................     25,367         34,042
Property and equipment, net of accumulated depreciation of
  $9,380 and $11,718 at December 31, 1996 and June 30,
  1997......................................................     27,709         34,105
Deferred expenses...........................................      1,080          1,013
                                                                -------        -------
          TOTAL ASSETS......................................    $54,156        $69,160
                                                                =======        =======
 
                         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................    $ 8,382        $11,291
Accrued expenses............................................      2,216          3,430
Due to affiliated companies.................................      5,703          7,583
Note payable to shareholder.................................      5,700          4,972
Taxes and other liabilities.................................      1,350          1,350
                                                                -------        -------
          TOTAL LIABILITIES.................................     23,351         28,626
Commitments and contingencies
 
                                 SHAREHOLDERS' EQUITY
Contributed capital.........................................      2,000          2,000
Retained earnings...........................................     28,805         38,534
                                                                -------        -------
          TOTAL SHAREHOLDERS' EQUITY........................     30,805         40,534
                                                                -------        -------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........    $54,156        $69,160
                                                                =======        =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-45
<PAGE>   176
 
                                  EDN SOVINTEL
 
                       CONDENSED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              ------------------
                                                               1996       1997
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Revenues, net:
  Telecommunication and other services......................  $31,211    $52,311
  Equipment sales...........................................      782      1,828
                                                              -------    -------
                                                               31,993     54,139
Cost of revenues:
  Telecommunication and other services......................   18,362     31,543
  Equipment sales...........................................      647      1,293
                                                              -------    -------
  Total cost of revenues....................................   19,009     32,836
                                                              -------    -------
Gross margin................................................   12,984     21,303
Operating Expenses:
  Selling, general and administrative.......................    3,029      5,435
  Depreciation and amortization.............................      204        213
  Non-income taxes..........................................    1,368      2,467
                                                              -------    -------
  Total operating expenses..................................    4,601      8,115
Income from operations......................................    8,383     13,188
Other income/(expense):
  Other non-operating income, net...........................      213         45
  Interest income...........................................       18        104
  Interest expense..........................................     (177)      (319)
  Foreign currency gains (losses)...........................     (243)       (69)
                                                              -------    -------
                                                                 (189)      (239)
Net income before taxes.....................................    8,194     12,949
Income taxes................................................    2,143      3,220
                                                              -------    -------
Net income..................................................  $ 6,051    $ 9,729
                                                              =======    =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-46
<PAGE>   177
 
                                  EDN SOVINTEL
 
                       CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              ------------------
                                                               1996       1997
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
OPERATING ACTIVITIES
Net income..................................................  $ 6,051    $ 9,729
Adjustments to reconcile net income to net cash provided by
  operating activities:
Depreciation and amortization...............................    1,586      2,227
Provision for doubtful accounts.............................     (400)      (352)
Changes in assets and liabilities:
Accounts receivable.........................................   (3,046)    (6,719)
Inventory...................................................     (166)      (122)
Prepaid expenses and other
  assets....................................................     (200)    (1,529)
Accounts payable and accrued expenses.......................      682      4,123
                                                              -------    -------
Net cash provided by operating activities...................    4,507      7,357
INVESTING ACTIVITIES
Purchases of property and equipment.........................   (4,236)    (8,556)
Restricted cash.............................................      (40)       (22)
                                                              -------    -------
Net cash used in investing activities.......................   (4,276)    (8,578)
FINANCING ACTIVITIES
Borrowing on (repayment of)
  shareholder note, net.....................................      100       (728)
Repayment of debt...........................................     (694)        --
Due to affiliated companies, net............................      526      1,503
                                                              -------    -------
Net cash (used in) provided by financing activities.........      (68)       775
                                                              -------    -------
Net increase(decrease) in cash and cash equivalents.........      163       (446)
Cash and cash equivalents at beginning of period............    3,094      3,606
                                                              -------    -------
Cash and cash equivalents at end of period..................  $ 3,257    $ 3,160
                                                              =======    =======
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-47
<PAGE>   178
 
                                  EDN SOVINTEL
 
                    NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
1. FINANCIAL PRESENTATION AND DISCLOSURES
 
     In the opinion of management, the accompanying unaudited condensed
financial statements of EDN Sovintel (the "Company") contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
Company's financial position as of December 31, 1996 and June 30, 1997, and the
results of operations and cash flows for the periods indicated.
 
     The Company was established in August 1990 to design, construct and operate
a telecommunications network in Moscow. This network provides worldwide
communications services, principally to major hotels, business offices and
mobile communication companies. Telecommunications services are subject to local
licensing. The Company's license for international, intercity and local calls
was most recently renewed on November 4, 1996 and is valid until January 5,
2000. The Company began operating in December 1991, providing services under
long-term contracts payable in U.S. dollars.
 
     The Company initially registered as a limited liability Russian-American
joint venture. The venture re-registered as a limited liability Russian company
in October 1992. The Company is 50.0% owned by Sovinet, a U.S. general
partnership that is owned by two wholly-owned subsidiaries of Global TeleSystems
Group, Inc. ("GTS"); and the Company is 50.0% owned by Open Joint Stock Company
"Rostelecom," an intercity and long-distance carrier that is 51.0% owned by the
Russian Government.
 
     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Material accruals have been recorded; however,
other adjustments may have been required had an audit been performed. It is
suggested that these financial statements be read in conjunction with the
Company's 1996 audited financial statements and the notes related thereto. The
results of operations for the three months and six months ended June 30, 1997
may not be indicative of the operating results for the full year.
 
     The Company maintains its records and prepares its financial statements in
Russian roubles in accordance with the requirements of Russian accounting and
tax legislation. The accompanying financial statements differ from the financial
statements used for statutory purposes in Russia in that they reflect certain
adjustments, not recorded on the Company's books, which are appropriate to
present the financial position, results of operations and cash flows in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP"). The principal adjustments are related to foreign currency
translation, and depreciation and valuation of property and equipment.
 
2. DEBT OBLIGATIONS
 
     In October 1995, the Company entered into a $5.0 million credit facility
with Sovinet, one of the Company's shareholders. It was subsequently increased
to $7.0 million. In January 1997, this facility was repaid, and on January 16,
1997 a new six-month facility was established with GTS Finance, Inc., a wholly-
owned subsidiary of GTS, for $5.8 million. The loan bears interest at a rate
equal to the then current six-month LIBOR rate, approximately 5.6%, plus 5.0%
per annum.
 
3. CONTINGENCIES
 
     The tax and legal system in Russia are evolving as Russia and its central
government transform from a command to a market-oriented economy. The Russian
Federation has and continues to introduce laws, decrees and related regulations.
These laws, decrees and regulations are not always clearly written and are, at
times, conflicting. In addition, their interpretation is subject to the opinions
of a variety of local, regional and federal tax inspectors, Central Bank
officials and the Ministry of Finance. Instances of inconsistent opinions among
and between these authorities are not unusual.
 
                                      F-48
<PAGE>   179
 
                                  EDN SOVINTEL
 
             NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company's policy is to accrue contingencies in the accounting period in
which a loss is deemed probable and the amount is reasonably determinable. In
this regard, because of the uncertainties associated with the Russian tax and
legal systems, the ultimate taxes as well as penalties and interest, if any,
assessed may be in excess of the amount expensed to date and accrued at June 30,
1997. It is the opinion of management that the ultimate resolution of the
Company's Russian tax liability and potential loss contingencies, to the extent
not previously provided for, will not have a material effect on the financial
condition of the Company. However, depending on the amount and timing of an
unfavorable resolution of this contingency, it is possible that the Company's
future results of operations or cash flows could be materially affected in a
particular period.
 
     The Company's operations and financial position will continue to be
affected by Russian political developments, including the application of
existing and future legislation, tax regulations, cancellations or non-renewal
of license rights, and expropriation of property. The Company does not believe
that these contingencies, as related to its operations, are any more significant
than those of similar enterprises in Russia.
 
                                      F-49
<PAGE>   180
 
                           HERMES EUROPE RAILTEL B.V.
 
                              FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
 
                                      F-50
<PAGE>   181
 
                 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
 
To the Board of Directors and
the Shareholders of
Hermes Europe Railtel B.V.
 
     We have audited the accompanying consolidated balance sheets of Hermes
Europe Railtel B.V. (a development stage company) as of December 31, 1995 and
1996, and the related consolidated statements of operations, cash flows, and
shareholders' equity for the years ended December 31, 1995 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
   
     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
    
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hermes Europe
Railtel B.V. at December 31, 1995 and 1996, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with United
States generally accepted accounting principles.
 
   
                                            Ernst & Young Reviseurs
                                            d'Entreprises S.C.C.
    
 
   
                                            Represented by
    
 
   
                                            L. SWOLFS
    
   
                                            Partner
    
 
   
Brussels, Belgium
    
June 11, 1997 except for Note 9, which
   
is as of July 15, 1997
    
 
                                      F-51
<PAGE>   182
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                                          PRO FORMA AT
                                                                                          DECEMBER 31,
                                                            DECEMBER 31,   DECEMBER 31,       1996
                                                                1995           1996       (UNAUDITED)
                                                            ------------   ------------   ------------
                                                                (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                         <C>            <C>            <C>
                          ASSETS
Current assets
  Cash and cash equivalents...............................    $ 5,784        $  2,013       $  1,125
  Restricted cash.........................................         --           3,840          3,840
  Accounts receivable.....................................         --              84             84
  Due from affiliated companies...........................         67             491            491
  Other assets............................................        579           1,100          1,100
                                                              -------        --------       --------
          Total current assets............................      6,430           7,528          6,640
Property and equipment, net...............................      4,671          20,303         20,303
                                                              -------        --------       --------
          Total Assets....................................    $11,101        $ 27,831       $ 26,943
                                                              =======        ========       ========
 
           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable and accrued expenses...................    $ 4,659        $  8,476       $  8,476
  Due to affiliated companies.............................      2,117           3,344          3,344
  Debt maturing within one year...........................          9              63             63
  Other current liabilities...............................         --              24             24
                                                              -------        --------       --------
          Total current liabilities.......................      6,785          11,907         11,907
Long-term debt, less current portion......................         10             499            499
Pension obligation........................................         --               8              8
                                                              -------        --------       --------
          Total Liabilities...............................      6,795          12,414         12,414
Commitments and contingencies
Shareholders' loans.......................................      8,353          34,863             --
SHAREHOLDERS' EQUITY
  Common stock, 1,000 Dutch guilders par value (305 shares
     authorized and 80 shares issued and outstanding at
     December 31, 1995 and 1996; 297,000 shares authorized
     and 174,679 shares issued and outstanding on a pro
     forma basis at December 31, 1996)....................         45              45         88,829
  Additional paid-in capital..............................      2,884           2,884          6,612
  Shareholder receivable..................................         --              --        (58,537)
  Cumulative translation adjustment.......................       (254)            316            316
  Deficit accumulated during the development stage........     (6,722)        (22,691)       (22,691)
                                                              -------        --------       --------
          Total Shareholders' Equity......................     (4,047)        (19,446)        14,529
                                                              -------        --------       --------
          Total Liabilities and Shareholders' Equity......    $11,101        $ 27,831       $ 26,943
                                                              =======        ========       ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-52
<PAGE>   183
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                             ACTIVITY FROM
                                                                YEAR ENDED                     INCEPTION
                                                ------------------------------------------     (JULY 6,
                                                DECEMBER 31,                                   1993) TO
                                                    1994       DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                (UNAUDITED)        1995           1996           1996
                                                ------------   ------------   ------------   -------------
                                                                      (IN THOUSANDS)
<S>                                             <C>            <C>            <C>            <C>
Revenues......................................     $  --         $     --       $     48        $     48
Operating costs and expenses:
  Cost of revenues............................        --               --          4,694           4,694
  Selling, general and administrative.........       183            6,637         10,552          17,372
                                                   -----         --------       --------        --------
                                                     183            6,637         15,246          22,066
                                                   -----         --------       --------        --------
Loss from operations..........................      (183)          (6,637)       (15,198)        (22,018)
Other income/(expense):
  Interest income.............................        18              125            508             651
  Interest expense............................        --               (9)          (153)           (162)
  Foreign currency (losses) gains.............       (55)              19         (1,126)         (1,162)
                                                   -----         --------       --------        --------
                                                     (37)             135           (771)           (673)
                                                   -----         --------       --------        --------
Loss before income taxes......................      (220)        $ (6,502)      $(15,969)       $(22,691)
Income taxes..................................        --               --             --              --
                                                   -----         --------       --------        --------
Net Loss......................................     $(220)        $ (6,502)      $(15,969)       $(22,691)
                                                   =====         ========       ========        ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-53
<PAGE>   184
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED                     ACTIVITY FROM
                                             ------------------------------------------       INCEPTION
                                             DECEMBER 31,                                 (JULY 6, 1993) TO
                                                 1994       DECEMBER 31,   DECEMBER 31,     DECEMBER 31,
                                             (UNAUDITED)        1995           1996             1996
                                             ------------   ------------   ------------   -----------------
                                                                     (IN THOUSANDS)
<S>                                          <C>            <C>            <C>            <C>
OPERATING ACTIVITIES
  Net loss.................................    $  (220)       $ (6,502)      $(15,969)        $(22,691)
  Adjustments to reconcile net loss to net
     cash used in operating activities:
     Depreciation and amortization.........          5              11            658              674
     Deferred interest.....................         --              --            125              125
     Changes in assets and liabilities:
       Accounts receivable.................         --              --            (84)             (84)
       Deposits............................         --             (17)          (589)            (606)
       Accounts payable and accrued
          expenses.........................         89           4,570          3,817            8,476
       Other changes in assets and
          liabilities......................        (41)           (521)           100             (462)
                                               -------        --------       --------         --------
          Net cash used in operating
            activities.....................       (167)         (2,459)       (11,942)         (14,568)
INVESTING ACTIVITIES
  Purchases of property and equipment......        (52)         (4,635)       (16,290)         (20,977)
  Restricted cash..........................         --              --         (3,840)          (3,840)
                                               -------        --------       --------         --------
          Net cash used in investing
            activities.....................        (52)         (4,635)       (20,130)         (24,817)
FINANCING ACTIVITIES
  Proceeds from debt.......................         --              19            543              562
  Net proceeds from issuance of common
     stock.................................      1,028           1,901             --            2,929
  Proceeds from shareholders' loans........         --           8,353         26,385           34,738
  Due to affiliated companies, net.........         --           2,050            803            2,853
                                               -------        --------       --------         --------
          Net cash provided by financing
            activities.....................      1,028          12,323         27,731           41,082
Effect of exchange rate changes on cash and
  cash equivalents.........................         58            (312)           570              316
                                               -------        --------       --------         --------
Net increase (decrease) in cash and cash
  equivalents..............................        867           4,917         (3,771)           2,013
Cash and cash equivalents at beginning of
  period...................................         --             867          5,784               --
                                               -------        --------       --------         --------
Cash and cash equivalents at end of
  period...................................    $   867        $  5,784       $  2,013         $  2,013
                                               =======        ========       ========         ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-54
<PAGE>   185
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
     For the period from July 6, 1993 (date of inception) to December 31, 1993
and the years ended December 31, 1994, 1995 and 1996:
 
<TABLE>
<CAPTION>
                                                                                                DEFICIT
                                                                                              ACCUMULATED
                                                  COMMON STOCK     ADDITIONAL   CUMULATIVE     DURING THE        TOTAL
                                                 ---------------    PAID-IN     TRANSLATION   DEVELOPMENT    SHAREHOLDERS'
                                                 SHARES   AMOUNT    CAPITAL     ADJUSTMENT       STAGE          EQUITY
                                                 ------   ------   ----------   -----------   ------------   -------------
                                                                     (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                              <C>      <C>      <C>          <C>           <C>            <C>
Issuance of shares on July 6, 1993 (date of
  inception)...................................    40      $21       $   --       $   --        $     --       $     21
                                                   --      ---       ------       ------        --------       --------
BALANCE AT DECEMBER 31, 1993...................    40       21           --           --              --             21
Proceeds from the sale of common stock.........    21       11          996           --              --          1,007
Translation adjustment.........................    --       --           --           58              --             58
Net loss.......................................    --       --           --           --            (220)          (220)
                                                   --      ---       ------       ------        --------       --------
BALANCE AT DECEMBER 31, 1994...................    61       32          996           58            (220)           866
Proceeds from the sale of common stock.........    19       13        1,888           --              --          1,901
Translation adjustment.........................    --       --           --         (312)             --           (312)
Net loss.......................................    --       --           --           --          (6,502)        (6,502)
                                                   --      ---       ------       ------        --------       --------
BALANCE AT DECEMBER 31, 1995...................    80       45        2,884         (254)         (6,722)        (4,047)
Translation adjustment.........................    --       --           --          570              --            570
Net loss.......................................    --       --           --           --         (15,969)       (15,969)
                                                   --      ---       ------       ------        --------       --------
BALANCE AT DECEMBER 31, 1996...................    80      $45       $2,884       $  316        $(22,691)      $(19,446)
                                                   ==      ===       ======       ======        ========       ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-55
<PAGE>   186
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1:  NATURE OF BUSINESS OPERATIONS
 
     Hermes Europe Railtel B.V. (the "Company") intends to become the leading
pan-European carriers' carrier by constructing and operating a managed,
seamless, fiber optic, pan-European network, and providing high-quality
trans-border transmission services to telecommunications carriers across Europe.
 
     The Company is 50% owned by HIT Rail B.V.("HIT Rail"), a consortium of
eleven European railway companies and 50% owned by GTS-Hermes,
Inc.("GTS-Hermes"), a U.S. holding company that is a wholly-owned subsidiary of
Global TeleSystems Group, Inc., a provider of a broad range of
telecommunications services to businesses, other telecommunications service
providers and consumers through its operations of voice and data networks,
international gateways, local access and cellular networks and the provision of
various value added services in markets outside of the United States.
 
     The Company is still a development stage enterprise, as currently the
telecommunications network is being configured. The buildout of the network
started in 1996; full commercial services are anticipated to commence in the
first half of 1998.
 
     The Company had working deficits of approximately $4.4 million and $0.4
million as of December 31, 1996 and 1995, respectively. The Company had an
accumulated deficit of $22.7 million as of December 31, 1996, including a net
loss of approximately $16.0 million for the year then ended. During 1997, the
Company expects to incur substantial expenditures for working capital and
capital expenditure requirements. The Company's working capital at December 31,
1996, plus its anticipated cash flows from operations for 1997, will not be
sufficient to meet such objectives as presently planned.
 
     Management recognizes that the Company must generate additional capital
resources in order to continue its buildout of the network. The Company is
pursuing other equity and debt financing sources and has entered into
substantive negotiations with various financial institutions in order to obtain
further debt financing and is expecting to complete a recapitalization (the
"Recapitalization") by the end of August, 1997 (see Note 9, "Subsequent Events
and Pro Forma Adjustments").
 
     The financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assumes that the Company will
continue in the foreseeable future and will be able to realize its assets and
discharge its liabilities in the normal course of business. If the going concern
assumptions were not appropriate for these financial statements, then
adjustments would have been necessary in the carrying value of assets and
liabilities and the reported revenues and expenses.
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION
 
     The financial statements include the accounts of Hermes Europe Railtel
B.V., its Belgian branch and of Hermes Europe Railtel N.V. All significant
intercompany accounts and transactions are eliminated upon consolidation.
 
RECLASSIFICATIONS
 
     Certain reclassifications have been made to the 1995 consolidated financial
statements in order to conform to the 1996 presentation.
 
CASH AND CASH EQUIVALENTS
 
     The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. The Company
had $3.8 million of restricted cash at December 31, 1996.
 
                                      F-56
<PAGE>   187
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The restricted cash is primarily related to cash held in escrow in compliance
with an agreement with a major vendor.
 
PROPERTY AND EQUIPMENT
 
     Property and equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the estimated lives ranging from five to seven years
for telecommunications equipment and three to ten years for furniture, fixtures
and equipment and other property. A substantial part of the costs includes
construction in process, which is currently related to the configuration and
build-out of the network, and these costs primarily consist of labor. These
costs are transferred to telecommunications equipment in service as construction
is completed and/or equipment is placed into service. Depreciation is recorded
commencing with the first full month that the assets are in service. Maintenance
and repairs are charged to expense as incurred.
 
     The Company intends to capitalize material interest costs associated with
the construction of telecommunications equipment; however, no interest costs
have been capitalized as of December 31, 1996.
 
LONG-LIVED ASSETS
 
     Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance
with SFAS No. 121, long-lived assets to be held and used by the Company are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. For long-lived
assets to be held and used, the Company bases its evaluation on such impairment
indicators as the nature of the assets, the future economic benefit of the
assets, any historical or future profitability measurements, as well as other
external market conditions or factors that may be present. If such impairment
indicators are present or other factors exist that indicate that the carrying
amount of the asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash flow analysis of
assets at the lowest level for which identifiable cash flows exist. If an
impairment has occurred, the Company recognizes a loss for the difference
between the carrying amount and the estimated value of the asset. The fair value
of the asset is measured using quoted market prices or, in the absence of quoted
market prices, fair value is based on an estimate of discounted cash flow
analysis. During the years ended December 31, 1995 and 1996, the Company's
analyses indicated that there was not an impairment of its long-lived assets.
 
INCOME TAXES
 
     The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the basis as reported in the consolidated financial
statements.
 
FOREIGN CURRENCY TRANSLATION
 
     The accounting records of the Dutch B.V. company are maintained in Dutch
guilders. The accounting records of the Belgian branch and the Belgian N.V.
company are maintained in Belgian francs. The functional currency for the
Company has been determined to be the Belgian franc. Therefore, the Dutch
guilder statements have been remeasured into Belgian franc equivalents,
consolidated with the Belgian branch and Belgian N.V. statements and then
translated into U.S. dollar equivalents for the purpose of preparing the
accompanying financial statements, in accordance with accounting principles
generally accepted in the United States.
 
                                      F-57
<PAGE>   188
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     The Company follows a translation policy in accordance with SFAS No. 52,
"Foreign Currency Translation." Assets and liabilities are translated at the
rates of exchange at the balance sheet date. Income and expense accounts are
translated at average monthly rates of exchange. The resultant translation
adjustments are included in the cumulative translation adjustment, a separate
component of shareholders' equity. Gains and losses from foreign currency
transactions are included in the operations.
 
REVENUE RECOGNITION
 
     The Company's revenue is associated with its customers right to use the
network and is recognized on a straight-line basis over the terms of the
customer contracts.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The Company believes that the carrying amount of its assets and liabilities
reported in the balance sheets approximates their fair value.
 
OFF BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
 
     Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains most of its cash and cash equivalents in high
quality European financial institutions.
 
     The Company does not now hedge against foreign currency fluctuations,
although the Company may implement such practices in the future. Under current
practices, the Company's results from operations could be adversely affected by
fluctuations in foreign currency exchange rates.
 
USES OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
 
     The preparation of these consolidated financial statements, in conformity
with generally accepted accounting principles, requires management to make
estimates and assumptions that affect amounts in the financial statements and
accompanying notes and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
NOTE 3:  SUPPLEMENTAL BALANCE SHEET INFORMATION
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1995           1996
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Other assets consist of:
  Deposits..................................................     $   17        $   606
  VAT receivable............................................        272            402
  Other assets..............................................        290             92
                                                                 ------        -------
          Total other assets................................     $  579        $ 1,100
                                                                 ======        =======
</TABLE>
 
                                      F-58
<PAGE>   189
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 3:  SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1995           1996
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Property and equipment, net consists of:
  Construction in process...................................     $3,879        $12,981
  Telecommunications equipment in service...................         --          4,947
  Furniture, fixtures and equipment.........................        807          2,507
  Leasehold improvements....................................          2            543
                                                                 ------        -------
                                                                  4,688         20,978
     Less: accumulated depreciation.........................         17            675
                                                                 ------        -------
          Total property and equipment, net.................     $4,671        $20,303
                                                                 ======        =======
Accounts payable and accrued expenses consist of:
  Trade accounts payable....................................      2,225          5,445
  Accrued salaries and bonuses..............................        668          1,924
  Accrued vacation expense..................................        110            774
  Accrued legal expenses....................................        522            147
  Accrued expense...........................................      1,134            186
                                                                 ------        -------
                                                                 $4,659        $ 8,476
                                                                 ======        =======
</TABLE>
 
NOTE 4:  DEBT OBLIGATIONS
 
     Company debt consists of:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1995           1996
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
Debt obligation, vendor financing agreement with quarterly
  principal payments and maturing on October 1, 2004 at 6.8%
  interest..................................................      $--            $562
Other financing agreements with interest at 10.2%...........       19              --
                                                                  ---            ----
Less: debt maturing within one year.........................        9              63
                                                                  ---            ----
Total long-term debt........................................      $10            $499
                                                                  ===            ====
</TABLE>
 
     Aggregate maturities of long-term debt, as of December 31, 1996, are as
follows: 1997 -- $0.06 million, 1998 -- $0.06 million, 1999 -- $0.06 million,
2000 -- $0.07 million, 2001 -- $0.07 million and $0.2 million thereafter.
 
     The Company paid interest of $0.02 million and $0.01 million in 1996 and
1995, respectively. The Company did not pay interest in 1994.
 
NOTE 5:  DEFINED BENEFIT PLAN
 
     The Company established a defined benefit pension plan in 1995 that covers
substantially all of its employees upon twenty-five years of age and at least
one year of service. The benefits are based on years of service and the
employee's compensation. The Company has entered into an arrangement with an
insurance company for the provision of a group insurance policy (the "Policy").
Under the Policy, the insurance provider has undertaken a legal obligation to
provide specified benefits to participants in return for a fixed premium;
accordingly, the Company no longer bears significant financial risk. Premium
payments for the
 
                                      F-59
<PAGE>   190
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 5:  DEFINED BENEFIT PLAN (CONTINUED)
Policy are partly paid by the employee; based on specified terms that consider
the employees annual salary, with the remaining premium paid by the employer.
Premiums are intended to provide not only for benefits attributed to service to
date but also for those expected to be earned in the future.
 
     The following table sets forth the plan's funded status and amounts
recognized at December 31, 1996:
 
<TABLE>
<CAPTION>
                                                              (IN THOUSANDS)
<S>                                                           <C>
Actuarial present value of benefit obligations:
  Accumulated benefit obligation............................      $(136)
                                                                  -----
  Projected benefit obligation for service rendered to
     date...................................................      $(388)
  Plan assets at fair value, primarily Belgian bonds........        338
                                                                  -----
  Projected benefit obligations in excess of plan assets....        (50)
  Unrecognized net obligation...............................         42
                                                                  -----
  Pension obligation........................................      $   8
                                                                  =====
Net pension cost for 1996 included the following components:
  Service cost -- benefits earned during the period.........      $ 365
  Interest cost on projected benefit obligation.............          3
  Actual return on plan assets..............................         (9)
  Net amortization..........................................          2
                                                                  -----
          Net periodic pension cost.........................      $ 361
                                                                  =====
</TABLE>
 
     The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
was 4.5%. The expected long-term rate of return on assets was 7.0%
 
NOTE 6:  INCOME TAXES
 
     The components of loss before income taxes were as follows:
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                         1994      1995        1996
                                                         -----    -------    --------
<S>                                                      <C>      <C>        <C>
Pretax loss:
  Domestic (the Netherlands)...........................  $ (95)   $  (422)   $   (608)
  Foreign..............................................   (125)    (6,080)    (15,361)
                                                         -----    -------    --------
                                                         $(220)   $(6,502)   $(15,969)
                                                         =====    =======    ========
</TABLE>
 
     No current income taxes are due as the Company incurred losses due to the
start-up activities in the Belgian branch and the Company.
 
                                      F-60
<PAGE>   191
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 6:  INCOME TAXES (CONTINUED)
     A deferred tax asset is recorded based on temporary differences between
earnings as reported in the financial statements and earnings for income tax
purposes. The following table summarizes major components of the Company's
deferred tax asset:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1995            1996
                                                              ------------    ------------
                                                                     (IN THOUSANDS)
<S>                                                           <C>             <C>
Deferred tax assets:
  Net operating loss carryforwards..........................     $ 3,919        $ 11,729
                                                                 -------        --------
Net deferred tax assets.....................................       3,919          11,729
Less: valuation allowance...................................      (3,919)        (11,729)
                                                                 -------        --------
          Total.............................................     $    --        $     --
                                                                 =======        ========
</TABLE>
 
     As of December 31, 1996, the Company had net operating loss carryforwards
for Belgian and Dutch income tax purposes of approximately $29.3 million, which
are recoverable from profits for an unlimited period of time.
 
NOTE 7:  COMMITMENTS AND CONTINGENCIES
 
OPERATING LEASES
 
     Operating lease commitments are primarily for office space and car rental.
The office lease has a term of nine years, expiring on June 30, 2005, with an
option to cancel January 1, 2002 with a penalty of six months, rental payment as
well as the remaining principal due on the debt obligation (see Note 4, "Debt
Obligations"). In addition, the Company received a reduction in annual expense
during the first three years of the lease. This reduction is being amortized
over the first six years of the lease, using a straight-line method.
 
     Rental expense aggregated approximately $0.5 million and $0.7 million, net
of sublease income of $0.01 million and $0.08 million for the years ended
December 31, 1996 and 1995, respectively. The Company did not have rent expense
in 1994.
 
     Future minimum lease payments under these non-cancelable operating leases
with terms of one year or more, as of December 31, 1996, are as follows:
1997 -- $1.1 million, 1998 -- $1.1 million, 1999 -- $1.2 million, 2000 -- $1.2
million, 2001 -- $1.2 million and $0.6 million thereafter.
 
OTHER MATTERS
 
     In the ordinary course of business, the Company may be party to various
legal and tax proceedings, and subject to claims, certain of which relate to the
regulatory environments in which the Company currently or intends to operate. In
the opinion of management, the Company's liability, if any, in all pending
litigation, or other legal proceeding or other matter other than what is
discussed above, will not have a material effect upon the financial condition,
results of operations or liquidity of the Company.
 
                                      F-61
<PAGE>   192
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 8:  RELATED PARTY TRANSACTIONS
 
     The Company received financing through shareholders' loan transactions
provided by HIT Rail and GTS-Hermes. The components of the Company's shareholder
loans are as follows:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  1995           1996
                                                              ------------   ------------
                                                                    (IN THOUSANDS)
<S>                                                           <C>            <C>
HIT Rail....................................................     $6,425        $13,999
GTS-Hermes..................................................      1,928         20,864
                                                                 ------        -------
          Total shareholders' loans.........................     $8,353        $34,863
                                                                 ======        =======
</TABLE>
 
     The amount due from GTS-Hermes includes $0.1 million of accrued interest at
December 31, 1996. The loans will be converted into shares of the Company's
common stock as part of the Recapitalization which is expected to be completed
by the end of August, 1997 (see Note 9, "Subsequent Events and Pro Forma
Adjustments").
 
NOTE 9:  SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS
 
     Subsequent to December 31, 1996, Hermes Europe Railtel N.V. began
negotiating a new lease on a second office building, which is currently being
constructed. The terms of the lease are expected to be finalized by the fourth
quarter of 1997, the expected completion date of the construction. The lease
period will be for eight years and will have an annual expense of $0.4 million
to be paid in quarterly installments.
 
     In January and February 1997, additional loans of ECU 6.4 million
(approximately $7.5 million) were advanced to the Company by GTS-Hermes. These
loans were converted into shares of the Company's common stock ("Common Stock")
as part of the Recapitalization. In addition, loans of ECU 5.4 million
(approximately $6.1 million) were advanced to the Company in February and April
1997 by individual members of HIT Rail. These loans are expected to be converted
into Common Stock as part of the Recapitalization discussed below.
 
     To increase the equity of the Company by means of the contribution of fiber
optic cable leases and/or cash by its current partners and individual
shareholders of HIT Rail, the Company expects to complete the Recapitalization
by the end of August, 1997.
 
     Pursuant to the Recapitalization, the Company extended rights to subscribe
to additional Common Stock to GTS-Hermes, HIT Rail and the eleven individual
members of the HIT Rail consortium. HIT Rail and eight of the members of HIT
Rail have declined to exercise their rights, while GTS-Hermes and three of the
members of HIT Rail have indicated that they intend to exercise their rights.
 
     The first phase of the Recapitalization was completed on July 7, 1997. As a
result, all shareholders' loans from GTS-Hermes and HIT Rail were converted into
Common Stock. In addition, GTS-Hermes exercised its right to subscribe to
additional Common Stock, resulting in a contribution of ECU 46.0 million
(approximately $51.1 million), which will be paid to the Company by September
30, 1997. The first phase of the Recapitalization resulted in the following
ownership of the Company:
 
<TABLE>
<CAPTION>
                                       SHARES            CONVERSION OF      EXERCISE       SHARES
                                  DECEMBER 31, 1996   SHAREHOLDERS' LOANS   OF RIGHTS   JULY 7, 1997
                                  -----------------   -------------------   ---------   ------------
<S>                               <C>                 <C>                   <C>         <C>
GTS-Hermes......................         40                 50,197           100,395      150,632
HITRail.........................         40                 24,007                --       24,047
                                         --                -------           -------      -------
                                         80                 74,204           100,395      174,679
                                         ==                =======           =======      =======
</TABLE>
 
                                      F-62
<PAGE>   193
 
                           HERMES EUROPE RAILTEL B.V.
                         (A DEVELOPMENT STAGE COMPANY)
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 9:  SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS (CONTINUED)
     Under Dutch law, the Company is required to pay a 1% capital duty tax on
all issuances of common stock, which will result in the Company paying a capital
duty tax of approximately $0.9 million. The pro forma balance sheet at December
31, 1996 gives effect to the first phase of the Recapitalization as discussed
above.
 
     Additional phases of the Recapitalization are expected to include the
conversion of loans of ECU 5.4 million (approximately $6.1 million) advanced to
the Company by two of the individual members of HIT Rail, as well as the
contribution of fiber optic cable leases. If all three individual members of HIT
Rail participate in the Recapitalization as anticipated, it will result in the
following ownership of the Company:
 
<TABLE>
<CAPTION>
                                                  SHARES      ADDITIONAL   SHARES AT COMPLETION
                                               JULY 7, 1997     SHARES     OF RECAPITALIZATION
                                               ------------   ----------   --------------------
<S>                                            <C>            <C>          <C>
GTS-Hermes...................................    150,632                         150,632
HIT Rail.....................................     24,047                          24,047
Individual members of the HIT Rail
  consortium.................................         --        21,385            21,385
                                                 -------        ------           -------
                                                 174,679        21,385           196,064
                                                 =======        ======           =======
</TABLE>
 
                                      F-63
<PAGE>   194
 
                           HERMES EUROPE RAILTEL B.V.
 
                  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                         FOR THE SECOND QUARTER OF 1997
                                   UNAUDITED
 
                                      F-64
<PAGE>   195
 
                           HERMES EUROPE RAILTEL B.V.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                       PRO FORMA AT
                                                             DECEMBER 31,   JUNE 30,   JUNE 30, 1997
                                                                 1996         1997     (SEE NOTE 3)
                                                             ------------   --------   -------------
                                                                (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                          <C>            <C>        <C>
                          ASSETS
Current assets
  Cash and cash equivalents................................    $  2,013     $  1,050     $240,542
  Restricted cash..........................................       3,840        1,142       29,392
  Accounts receivable......................................          84          749          749
  Due from affiliated companies............................         491          624           --
  Other assets.............................................       1,100        5,995        5,995
                                                               --------     --------     --------
          Total current assets.............................       7,528        9,560      276,678
Property and equipment, net................................      20,303       23,950       23,950
Deferred financing costs...................................          --           --       13,500
Restricted cash............................................          --           --       28,250
                                                               --------     --------     --------
          Total assets.....................................    $ 27,831     $ 33,510     $342,378
                                                               ========     ========     ========
           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable and accrued expenses....................       8,476        9,654        9,654
  Due to affiliated companies..............................       3,344        6,295           --
  Debt maturing within one year............................          63           29           29
  Other current liabilities................................          24          326          326
                                                               --------     --------     --------
          Total current liabilities........................      11,907       16,304       10,009
Long-term debt, less current portion.......................         499          444      265,444
Pension obligation.........................................           8            8            8
                                                               --------     --------     --------
          Total liabilities................................      12,414       16,756      275,461
Commitments and contingencies
Shareholders' loans........................................      34,863       48,491        6,142
Shareholders' equity
  Common stock, 1,000 Dutch guilders par value (305 shares
     authorized and 80 shares issued and outstanding at
     December 31, 1996 and June 30, 1997; 297,000 shares
     authorized and 174,679 shares issued and outstanding
     on a pro forma basis at June 30, 1997)................          45           45       88,829
  Additional paid-in capital...............................       2,884        2,884        6,612
  Cumulative translation adjustment........................         316       (1,945)      (1,945)
  Accumulated deficit......................................     (22,691)     (32,721)     (32,721)
                                                               --------     --------     --------
          Total shareholders' equity.......................     (19,446)     (31,737)      60,775
                                                               --------     --------     --------
          Total liabilities and shareholders' equity.......    $ 27,831     $ 33,510     $342,378
                                                               ========     ========     ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-65
<PAGE>   196
 
                           HERMES EUROPE RAILTEL B.V.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (unaudited)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                               1996         1997
                                                              -------     --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Revenues....................................................  $    --     $    593
                                                              -------     --------
Operating costs and expenses:
  Cost of revenues..........................................    2,251        3,304
  Selling, general and administrative.......................    4,652        6,345
                                                              -------     --------
                                                                6,903        9,649
                                                              -------     --------
Loss from operations........................................   (6,903)      (9,056)
Other income/(expense):
  Interest income/(expense), net............................      300         (569)
  Foreign currency losses...................................     (514)        (405)
                                                              -------     --------
                                                                 (214)        (974)
                                                              -------     --------
Loss before income taxes....................................   (7,117)     (10,030)
Income taxes................................................       --           --
                                                              -------     --------
Net loss....................................................  $(7,117)    $(10,030)
                                                              =======     ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-66
<PAGE>   197
 
                           HERMES EUROPE RAILTEL B.V.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
 
<TABLE>
<CAPTION>
                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              ---------------------
                                                                1996         1997
                                                              --------     --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>          <C>
OPERATING ACTIVITIES
  Net loss..................................................  $ (7,117)    $(10,030)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................       179          832
     Changes in assets and liabilities:
       Accounts receivable..................................        --         (665)
       Accounts payable and accrued expenses................     4,826        1,178
       Other changes in assets and liabilities..............    (1,040)      (4,595)
                                                              --------     --------
          Net cash used in operating activities.............    (3,152)     (13,280)
INVESTING ACTIVITIES
  Purchases of property and equipment.......................    (5,530)      (4,477)
  Restricted cash...........................................    (6,579)       2,698
                                                              --------     --------
          Net cash used in investing activities.............   (12,109)      (1,779)
FINANCING ACTIVITIES
  Repayment of debt.........................................        (2)         (89)
  Proceeds from shareholders' loans.........................    19,543       13,628
  Due to affiliated companies, net..........................       (23)       2,818
                                                              --------     --------
          Net cash provided by financing activities.........    19,518       16,357
Effect of exchange rate changes on cash and cash
  equivalents...............................................       128       (2,261)
                                                              --------     --------
Net increase (decrease) in cash and cash equivalents........     4,385         (963)
Cash and cash equivalents at beginning of period............     5,784        2,013
                                                              --------     --------
Cash and cash equivalents at end of period..................  $ 10,169     $  1,050
                                                              ========     ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-67
<PAGE>   198
 
                           HERMES EUROPE RAILTEL B.V.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
 
NOTE 1:  FINANCIAL PRESENTATION AND DISCLOSURES
 
     In the opinion of management, the accompanying unaudited condensed,
consolidated financial statements of Hermes Europe Railtel B.V. (the "Company")
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position as of December 31, 1996, June
30, 1997 and pro forma at June 30, 1997 (see Note 3, "Subsequent Events and Pro
Forma Adjustments to Balance Sheet"), and the results of operations and cash
flows for the periods indicated.
 
     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Material intercompany affiliate account
transactions have been eliminated; however, other adjustments may have been
required had an audit been performed. It is suggested that these financial
statements be read in conjunction with the Company's 1996 audited consolidated
financial statements and the notes related thereto. The results of operations
for six months ended June 30, 1997 may not be indicative of the operating
results for the full year.
 
     The Company intends to become the leading pan-European carriers' carrier by
developing and operating a managed, seamless, fiber optic, pan-European network,
and providing high quality trans-border transmission services to
telecommunications carriers across Europe.
 
     As of June 30, 1997, the Company was 50% owned by HIT Rail B.V. ("HIT
Rail"), a consortium of eleven European railway companies and 50% owned by
GTS-Hermes, Inc. ("GTS-Hermes"), a U.S. holding company that is a wholly-owned
subsidiary of Global TeleSystems Group, Inc. ("GTS"), a provider of a broad
range of telecommunications services to businesses, other telecommunications
service providers and consumers through its operation of voice and data
networks, international gateways, local access and cellular networks and the
provision of various value-added services in markets outside of the United
States. In an effort to increase the equity of the Company by means of the
contribution of fiber optic cable leases and/or cash by its current owners and
individual shareholders of HIT Rail, the Company undertook a recapitalization
(the "Recapitalization") during the first quarter of 1997 which is expected to
be completed by the end of August 1997 (see Note 3, "Subsequent Events and Pro
Forma Adjustments to Balance Sheet").
 
NOTE 2:  RELATED PARTY TRANSACTIONS
 
     The Company received financing through shareholders' loans transactions
provided by HIT Rail and GTS-Hermes and individual members of HIT Rail. The
components of the Company's shareholders' loans are as follows:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,        JUNE 30,
                                                                 1996              1997
                                                             ------------        --------
                                                                    (IN THOUSANDS)
<S>                                                        <C>                 <C>
HIT Rail.................................................       $13,999           $13,999
GTS-Hermes...............................................        20,864            28,350
Individual members of HIT Rail...........................            --             6,142
                                                                -------           -------
          Total shareholders' loans......................       $34,863           $48,491
                                                                =======           =======
</TABLE>
 
     The shareholder loans from GTS-Hermes and HIT Rail were converted into
shares of the Company's common stock ("Common Stock") on July 7, 1997 as part of
the Recapitalization discussed below. The loans from the individual members of
HIT Rail are expected to be converted into Common Stock by the end of August
1997 as part of the Recapitalization.
 
                                      F-68
<PAGE>   199
 
                           HERMES EUROPE RAILTEL B.V.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
 
NOTE 3:  SUBSEQUENT EVENTS AND PRO FORMA ADJUSTMENTS TO BALANCE SHEET
 
FINANCING TRANSACTION
 
     Subsequent to June 30, 1997, the Company initiated a debt offering that is
expected to raise $265 million through a series of senior notes due August 15,
2007 ("Senior Notes"). The Senior Notes will be general unsecured obligations of
the Company, with interest payable semiannually at a rate of 11.5%.
Approximately $56.5 million of the net proceeds of the offering will be held in
escrow for the first four semi-annual interest payments commencing in 1998. The
offering includes an optional redemption clause that allows the Company to
redeem the Senior Notes, in whole or in part, any time on or after August 15,
2002 at specific redemption prices. The Company may also redeem the Senior Notes
at a price equal to 111.5% of the principal amount prior to August 15, 2000 with
cash proceeds of a public offering that results in gross proceeds of at least
$75 million or in certain other circumstances specified in the indenture for the
Senior Notes, provided, however, that at least two-thirds of the principal
amount of the Senior Notes originally issued remains outstanding after each such
redemption. Pursuant to the covenants in the offering, the Company will be
required to file a registration statement with the Securities Exchange
Commission within 90 days of the closing of the offering.
 
RECAPITALIZATION
 
     To increase the equity of the Company by means of the contribution of fiber
optic cable leases and/or cash by its current partners and individual
shareholders of HIT Rail, the Company expects to complete the Recapitalization
by the end of August 1997.
 
     Pursuant to the Recapitalization, the Company extended rights to subscribe
to additional Common Stock to GTS-Hermes, HIT Rail and the eleven individual
members of the HIT Rail consortium. HIT Rail and nine of the members of HIT Rail
have declined to exercise their rights, while GTS-Hermes and two of the members
of HIT Rail have indicated that they intend to exercise their rights.
 
     The first phase of the Recapitalization was completed on July 7, 1997. As a
result, all shareholders' loans from GTS-Hermes and HIT Rail were converted into
Common Stock. In addition, GTS-Hermes exercised its right to subscribe to
additional Common Stock, resulting in a contribution of ECU 46.0 million
(approximately $51.1 million), which will be paid to the Company in cash, net of
the Company's outstanding payables to GTS and GTS-Hermes (approximately $5.7
million at June 30, 1997, as reflected in Due to/from affiliated companies on
the balance sheet) by September 30, 1997. The ECU 46.0 million obligation has
been reflected as paid in the pro forma balance sheet. The first phase of the
Recapitalization resulted in the following ownership of the Company.
 
<TABLE>
<CAPTION>
                                                            CONVERSION OF
                                               SHARES       SHAREHOLDERS'   EXERCISE       SHARES
                                            JUNE 30, 1997       LOANS       OF RIGHTS   JULY 7, 1997
                                            -------------   -------------   ---------   ------------
<S>                                         <C>             <C>             <C>         <C>
GTS-Hermes................................       40            50,197        100,395      150,632
HIT Rail..................................       40            24,007             --       24,047
                                                 --            ------        -------      -------
                                                 80            74,204        100,395      174,679
                                                 ==            ======        =======      =======
</TABLE>
 
     In addition, under Dutch law, the Company is required to pay a 1% capital
duty tax on all issuances of common stock, which will result in the Company
paying a capital duty tax of approximately $0.9 million. The pro forma balance
sheet at June 30, 1997 gives effect to the financing transaction and the first
phase of the Recapitalization as discussed above.
 
     The Recapitalization is expected to be completed by the end of August 1997.
Additional phases of the Recapitalization are expected to include the conversion
of loans of ECU 5.4 million (approximately $6.1 million) advanced to the Company
by two of the individual members of HIT Rail, as well as the
 
                                      F-69
<PAGE>   200
 
                           HERMES EUROPE RAILTEL B.V.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
 
NOTE 3:  SUBSEQUENT EVENT AND PRO FORMA ADJUSTMENTS
         TO BALANCE SHEET (CONTINUED)
contribution of fiber optic cable leases. If all members of HIT Rail participate
in the Recapitalization as anticipated, it will result in the following
ownership of the Company:
 
<TABLE>
<CAPTION>
                                                                                  SHARES AT
                                                    SHARES       ADDITIONAL     COMPLETION OF
                                                 JULY 7, 1997      SHARES      RECAPITALIZATION
                                                 ------------    ----------    ----------------
<S>                                              <C>             <C>           <C>
GTS-Hermes.....................................    150,632             --          150,632
HIT Rail.......................................     24,047             --           24,047
Individual members of HIT Rail.................         --         15,789           15,789
                                                   -------         ------          -------
                                                   174,679         15,789          190,468
                                                   =======         ======          =======
</TABLE>
 
                                      F-70
<PAGE>   201
 
                                                                       EXHIBIT A
 
                 GLOSSARY OF TELECOMMUNICATIONS INDUSTRY TERMS
 
     Accounting Rate Mechanism (ARM) -- The current system of bilateral
settlement agreements between PTOs under which tariffs for cross-border
pan-European-switched voice traffic are determined.
 
     Add-drop multiplexer (ADM) -- A multiplexer which controls cross connect
between individual circuits by software, permitting dynamic cross connect of
individual 64 kbps circuits within an E-1 line.
 
     AMPS -- Advanced Mobile Phone System; the cellular mobile telephone system
based on analog technology that is now used in U.S. systems. Each AMPS cell can
handle 832 simultaneous conversations.
 
     Asynchronous Transfer Mode (ATM) -- A switching and transmission technology
that is one of general class of packet technologies that relay traffic by way of
an address contained within the first five bits of a switching and transmission
of mixed voice, data, and video at varying rates. The ATM format can be used by
many different information systems, including LANs.
 
     Bps -- Bits per second; the basic measuring unit of speed in a digital
transmission system; the number of bits that a transmission facility can convey
between a sending location and a receiving location in one second.
 
     Backbone -- The through-portions of a transmission network, as opposed to
spurs which branch off the through-portions.
 
     Bandwidth -- The information-carrying capability of a transmission medium
is measured by its bandwidth, which is the relative range of frequencies that
can be passed without distortion by such medium. Bandwidth is measured in Hertz,
but may also be expressed as the number of bits that can be transmitted per
second.
 
     Capacity -- Refers to transmission.
 
     Carrier -- A provider of communications transmission services by fiber,
wire, or radio.
 
     CCIT -- International Telegraph and Telephone Consultative Committee.
 
     Closed User Group -- A group of customers with some affiliation with one
another and which are treated for regulatory purposes as not being the public.
 
     Competitive Local Telecommunications Provider -- A company that provides
its customers with an alternative to the local telephone company for local
transport of private line, special access and transport of switched access
telecommunications services. Competitive Local Telecommunications Providers are
also referred to in the industry as alternative local telecommunications service
providers (ALTS), Competitive Access Providers (CAPs) and Competitive Local
Exchange Carriers (CLECs).
 
     Dark Fiber -- Fiber that lacks the requisite electronic and optronic
equipment necessary to use the fiber for transmission.
 
     Dedicated -- Refers to telecommunications lines dedicated to or reserved
for use by particular customers along predetermined routs (in contract to
telecommunications lines within the local telephone company's public switched
network).
 
     Digital -- Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission/switching technologies
employ a sequence of discrete, distinct pulses to represent information, as
opposed to the continuously variable analog signal.
 
     E1 -- Data transmission rate of approximately 2 Mbps.
 
     E3 -- Data transmission rate of approximately 34 Mbps.
 
     Electrosviaz -- regional telephone company.
 
                                       A-1
<PAGE>   202
 
     Enhanced Network Services -- Telecommunications services providing digital
connectivity, primarily for data applications, via frame relay, ATM, or digital
interexchange private line facilities. Enhanced network services also include
applications on such networks, including Internet access and other Internet
services.
 
     ERMES -- A standard for a pan-European radio message system sponsored by
the EC.
 
     Eutelsat -- European Telecommunications Satellite Organization; an
international satellite organization in which members of the European Union hold
an 88% combined investment.
 
     Frame Relay -- A wide area transport technology that organizes data into
units called frames instead of providing fixed bandwidth as with private lines.
A high-speed, data-packet switching service used to transmit data between
computers. Frame Relay supports data units of variable lengths at access speeds
ranging from 56 kilobits per second to 1.5 megabits per second. This service is
well-suited for connecting local area networks, but is not presently well-suited
for voice and video applications due to the variable delays which can occur.
Frame Relay was designed to operate at high speeds on modern fiber optic
networks.
 
     Gbps -- Gigabits per second, which is a measurement of speed for digital
signal transmission expressed in billions of bits per second.
 
     Gateway -- A network element interconnecting two otherwise incompatible
networks, network nodes, subnetworks or devices; performs a protocol conversion
operation across a wide spectrum of communications functions.
 
     GSM -- Global System for Mobile Communications, formerly known as Groupe
Speciale Mobile. GSM began as a pan-European standard for digital cellular
systems. The name was changed to reflect the fact that the standard has been
adopted by several countries in Asia.
 
     Hertz -- The unit for measuring the frequency with which an electromagnetic
signal cycles through the zero-value state between lowest and highest states.
One Hz (Hertz) equals one cycle per second. kHz (kilohertz) stands for thousands
of Hertz; MHz (megahertz) stands for millions of Hertz.
 
     Inmarsat -- The International Maritime Satellite service, which provides
mobile communications to ships at sea, aircraft in flight and vehicles on the
road.
 
     Intelsat -- International Telecommunications Satellite Organization; a
worldwide consortium of national satellite communications organizations.
 
     Interconnect -- Connection of a telecommunications device of service to the
PSTN.
 
     Interconnection -- Connection of a piece of telephone equipment to the
telephone network, or a data terminal to a data communications network. Also
refers to the connection of one communications network to another so that users
of one network can communicate with users of another network.
 
     International Simple Resale -- Refers to the wholesale purchase of IPLCs
from facilities-based carriers and the reselling of such capacity to customers
for switched telephone service.
 
     IPLC -- International Private Leased Circuits.
 
     ISDN (Integrated Services Digital Network) -- ISDN is an internationally
agreed standard which, through special equipment, allows two-way, simultaneous
voice and data transmission in digital formats over the same transmission line.
ISDN permits video conferencing over a single line, for example, and also
supports a multitude of value-added switched service applications. ISDN's
combined voice and data networking capabilities reduce costs for end users and
result in more efficient use of available facilities. ISDN combines standards
for highly flexible customer to network signaling with both voice and data
within a common facility.
 
     ITU -- International Telecommunications Union; a United Nations treaty
organization whose purpose is to accredit international telecommunications
standards. ITU signatories can turn ITU-approved standards into law through
international treaties such as the treaties governing use of the radio spectrum
for international satellite telecommunications and broadcasting.
 
                                       A-2
<PAGE>   203
 
     Kbps -- Kilobits per second, which is a measurement of speed for digital
signal transmission expressed in thousands of bits per second.
 
     Local Area Network (LAN) -- The interconnection of computers for the
purpose of sharing files, programs and peripheral devices such as printers and
high-speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routes.
 
     Local Loop -- The local loop is that portion of the local telephone network
that connects the customer's premises to the local exchange provider's central
office or switching center. This includes all the facilities starting from the
customer premise interface which connects to the inside wiring and equipment at
the customer premise to a terminating point within the switching wire center.
 
     Mbps -- Megabits per second, which is a measurement of speed for digital
signal transmission expressed in millions of bits per second.
 
     Multiplexing -- The use of some means to inter-leave narrow-band or
slow-speed data from multiple sources in order to make use of a wide-band or
high-speed channel.
 
     NMT -- Acronym for Nordic Mobile Telephone System, a cellular standard
widely used in Northern Europe.
 
     Nodes -- Locations within the network housing electronic equipment and/or
switches which serve as intermediate connection points to send and receive
transmission signals.
 
     PBX/PABX (private branch exchange/private automatic branch exchange) -- A
customer operated switch on customer premises, typically used by large
businesses with multiple telephone lines.
 
     Plesiochronous Digital Hierarchy (PDH) -- A method of controlling the
timing between transmission and switching systems that is not synchronized but
rather relies on highly accurate clocks to minimize the slip rates between
switching nodes.
 
     POCSAG (Postal Office Code Standard Advisory Group) -- A lower-cost paging
technology which can be transmitted on ERMES frequency.
 
     Points of Presence (POPs) -- Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.
 
     PSTN -- Public switched telecommunications network.
 
     PTT/PTO -- Postal, Telegraph and Telephone agency/Public Telephony
Operators; a government authority or agency that operates the public
telecommunications network, and sets standards and policies. PTTs/PTOs are
agencies in charge of telecommunications services in many countries, under
direct supervision of the national government.
 
     Public Telecommunications Operator (PTO) -- A licensed telecommunications
common carrier.
 
     Redundant Electronics -- Describes a telecommunications facility using two
separate electronic devices to transmit the telecommunications signal so that if
one device malfunctions, the signal may continue without interruption.
 
     Regeneration/amplifier -- Devices which automatically re-transmit or boost
signals on an out-bound circuit.
 
     Route Kilometers -- The number of kilometers along which fiber optic cables
are installed.
 
     Route Mile -- The number of miles along which fiber optic cables are
installed.
 
     SDH -- Synchronous Digital Hierarchy; the international standard for
ultra-high-speed broadband fiber-optic, digital transmission networks that use
equipment from many different manufacturers and carry a variety
 
                                       A-3
<PAGE>   204
 
of services. The basic communications channel of SDH is a 155.52 Mbps
transmission channel that is multiplexed upward.
 
     STM-1 -- Data transmission rate of approximately 155 Mbps.
 
     STM-4 -- Data transmission rate of approximately 622 Mbps.
 
     STM-16 -- Data transmission of approximately 2,488 Mbps.
 
     STM-64 -- Data transmission rate of approximately 9,952 Mbps.
 
     Switch -- A mechanical or electronic device that opens or closes circuits
or selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a temporary
transmission path between users.
 
     Synchronous Digital Hierarchy (SDH) -- SDH is a set of standards for
optical communications transmission systems that define optical rates and
formats, signal characteristics, performance, management and maintenance
information to be embedded within the signals and the multiplexing techniques to
be employed in optical communications transmission systems. SDH facilitates the
interoperability of dissimilar vendors' equipment and benefits customers by
minimizing the equipment necessary for telecommunications applications. SDH also
improves the reliability of the local loop connecting customers' premises to the
local exchange provider, historically one of the weakest links in the service
delivery.
 
     TCP/IP -- Transmission Control Protocol/Internet Protocol; an "open"
standard operating and interface protocol for federal government local area
networks that use devices from multiple vendors. TCP/IP, first developed by the
U.S. Defense Department, has been adopted by some academic and business
institutions who deal regularly with the federal government.
 
     Trunk -- A telephone circuit with a switch at both ends. A trunk may
connect two central office switches, or two PBXs, or a PBX and a central office
switch.
 
     VSAT -- Very Small Aperture Terminal; a satellite communications technology
that employs frequencies in the Ku band or C band and very small receiving
dishes. VSAT systems employ satellite transponders; the receiving dishes may be
leased or owned by the VSAT user.
 
     Wavelength Division Multiplexing (WDM) -- A multiplexing technique allowing
multiple different signals to be carried simultaneously on a fiber by allocating
resources according to frequency on non-overlapping frequency bands.
 
     X.25 -- A CCITT standard governing the interface between data terminals and
data circuit termination equipment for terminals on packet-switched data
networks.
 
                                       A-4
<PAGE>   205
 
             ======================================================
 
  NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDER-WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
 
                             ---------------------
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                         PAGE
                                         ----
<S>                                      <C>
Prospectus Summary.....................    1
Risk Factors...........................   10
Use of Proceeds........................   25
Dividend Policy........................   25
Dilution...............................   26
Capitalization.........................   27
Selected Historical Consolidated
  Financial Data.......................   28
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...........................   36
Business...............................   51
Management.............................   99
Executive Compensation and Other
  Information..........................  102
Certain Related Party Transactions.....  110
Principal Stockholders.................  112
Description of Certain Indebtedness....  113
Description of Capital Stock...........  116
Shares Eligible for Future Sale........  119
Certain United States Federal Tax
  Consequences to Non-U.S.
  Stockholders.........................  120
Underwriting...........................  122
Legal Matters..........................  124
Experts................................  125
Index to Financial Statements..........  F-1
Exhibit A -- Glossary of
  Telecommunications Industry Terms....  A-1
</TABLE>
    
 
                             ---------------------
 
  UNTIL             , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
 
             ======================================================
 
             ======================================================
                                                 SHARES
                     [GLOBAL TELESYSTEMS GROUP, INC. LOGO]
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                                  COMMON STOCK
 
                             ---------------------
 
                                   PROSPECTUS
                             ---------------------
 
                              MERRILL LYNCH & CO.
 
                          DONALDSON, LUFKIN & JENRETTE
                             SECURITIES CORPORATION
 
                                 UBS SECURITIES
 
                                LEHMAN BROTHERS
 
                                  FURMAN SELZ
                                           , 1997
 
             ======================================================
<PAGE>   206
 
     INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
     REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
     SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
     MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
     BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
     THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
     SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
     UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
     OF ANY SUCH STATE.
 
                   INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE
                             SUBJECT TO COMPLETION
   
                 PRELIMINARY PROSPECTUS DATED NOVEMBER 19, 1997
    
PROSPECTUS
                                             SHARES
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                                  COMMON STOCK
[GLOBAL TELESYSTEMS GROUP, INC. LOGO]
                             ---------------------
 
   
     All of the shares of Common Stock, par value $.10 per share (the "Common
Stock"), offered hereby (the "Offering") are being offered by Global TeleSystems
Group, Inc. (the "Company"). Of the           shares of Common Stock offered
hereby,        shares are being offered outside the United States and Canada
(the "International Offering") and        shares are being offered in the United
States and Canada (the "U.S. Offering" and, together with the International
Offering, the "Offerings"). The initial offering price and the aggregate
underwriting discount per share are identical for both offerings. See
"Underwriting."
    
 
   
     Prior to the Offerings, there has been no public market for the Common
Stock. The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol "GTSG."
Application will be made for listing of the Common Stock on the Amsterdam Stock
Exchange.
    
 
     SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
                             ---------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
   AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
                               CRIMINAL OFFENSE.
 
<TABLE>
<CAPTION>
=============================================================================================================
                                           PRICE TO               UNDERWRITING             PROCEEDS TO
                                            PUBLIC                DISCOUNT(1)               COMPANY(2)
- -------------------------------------------------------------------------------------------------------------
<S>                                <C>                      <C>                      <C>
Per Share.........................            $                        $                        $
- -------------------------------------------------------------------------------------------------------------
Total(3)..........................            $                        $                        $
=============================================================================================================
</TABLE>
 
(1) The Company has agreed to indemnify the several Underwriters (as defined
    herein) against certain liabilities, including liabilities under the
    Securities Act of 1933, as amended (the "Securities Act"). See
    "Underwriting."
 
(2) Before deducting expenses payable by the Company estimated to be
    $          .
 
(3) The Company has granted to the International Managers and the U.S.
    Underwriters options, exercisable within 30 days of the date hereof, to
    purchase up to an additional        and        additional shares of Common
    Stock, respectively solely to cover over-allotments, if any. See
    "Underwriting." If such options are exercised in full, the total Price to
    Public, Underwriting Discount and Proceeds to the Company will be
    $          , $          and $          , respectively.
                             ---------------------
 
            MERRILL LYNCH & CO. IS THE BOOKRUNNER OF THE OFFERINGS.
                             ---------------------
 
<TABLE>
<S>                                        <C>
            GLOBAL COORDINATOR                       CO-GLOBAL COORDINATOR
           MERRILL LYNCH & CO.                           UBS SECURITIES
</TABLE>
 
                             ---------------------
 
     The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about             , 1997.
                             ---------------------
 
MERRILL LYNCH INTERNATIONAL                                          UBS LIMITED
 
DONALDSON, LUFKIN & JENRETTE
    SECURITIES CORPORATION
 
                                LEHMAN BROTHERS
                                                                     ING BARINGS
                             ---------------------
 
               The date of this Prospectus is             , 1997.
<PAGE>   207
 
           INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
 
                                  UNDERWRITING
 
     Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company and each of
the underwriters named below (the "International Managers") and concurrently
with the sale of           shares of Common Stock to the U.S. Underwriters (as
defined below), the Company has agreed to sell to each of the International
Managers, and each of the International Managers for whom Merrill Lynch
International ("Merrill Lynch"), UBS Limited, Donaldson, Lufkin & Jenrette
Securities Corporation, Lehman Brothers Inc. and ING Bank N.V. are acting as
representatives (the "International Representatives"), has severally agreed to
purchase from the Company, the number of shares of Common Stock set forth
opposite its name below.
 
<TABLE>
<CAPTION>
                                                               NUMBER
                                                              OF SHARES
                   INTERNATIONAL MANAGERS                     ---------
<S>                                                           <C>
Merrill Lynch International.................................
UBS Limited.................................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Lehman Brothers Inc. .......................................
ING Bank N.V................................................
 
             Total..........................................
</TABLE>
 
     The Company has also entered into a U.S. purchase agreement (the "U.S.
purchase agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation, UBS Securities LLC, Lehman
Brothers Inc. and Furman Selz LLC are acting as representatives (the "U.S.
Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of        shares of Common
Stock to the International Managers pursuant to the International Purchase
Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S.
Underwriters severally have agreed to purchase, an aggregate of        shares of
Common Stock. The initial public offering price per share and the underwriting
discount per share of Common Stock are identical under the International
Purchase Agreement and the U.S. Purchase Agreement.
 
     In each Purchase Agreement, the several International Managers and the
several U.S. Underwriters, respectively have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all the shares of
Common Stock offered hereby, if any are purchased. In the event of default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated. The sale of Common Stock to the U.S.
Underwriters is conditioned upon the sale of shares of Common Stock to the
International Managers, and vice versa.
 
     The Company has appointed Merrill Lynch & Co. as Global Coordinator and UBS
Securities LLC as Co-Global Coordinator of the Offerings. Merrill Lynch & Co. is
the bookrunner of the Offerings.
 
     The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public offering
price set forth on the cover page of this Prospectus, less an amount not greater
than the selling concession. Under the terms of the Intersyndicate Agreement,
the U.S. Underwriters and any dealer to whom they sell shares of Common Stock
will not offer to sell or sell shares of Common Stock to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, and the International Managers
and any dealer to whom they sell shares of Common Stock will not offer to sell
or sell shares of Common Stock to U.S. persons or Canadian persons or to persons
they believe intend to resell to U.S. persons or Canadian persons, except, in
each case, for transactions pursuant to the Intersyndicate Agreement.
<PAGE>   208
 
           INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
 
     The International Representatives have advised the Company that the
International Managers propose initially to offer the shares of Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $          per share of Common Stock. The International Managers may
allow, and such dealers may allow, a discount not in excess of $          per
share of Common Stock on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
 
     The Company, its directors, executive officers and certain stockholders
have agreed, subject to certain exceptions, not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any Common Stock or any
securities convertible into or exchangeable or exercisable for any shares of
Common Stock, or request the filing of any registration statement under the
Securities Act, with respect to any of the foregoing or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of Common Stock,
whether any such swap transaction is to be settled by delivery of the Common
Stock or other securities, in cash or otherwise without the prior written
consent of Merrill Lynch, on behalf of the Underwriters, for a period of 180
days after the date of this Prospectus. In addition, all existing stockholders
have agreed not to make any demand for or exercise any rights with respect to
the registration of Common Stock and have waived all rights (including demand
and "piggyback" registration rights) to register securities owned by them for
such 180 day period and rights to purchase additional shares of Common Stock in
connection with the Offerings. See "Shares Eligible for Future Sale."
 
     The Company has granted an option to the International Managers,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of           additional shares of Common Stock at the initial public
offering price set forth on the cover page of this Prospectus, less the
underwriting discount. The International Managers may exercise this option only
to cover over-allotments, if any, made on the sale of the Common Stock offered
hereby. To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
International Manager's initial amount reflected in the foregoing table. The
Company has also granted an option to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an additional
          shares of Common Stock to cover over-allotments, if any, on terms
similar to those granted to International Managers.
 
     Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined through negotiations between the Company and the U.S.
Representatives. Among the factors considered in determining the initial public
offering price, in addition to prevailing market conditions, are the financial
and operating history and condition of the Company, an assessment of the
Company's business and financial prospects, the Company's management, the
prospects for the industry in which the Company operates and the recent market
prices of securities of companies in industries similar to that of the Company.
The initial public offering price set forth on the cover page of this Prospectus
should not, however, be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to the offering made hereby at or above the initial public
offering price.
 
     The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.
 
     The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
 
     Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
 
     If the Underwriters create a short position in the Common Stock in
connection with the Offerings, (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the U.S.
<PAGE>   209
 
           INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE -- (CONTINUED)
 
Representatives may reduce that short position by purchasing Common Stock in the
open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
 
     The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the Representatives
purchase shares of Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.
 
     In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security before the distribution is completed.
 
     Neither the Company nor any of the U.S. Underwriters makes any
representation or prediction, however, as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transaction or that
such transactions, once commenced, will not be discontinued without notice.
 
     Application will be made to list the Common Stock on the Nasdaq National
Market under the symbol "GTSG" and for listing on the              Stock
Exchange.
 
     Certain of the Underwriters have been engaged from time to time, and may in
the future be engaged, to perform financial advisory and other investment
banking services to the Company and its affiliates. In connection with rendering
such services in the past, such Underwriters have received customary
compensation, including reimbursement of related expenses.
 
                                 LEGAL MATTERS
 
     The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Shearman & Sterling, New York, New York and for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
 
                                    EXPERTS
 
     The financial statements of Global TeleSystems Group, Inc. as of December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996, included in this Prospectus, have been audited by Ernst & Young, LLP,
independent auditors, as set forth in their report appearing elsewhere herein.
 
     The financial statements of EDN Sovintel as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996, included
in this Prospectus, have been audited by Ernst & Young (CIS) Ltd., independent
auditors as set forth in their report appearing elsewhere herein.
 
     The financial statements of Hermes Europe Railtel B.V. as of December 31,
1996 and 1995, and for each of the two years in the period ended December 31,
1996, included in this Prospectus have been audited by Ernst & Young Reviseurs
d'Entreprises S.C.C., independent auditors as set forth in their report
appearing elsewhere herein.
<PAGE>   210
 
             INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE (CONTINUED)
 
                        EXECUTIVE OFFICE OF THE COMPANY
 
                         GLOBAL TELESYSTEMS GROUP, INC.
                              1751 Pinnacle Drive
                             McLean, Virginia 22102
 
                              INDEPENDENT AUDITORS
                               ERNST & YOUNG, LLP
                           1225 Connecticut Ave., NW
                             Washington, D.C. 20036
 
                                 LEGAL ADVISERS
 
                                 to the Company
 
                              SHEARMAN & STERLING
                              599 Lexington Avenue
                         New York, New York 10022-6069
 
                                 as to CIS law
                                COUDERT BROTHERS
                              1627 I Street, N.W.
                             Washington, D.C. 20006
 
                              to the Underwriters
 
                            CAHILL GORDON & REINDEL
                                 80 Pine Street
                            New York, New York 10005
 
               REGISTRAR AND PRINCIPAL PAYING AND TRANSFER AGENT
                              THE BANK OF NEW YORK
                                One Wall Street
                            New York, New York 10286
<PAGE>   211
 
                   INTERNATIONAL PROSPECTUS -- ALTERNATE PAGE
 
             ------------------------------------------------------
 
             ------------------------------------------------------
 
  NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
 
                             ---------------------
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                         PAGE
                                         ----
<S>                                      <C>
Prospectus Summary.....................    1
Risk Factors...........................   10
Use of Proceeds........................   25
Dividend Policy........................   25
Dilution...............................   26
Capitalization.........................   27
Selected Historical Consolidated
  Financial Data.......................   28
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations...........................   36
Business...............................   51
Management.............................   99
Executive Compensation and Other
  Information..........................  102
Certain Related Party Transactions.....  110
Principal Stockholders.................  112
Description of Certain Indebtedness....  113
Description of Capital Stock...........  116
Shares Eligible for Future Sale........  119
Certain United States Federal Tax
  Consequences to Non-U.S.
  Stockholders.........................  120
Underwriting...........................  122
Legal Matters..........................  124
Experts................................  125
Index to Financial Statements..........  F-1
Exhibit A -- Glossary of
  Telecommunications Industry Terms....  A-1
</TABLE>
    
 
                             ---------------------
 
  UNTIL             , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
 
             ======================================================
 
             ======================================================
                                                 SHARES
                     [GLOBAL TELESYSTEMS GROUP, INC. LOGO]
                         GLOBAL TELESYSTEMS GROUP, INC.
 
                                  COMMON STOCK
 
                             ---------------------
 
                                   PROSPECTUS
                             ---------------------
 
                          MERRILL LYNCH INTERNATIONAL
 
                                  UBS LIMITED
 
                          DONALDSON, LUFKIN & JENRETTE
                             SECURITIES CORPORATION
 
                                LEHMAN BROTHERS
 
                                  ING BARINGS
                                           , 1997
 
             ======================================================
<PAGE>   212
 
                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
 
     The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, to be borne by the Company in connection
with the offering of the securities being hereby registered.
 
<TABLE>
<CAPTION>
                            ITEM
                            ----
<S>                                                           <C>
SEC Registration Fee........................................  $69,697
NASD Filing Fee.............................................   23,500
Nasdaq National Market Listing Fee..........................     *
Blue Sky Fees and Expenses..................................     *
Transfer Agent and Registrar Fees...........................     *
Accounting Fees and Expenses................................     *
Legal Fees and Expenses.....................................     *
Printing and Mailing Expenses...............................     *
Miscellaneous...............................................     *
                                                              -------
          TOTAL.............................................  $
                                                              =======
</TABLE>
 
- ---------------
 
* To be provided by amendment
 
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
     Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
 
     Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
 
     The Company's Certificate of Incorporation (the "Certificate") provides
that the Company's Directors shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a
 
                                      II-1
<PAGE>   213
 
director provided, however, that such exculpation from liabilities is not
permitted with respect to liability arising from items described in clauses (i)
through (iv) in the preceding paragraph. The Certificate and the Company's
By-Laws further provide that the Company shall indemnify its directors and
officers to the fullest extent permitted by the DGCL.
 
     The directors and officers of the Company are covered under directors' and
officers' liability insurance policies maintained by the Company.
 
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
 
   
     The foregoing reflects a 3-for-2 common stock split and an increase in the
par value per share of common stock to $0.10 effective November 1997 (subject to
approval by shareholders).
    
 
     Within the past three years the Company issued securities which were not
registered under the Securities Act of 1933, as amended (the "Securities Act")
as follows:
 
   
     On March 13, 1995, the Company issued 400,000 shares of common stock, par
value $0.10 per share, pursuant to a stock purchase agreement. The shares were
issued to CIBV Liquidating B.V., a closed company with limited liability
organized under the laws of the Netherlands in exchange for the Company's
interest in PrimTelefone. No underwriter or underwriting discount was involved
in the offering. Exemption from registration was claimed under Section 4(2) of
the Securities Act regarding transactions by an issuer not involving any public
offering.
    
 
   
     On June 21, 1995, the Company issued 5,090,876 shares of common stock, par
value $0.10 per share, at a purchase price of $9.00 per share, for an aggregate
offering price of $45.8 million, pursuant to a stock purchase agreement. In
addition to (i) certain investment funds and (ii) certain individual private
investors, these shares were issued to certain members of management and various
entities affiliated with certain members of management. No underwriter or
underwriting discount was involved in the offering. Exemption from registration
was claimed under Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering.
    
 
   
     On January 19, 1996, and June 6, 1996, the Company granted affiliates of
George Soros an aggregate of 4,444,443 warrants, each warrant to purchase one
share of common stock, par value $0.10 per share, at an exercise price of $10.27
per share. The exercise price of the warrants was automatically reduced to $9.33
per share as of December 31, 1996 because the debt obligations remained
outstanding. The warrants were issued in connection with the Company's issuance
for cash of $40 million of notes to affiliates of George Soros, which notes bear
interest at a rate of 10% per annum and mature on January 19, 2001. No
underwriter or underwriting discount was involved in the offering. Exemption
from registration was claimed under Section 4(2) of the Securities Act regarding
transactions by an issuer not involving any public offering.
    
 
   
     On February 2, 1996, the Company granted affiliates of Capital Research
International an aggregate of 3,333,333 warrants, each warrant to purchase one
share of common stock, par value $0.10 per share, at an exercise price of $10.27
per share. The exercise price of the warrants was automatically reduced to $9.33
per share as of December 31, 1996 because the debt obligations remained
outstanding. The warrants were issued in connection with the Company's issuance
for cash of $30 million of notes to affiliates of Capital Research
International, which notes bear interest at a rate of 10% per annum and mature
on March 31, 2001. No underwriter or underwriting discount was involved in the
offering. Exemption from registration was claimed under Section 4(2) of the
Securities Act regarding transactions by an issuer not involving any public
offering.
    
 
   
     On July 23, 1996, July 31, 1996, August 8, 1996, August 22, 1996 and
September 12, 1996 the Company issued an aggregate of 8,348,532 shares of common
stock, par value $0.10 per share, at a purchase price of $13.33 per share, for
an aggregate offering price of $111 million, pursuant to a stock purchase
agreement. In addition to (i) certain investment funds and (ii) certain
individual private investors, these shares were issued to certain members of
management and various entities affiliated with certain members of management.
Exemption from registration was claimed under Section 4(2) of the Securities Act
regarding transactions by an issuer not involving any public offering.
    
 
   
     On July 14, 1997 and July 31, 1997, the Company issued an aggregate
$141,295,000 of its Senior Subordinated Convertible Bonds due 2000, convertible
into the common stock, par value $0.10 per share, at a
    
 
                                      II-2
<PAGE>   214
 
purchase price of 100%, pursuant to a subscription agreement. UBS Securities
LLC, Donaldson, Lufkin & Jenrette Securities Corporation and Merrill Lynch & Co.
acted as managers in the offering and the aggregate discount was $5,651,800. The
securities were sold to a limited number of qualified institutional buyers as
defined in Rule 144A under the Securities Act and to non-U.S. persons outside
the United States. Exemption from registration was claimed under Rule 144A and
Regulation S of the Securities Act.
 
   
     On August 15, 1997, August 29, 1997 and September 5, 1997, the Company
issued an aggregate 2,502,686 shares of common stock, par value $0.10 per share,
at a purchase price of $15.67 per share, for an aggregate offering price of
$39.3 million, pursuant to a stock purchase agreement. In addition to (i)
certain investment funds and (ii) certain individual private investors, these
shares were issued to certain members of management and various entities
affiliated with certain members of management. Exemption from registration was
claimed under Section 4(2) of the Securities Act regarding transactions by an
issuer not involving any public offering.
    
 
   
     On August 29, 1997, the Company issued $2.9 million of its Senior
Subordinated Convertible Bonds due 2000, convertible into the common stock, par
value $0.10 per share, at a purchase price of 100%. In addition to (i) certain
investment funds and (ii) certain individual private investors, these shares
were issued to certain members of management and various entities affiliated
with certain members of management. Exemption from registration was claimed
under Section 4(2) of the Securities Act regarding transactions by an issuer not
involving any public offering.
    
 
ITEM 16. EXHIBITS
 
     (a) Exhibits:
 
     The following is a list of exhibits filed as a part of this registration
statement.
 
   
<TABLE>
<CAPTION>
  <C>       <C>  <S>
   1.1***   --   Form of U.S. Purchase Agreement
   1.2***   --   Form of International Purchase Agreement
   3.1**    --   Certificate of Incorporation of SFMT, Inc.
   3.2**    --   Certificate of Correction to the Certificate of
                 Incorporation of SFMT, Inc., filed with the Delaware
                 Secretary of State on October 8, 1993
   3.3**    --   Certificate of Ownership and Merger Merging San
                 Francisco/Moscow Teleport, Inc. into SFMT, Inc., filed with
                 the Delaware Secretary of State on November 3, 1993
   3.4**    --   Certificate of Amendment to the Certificate of Incorporation
                 of SFMT, Inc., filed with the Delaware Secretary of State on
                 January 12, 1995
   3.5**    --   Certificate of Amendment to the Certificate of Incorporation
                 of SFMT, Inc., filed with the Delaware Secretary of State on
                 February 22, 1995
   3.6**    --   Certificate of Amendment to the Certificate of Incorporation
                 of Global TeleSystems Group, Inc., filed with the Delaware
                 Secretary of State on October 16, 1996
   3.7**    --   By-laws of SFMT, Inc.
   4.1***   --   Specimen Stock Certificate for Common Stock of the
                 Registrant
   4.2*     --   Indenture dated as of July 14, 1997 between the Company and
                 The Bank of New York (including the form of Senior
                 Subordinated Convertible Bond due 2000 as an exhibit
                 thereto)
   4.3*     --   Registration Rights Agreement, dated as of July 14, 1997,
                 between Global TeleSystems Group, Inc. and UBS Securities
                 LLC.
   4.4**    --   Indenture dated as of August 19, 1997 between Hermes Europe
                 Railtel B.V. and The Bank of New York (including the form of
                 11 1/2% Senior Note due 2007 as an exhibit thereto)
   4.5*     --   Registration Rights Agreement dated as of August 19, 1997
                 between Hermes Europe Railtel B.V. and Donaldson, Lufkin &
                 Jenrette Securities Corporation, UBS Securities LLC, and
                 Lehman Brothers, Inc.
   5.1***   --   Form of Opinion of Shearman & Sterling respecting the Common
                 Stock registered hereby
  10.1*     --   Senior Note Purchase Agreement, dated as of January 19,
                 1996, among Global TeleSystems Group, Inc., The Open Society
                 Institute and Chatterjee Fund Management, L.P.
</TABLE>
    
 
                                      II-3
<PAGE>   215
   
<TABLE>
<CAPTION>
  <C>       <C>  <S>
  10.1(a)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated June 6, 1996
  10.1(b)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated June 6, 1996
  10.1(c)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated July 23, 1996
  10.1(d)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated September 16, 1996
  10.1(e)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated July 11, 1997
  10.1(f)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated July 29, 1997
  10.1(g)*  --   Amendment to Senior Note Purchase Agreement dated January
                 19, 1996 among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.,
                 dated September 29, 1997
  10.2**    --   Registration Rights Letter Agreement, dated as of January
                 19, 1996, among Global TeleSystems Group, Inc., The Open
                 Society Institute and Chatterjee Fund Management, L.P.
  10.3**    --   Warrant Agreement, dated as of January 19, 1996, among
                 Global TeleSystems Group, Inc., The Open Society Institute
                 and Chatterjee Fund Management, L.P.
  10.4**    --   Joint Venture Letter Agreement, dated January 19, 1996,
                 among Global TeleSystems Group, Inc., The Open Society
                 Institute and Chatterjee Fund Management, L.P.
  10.5***   --   Intentionally Omitted
  10.6**    --   Registration Rights Letter Agreement, dated June 6, 1996,
                 among the Company, The Open Society Institute, Winston
                 Partners II LDC and Winston Partners II LLC
  10.7**    --   Warrant Agreement, dated as of June 6, 1996, between Global
                 TeleSystems Group, Inc., The Open Society Institute, Winston
                 Partners II LDC and Winston Partners II LLC
  10.8*     --   Senior Note Purchase Agreement, dated as of February 2,
                 1996, between Global TeleSystems Group, Inc. and Emerging
                 Markets Growth Fund, Inc.
  10.8(a)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated June 6, 1996 (see
                 Exhibit No. 10.1(b))
  10.8(b)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated June 6, 1996
  10.8(c)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated July 25, 1996
  10.8(d)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated September 10, 1996
  10.8(e)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated September 16, 1996
  10.8(f)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated December 30, 1996
</TABLE>
    
 
                                      II-4
<PAGE>   216
   
<TABLE>
<CAPTION>
  <C>       <C>  <S>
  10.8(g)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated May 13, 1997
  10.8(h)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated June 20, 1997
  10.8(i)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated July 11, 1997
  10.8(j)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated July 21, 1997
  10.8(k)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated August 14, 1997
  10.8(l)*  --   Amendment to Senior Note Purchase Agreement, dated as of
                 February 2, 1996, between Global TeleSystems Group, Inc. and
                 Emerging Markets Growth Fund, Inc., dated September 29, 1997
  10.9**    --   Registration Rights Letter Agreement, dated as February 2,
                 1996, between Global TeleSystems Group, Inc. and Emerging
                 Markets Growth Fund, Inc.
  10.10**   --   Warrant Agreement, dated as of February 2, 1996, between
                 Global TeleSystems Group, Inc. and Emerging Markets Growth
                 Fund, Inc.
  10.11***  --   Intentionally Omitted
  10.12**   --   Registration Rights Letter Agreement, dated as February 2,
                 1996, between Global TeleSystems Group, Inc. and Capital
                 International Emerging Markets Funds
  10.13**   --   Warrant Agreement, dated as of February 2, 1996, between
                 Global TeleSystems Group, Inc. and Capital International
                 Emerging Markets Funds
  10.14**   --   Global TeleSystems Group, Inc. Non-Employee Directors' Stock
                 Option Plan
  10.15**   --   GTS-Hermes, Inc. 1994 Stock Option Plan
  10.16**   --   Restricted Stock Grant letter, dated as of January 1, 1995
  10.17**   --   Employment Agreement dated as of January 1995 between SFMT,
                 Inc. and Jan Loeber
  10.18**   --   Employment Agreement dated as of April 1996 between GTS
                 Group, Inc. and Louis Toth
  10.19**   --   Employment Agreement dated as of April 1996 between GTS
                 Group, Inc. and Gerald W. Thames
  10.20**   --   Employment Agreement dated as of April 1996 between GTS
                 Group, Inc. and Raymond J. Marks
  10.21**   --   Employment Agreement dated as of April 1996 between GTS
                 Group, Inc. and Henry Radzikowski
  10.22**   --   SFMT, Inc. Equity Compensation Plan
  10.23**   --   Form of Non-Statutory Stock Option Agreement
  10.24**   --   Amended and Restated 1992 Stock Option Plan of Global
                 TeleSystems Group Inc. dated as of January 16, 1997
  10.25**   --   GTS-Hermes 1994 Stock Option Grant, Non-Qualified Stock
                 Option Grant
  10.26*    --   Agreement on the Creation and Functions of the Joint Venture
                 of EDN Sovintel, dated June 18, 1990
  10.27*    --   Stock Purchase Agreement among Global Telesystems Group,
                 Inc, Kompaniya "Invest-Project," Swinton Limited, GTS-Vox
                 Limited, and MTU-Inform, dated September 6, 1995
  10.28*    --   Certificate of Registration of Revised and Amended
                 Foundation Document in the State Registration of Commercial
                 Organizations, dated May 30, 1996
  10.29*    --   Agreement on the Creation and Functions of the Joint Venture
                 Sovam Teleport, dated May 26, 1992
  10.30*    --   Amended and Restated Joint Venture Agreement between GTS
                 Cellular, Tricor B.V., Gerard Essing, Ivan Laska, and Erik
                 Jennes, dated July [  ], 1995
</TABLE>
    
 
                                      II-5
<PAGE>   217
 
   
<TABLE>
<CAPTION>
  10.31*    --   Amended and Restated Shareholders' Agreement between HIT
                 Rail B.V., GTS-Hermes, Inc., Nationale Maatschappu Der
                 Belgische Spoorwegen, Teleport B.V., AB Swed Carrier, and
                 Hermes Europe Railtel B.V., dated July, 1997
  10.32*    --   Company Agreement between The Societe National de
                 Financement, GTS S.A.M. and The Principality of Monaco,
                 dated September 27, 1995
 
  <C>       <C>  <S>
  10.33*    --   Joint Venture Agreement between SFMT-Hungaro Inc. and
                 Montana Holding Vagyonkezelo Kft., dated December 23, 1993
  10.34*    --   Joint Venture and Shareholders' Agreement among Gerard
                 Aircraft Sales and Leasing Company, SFMT-Hungaro Inc., and
                 Microsystem Telecom Rt., dated August 5, 1994
  10.35*    --   Agreement on the Establishment of Limited Liability Company
                 between SFMT-Czech, Inc. and B&H s.r.o., dated July 12, 1994
  10.36*    --   Formation of the Equity Joint Venture between GTS and SSTIC,
                 dated [                 ]
  10.37*    --   Contract to Establish the Sino-foreign Cooperative Joint
                 Venture Beijing Tianmu Satellite Communications Technology
                 Co., Ltd, amended, by and between China International Travel
                 Service Telecom Co., Ltd. and American China Investment
                 Corporation, dated March 27, 1996
  10.38*    --   Joint Venture Contract between GTS TransPacific Ventures
                 Limited and Shanghai Intelligence Engineering, Inc., dated
                 [                 ]
  10.39*    --   Agreement between Global TeleSystems Group, Inc. and Cesia
                 S.A., dated June 21, 1997
  10.40*    --   Consulting Agreement between SFMT, Inc. and Alan B. Slifka,
                 dated March 1, 1994
  10.41*    --   Consulting Agreement between Global TeleSystems Group, Inc.
                 and Bernard J. McFadden, dated August 15, 1996
  11.1***   --   Statement regarding computation of per share earnings
  21.1**    --   List of Subsidiaries of the Registrant
  23.1***   --   Consent of Shearman & Sterling (included in its opinion
                 delivered under Exhibit No. 5.1)
  23.2*     --   Consent of Ernst & Young LLP, Ernst & Young (CIS) Ltd., and
                 Ernst & Young Reviseurs d'Entreprises S.C.C.
  24.1**    --   Powers of Attorney (included on signature page to this
                 registration statement)
  27.1**    --   Financial Data Schedule extracted from 12/31/96 audited
                 financial statements
  27.2**    --   Financial Data Schedule extracted from 6/30/97 unaudited
                 financial statements
</TABLE>
    
 
- ---------------
 
* Filed herewith.
 
** Previously filed.
 
*** To be filed by amendment.
 
   
(b) Financial Statements and Schedules:
    
 
     (1) Financial Statements
 
     The financial statements filed as part of this Registration Statement are
listed in the Index to Financial Statements on page F-1.
 
     (2) Schedules
 
   
     The Company has furnished Schedule II -- Valuation and Qualifying Accounts
within our filing, the other. The financial statement schedules of the Company
have been omitted because the information required to be set forth therein is
not applicable or is shown in the Financial Statements or Notes thereto.
    
 
ITEM 17. UNDERTAKINGS
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" hereof, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
 
                                      II-6
<PAGE>   218
 
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
 
     The undersigned registrant hereby undertakes that:
 
          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the forms of prospectus filed as part
     of this registration statement in reliance upon Rule 430A and contained in
     forms of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
     (4) or 497(h) under the Securities Act shall be deemed to be part of this
     registration statement as of the time it was declared effective.
 
          (2) For the purpose of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered therein, and the offering of such securities at that
     time shall be deemed to be the initial bona fide offering thereof.
 
                                      II-7
<PAGE>   219
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean, Commonwealth of Virginia, on this 19th day of
November, 1997.
    
 
                                            GLOBAL TELESYSTEMS GROUP, INC.
 
   
                                            By:     /s/ GRIER C. RACLIN
    
                                              ----------------------------------
   
                                              Name: Grier C. Raclin
    
   
                                              Title: Senior Vice President and
    
   
                                                     General Counsel
    
 
   
     Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on the 19th day of November, 1997.
    
 
   
<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                           <C>
 
                /s/ GERALD W. THAMES*                  President, Chief Executive    November 19, 1997
- -----------------------------------------------------    Officer and Director
                  Gerald W. Thames                       (principal executive
                                                         officer)
 
               /s/ WILLIAM H. SEIPPEL                  Executive Vice President of   November 19, 1997
- -----------------------------------------------------    Finance and Chief
                 William H. Seippel                      Financial Officer
                                                         (principal financial and
                                                         accounting officer)
 
                 /s/ ALAN B. SLIFKA*                   Chairman of the Board of      November 19, 1997
- -----------------------------------------------------    Directors
                   Alan B. Slifka
 
                 /s/ GARY GLADSTEIN*                   Director                      November 19, 1997
- -----------------------------------------------------
                   Gary Gladstein
 
                /s/ MICHAEL GREELEY*                   Director                      November 19, 1997
- -----------------------------------------------------
                   Michael Greeley
 
                /s/ BERNARD MCFADDEN*                  Director                      November 19, 1997
- -----------------------------------------------------
                  Bernard McFadden
</TABLE>
    
 
                                      II-8
<PAGE>   220
 
   
<TABLE>
<C>                                                    <S>                          <C>
               /s/ STEWART J. PAPERIN*                 Director                       November 19, 1997
- -----------------------------------------------------
                 Stewart J. Paperin
 
                 /s/ W. JAMES PEET*                    Director                       November 19, 1997
- -----------------------------------------------------
                    W. James Peet
 
                  /s/ JEAN SALMONA*                    Director                       November 19, 1997
- -----------------------------------------------------
                    Jean Salmona
 
               /s/ MORRIS A. SANDLER*                  Director                       November 19, 1997
- -----------------------------------------------------
                  Morris A. Sandler
 
                  /s/ JOEL SCHATZ*                     Director                       November 19, 1997
- -----------------------------------------------------
                     Joel Schatz
 
                  /s/ ADAM SOLOMON*                    Director                       November 19, 1997
- -----------------------------------------------------
                    Adam Solomon
 
             *By: /s/ WILLIAM H. SEIPPEL
  ------------------------------------------------
              Name: William H. Seippel
                  Attorney-in-fact
</TABLE>
    
 
                                      II-9
<PAGE>   221
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                  DESCRIPTION
  -------                                 -----------
<S>         <C>   <C>                                                           <C>
 1.1***      --   Form of U.S. Purchase Agreement.............................
 1.2***      --   Form of International Purchase Agreement....................
 3.1**       --   Certificate of Incorporation of SFMT, Inc. .................
 3.2**       --   Certificate of Correction to the Certificate of
                  Incorporation of SFMT, Inc., filed with the Delaware
                  Secretary of State on October 8, 1993.......................
 3.3**       --   Certificate of Ownership and Merger Merging San
                  Francisco/Moscow Teleport, Inc. into SFMT, Inc., filed with
                  the Delaware Secretary of State on November 3, 1993.........
 3.4**       --   Certificate of Amendment to the Certificate of Incorporation
                  of SFMT, Inc., filed with the Delaware Secretary of State on
                  January 12, 1995 ...........................................
 3.5**       --   Certificate of Amendment to the Certificate of Incorporation
                  of SFMT, Inc., filed with the Delaware Secretary of State on
                  February 22, 1995 ..........................................
 3.6**       --   Certificate of Amendment to the Certificate of Incorporation
                  of Global TeleSystems Group, Inc., filed with the Delaware
                  Secretary of State on October 16, 1996......................
 3.7**       --   By-laws of SFMT, Inc. ......................................
 4.1***      --   Specimen Stock Certificate for Common Stock of the
                  Registrant .................................................
 4.2*        --   Indenture dated as of July 14, 1997 between the Company and
                  The Bank of New York (including the form of Senior
                  Subordinated Convertible Bond due 2000 as an exhibit
                  thereto) ...................................................
 4.3*        --   Registration Rights Agreement, dated as of July 14, 1997,
                  between Global TeleSystems Group, Inc. and UBS Securities
                  LLC. .......................................................
 4.4**       --   Indenture dated as of August 19, 1997 between Hermes Europe
                  Railtel B.V. and The Bank of New York (including the form of
                  11 1/2% Senior Note due 2007 as an exhibit thereto) ........
 4.5*        --   Registration Rights Agreement dated as of August 19, 1997
                  between Hermes Europe Railtel B.V. and Donaldson, Lufkin &
                  Jenrette Securities Corporation, UBS Securities LLC, and
                  Lehman Brothers, Inc. ......................................
 5.1***      --   Form of Opinion of Shearman & Sterling respecting the Common
                  Stock registered hereby.....................................
10.1*        --   Senior Note Purchase Agreement, dated as of January 19,
                  1996, among Global TeleSystems Group, Inc., The Open Society
                  Institute and Chatterjee Fund Management, L.P. .............
10.1(a)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated June 6, 1996..........................................
10.1(b)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated June 6, 1996..........................................
10.1(c)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated July 23, 1996.........................................
10.1(d)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated September 16, 1996 ...................................
10.1(e)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated July 11, 1997.........................................
10.1(f)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated July 29, 1997.........................................
</TABLE>
    
<PAGE>   222
   
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                  DESCRIPTION
  -------                                 -----------
<S>         <C>   <C>                                                           <C>
10.1(g)*     --   Amendment to Senior Note Purchase Agreement dated January
                  19, 1996 among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P.,
                  dated September 29, 1997....................................
10.2**       --   Registration Rights Letter Agreement, dated as of January
                  19, 1996, among Global TeleSystems Group, Inc., The Open
                  Society Institute and Chatterjee Fund Management, L.P. .....
10.3**       --   Warrant Agreement, dated as of January 19, 1996, among
                  Global TeleSystems Group, Inc., The Open Society Institute
                  and Chatterjee Fund Management, L.P. .......................
10.4**       --   Joint Venture Letter Agreement, dated January 19, 1996,
                  among Global TeleSystems Group, Inc., The Open Society
                  Institute and Chatterjee Fund Management, L.P. .............
10.5         --   Intentionally Omitted
10.6**       --   Registration Rights Letter Agreement, dated June 6, 1996,
                  among the Company, The Open Society Institute, Winston
                  Partners II LDC and Winston Partners II LLC.................
10.7**       --   Warrant Agreement, dated as of June 6, 1996, between Global
                  TeleSystems Group, Inc., The Open Society Institute, Winston
                  Partners II LDC and Winston Partners II LLC.................
10.8*        --   Senior Note Purchase Agreement, dated as of February 2,
                  1996, between Global TeleSystems Group, Inc. and Emerging
                  Markets Growth Fund, Inc. ..................................
10.8(a)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated June 6, 1996 (see
                  Exhibit No. 10.1(b))........................................
10.8(b)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated June 6, 1996......
10.8(c)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated July 25, 1996.....
10.8(d)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated September 10,
                  1996........................................................
10.8(e)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated September 16,
                  1996........................................................
10.8(f)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated December 30,
                  1996........................................................
10.8(g)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated May 13, 1997......
10.8(h)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated June 20, 1997.....
10.8(i)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated July 11, 1997.....
10.8(j)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated July 21, 1997.....
10.8(k)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated August 14, 1997...
10.8(l)*     --   Amendment to Senior Note Purchase Agreement, dated as of
                  February 2, 1996, between Global TeleSystems Group, Inc. and
                  Emerging Markets Growth Fund, Inc., dated September 29,
                  1997........................................................
</TABLE>
    
<PAGE>   223
   
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                  DESCRIPTION
  -------                                 -----------
<S>         <C>   <C>                                                           <C>
10.9**       --   Registration Rights Letter Agreement, dated as February 2,
                  1996, between Global TeleSystems Group, Inc. and Emerging
                  Markets Growth Fund, Inc. ..................................
10.10**      --   Warrant Agreement, dated as of February 2, 1996, between
                  Global TeleSystems Group, Inc. and Emerging Markets Growth
                  Fund, Inc. .................................................
10.11        --   Intentionally Omitted
10.12**      --   Registration Rights Letter Agreement, dated as February 2,
                  1996, between Global TeleSystems Group, Inc. and Capital
                  International Emerging Markets Funds........................
10.13**      --   Warrant Agreement, dated as of February 2, 1996, between
                  Global TeleSystems Group, Inc. and Capital International
                  Emerging Markets Funds......................................
10.14**      --   Global TeleSystems Group, Inc. Non-Employee Directors' Stock
                  Option Plan.................................................
10.15**      --   GTS-Hermes, Inc. 1994 Stock Option Plan.....................
10.16**      --   Restricted Stock Grant letter, dated as of January 1,
                  1995 .......................................................
10.17**      --   Employment Agreement dated as of January 1995 between SFMT,
                  Inc. and Jan Loeber.........................................
10.18**      --   Employment Agreement dated as of April 1996 between GTS
                  Group, Inc. and Louis Toth .................................
10.19**      --   Employment Agreement dated as of April 1996 between GTS
                  Group, Inc. and Gerald W. Thames ...........................
10.20**      --   Employment Agreement dated as of April 1996 between GTS
                  Group, Inc. and Raymond J. Marks ...........................
10.21**      --   Employment Agreement dated as of April 1996 between GTS
                  Group, Inc. and Henry Radzikowski...........................
10.22**      --   SFMT, Inc. Equity Compensation Plan.........................
10.23**      --   Form of Non-Statutory Stock Option Agreement................
10.24**      --   Amended and Restated 1992 Stock Option Plan of Global
                  TeleSystems Group Inc. dated as of January 16, 1997.........
10.25**      --   GTS-Hermes 1994 Stock Option Grant, Non-Qualified Stock
                  Option Grant................................................
10.26*       --   Agreement on the Creation and Functions of the Joint Venture
                  of EDN Sovintel, dated June 18, 1990........................
10.27*       --   Stock Purchase Agreement among Global Telesystems Group,
                  Inc, Kompaniya "Invest-Project," Swinton Limited, GTS-Vox
                  Limited, and MTU-Inform, dated September 6, 1995............
10.28*       --   Certificate of Registration of Revised and Amended
                  Foundation Document in the State Registration of Commercial
                  Organizations, dated May 30, 1996...........................
10.29*       --   Agreement on the Creation and Functions of the Joint Venture
                  Sovam Teleport, dated May 26, 1992..........................
10.30*       --   Amended and Restated Joint Venture Agreement between GTS
                  Cellular, Tricor B.V., Gerard Essing, Ivan Laska, and Erik
                  Jennes, dated July [  ], 1995...............................
10.31*       --   Amended and Restated Shareholders' Agreement between HIT
                  Rail B.V., GTS-Hermes, Inc., Nationale Maatschappu Der
                  Belgische Spoorwegen, Teleport B.V., AB Swed Carrier, and
                  Hermes Europe Railtel B.V., dated July, 1997................
10.32*       --   Company Agreement between The Societe National de
                  Financement, GTS S.A.M. and The Principality of Monaco,
                  dated September 27, 1995....................................
10.33*       --   Joint Venture Agreement between SFMT-Hungaro Inc. and
                  Montana Holding Vagyonkezelo Kft., dated December 23,
                  1993........................................................
10.34*       --   Joint Venture and Shareholders' Agreement among Gerard
                  Aircraft Sales and Leasing Company, SFMT-Hungaro Inc., and
                  Microsystem Telecom Rt., dated August 5, 1994...............
10.35*       --   Agreement on the Establishment of Limited Liability Company
                  between SFMT-Czech, Inc. and B&H s.r.o., dated July 12,
                  1994........................................................
10.36*       --   Formation of the Equity Joint Venture between GTS and SSTIC,
                  dated [                 ]...................................
10.37*       --   Contract to Establish the Sino-foreign Cooperative Joint
                  Venture Beijing Tianmu Satellite Communications Technology
                  Co., Ltd, amended, by and between China International Travel
                  Service Telecom Co., Ltd. and American China Investment
                  Corporation, dated March 27, 1996...........................
</TABLE>
    
<PAGE>   224
   
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                  DESCRIPTION
  -------                                 -----------
<S>         <C>   <C>                                                           <C>
10.38*       --   Joint Venture Contract between GTS TransPacific Ventures
                  Limited and Shanghai Intelligence Engineering, Inc., dated
                  [                 ].........................................
10.39*       --   Agreement between Global TeleSystems Group, Inc. and Cesia
                  S.A., dated June 21, 1997...................................
10.40*       --   Consulting Agreement between SFMT, Inc. and Alan B. Slifka,
                  dated March 1, 1994.........................................
10.41*       --   Consulting Agreement between Global TeleSystems Group, Inc.
                  and Bernard J. McFadden, dated August 15, 1996..............
11.1***      --   Statement regarding computation of per share earnings.......
21.1**       --   List of Subsidiaries of the Registrant .....................
23.1***      --   Consent of Shearman & Sterling (included in its opinion
                  delivered under Exhibit No. 5.1) ...........................
23.2*        --   Consent of Ernst & Young LLP, Ernst & Young (CIS) Ltd., and
                  Ernst & Young Reviseurs d'Entreprises S.C.C. ...............
24.1**       --   Powers of Attorney (included on signature page to this
                  registration statement).....................................
27.1**       --   Financial Data Schedule extracted from 12/31/96 audited
                  financial statements........................................
27.2**       --   Financial Data Schedule extracted from 6/30/97 unaudited
                  financial statements........................................
</TABLE>
    
 
- ---------------
 
* Filed herewith.
 
** Previously filed.
 
*** To be filed by amendment.

<PAGE>   1
                                                                    EXHIBIT 4.2

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


                  Global TeleSystems Group, Inc. as Issuer

                                     and

                       The Bank of New York, as Trustee

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

                                  INDENTURE

                          Dated as of July 14, 1997

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

                      Original Issuance of $135,000,000

                Senior Subordinated Convertible Bonds due 2000


<PAGE>   2
<TABLE>
<CAPTION>

                              TABLE OF CONTENTS


<S>                                                                                          <C>
                                                                                            Page
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION............................1

        Section 1.01 Definitions...............................................................1
        Section 1.02 Rules of Construction....................................................14

ARTICLE TWO THE BONDS.........................................................................14

        Section 2.01 Forms and Dating.........................................................14
        Section 2.03 Securities Act Legends...................................................16
        Section 2.04 Execution and Authentication.............................................17
        Section 2.05 Registrar, Transfer Agents, Conversion Agents and Paying Agents..........17
        Section 2.06 Paying Agent To Hold Money in Trust......................................18
        Section 2.07 Bondholder Lists.........................................................18
        Section 2.08 Transfer and Exchange....................................................18
        Section 2.09 Replacement Bonds........................................................19
        Section 2.10 Outstanding Bonds........................................................19
        Section 2.11 (Reserved)...............................................................20
        Section 2.12 Temporary Bonds..........................................................20
        Section 2.13 Cancellation.............................................................20
        Section 2.14 Default Interest.........................................................20
        Section 2.15 CUSIP, ISIN and CINS Numbers.............................................20
        Section 2.16 Deposit of Moneys........................................................21
        Section 2.17 Book-Entry Provisions for the Global Certificates........................21
        Section 2.18 Special Transfer Provisions..............................................22
        Section 2.19 Payments.................................................................24
        Section 2.20 Additional Amounts.......................................................24

ARTICLE THREE REDEMPTION OF BONDS.............................................................26
        
        Section 3.01 Notices to the Trustee...................................................26
        Section 3.02 Bonds To Be Redeemed in Part.............................................26
        Section 3.03 Notice of Redemption.....................................................26
        Section 3.04 Effect of Notice of Redemption...........................................27
        Section 3.05 Deposit of Redemption Price..............................................27
        Section 3.06 Bonds Redeemed or Purchased in Part......................................28
        Section 3.07 Redemption for Tax Reasons...............................................28
        Section 3.07 Redemption and Purchase..................................................28
        Section 3.09 Notices to Trustee and Luxembourg Stock Exchange.........................29

ARTICLE FOUR COVENANTS........................................................................29
        
        Section 4.01 Payment of Bonds.........................................................29
        Section 4.02 Maintenance of Office or Agency..........................................30
        Section 4.03 Corporate Existence......................................................30
        Section 4.04 Payment of Taxes and Other Claims........................................31
        Section 4.05 Maintenance of Properties; Insurance; Books and Records; Compliance with 
                        Law...................................................................31
        Section 4.06 Compliance Certificate...................................................32

</TABLE>

                                       i

<PAGE>   3
<TABLE> 

        <S>                                                                       <C>
        Section 4.07 SEC Reports...................................................32
        Section 4.08 Limitation on Indebtedness....................................33
        Section 4.09 Limitation on Restricted Payments.............................35
        Section 4.10 Negative Pledge...............................................37
        Section 4.11 Change of Control.............................................37
        Section 4.12 Disposition of Proceeds of Asset Sales........................39
        Section 4.13 Limitation on Transactions with Interested Persons............41
        Section 4.14 Limitation on Dividends and Other Payment Restrictions 
                        Affecting Subsidiaries and Significant Joint Ventures......41
        Section 4.15 Limitations on Sale-Leaseback Transactions....................42
        Section 4.16 When Issuer May Merge, etc....................................43
        Section 4.17 Successor Substituted.........................................44
        Section 4.18 Limitation on Guarantees by Subsidiaries......................44
        Section 4.19 Waiver of Stay, Extension or Usury Laws.......................44
        Section 4.20 (Reserved)....................................................44
        Section 4.21 Listing on the Luxembourg Stock Exchange......................45
        Section 4.22 Reservation of GTS Shares.....................................45
        Section 4.23 (Reserved)....................................................45
        Section 4.24 Limitation on Other Subordinated Indebtedness.................45
        Section 4.25 Effectiveness of Certain Covenants............................45

ARTICLE FIVE MEETINGS OF HOLDERS...................................................45

        Section 5.01 Purpose for Which Meetings May Be Called......................45
        Section 5.02 Call, Notice and Place of Meetings............................45
        Section 5.03 Persons Entitled to Vote at Meetings..........................46
        Section 5.04 Quorum; Action................................................46
        Section 5.05 Determination of Voting Rights; Conduct and Adjournment 
                        of Meetings................................................47

ARTICLE SIX EVENTS OF DEFAULT REMEDIES.............................................47

        Section 6.01 Events of Default.............................................47
        Section 6.02 Acceleration..................................................49
        Section 6.03 Other Remedies................................................49
        Section 6.04 Waiver of Past Defaults.......................................49
        Section 6.05 Control by Majority...........................................49
        Section 6.06 Limitation on Suits...........................................50
        Section 6.07 Right of Holders To Receive Payment...........................50
        Section 6.08 Collection Suit by Trustee....................................51
        Section 6.09 Trustee May File Proofs of Claims.............................51
        Section 6.10 Priorities....................................................51
        Section 6.11 Undertaking for Costs.........................................51
        Section 6.12 Restoration of Rights and Remedies............................52
        Section 6.13 Notice to Holders of Event of Default.........................52

ARTICLE SEVEN TRUSTEE..............................................................52

        Section 7.01 Duties........................................................52
        Section 7.02 Rights of Trustee.............................................53
        Section 7.03 Individual Rights of Trustee..................................54
        Section 7.04 Trustee's Disclaimer..........................................54
        Section 7.05 (Reserved)....................................................54


</TABLE>
                                      ii
<PAGE>   4

<TABLE>
        <S>                                                                              <C>
        Section 7.06 Money Held in Trust..................................................54
        Section 7.07 Compensation and Indemnity...........................................54
        Section 7.08 Replacement of Trustee...............................................55
        Section 7.09 Successor Trustee by Merger, etc.....................................56
        Section 7.10 Eligibility; Disqualification........................................56

ARTICLE EIGHT SATISFACTION AND DISCHARGE OF INDENTURE.....................................56

        Section 8.01 Termination of the Issuer's Obligations..............................56
        Section 8.02 Covenant Defeasance..................................................57
        Section 8.03 Application of Trust Money...........................................59
        Section 8.04 Repayment to Issuer..................................................59
        Section 8.05 Reinstatement........................................................59
        
ARTICLE NINE AMENDMENTS,SUPPLEMENTS AND WAIVERS...........................................59 
        
        Section 9.01 Without Consent of Holders...........................................59
        Section 9.02 With Consent of Holders..............................................60
        Section 9.03 Effect of Supplemental Indenture.....................................61
        Section 9.04 Revocation and Effect of Consents....................................61
        Section 9.05 Notation on or Exchange of Securities................................61
        Section 9.06 Trustee May Sign Amendments, etc.....................................61

ARTICLE TEN SUBORDINATION OF BONDS........................................................62

        Section 10.01 Bonds Subordinate to Senior Indebtedness............................62
        Section 10.02 Payment Over of Proceeds upon Dissolution, etc......................62
        Section 10.03 Suspension of Payment When Senior Indebtedness in Default...........63
        Section 10.04 Trustee's Relation to Senior Indebtedness...........................64
        Section 10.05 Subrogation to Rights of Holders of Senior Indebtedness.............64
        Section 10.06 Provisions Solely To Define Relative Rights.........................65
        Section 10.07 Trustee To Effectuate Subordination.................................65
        Section 10.08 No Waiver of Subordination Provisions...............................66
        Section 10.09 Notice to Trustee...................................................66
        Section 10.10 Reliance on Judicial Order or Certificate of Liquidating Agent......66 
        Section 10.11 Rights of Trustee as a Holder of Senior Indebtedness; 
                        Preservation of Trustee's Rights..................................67
        Section 10.12 Article Applicable to Paying Agents.................................67
        Section 10.13 No Suspension of Remedies...........................................67

ARTICLE ELEVEN CONVERSION OF BONDS........................................................67

        Section 11.01 Conversion Right....................................................67
        Section 11.02 Exercise of Conversion Right; Issuance of GTS Shares on Conversion..67
        Section 11.03 Cash Payments in Lieu of Fractional Shares..........................70
        Section 11.04 Conversion Price....................................................70
        Section 11.05 (Reserved)..........................................................71
        Section 11.06 Stamp and Other Duties Exchange Costs...............................71
        Section 11.07 Reservation of Shares; Shares to Be Fully Paid; Listing 
                        of GTS Shares.....................................................71
        Section 11.08 Responsibility of Trustee...........................................72
        Section 11.09 Notice to Holders Prior to Certain Actions..........................72

                                              iii

</TABLE>

<PAGE>   5
<TABLE>
   <S>                                                                                 <C>

ARTICLE TWELVE MISCELLANEOUS............................................................72

        Section 12.01 Acts of Holders, Record Dates.....................................72
        Section 12.02 Notices...........................................................73
        Section 12.03 Communication by Holders with Other Holders.......................74
        Section 12.04 Certificate and Opinion as to Conditions Precedent................74
        Section 12.05 Statements Required in Certificate or Opinion.....................74
        Section 12.06 Rules by Trustee, Transfer Agents, Paying Agents, Registrar.......75
        Section 12.07 Governing Law.....................................................75
        Section 12.08 No Interpretation of Other Agreements.............................75
        Section 12.09 No Recourse Against Others........................................75 
        Section 12.10 Successors........................................................75
        Section 12.11 Duplicate Originals...............................................75
        Section 12.12 Separability......................................................75
        Section 12.13 Table of Contents, Headings, etc..................................76
        Section 12.14 Benefits of Indenture.............................................76
        
        SIGNATURES......................................................................72

</TABLE>

EXHIBIT A-1  Form of Security
ESHIBIT A-2  Form of Legends
EXHIBIT B    Form of Certificate (DTC)
EXHIBIT C-1  Form of 144A Transfer Certificate
EXHIBIT C-2  Form of Regulation S Transfer Certificate
EXHIBIT C-3  Form of Transfer Certificate for Exchange or Transfer from 
             Restricted Global Bond or Restricted Definitive Bond to Permanent 
             Regulation S Global Certificate
EXHIBIT C-4  Form of Certificate to be Delivered in Connection With Cetain 
             Transfers to Accredited Investors
EXHIBIT C-5  Form of Regulation S Transfer Restriction Certificate
EXHIBIT D    Registration Rights Agreement

SCHEDULE 1   Agreements with Interested Persons


                                      iv
<PAGE>   6
        INDENTURE, dated as of July 14, 1997, between GLOBAL TELESYSTEMS GROUP,
INC., a corporation incorporated under the laws of the State of Delaware (the
"Issuer"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee
(the "Trustee").

        Each party hereto agrees as follows for the benefit of each other party
and for the equal and ratable benefit of the Holders of the Issuer's Senior
Subordinated Convertible Bonds due 2000 (the "Bonds").


                                  ARTICLE ONE

        DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

        Section 1.01. Definitions.

        "Accredited Investor" means "accredited investors" as defined in Rule
501 of the Securities Act.
 
        "Acquired Indebtedness" means, with respect to any specified person,
(i) Indebtedness of any other person at the time such other person merged with
or into or became a Subsidiary or Significant Joint Venture of any specified
person, and (ii) Indebtedness encumbering any asset acquired by any specified
person. 
        
        "Additional Amounts" are specified in Section 2.20.

        "Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person.

        "Agent" means any Registrar, Conversion Agent, Transfer Agent, Paying
Agent, authenticating agent or co-Registrar of the Bonds.

        "Agent Members" shall have the meaning set forth in Section 2.17(a).

        "Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any person other than the Issuer or a Wholly-Owned
Subsidiary of the Issuer, in one or a series of related transactions, of (a)
any Capital Stock of any Subsidiary or Significant Joint Venture (other than in
respect of director's qualifying shares or investments by foreign nationals
mandated by applicable law); (b) all or substantially all of the properties and
assets of any division or line of business of the Issuer or any Subsidiary or
Significant Joint Venture; or (c) any other properties or assets of the Issuer
or any Subsidiary or Significant Joint Venture other than in the ordinary
course of business.  For the purposes of this definition, the term "Asset Sale"
shall not include (i) any sale, transfer or other disposition of equipment,
tools or other assets (including Capital Stock or other equity of any
Subsidiary or Significant Joint Venture) by the Issuer or any of its
Subsidiaries or Significant Joint Ventures in one or a series of related
transactions in respect of which the Issuer or such Subsidiary or Significant
Joint Venture receives cash or property with an aggregate Fair Market Value of
U.S. $10,000,000 (or the foreign currency equivalent thereof) or less; (ii) any
sale, issuance, conveyance, transfer, lease or other disposition of properties
or assets that is governed by the provisions of Section 4.16 and Section 4.17
and (iii) any direct or indirect sale, transfer or other disposition of shares
of Capital Stock of Hermes so long as after such sale, transfer or other
disposition the Issuer owns or controls at least 51 per cent. of the Voting
Stock of Hermes.

        "Asset Sale Offer" shall have the meaning set forth in Section 4.12.
        
        "Asset Sale Offer Price" shall have the meaning set forth in Section 
4.12.

        "Asset Sale Purchase Date" shall have the meaning set forth in Section 
4.12.



                                       1
<PAGE>   7
        "Average Life to State Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years (or any
fraction thereof) from such date to the date or dates of each successive
scheduled principal payment (including, without limitation, any sinking fund
requirements) of such Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.

        "Bankruptcy Law" means Title 11 of the United States Code of Federal
Regulations or any similar law for the relief of debtors.

        "Board of Directors" means the board of directors of the Issuer or any
duly authorized committee of such board.
        
        "Board Resolutions" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Issuer to have been duly adopted by
the Board of Directors of the Issuer and to be in full force and effect on the
date of such certification.
        
        "Bonds" means the bonds that are issued under this Indenture, as
amended or supplemented from time to time pursuant to this Indenture.

        "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or Luxembourg, are authorized or obligated by law, regulation or executive
order to close.

        "Capital Research Notes" means the aggregate $30 million of notes issued
pursuant to (i) the Senior Note Purchase Agreement, dated as of February 2,
1996, as amended, between the Issuer and Emerging Markets Growth Fund, Inc.,
and (ii) the Senior Note Purchase Agreement dated as of February 2, 1996, as
amended, between the Issuer and Capital International Emerging Markets Funds.

        "Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.

        "Capitalized Lease Obligation" means any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and the amount of any such obligation at
any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.

        "Cash Equivalents" means, at any time, (a) any evidence of
Indebtedness with a maturity of 180 days or less issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (b) certificates of deposit
or acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less that U.S. $500,000,000; (c)
certificates of deposit with a maturity of 180 days or less of any financial
institution that is not organized under the laws of the United States, any
state thereof or the District of Columbia that are rated at least A-1 by S&P or
at least P-1 by Moody's or at least an equivalent rating category of another
nationally recognized securities rating agency; and (d) repurchase agreements
and reverse repurchase agreements relating to marketable direct obligations
issued or unconditionally guaranteed by the government of the United States of
America or issued by any agency thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days from the
date of acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions With Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985.



                                       2
<PAGE>   8
 
        "CEDE" means Cede & Co. as DTC's nominee.

        "Cedel" means Cedel Bank, societe anonyme.

        "Change of Control" means the occurrence of any of the following 
events:(a) any "person" or "group" (as such terms are used in Section 13(d) 
and 14(d)of the Exchange Act), other than the Permitted Holders, is or
becomes the"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise), directly or indirectly, of more than
40 per cent. of the total Voting Stock of the Issuer (50.1 per cent. in the 
case  of a Strategic Investor); (b) the Issuer consolidates with, or merges
with or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Issuer, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Issuer is converted into or exchanged for cash, securities or other property,
other than any such transaction where (i) the outstanding Voting Stock of the
Issuer is converted into or exchanged for (1) Voting Stock (other than
Redeemable  Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could then be paid by
the Issuer as a Restricted Payment under the Indenture, or a combination
thereof, and (ii) immediately after such transaction no "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 50 per cent. of the total Voting Stock of the surviving
or  transferee corporation; (c) at any time during any consecutive two-year
period,  individuals who at the beginning of such period constituted the Board
of  Directors of the Issuer (together with any new directors whose election by
such  Board of Directors or whose nomination for election by the stockholders
of the  Issuer was approved by a vote of 66 2/3 per cent. of the directors then
still in  office who were either directors at the beginning of such period or
whose  election or nomination for election was previously so approved) cease
for any  reason to constitute a majority of the Board of Directors of the
Issuer then  in office; or (d) the Issuer is liquidated or dissolved or adopts
a plan of  liquidation.

        "Change of Control Offer" shall have the meaning set forth in Section 
4.11.

        "Change of Control Purchase Date" shall have the meaning set forth in 
Section 4.11.

        "Change of Control Purchase Price" shall have the meaning set forth in 
Section 4.11.

        "Chatterjee Notes" means the aggregate $40 million of notes issued 
pursuant to (a) the Senior Note Purchase Agreement, dated as of January 19, 
1996, as amended, among the Issuer, The Open Society Institute and Chatterjee 
Fund Management, L.P. and (b) the Senior Note Purchase Agreement, dated as of 
June 6, 1996, as amended, among the Issuer, The Open Society Institute, 
Winston Partners II LDC and Winston Partners II LLC.

        "Closing Price" means the closing price of the GTS Shares on a 
Qualifying Stock Exchange or if the GTS Shares are listed on more than one
such exchange the average of such closing prices on all such exchanges.

        "Common Stock" means, with respect to any person, any and all shares, 
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether 
outstanding at the Issue Date or issued after the Issue Date, and includes, 
without limitation, all series and classes of such common stock.



                                       3

<PAGE>   9
        "Complying Public Equity Conditions" means all of the following: (a)  
the Issuer has made public sales of GTS Shares with a cumulative public offering
price of at least U.S. $100,000,000 to an aggregate of not less than 50
purchasers; (b) the GTS Shares have been listed or shall be listed in
connection with the offering on either the New York Stock Exchange, the London
Stock Exchange, the American Stock Exchange or the Nasdaq National Market, and
(c) the Issuer shall have registered additional GTS Shares from Private Equity
Offerings with a market value of at least U.S.  $100,000,000 calculated using
the offering price in the Complying Public Equity Offering.
        
        "Complying Public Equity Offering" means a public offering of GTS
Shares where, immediately following completion thereof, (a) the Complying
Public Equity Conditions have been met and (b) the aggregate number of GTS
Shares sold thereby, together with any GTS Shares sold in any prior public
offerings plus the number of GTS Shares into which the Bonds may be converted
(calculated as if such conversion were to be effected at the time of such
public offering) does not exceed 50 per cent. of the total GTS Shares
outstanding on a fully diluted basis.
        
        "Consolidated Net Worth" means, with respect to any person at any date,
the consolidated stockholders' equity of such person less the amount of such 
stockholders' equity attributable to Redeemable Capital Stock of such person 
and its subsidiaries, as determined in accordance with GAAP.

        "consolidation" means, with respect to any person, the consolidation of 
the accounts of such person and each of its subsidiaries if and to the extent 
the accounts of such  person and each of its subsidiaries would normally be
consolidated with those  of such person, all in accordance with GAAP.  The term
"consolidated" shall  have a meaning correlative to the foregoing.

        "control" means, with respect to any specified person, the power to 
direct the management and policies of such person, directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
        
        "Conversion Agent" has the meaning set forth in Section 2.05.

        "Conversion Date" has the meaning set forth in Section 11.02.

        "Conversion Notice" has the meaning set forth in Section 11.02.

        "Conversion Price" has the meaning set forth in Section 11.04

        "Conversion Right" has the meaning set forth in Section 11.01.

        "Corporate Trust Office" means the corporate trust office of the 
Trustee at which at any particular time its corporate trust business shall be
principally administered, which on the date hereof is located in New York, New
York.

        "Covenant Defeasance" shall have the meaning set forth in Section 
8.02(c).
        
        "Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any Subsidiary or any Significant Joint Venture against fluctuations
in currency values.
        
        "Custodian" means any receiver, trustee, assignee, liquidator, 
sequestrator or similar official under any Bankruptcy Law.
        

        


                                       4
<PAGE>   10
        "Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.

        "Definitive Securities" has the meaning set forth in Section 2.02.

        "Depository" or "DTC" means the Depositary Trust Company, its nominees,
and their respective successors.

        "Designated Senior Indebtedness" means Senior Indebtedness permitted
under this Indenture the principal amount of which is U.S. $30,000,000 (or the
foreign currency equivalent) or more and has been designated by the Issuer as
"Designated Senior Indebtedness"  (which includes the Chatterjee Notes and the
Capital Research Notes).

        "Eligible Joint Venture"  means a Joint Venture (other than a
Subsidiary) (a) that is formed with respect to the construction, development,
acquisition, servicing, ownership, improvement, operation or management of a
telecommunications business, (b) in which the Issuer, directly or indirectly,
owns at least 25 per cent. of the Capital Stock or other ownership interest
therein and (c) in respect of which the Issuer, directly or indirectly, either
(i) controls, by voting power, membership on the board of directors or
management committee or other similar governing body, or through the provisions
of any applicable partnership, joint venture, shareholder or other similar
agreement or under an operating, maintenance or management agreement or
otherwise, the management and operation of the Joint Venture and any
telecommunications project of such Joint Venture or (ii) otherwise
has the right to control or veto material acts and decisions with respect to
the management or operation of the Joint Venture that, taken as a whole, are
substantially similar to the rights of the Issuer with respect to the Existing
Joint Ventures of the Issue Date.

        "Euroclear"  means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System.

        "Event of Default" has the meaning set forth in Section 6.01.

        "Excess Proceeds"  has the meaning set forth in Section 4.12.

        "Existing Joint Venture" means each of Joint Stock Company of Closed
Type Russian-Dutch Joint Venture PrymTelefon Scientific-Production-Innovation
Firm Bancomsvyaz, a Limited Liability Company, Closed Joint Stock
Company TeleCommunications of Moscow, Hermes Europe Railtel B.V., Limited
Liability Company LvNet-Telport, GTS Monaco Access S.A.M, Sovam Telport Kiev 
Division Limited Partnership, Limited Liability Partnership-Joint Venture 
EDN Sovintel, all the entities in which SFMT-Rusnet, Inc. currently has an 
interest, all the entities in which Vostok Mobile b.v. currently has an 
interest and their respective successors.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "Fair Market Value" means, with respect to any asset, the price, as
determined by the Board of Directors of the Issuer, acting in good faith, which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
pressure or compulsion to complete the transaction; provided, however, that
with respect to any transaction or related series of transactions which
involves an asset or assets in excess of U.S. $10,000,000 (or the foreign
currency equivalent thereof), in the aggregate, such determination shall be
evidenced by a resolution of the majority of disinterested members of the Board
of Directors of the Issuer delivered to the Trustee.

        "Final Maturity Date" means, with respect to the Bonds, June 30, 2000,
unless otherwise extended hereunder.



                                       5
        
<PAGE>   11
        "Fixed Charge Coverage Ratio" of the Issuer means, for any period, the
ratio of (a) the sum of Pro rata Combined Adjusted Net Income, Pro rata
Combined Interest Expense, Pro rata Combined Income Tax Expense and Pro rata
Combined Non-cash Charges deducted in computing Pro rata Combined Adjusted Net
Income, in each case, for such period to (b) Pro rata Combined Interest Expense
for such period.

        "GAAP"  means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.

        "Global Certificates" means the Restricted Global Certificates and the
Regulation S Global Certificates.

        "GTS Shares" means the Common Stock, par value $0.0001 per share, of
the Issuer.

        "guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.

        "Hermes" means Hermes Europe Railtel B.V.

        "Holders" or Bondholder" means the person in whose name a Bond is
registered on the Registrar's books.

        "Indebtedness" means, with respect to any person, without duplication,
(a) all liabilities of such person for borrowed money or for the deferred
purchase price of property or services, excluding any (i) trade account
payables arising in the ordinary course of business and (ii) other accrued
current liabilities incurred in the ordinary course of business, including,
without limitation, all obligations, contingent or otherwise, of such person in
connection with any letters of credit, banker's acceptance or other similar
credit transaction; (b) all obligations of such person evidenced by bonds,
debentures or other similar instruments; (c) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies 
of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), but excluding trade accounts
payable arising in the ordinary course of business; (d) all Capitalized Lease
Obligations of such person; (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured); (f) all guarantees of Indebtedness referred to in this
definition by such person; (g) all Redeemable Capital Stock of such person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends; (h) all obligations under or in respect of
Currency Agreements and Interest Rate Protection Obligations of such person;
(i) any Preferred Stock of such person that provides for payments of liquidation
value by way of a sinking fund, or by way of mandatory redemption, defeasance,
retirement, repurchase or otherwise, or allows the holder the option to redeem,
in each case prior to the 91st day prior to the Maturity of the Bonds (valued
at the sum of (without duplication) (A) the liquidation preference thereof, (B)
any mandatory redemption payment obligations in respect thereof and (C) accrued
dividends thereon); and (j) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types referred to in
clauses (a) through (i) above. For

                                       6

<PAGE>   12
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such
Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to this Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.

        "Indenture" means this Indenture, as amended, modified or supplemented
from time to time.

        "Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a material
direct or indirect financial interest in the Issuer, any Subsidiary or
Significant Joint Venture and (ii) which, in the judgment of the Board of
Directors of the Issuer, is otherwise independent and qualified to perform the
task for which it is to be engaged.

        "interest" means, with respect to any Bond, the amount of all interest
accruing on such Bond, including all interest accruing subsequent to the
occurrence of any events specified in Sections 6.01(f) and (g) or which would
have accrued but for any such event, whether or not such claims are allowable
under applicable law.

        "Interest Payment Date" means the Stated Maturity of an installment of
interest on the Bonds, as set forth therein.

        "Interest Rate Protection Agreement" means any arrangement with any
other person whereby, directly or indirectly, such person is entitled to receive
from time to time periodic payments calculated by applying either a floating or
a fixed rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or a floating rate
of interest on the same notional amount and shall include without limitation,
interest rate swaps, caps, floors, collars and similar agreements.

        "Interest Rate Protection Obligations" means the obligations of any
person pursuant to an Interest Rate Protection Agreement.

        "Investment" means, with respect to any person, any direct or indirect
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such person of any Capital Stock, bonds, debentures or other securities or
evidences of Indebtedness issued by, any other person. "Investments" shall
exclude extensions of trade credit in the ordinary course of business in
accordance with normal trade practices.

        "Issue Date" means July 14, 1997.

        "Issuer" means the party named as such in this Indenture until a
successor replaces it (or any previous successor) pursuant to this Indenture,
and thereafter means such successor.

        "Joint Venture" means a joint venture, partnership or other similar
arrangement, whether corporation, partnership or other legal form where the
Issuer or one or more Subsidiaries has, directly or indirectly, less than a
majority of the Voting Stock or other ownership interest.

        "Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind; provided that in no event shall an operating lease be deemed to
constitute a Lien.  A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.        



                                      7

<PAGE>   13

        "Material Joint Venture" means a Joint Venture that, as of the end of
the most recent four-quarter period, had (i) total assets which exceeded 10
percent of the total combined assets of the Issuer at the end of such period or
(ii) total revenues which exceeded 15 percent of the total combined revenues of
the Issuer for such period.

        "Material Subsidiary" means a Subsidiary that, as of the end of the
most recent four-quarter period, had (i) total assets which exceeded 10
per cent. of the total combined assets of the Issuer at the end of such period
or (ii) total revenues which exceeded 15 per cent. of the total combined 
revenues of the Issuer for such period.

        "Maturity" means, (i) when used with respect to the Bonds, June 30,
2000, unless otherwise extended and (ii) when used with respect to any
Indebtedness other than the Bonds, the date specified in the instrument
governing such Indebtedness as the fixed date on which the principal of such
Indebtedness, or any installment of interest thereon, is due and payable.

        "Moody's" means Moody's Investors Service, Inc. and its successors.

        "Nasdaq" means the National Association of Securities Dealers Automated
Quotation System.

        "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse) net of (i) brokerage commissions and other fees and expenses
(including without limitation, fees and expenses of legal counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) amounts required to be paid to any
person (other than the Issuer or any Subsidiary or Significant Joint Venture)
owning a beneficial interest in the assets subject to the Asset Sale and (iv)
appropriate amounts to be provided by the Issuer or any Subsidiary or
Significant Joint Venture, as the case may be, as a reserve required in
accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the Issuer or any Subsidiary or Significant Joint Venture, as
the case may be, after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee.
                                                                              
        "Non-Complying Equity Offering" means (i) a Private Equity Offering of
GTS Shares or (ii) a public offering of GTS Shares that is not a Complying
Public Equity Offering.

        "Non-Complying Public Equity Offering" means a public equity offering
of GTS Shares that satisfies all the Complying Public Equity Conditions, except
that the cumulative public offering price is less than U.S.$100,000,000.

        "Non-payment Default" means any event (other than a Payment Default)
the occurrence of which entitles one or more persons to act to accelerate the
maturity of any Designated Senior Indebtedness.

        "Non-U.S Holder" has the meaning set forth in Section 2.20.

        "Notice of Offering" means a notice given to the Trustee or the
Bondholders and, if required by this Indenture, the Luxembourg Stock Exchange,
that a Complying Public Equity Offering or a Non-Complying Public Equity
Offering has occurred.

        "Officer" means the Chairman of the Board, the President, any Executive
Vice President, any Vice President, the Chief Financial Officer, the Treasurer,
the Secretary or the Controller of the Issuer.
        
 


                                      8
<PAGE>   14
        "Officers' Certificate" means a certificate signed by two Officers or
by an Officer and an Assistant Treasurer or Assistant Secretary of the Issuer
and delivered to the Trustee.

        "Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee.  The counsel may be an employee of or
counsel to the Issuer.

        "Pari Passu Indebtedness" means Indebtedness of the Issuer which ranks
pari passu in right of payment with the Bonds.

        "Paying Agent" has the meaning set forth in Section 2.05.

        "Payment Blockage Period" shall have the meaning set forth in Section 
10.03.

        "Payment Default" means any default in the payment of principal,
premium, if any, or interest on any Designated Senior Indebtedness beyond any
applicable grace period with respect thereto.

        "Permitted Holder" means (A) Alan B. Slifka and any entity controlled
by him, (B) one or more of George Soros, Soros Fund Management LL, Purnendu
Chatterjee or Chatterjee Management Company or affiliates of any of the
foregoing, and any person or entity for which any such person or entity acts as
the investment advisor or investment manager and (C) any person that acquires
the Capital Stock of the Issuer in a Strategic Equity Offering.

        "Permitted Investments" means any of the following: (i) Investments in
any Subsidiary or Significant Joint Venture; (ii) Investments in any person
that is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Issuer or any Subsidiary or Significant
Joint Venture at the time such Investment is made; (iii) Investments in cash or
Cash Equivalents; (iv) Investments in deposits with respect to leases or
utilities provided to third parties in the ordinary course of business; (v)
Investments in the Bonds; (vi) Investments in Currency Agreements on
commercially reasonable terms entered into by the Issuer or any of its
Subsidiaries or Significant Joint ventures in the ordinary course of business
in connection with the operations of the business of the Issuer or its
Subsidiaries or Significant Joint Ventures to hedge against fluctuations in
foreign exchange rates; (vii) loans or advances to officers or employees of the
Issuer and its Subsidiaries or Significant Joint Ventures in the ordinary course
of business for bona fide business purposes of the Issuer, and its Subsidiaries
or Significant Joint Ventures (including travel and moving expenses) not in
excess of U.S.$5,000,000 (or the foreign currency equivalent) in the aggregate
at any one time outstanding; (viii) Investments in evidences of Indebtedness,
securities or other property received from another person by the Issuer or any
of its Subsidiaries or Significant Joint Ventures in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or
a reorganization of such person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities
or other property of such person held by the Issuer or any of its Subsidiaries
or Significant Joint Ventures, or for other liabilities or obligations of such
other person is the Issuer or any of its Subsidiaries or Significant Joint
Ventures that were created, in accordance with the terms of this Indenture;
(ix) Investments in Interest Rate Protection Agreements on commercially
reasonable terms entered into by the Issuer or any of its Subsidiaries or
Significant Joint Ventures in the ordinary course of business in connection with
the operations of the business of the Issuer or its Subsidiaries or Significant
Joint Ventures to hedge against fluctuations in interest rates; and (x)
Investments in entities that are not Subsidiaries or Significant Joint
Ventures, to finance the construction, installation, improvement, acquisition
or operation of Telecommunication Assets, provided that such Investments do not
exceed in the aggregate, the greater of U.S.$25,000.000 (or the foreign
currency equivalent) or 10 per cent. of the pro rata combined assets of the
Issuer or, individually, the greater of U.S.$5,000,000 (or the foreign
currency equivalent) or 2 per cent. of the pro rata combined assets of the 
Issuer.


"       Permitted Junior Securities" shall have the meaning set forth in 
Section 10.02.



                                        9
<PAGE>   15
        "person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.

        "PORTAL" means the Private Offerings, Resales and Trading through
Automated Linkages market operated by the National Association of Securities
Dealers, Inc. or any successor thereto.

        "Predecessor Bond" means, with respect to any particular Bond, every
previous Bond evidencing all or a portion of the same debt as that evidenced
by such particular Bond; and, for the purpose of this definition, any Bond
authenticated and delivered under Section 2.04 hereof in exchange for a
mutilated Bond or in lieu of a lost, destroyed or stolen Bond shall be deemed
to evidence the same debt as the mutilated, lost, destroyed or stolen Bond.

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

        "principal" means, with respect to any debt security, the principal of
the security plus, when appropriate, the premium, if any, on the security and
any interest on overdue principal.

        "Private Equity Offering" means a private offering of GTS Shares
pursuant to an exemption from registration under the Securities Act.

        "Pro rata Combined Adjusted Net Income" means, for any period, the pro
rata combined net income (or loss) of the Issuer and its Subsidiaries and
Significant Joint Ventures for such period, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, and (c) the portion of net income (or
loss) of any person (other than the issuer or a Subsidiary or a Significant
Joint Venture), in which the Issuer or any such Subsidiary or Significant
Joint Venture has an ownership interest, except to the extent of the amount of
dividends or other distributions actually paid to the Issuer or any Subsidiary
or any Significant Joint Venture in cash dividends or distributions during 
such period.

        "Pro rata Combined Interest Expense" means, for any period, without
duplication,the sum of (a) the pro rata combined interest expense of the Issuer
and its Subsidiaries and its Significant Joint Ventures for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of Interest Rate Protection Agreements (including amortization of 
discounts), (iii) the interest portion of any deferred payment obligation and 
(iv) amortization of debt issuance costs, plus (b) the pro rata combined 
interest component of Capitalized Lease Obligations of the Issuer, its 
Subsidiaries and Significant Joint Ventures during such period, less (c) pro 
rata interest income of the Issuer, its Subsidiaries and Significant Joint 
Ventures; provided that (x) the Pro rata Combined Interest Expense attributable 
to interest on any Indebtedness computed on a pro forma basis and (A) bearing 
a floating interest rate shall be computed as if the rate in effect on the date 
of computation had been the applicable rate for the entire period and (B) which 
was not outstanding during the period for which the computation is being made 
but which bears, at the option of the Issuer, a Subsidiary or Significant Joint 
Venture,as the case may be, a fixed or floating rate of interest shall be 
computed by applying at the option of the issuer, either the fixed or floating
rate, and (y) in making such computation, the Pro rata Combined Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period; provided
further that, notwithstanding the foregoing, the interest rate with respect to
any Indebtedness covered by any Interest Rate Protection Agreement shall be
deemed to be the effective interest rate with respect to such Indebtedness
after taking into account such Interest Rate Protection Agreement.



                                       10
<PAGE>   16
        "Pro rata Combined Income Tax Expense" means, for any period the
provision for federal, state, local and foreign income taxes of the Issuer, its
Subsidiaries and Significant Joint Ventures for such period as determined on a
pro rata combined basis.

        "Pro rata Combined Non-cash Charges" means, for any period, the
aggregate depreciation, amortization and other non-cash expenses of the Issuer
and its Subsidiaries and Significant Joint Ventures reducing Pro rata Combined
Adjusted Net Income for such period, determined on a pro rata combined basis
(excluding any such non-cash charge that requires an accrual of or reserve for
cash charges for any future period).

        "QIB" means a "qualified institutional buyer" as defined in Rule 144A.

        "Qualifying Stock Exchange" means the New York Stock Exchange, the
American Stock Exchange, the London Stock Exchange or the NASDAQ National
Market.

        "Redeemable Capital Stock" means any shares of any class or series of
Capital Stock that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Maturity with respect to the principal of the Bonds or is
redeemable at the option of the holder thereof at any time prior to any such
Maturity, or is convertible into or exchangeable for debt securities at any
time prior to any such Maturity.

        "Redemption Date" means, with respect to any Bonds hereunder to be 
redeemed, the date fixed by the Issuer for such redemption pursuant to this 
Indenture and the Bonds.     

        "Redemption Price" means, with respect to any Bonds to be redeemed,
the price fixed for such redemption pursuant to the terms of this Indenture and
the Bonds.

        "Registrar" has the meaning set forth in Section 2.05.

        "Registration Rights Agreement" means the agreement in the form set
forth in Exhibit B among the parties thereto.

        "Regulation S" means Regulation S under the Securities Act.

        "Regulation S Global Certificate" has the meaning set forth in Section
 2.02.

        "Replacement Assets" has the meaning set forth in Section 4.12.

        "Restricted Global Certificate" has the meaning set forth in Section
 2.02.

        "Restricted Payment" has the meaning set forth in Section 4.09.

        "Restricted Period" means the period from the later of the Closing
Date, the initial Issue Date for any of the Bonds and the 366th day thereafter.

        "Rule 144A" means Rule 144A under the Securities Act.

        "Sale-Leaseback Transaction" of any person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such person of any property or asset of such person which
has been or is being sold or transferred by such person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any person to whom funds have been or are to
be advanced by such lender or investor on the security of such property or 
asset.


                                       11
<PAGE>   17
The stated maturity of such arrangement shall be the date of the last payment
of rent or any other amount due under such arrangement prior to the first date
on which such arrangement may be terminated by the lessee without payment of a
penalty.

        "SEC" means the Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of the Indenture such
Commission is not existing and performing the applicable duties now assigned to
it, then the body or bodies performing such duties at such time.

        "Securities Act" means the Securities Act of 1933, as amended from time
to time.

        "Securities Act Legend" has the meaning set forth in Section 2.03.

        "Securities Register" has the meaning set forth in Section 2.05.

        "Senior Indebtedness" means the principal of, premium, if any, interest,
and other amounts payable on or in respect of any Indebtedness of the Issuer,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Bonds. Notwithstanding the foregoing, "Senior Indebtedness"
shall not include (a) Indebtedness evidenced by the Bonds, (b) Indebtedness
that is pursuant to the instrument creating such Indebtedness expressly
subordinate or junior in right of payment to any Indebtedness of the Issuer,
(c) Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11 of the United States Code, without recourse to
the Issuer, (d) Indebtedness which is represented by Redeemable Capital Stock,
(e) Indebtedness for goods, materials or services purchased in the ordinary
course of business or Indebtedness consisting of trade account payables or
other current liabilities incurred in the ordinary course of business, (f)
Indebtedness of or amounts owed by the Issuer for compensation to employees or
for services rendered to the Issuer, (g) any liability for federal, state,
local or other taxes owed or owing by the Issuer, (h) other than the Chatterjee
Notes and the Capital Research Notes, Indebtedness of the Issuer to a
Wholly-Owned Subsidiary or any other Affiliate of the Issuer or any of such
Affiliate's Wholly-Owned Subsidiaries, (i) that portion of any Indebtedness
which is incurred by the Issuer in violation of this Indenture and (j) amounts
owing under leases (other than Capitalized Lease Obligations).

        "Senior Representative" means any representative designated in writing
to the Trustee of the holders of any class or issue of Designated Senior 
Indebtedness.

        "Shelf Registration Statement" shall mean a "shelf" registration
statement of the Issuer pursuant to the provisions of the Registration Rights
Agreement that covers the resale of all of the GTS Shares issuable upon 
conversion of the Bonds to the extent and in the manner provided therein on an
appropriate form under Rule 415 of the Securities Act, or any similar rule that
may be adopted by the SEC, and all amendments and supplements to such
registration statement, and in each case including the prospectus contained
therein, exhibits thereto and material incorporated by reference therein.

        "Significant Joint Venture" means any Existing Joint Venture or any
Eligible Joint Venture.

        "S&P" means Standard & Poor's Ratings Group and its successors.

        "Strategic Equity Offering" means a private sale of more than 10 per
cent. and less than 30 per cent. (calculated on a fully-diluted basis after
giving effect to such offering) of GTS Shares to a Strategic Investor.

        "Strategic Investor" means an entity that has a total market
capitalization of at least $3,000,000,000 or a rating of at least BBB- from S&P
and/or a rating of Baa3 from Moody's, and is engaged in the 



                                       12
<PAGE>   18
business of providing telecommunications services or in the manufacture and
sale of telecommunications equipment, or any subsidiary of such person.

        "Stated Maturity" means, when used with respect to any security or any
installment of interest thereon,  the date specified in such security as the
fixed date on which the principal of such security or such installment of
interest is due and payable, and when used with respect to any indebtedness,
means the date specified in the instrument governing such indebtedness as the
fixed date on which the principal of such indebtedness, or any installment of
interest thereon, is due and payable.

       "Subordinated Indebtedness" means Indebtedness of the Issuer which is by
its terms subordinated in right of payment to the Bonds.

       "Subsidiary" means, with respect to the Issuer, (i) a corporation a 
majority of whose Voting Stock is at the time, directly or indirectly, owned by
the Issuer, by one or more Subsidiaries of the Issuer or by the Issuer and one
or more Subsidiaries and (ii) any other person (other than a corporation),
including, without limitation, a joint venture, in which the Issuer, one or more
Subsidiaries or the Issuer and one or more Subsidiaries, directly or indirectly,
at the date or determination thereof, has at least majority ownership interest
entitled to vote in the election of directors, managers or trustees thereof (or
other person performing similar functions).  For purposes of this definition, 
any directors' qualifying shares or investments by foreign nationals mandated 
by applicable law shall be disregarded in determining the ownership of a 
Subsidiary.

       "Surviving Entity" shall have the meaning set forth in Section 4.16.

       "Telecommunications Assets" means, with respect to any person, any
tangible or intangible asset (including the capital stock of another person)
that is utilized by such person, directly or indirectly, for the design,
development, installation, integration, management or provision of
telecommunications systems and/or services, including, without limitation, any
business or services in which the Issuer, or any Subsidiary or any Significant
Joint Venture of the Issuer is engaged at the Issue Date.

       "Temporary Regulation S Global Certificate" has the meaning set forth in
Section 2.02.

       "Trading Days" means, with respect to a securities exchange or automated
quotation system, a day on which such exchange or system is open for a full day
of trading.

       "Transfer Agent" has the meaning set forth in Section 2.05.

       "Trust Officer" means any officer in the Corporate Trust Administration
of the Trustee or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.

        "Trustee" means the party named as such in this Indenture until a 
successor replaces such party (or any previous successor) in accordance with
the provisions of this Indenture, and thereafter means such successor.

        "U.S. Government Obligations" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligations or a specific payment of principal of or interest on any
such U.S.
 

                                       13

                                        
<PAGE>   19
Government Obligations held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the U.S. Government Obligations or the specific payment of
principal of or interest on the U.S. Government Obligations evidenced by such
depository receipt.

       "Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof under ordinary circumstances have the power to vote
in the election of the board of directors, managers or trustees of any person
(irrespective of whether or not, at the time, Capital Stock of any other class
or classes shall have, or might have, voting power by reason of the happening
of any contingency).

       "Wholly-Owned Subsidiary" means any Subsidiary of the Issuer of which
100 per cent. of the outstanding Capital Stock is owned by the Issuer or by one
or more Wholly-Owned Subsidiaries of the Issuer or by the Issuer and one or
more Wholly-Owned Subsidiaries of the Issuer.  For purposes of this definition,
any directors' qualifying shares or investments by foreign nationals mandated
by applicable law shall be disregarded in determining the ownership of a
Subsidiary.

        Section 1.02  Rules of Construction.

        For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

        1.   a term has the meaning assigned to it;

        2.   words in the singular include the plural, and words in the
plural include the singular;

        3.   "or" is not exclusive;

        4.   provisions apply to successive events and transactions;

        5.   all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;

        6.   the words "herein", "hereof" and "hereunder" and other words of 
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and

        7.   all references to $ or dollars shall refer to the lawful
currency of the United States of America.


                                  ARTICLE TWO

                                   THE BONDS

        Section 2.01  Forms and Dating.

        The Bonds and the Trustee's certificate of authentication thereon
shall be in substantially the form of Exhibit A-1 hereto, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with any applicable law or with the rules of any securities
exchange or as may, consistently herewith, be determined by the Officers
executing such


                                       14
<PAGE>   20
Bonds, as evidenced by their execution thereof.  Except as provided in Section
2.09 hereof, the Bonds shall be issued in an aggregate principal amount no
greater than U.S. $155,250,000.  The Bonds shall be issuable only in registered
form without coupons and  only in minimum denominations of U.S. $10,000 and
integral multiples of U.S. $1,000 in excess thereof.

        The definitive Bonds shall be printed, typewritten, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Bonds may be listed, all as determined by the Officers executing such Bonds, as
evidenced by their execution of such Bonds. Each Bond shall be dated the date
of its authentication.

        The terms and provisions contained in the form of the  Bonds, annexed
hereto as Exhibit A-1 shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Issuer and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.

        To the extent the terms and provisions contained in such form differ
from those of this Indenture, the provisions of this Indenture shall control.

        Section 2.02 Certificates.

        (a)  Any Bonds offered and sold in reliance on Rule 144A shall be
represented by beneficial interests in a single permanent global certificate in
definitive, fully registered form, without interest coupons, substantially in
the form set forth in Exhibit A-1 (the "Restricted Global Certificate"),
deposited with the Trustee, as custodian for the Depository and registered in
the name of a nominee of the Depository, duly executed by the Issuer and
authenticated by the Trustee as herein provided.  The aggregate principal amount
of the Restricted Global Certificate may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depository or its nominee, as hereinafter provided.

        (b)  Any Bonds offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of a single temporary global
certificate in definitive, fully registered form, without interest coupons,
substantially in the form set forth in Exhibit A-1 (the "Temporary Regulation S
Global Certificate") deposited with the Trustee, as custodian for the
Depository, and registered in the name of a nominee of the Depository for the
accounts of Euroclear and Cedel, duly executed by the Issuer and authenticated
by the Trustee as herein provided.  At any time on or after the 366th day
following the latest of the Closing Date, Issue Date and any subsequent date of
issuance of Bonds with respect to any Bonds issued pursuant to the
over-allotment option of the managers and the closing date with respect to any
Bonds issued pursuant to the exercise of preemptive rights of the Issuer's
shareholders in connection with the initial offering upon receipt by the Trustee
and the Issuer of a duly executed certificate substantially in the form of
Exhibit C-5 hereto, a single permanent global certificate in definitive, fully
registered form, without interest coupons, substantially in the form set forth
in Exhibit A-1 (the "Regulation S Global Certificate," and together with the
Temporary Regulation S Global Certificate, the "Regulation S Global
Certificates") duly executed by the Issuer and authenticated by the Trustee as
herein provided shall be deposited with the Trustee, as custodian for the
Depositary, and the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Temporary Regulation S Global
Certificate in an amount equal to the principal amount of the beneficial 
interest in the Temporary Regulation S Global Certificate transferred.

        (c)  Any Bonds originally purchased by Accredited Investors which are
not QIBs, shall be issued in the form of permanent certificated Bonds in
registered form,  without interest coupons, in substantially the form set forth
in Exhibit A-1 (the "Definite Bonds").  Upon the transfer of Definitive Bonds
by an Accredited Investor either to a QIB (assuming that the Bonds can be
offered and sold in reliance on Rule 144A) or in accordance with Regulation S,
such Definitive Bonds shall, unless the relevant Global Certificate has
previously been exchanged in whole for Definitive Bonds pursuant to Section
2.17(b), be exchanged for an interest in such Global Certificate.



                                      15
<PAGE>   21
        SECTION 2.03. SECURITIES ACT LEGENDS.

        (a)  The Global Certificates and the Definitive Bonds and the
certificates for the GTS Shares converted therefrom (unless such GTS Shares
have been registered under the Securities Act or the transfer of which is not
subject to Section 5 of such Act) will bear a legend (the "Securities Act
Legend") to the following effect unless otherwise agreed to by the Issuer:

        "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
        SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY
        SECURITIES REGULATORY AUTHORITY OF ANY JURISDICTION. THE HOLDER HEREOF,
        BY PURCHASING THIS SECURITY, AGREES THAT THIS SECURITY MAY BE OFFERED,
        RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(1) TO GLOBAL
        TELESYSTEMS GROUP, INC., (2) PROVIDED AS THIS SECURITY IS ELIGIBLE FOR
        RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO
        A PERSON THAT THE SELLER REASONABLY BELIEVES IS A QUALIFIED
        INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A) IN ACCORDANCE WITH RULE
        144A, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR 904
        OF REGULATION S UNDER THE SECURITIES ACT OR (4) PURSUANT TO AN
        EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
        ACT (IF AVAILABLE), OR (B) PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT, AND IN EACH CASE IN ACCORDANCE WITH
        ANY AND ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
        STATES. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND
        AGREES THAT IT WILL NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT
        (OTHER THAN A TRANSFER PURSUANT TO (B) ABOVE) OF THE RESALE
        RESTRICTIONS REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED AFTER THE
        EXPIRATION OF TWO YEARS FROM THE LATER OF THE ORIGINAL ISSUANCE OF THE
        SENIOR SUBORDINATED CONVERTIBLE BONDS DUE 2000 OF GLOBAL TELESYSTEMS
        GROUP, INC. OR IF THIS SECURITY HAS BEEN ACQUIRED BY SUCH ISSUER OR AN
        AFFILIATE OF SUCH ISSUER, THE DATE ON WHICH IT IS SUBSEQUENTLY
        TRANSFERRED TO A NON-AFFILIATE OF THE ISSUER, OR UPON THE EARLIER
        SATISFACTION OF THE ISSUER HEREOF OR ITS TRANSFER AGENT OR REGISTRAR
        THAT THIS SECURITY HAS BEEN OR IS BEING SOLD IN COMPLIANCE WITH RULE
        904 OF REGULATION S UNDER THE SECURITIES ACT."

        If a transfer or conversion of Bonds or a transfer of GTS Shares is
proposed to be made while the Bonds or such shares continue to constitute
"restricted securities" under United States securities laws, the beneficial
holder will be required to provide the Trustee (or the Transfer Agent for the
GTS Shares, as the case may be) such certifications, legal opinions or other
information as the Issuer may reasonably request to confirm that the proposed
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. Any bond (or
GTS Shares issued upon conversion thereof as to which restrictions on transfer
shall have expired or as to which the conditions for removal of the foregoing
legend have been satisfied, whether pursuant to the Indenture or under
applicable law, may be exchanged for a new Bond of like term and aggregate
principal amount, which shall not bear such legend.

        (b)  Each Global Certificate shall also bear the following legend:

        "UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
        THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR
        REGISTRATION OF TRANSFER, CONVERSION, EXCHANGE OR PAYMENT, AND ANY
        SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH



                                      16
<PAGE>   22
        OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
        DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
        OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
        OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, CONVERSION PLEDGE OR
        OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
        SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
        TRANSFERS OF THIS GLOBAL CERTIFICATE SHALL BE LIMITED TO TRANSFERS IN
        WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
        THEREOF OR SUCH SUCCESSORS NOMINEE AND TRANSFERS OF PORTIONS OF THIS
        GLOBAL CERTIFICATE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
        THE RESTRICTIONS SET FORTH IN SECTION 2.18 OF THE INDENTURE."

        SECTION 2.04.  EXECUTION AND AUTHENTICATION.

        Two Officers shall execute the Bonds on behalf of the Issuer by either
manual or facsimile signature.

        If an Officer whose signature is on a Bond no longer holds that office
at the time the Trustee authenticates the Bond or at any time thereafter, the
Bond shall be valid nevertheless.

        A Bond shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Bond.  Such signature
shall be conclusive evidence that the Bond has been authenticated under this
Indenture. 

        The Trustee shall authenticate Bonds for original issue upon receipt of
an Officers' Certificate signed by two Officers of the Issuer directing the
Trustee to authenticate the Bonds and certifying that all conditions precedent
to the issuance of the Bonds contained herein have been complied with and any
opinion of counsel that it may reasonably request in connection with such
authentication. 

        The Trustee may appoint an authenticating agent acceptable to the
Issuer to authenticate Bonds.  Unless limited by the terms of such appointment,
an authenticating agent may authenticate Bonds whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent.  Such authenticating agent shall have the same
rights as the Trustee in any dealings hereunder with the Issuer or with any of
the Issuer's Affiliates.

        SECTION 2.05.  REGISTRAR, TRANSFER AGENTS, CONVERSION AGENTS AND PAYING
AGENTS.

        The Issuer shall maintain an office or agency (which shall be located
in the Borough of Manhattan, The City of New York, State of New York) where
Bonds may be presented for registration of transfer or for exchange (the
"Registrar" or "Transfer Agent"), where Bonds may be presented for payment of
principal, premium, if any, and interest (the "Paying Agent"), where Bonds may
be presented for conversion (the "Conversion Agent") and where notices and
demands to or upon the Issuer in respect of the Bonds and this Indenture may be
served.  The Registrar shall keep a register (the "Bond Register") of the Bonds
and of their transfer and exchange.  The Issuer may have one or more
co-Registrars and one or more additional Transfer Agents, Conversion Agents and
Paying Agents.  The term "Paying Agent" includes any additional paying agent.
The Issuer or any Affiliate thereof may not act as Paying Agent.

        The Issuer shall enter into an appropriate agency agreement with any
Registrar or Paying, Transfer and Conversion Agent not a party to this
Indenture. The agreement shall implement the provisions of this Indenture that
relate to such Registrar, Transfer Agent, Conversion Agent or Paying Agent.  The
Issuer shall notify the Trustee of the name and address of any such Registrar,
Transfer Agent, Conversion Agent or Paying


                                        17
<PAGE>   23
Agent.  If the Issuer fails to maintain a Registrar, Transfer Agent, Conversion
Agent, Paying Agent or agent for service of notices and demands, or fails to
give the foregoing notice, the Trustee shall act as such and shall be entitled
to appropriate compensation in accordance with Section 7.07.

       The Issuer also shall maintain a Registrar, Paying Agent, Transfer Agent
and Conversion Agent in Luxembourg so long as the Bonds are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require.

       The Issuer initially appoints the Trustee as Registrar, Transfer Agent,
Conversion Agent, Paying Agent and agent for service of notices and demands in
connection with the Bonds in New York and Banque Internationale a Luxembourg
S.A., as additional Registrar, Transfer Agent, Conversion Agent and Paying
Agent in Luxembourg.

       Section 2.06  Paying Agent to Hold money in Trust.

       Each Paying Agent shall hold in trust for the benefit of Holders or the
Trustee all money held by the Paying Agent for the payment of principal of, or
interest on, the Bonds (whether such money has been distributed to it by the
Issuer or any other obligor on the Bonds), and the Issuer (or any other obligor
on the Bonds, as the case may be) and the Paying Agent shall notify the Trustee
of any default by the Issuer (or such other obligor on the Bonds, as the case
may be) in making any such payment.  The Issuer at any time may require a
Paying Agent to distribute all money held by it to the Trustee and account for
any funds disbursed and the Trustee may at any time during the continuance of
any Payment Default with respect to the Bonds, upon written request to a Paying
Agent, require such Paying Agent to pay all money held by it to the Trustee and
to account for any funds distributed.  Upon doing so, the Paying Agent (other
than an obligor on the Bonds) shall have not further liability for the money
so paid over to the Trustee.
       
       Section 2.07  Bondholder Lists.

       The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders.  If the Trustee is not the Registrar, the Issuer shall furnish to the
Trustee at least ten Business Days before each Interest Payment Date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and
addresses of Holders, which list may be conclusively relied upon by the Trustee.

       Section 2.08  Transfer and Exchange.

       The Bonds are issuable only in registered form.  A Holder may transfer a
Bond by written application to the Registrar stating the name of the proposed
transferee and otherwise complying with the terms of this Indenture. No such
transfer shall be effected until, and such transferee shall succeed to the
rights of a Holder only upon final acceptance and registration of the transfer
by the Registrar in the Register.  Prior to the registration of any transfer by
a Holder as provided herein, the Issuer, the Trustee, and any agent of the
Issuer shall treat the person in whose name the Bond is registered as the owner
thereof for all purposes whether or not the Bond shall be overdue, and neither
the Issuer, the Trustee, nor any such agent shall be affected by notice to the
contrary.  Furthermore, the Depository shall, by acceptance of a Global
Certificate, agree that transfers of beneficial interests in such Global
Certificate may be effected only through a book-entry system maintained by the
Depository (or its agent), and that ownership of a beneficial interest in the
Bond shall be required to be reflected in a book-entry.  When Bonds are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Bonds or to exchange such Bonds for an equal principal amount
of Bonds of other authorized denominations, the Registrar or co-Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transaction are met; provided, however, that the Bonds surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Issuer and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.  To permit


                                       18
<PAGE>   24
registration of transfers and exchanges, the Issuer shall execute and the
Trustee shall authenticate Bonds at the Registrar's or co-Registrar's request.
No service charge shall be made for any transfer, exchange or redemption, but
the Issuer may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any
such transfer taxes or similar governmental charge payable upon exchanges or
transfers pursuant to Sections 2.02(b), 2.09, 2.10, 2.12, 3.06, 3.07, 3.08,
4.11, or 9.05). The Registrar or co-Registrar shall not be required to register
the transfer of or exchange of any Bond (a) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Bonds and ending at the close of business on the day of such mailing and (b)
selected for redemption in whole or in part pursuant to Article Three, except
the unredeemed portion of any Bond being redeemed in part.

        Section 2.09. Replacement Bonds.

        If a mutilated Bond is surrendered to the Trustee or if the Holder of
a Bond produces evidence to the satisfaction of the Issuer and the Trustee that
the Bond has been lost, destroyed or wrongfully taken, the Issuer shall issue
and the Trustee shall authenticate a replacement Bond if the Trustee's
requirements are met.  If required by the Trustee or the Issuer, such Holder
must provide an indemnity bond or other indemnity, sufficient in the judgment
of both the Issuer and the Trustee, to protect the Issuer, the Trustee or any
Paying Agent or Registrar from any loss which any of them may suffer if a Bond
is replaced. The Issuer may charge such Holder for its reasonable,
out-of-pocket expenses in replacing a Bond, including reasonable fees and
expenses of counsel. Every replacement Bond is an additional obligation of the
Issuer and shall be entitled to the benefits of this Indenture.

        In case any such mutilated, lost, destroyed or wrongfully take Bond
has become or is about to become due and payable, the Issuer in its discretion
may, instead of issuing a new Bond pay such Bond.

        Section 2.10. Outstanding Bonds.

        (a)     Bonds outstanding at any time are all the Bonds that have been
authenticated by the Trustee except those cancelled by it, those delivered to
it for cancellation and those described in this Section as not outstanding. A
Bond does not cease to be outstanding because the Issuer or any of its
Affiliates holds the Bond; provided, however, that, in determining whether the
Holders of the requisite principal amount of the outstanding Bonds have given
any request, demand, authorization, direction, notice, consent or wavier
hereunder, Bonds owned by the Issuer or any other obligor upon the Bonds or any
Affiliate of the Issuer or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Bonds which the Trustee knows to be
so owned shall be so disregarded. Bonds so owned which have been pledged in
good faith may be regarded as outstanding if the pledge establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Bonds and that the pledgee is not the Issuer or any other obligor upon the
Bonds or any Affiliate of the Issuer or of such other obligor.

        (b)     If a Bond is replaced pursuant to Section 2.09 (other than a
mutilated Bond surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Bond is held by
a bona fide purchaser.  A mutilated Bond ceases to be outstanding upon
surrender of such Bond and replacement thereof pursuant to Section 2.09.

        (c)     If on a Redemption Date or a Maturity Date the Paying Agent
holds cash or U.S. Government Obligations sufficient to pay all of the
principal and interest due on the Bonds payable on that date, and is not
prohibited from paying such cash or U.S. Government Obligations to the Holders
of such Bonds pursuant to the terms of this Indenture, then on and after that
date such Bonds cease to be outstanding and interest on them shall cease to
accrue.


                                       19
<PAGE>   25
        Section 2.11.   [Reserved].

        Section 2.12.   Temporary Bonds.

        Until definitive Bonds are prepared and ready for delivery, the Issuer
may prepare and the Trustee shall authenticate temporary Bonds.  Temporary
Bonds shall be substantially in the form of definitive Bonds but may have
variations that the Issuer considers appropriate for temporary Bonds. Without
unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate
definitive Bonds in exchange for temporary Bonds. Until such exchange,
temporary Bonds shall be entitled to the same rights, benefits and privileges
as definitive Bonds.

        Section 2.13.   Cancellation.

        The Issuer at any time may deliver Bonds to the Trustee for
cancellation.  A Registrar and the any Paying Agent shall forward to the
Trustee any Bonds surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar(s), Transfer Agents,
or Paying Agents, and no one else, shall promptly cancel and, at the written
direction of the Issuer, shall return to the Issuer all Bonds surrendered for
transfer, exchange, payment or cancellation.  Subject to Section 2.17, the
Issuer may not issue new Bonds to replace Bonds that it has paid or delivered
to the Trustee for cancellation.  If the Issuer shall acquire any of the Bonds,
such acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Bonds unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.13.

        Section 2.14.   Defaulted Interest.

        If the Issuer defaults on a payment of interest on the Bonds, it shall
pay defaulted interest on such overdue amount (to the extent permitted by law)
at the rate of interest then applicable to the Bonds, plus (to the extent
permitted by law) any interest payable on the defaulted interest, in
accordance with the terms hereof, to the persons who are Holders on a
subsequent special record date, which date shall be at least five Business Days
prior to the payment date.  The Issuer shall fix such special record date and
payment date in a manner satisfactory to the Trustee.  At least 15 days before
such special record date, the Issuer shall mail to each Holder a notice that
states the special record date, the payment date and the amount of defaulted
interest, and interest payable on such defaulted interest, if any, to be paid.

        Section 2.15.   CUSIP, ISIN and CINS Numbers.

        The Issuer in issuing the Bonds may use "CUSIP", "ISIN" and "CINS"
numbers (if then generally in use), and if so, the Trustee may use the CUSIP,
ISIN or CINS numbers, as the case may be, in notices of redemption or exchange
as a convenience to Holders; provided, however, that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP,
ISIN or CINS number printed in the notice or on the Bonds, and that reliance
may be placed only on the other identification numbers printed on the Bonds.
The Issuer will promptly notify the Trustee of any change in the CUSIP, ISIN or
CINS numbers.

        Section 2.16.   Deposit of Moneys.

        On or before each Interest Payment Date, Maturity and any other due
date for the payment of moneys hereunder, the Issuer shall deposit with the
Trustee or Paying Agent in immediately available funds money sufficient to make
cash payments, if any, due on such Interest Payment Date, Maturity or due date,
as the case may be, in a timely manner which permits the Paying Agents to remit
payment to the Holders on such Interest Payment Date or Maturity or other due
date, as the case may be.


                                       20
<PAGE>   26
        Section 2.17.   Book-Entry Provisions for the Global Certificates.

        (a) The Global Certificates initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for the Depository and (iii) bear legends as set forth
in Section 2.03. Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Certificates held on their behalf by the Depository, or the Trustee as its
custodian, and the Depository shall be treated by the Issuer, the Trustee and
any agent of the Issuer or the Trustee as the absolute owner of such Global
Certificates for all purposes whatsoever.  Notwithstanding the foregoing,
nothing herein shall prevent the Issuer, the Trustee or any agent of the Issuer
or the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Bond.

        (b)     Transfers of any Global Certificate shall be limited to
transfers of such Global Certificate in whole, but not in part, to the
Depository, its successors or their respective nominees.  Beneficial interests
in any Global Certificates may be transferred in accordance with the applicable
rules and procedures of the Depository and, if applicable, Euroclear and Cedel
and the provisions of Section 2.18. Other than as permitted in the next
sentence and other than in the case of the initial issuance of Bonds to
Accredited Investors, a beneficial owner may not exchange an interest in a
Global Certificate for Definitive Bonds. Definitive Bonds shall be transferred
to all beneficial owners in exchange for their beneficial interests in any Bond
only if (i) the Depository notifies the Issuer that it is unwilling or unable
to continue as Depository for such Global Certificate and a successor
Depository is not appointed by the Issuer within 90 days of such notice or (ii)
the Trustee has instituted or been directed to institute any judicial
proceeding in a court to enforce the rights of Holders under the Bonds and has
been advised by counsel that it is necessary or appropriate to obtain
possession of Definitive Bonds.

        (c)     Any beneficial interest in one of the Global Certificates that
is transferred to a person who takes delivery in the form of an interest in the
other Global Certificate will, upon transfer, cease to be an interest in such
Global Certificate and become an interest in the other Global Certificate and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Certificate for as long as it remains such an interest.

        (d)     In connection with the transfer of an entire Global Certificate
to beneficial owners pursuant to paragraph (b) of this Section, such Global
Certificate shall be deemed to be surrendered to the Trustee for cancellation,
and the Issuer shall execute, and the Trustee shall authenticate and deliver,
to each beneficial owner identified by the Depository in exchange for its
beneficial interest in such Global Certificate an equal aggregate principal
amount of Definitive Bonds of authorized denominations.

        (e)     Any Definitive Bond delivered in exchange for an interest in
the Restricted Global Certificate or the Temporary Global Regulation S
Certificate pursuant to paragraphs (b) or (d) of this Section shall, except as
otherwise provided by paragraph (f) of Section 2.18 bear the legend regarding
transfer restrictions applicable to the Definitive Bond set forth in Section
2.03.

        (f)     The registered holder of a Global Certificate may grant proxies
and otherwise authorize any person, including Agent Members and persons that
may hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Bonds.

        Section 2.18.   Special Transfer Provisions.

        (a)     Transfers to Accredited Investors. Registration of any proposed
transfer of a Bond to any Accredited Investor, other than an Accredited
Investor who is also a QIB and other than in connection with the original
issuance of such Bond, shall not be effected without the prior consent of the
Issuer and


                                       21
<PAGE>   27
accompanied by a certificate substantially in the form of Exhibit C-1 together
which such opinions of counsel and other documentation as the Issuer and the
Trustee may request.

        (b) Transfer To QIBS. The following provisions shall apply with respect
to the registration of any proposed transfer of a Bond to a QIB in reliance on
Rule 144A.

                (i) If the Bond to be transferred consists of Definitive Bonds
        or a beneficial interest in the Temporary Regulation S Global
        Certificate or a beneficial interest in the Restricted Global
        Certificate, the Registrar shall register the transfer if such transfer
        is being made by a proposed transferor who has checked the box provided
        for on the form of Bond stating, or has otherwise advised the Issuer
        and the Registrar in writing (substantially to the effect of Exhibit
        C-1, Part I), that the sale has been made in compliance with the
        provisions of Rule 144A to a transferee who has signed the
        certification provided for on the form of Bond stating, or has
        otherwise advised the Issuer and the Registrar in writing
        (substantially to the effect of Exhibit C-1, Part II), that it is
        purchasing the Bond for its own account or an account with respect to
        which it exercises sole investment discretion and that it and any such
        account is a QIB within the meaning of Rule 144A, and is aware that the
        sale to it is being made in reliance on Rule 144A and acknowledges that
        it has received such information regarding the Issuer as it has
        requested pursuant to Rule 144A or has determined not to request such
        information and that it is aware that the transferor is relying upon
        its foregoing representations in order to claim the exemption from
        registration provided by Rule 144A.
        
                (ii) If the proposed transferee is an Agent Member and the Bond
        to be transferred consists of Definitive Bonds or an interest in the
        Temporary Regulation S Global Certificate, upon receipt by the
        Registrar of the documents referred to in clause (i) and instructions
        given in accordance with the Depository's and the Registrar's
        procedures, the Registrar shall reflect on its books and records the
        date and an increase in the principal amount of the Restricted Global
        Certificate in an amount equal to the principal amount of the
        Definitive Bonds or the interest in the Temporary Regulation S Global
        Certificate, as the case may be, to be transferred, and the Trustee
        shall cancel the Definitive Bonds or decrease the amount of the
        Temporary Regulation S Global Certificate so transferred.       

        (c) Transfers of Interest in the Temporary Regulation S Global 
Certificate. The following provisions shall apply with respect to registration
of any proposed transfer of interests in the Temporary Regulation S Global
Certificate:

                (i) The Registrar shall register the transfer of any Bond (x) 
        if the proposed transferee is a non-U.S. person and the proposed
        transferor has delivered to the Registrar a certificate substantially
        in the form of Exhibit C-2 hereto or (y) if the proposed transferee is
        a U.S. person that is a QIB relying on the exemption from registration
        provided by Rule 144A (if available) and the proposed transferor has
        checked the box provided for on the form of Bond stating, or has
        otherwise advised the Issuer and the Registrar in writing
        (substantially to the effect of Exhibit C-1, Part I), that the sale has
        been made in compliance with the provisions of Rule 144A to a
        transferee who has signed the certification provided for on the form of
        Bond stating, or has otherwise advised the Issuer and the Registrar in
        writing (substantially to the effect of Exhibit C-1, Part II),that it
        is purchasing the Bond for its own account or an account with respect
        to which it exercises sole investment discretion and that it and any
        such account is a QIB within the meaning of Rule 144A, and is aware
        that the sale to it is being made in reliance on Rule 144A and
        acknowledges that it has received such information regarding the Issuer
        as it has requested pursuant to Rule 144A or has determined not to
        request such information and that it is aware that the transferor is
        relying upon its foregoing representations in order to claim the
        exemption from registration provided by Rule 144A.
        
        
        

                                       22

<PAGE>   28
                (ii)    If the proposed transferee is an Agent Member, upon
        receipt by the Registrar of the documents referred to in clause (i)(y)
        above and instructions given in accordance with the Depository's and the
        Registrar's procedures, the Registrar shall reflect on its books and
        records the date and an increase in the principal amount of the
        Restricted Global Certificate in an amount equal to the principal amount
        of the Temporary Regulation S Global Certificate to be transferred, and
        the Trustee shall decrease the amount of the Temporary Regulation S
        Global Certificate.

        (d)     Transfers of Interests in the permanent Regulation S Global
Certificate to Any Persons.  The following provision shall apply with respect
to any transfer of interests in the Regulation S Global Certificate to any
persons. The Registrar shall registrar the transfer of any Bond representing a
beneficial interest in the permanent Regulation S Global Certificate without
requiring any additional certification and shall remove the Securities Act
Legend therefrom.

        (e)     Transfers to Non-U.S. Persons at any Time. The following
provisions shall apply with respect to any transfer of a Bond to a non-U.S. 
person:


                (i)     Prior to the end of the Restricted Period, the
        Registrar shall register any proposed transfer of a Bond to a non-U.S.
        person upon receipt of a certificate substantially in the form of
        Exhibit C-2 hereto from the proposed transferor.


                (ii)    On and after the end of the Restricted Period, the
        Registrar shall register any proposed transfer to any non-U.S. person if
        the Bond to be transferred is an interest in the Restricted Global
        Certificate, upon receipt of a certificate substantially in the form of
        Exhibit C-3 from the proposed transferor.

                (iii)   (a) If the proposed transferor is an Agent Member
holding a beneficial interest in the Restricted Global Certificate, upon
receipt by the Registrar of (x) the documents, if any, required by paragraph
(ii) and (y) instructions in accordance with the Depository's and the
Registrar's procedures, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the Restricted Global
Certificate in an amount equal to the principal amount of the beneficial
interest in the Restricted Global Certificate to be transferred, and (b) if the
proposed transferee is an Agent Member, upon receipt by the Registrar of
instructions given in accordance with the Depository's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date and
an increase in the principal amount of the Regulations S Global Certificate in
an amount equal to the principal amount of the Restricted Global Certificate to
be transferred, and the Trustee shall decrease the amount of the Restricted
Global Certificate.

        (f)     Securities Act Legend. Upon the transfer, exchange or
replacement of Bonds not bearing the Securities Act Legend set forth in Section
2.03, the Registrar shall deliver Bonds that do not bear the Securities Act
Legend.  Upon the transfer, exchange or replacement of Bonds bearing the
Securities Act Legend, the Registrar shall deliver only Bonds that bear the
Securities Act Legend unless either (i) the circumstances contemplated by
paragraph (d) of this Section 2.18 exist or (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Issuer, the
Registrar and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act.

        (g)     General. The provisions of Article Two hereof shall be
qualified in their entirety by any applicable securities laws of the United
States and any other applicable jurisdiction and by the procedures of any
applicable clearing agency, in each case as in effect from time to time, and
all such laws and clearing procedures shall be deemed to be incorporated herein
by reference.  By its acceptance of any Bond bearing the Securities Act legend,
each Holder of such a Bond shall be deemed to acknowledge the restrictions on
transfer of such Bond set forth in this Indenture and in the Securities Act
Legend and 


                                       23
<PAGE>   29
        agrees that it will transfer such Bond only as provided in this
        Indenture. The Registrar shall not register a transfer of any Bond
        unless such transfer complies with the restrictions on transfer of such
        Bond set forth in this Indenture.  In connection with any transfer of
        Bonds, each Holder agrees by its acceptance of the Bonds to furnish the
        Registrar or the Issuer such certifications, legal opinions or other
        information as either of them may reasonably require to confirm that
        such transfer is being made pursuant to an exemption from, or in a
        transaction not subject to, the registration requirements of the
        Securities Act; provided that the Registrar shall not be required to
        determine (but may rely on a determination made by the Issuer with
        respect to) the sufficiency of any such certifications, legal opinions
        or other information.
   
                The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.17 or this Section
2.18. The Issuer shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.

                Section 2.19. Payments.

                (a) The principal of, and premium, if any, on the Bonds will
be paid against surrender thereof at the main office of the Paying Agent in the
City of New York or, subject to applicable laws and regulations, at the offices
of the Paying Agent in Luxembourg by U.S. dollar check drawn on a bank in the 
City of New York, or by a wire transfer to a U.S. dollar account maintained by
the payee with a bank in the City of New York.

                (b) Payment in respect of interest on any Interest Payment Date
with respect to any Bond will be made to the person in whose name such Bond is
registered at the close of business on the June 15 or December 15, as the case
may be, preceding such Interest Payment Date by U.S. dollar check drawn on a
bank in the City of New York mailed to such person at the address specified in
the Register on such day or, if requested by the payee, by wire transfer to a
U.S. dollar account maintained by the payee with a bank in the City of New
York, provided that a written request from such holder to such effect
designating such account is received by the relevant Paying Agent no later than
fifteen days before the relevant Interest Payment Date.  Unless such designation
is revoked, any such designation made by such person with respect to such Bond
will remain in effect with respect to any future payments with respect to such
Bond payable to such person.

                (c) If any payment on a Bond is due on a day that is, at any
place of payment, a day on which banking institutions are authorized or
obligated by law or executive order to close, then, at each place of payment,
such payment need not be made on such day but may be made on the next succeeding
day that is not, at such place of payment, a day on which banking institutions
are authorized or obligated by law or executive order to close, with the same
force and effect as if made on the originally scheduled date of such payment,
and no interest will accrue for the period from and after such date.

                Section 2.20. Additional Amounts.

                All payments of principal, premium, if any, and interest with
respect to the Bonds will be made without withholding or deduction at source
for, or on account of, any present or future taxes, fee, duties, assessments or
governmental charges of whatever nature imposed or levied by the United States
or any political subdivision or taxing authority thereof or therein, unless such
withholding or deduction is required by (i) the laws (or any regulations or
rulings promulgated thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (ii) an official position
regarding the application, administration, interpretation or enforcement of any
such laws, regulations or rulings (including, without limitation, a holding by a
court of competent jurisdiction or by a taxing authority in the United states or
any political subdivision thereof). If a withholding or deduction at source is
required, the Issuer will, subject to certain limitations and exceptions (set
forth below), pay to a holder of bonds who is a Non-U.S. Holder (as defined
herein) such additional amounts ("Additional Amounts") as may be necessary so
that every net payment of principal, premium, if any, or interest with respect
to such Bond after such withholding or deduction, will not be less than the
amount provided for the
    




                                       24
<PAGE>   30
Bonds.  However, the Issuer shall not be required to make any payment of
Additional Amounts for or on account of:

            (a) any tax, fee, duty, assessment or other governmental charge
       which would not have been imposed but for (i) the existence of any
       present or former connection between such Holder (or between a
       fiduciary, settlor, beneficiary, member or shareholder of, or possessor
       of a power over, such Holder, if such Holder is an estate, trust,
       partnership or corporation) and the United States, including without
       limitation, such Holder (or such fiduciary, settlor, beneficiary,
       member, shareholder or possessor) being or having been a citizen or
       resident thereof or being or having been present or engaged in trade or
       business therein or having or having had a permanent establishment
       therein, or (ii) the presentation of a Bond for payment on a date more
       than 15 days after the date on which such payment became due and payable
       or the date on which payment thereof is duly provided for, whichever
       occurs later;

          (b)  any estate, inheritance, gift, sales, transfer, personal property
       or similar tax, assessment or other governmental charge;

          (c)  any tax, fee, duty, or future assessment or other governmental
       charge imposed by reason of such Holder's past or present status as a
       personal holding company, foreign personal holding company, passive
       foreign investment company or controlled foreign corporation with
       respect to the United States or as a corporation which accumulated
       earnings to avoid United States federal income tax;

          (d)  any tax, fee, duty, assessment or other governmental charge which
       is payable otherwise than by withholding from payments of principal or
       interest with respect to the Bonds;

          (e)  any tax, fee, duty, assessment or other governmental charge
       imposed on any interest received (x) by a Holder or beneficial owner of
       Bonds that for U.S. federal income tax purposes is treated as actually
       or constructively owning 10 per cent. or more of the voting power of the
       Issuer's stock, (y) on an extension of credit made pursuant to a loan
       agreement entered into in the ordinary course of business by a Holder or
       beneficial owner of Bonds that is a bank and (z) by a holder or
       beneficial owner of Bonds that is a controlled foreign corporation and
       with respect to which the Issuer is a related person;

          (f)  any tax, fee, duty, assessment or other governmental charge
       required to be withheld by any paying agent from any payment of
       principal, premium, if any, or interest with respect to any Bond if such
       payment can be made without such withholding by any other paying agent
       with respect to the Bonds;

          (g)  any tax, fee, duty, assessment or other governmental charge
       which would not have been imposed but for the failure to comply with
       certification, identification, documentation, information or other
       reporting requirements concerning the nationality, residence, identity
       or connection with the United States of the Holder or of the beneficial
       owner of such Bond, if such compliance is required by a present or
       future statute, treaty, regulation, ruling or administrative practice as
       a precondition to a reduction of or relief or exemption from such tax,
       assessment or other governmental charge; or

          (h)  any combination of items (a),(b),(c),(d),(e),(f) and (g);

       nor shall Additional Amounts be paid to any Holder who is a fiduciary or
       partnership or other than the sole beneficial owner of the Bond to the
       extent a beneficiary or settlor with respect to such fiduciary or a
       member of such partnership or a beneficial owner of the Bond would not
       have been entitled to payment of the Additional Amounts had such
       beneficiary, settlor, member or beneficial owner been the Holder of the
       Bond.

          The term "Non-U.S. Holder" means any corporation, individual,
       fiduciary or partnership that for United States federal income tax
       purposes is a foreign corporation, nonresident alien individual,


                                       25
<PAGE>   31
        nonresident alien fiduciary of a foreign estate or trust, or foreign
        partnership one or more members of which is a foreign corporation,
        nonresident alien individual or nonresident alien fiduciary of foreign
        estate or trust.

                The term "interest" herein shall be deemed to include Additional
        Amounts, if any.


                                 ARTICLE THREE

                              REDEMPTION OF BONDS


                SECTION 3.01.  NOTICES TO THE TRUSTEE.

                If the Issuer elects to redeem Bonds pursuant to Section 3.07 or
Section 3.08(d), it shall notify the Trustee of the Redemption Date and
principal amount of Bonds to be redeemed by an Officer's Certificate, stating
that such redemption will comply with the provisions hereof and of the Bonds,
at least 90 days before the Redemption Date.

                SECTION 3.02.  BONDS TO BE REDEEMED IN PART.

                If less than all the Bonds are to be redeemed, the particular 
Bonds to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Bonds outstanding not previously called
for redemption, by such method as the Trustee shall deem fair and appropriate
and which may provide for the selection for redemption of portions of the
principal of Bonds, provided, however, that no such partial redemption shall
reduce the portion of the principal amount of a Bond not redeemed to less than
$10,000.

                The Trustee shall promptly notify the Issuer in writing of the 
Bonds selected for redemption and, in the case of any Bonds selected for partial
redemption, the principal amount thereof to be redeemed.

                For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Bonds shall
relate, in the case of any Bond redeemed or to be redeemed only in part, to the
portion of the principal amount of such Bond which has been or is to be
redeemed.

                SECTION 3.03.  NOTICE OF REDEMPTION.

                Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date (other than as set forth in Section 3.08(d)), to each Holder of Bonds to
be redeemed, at the address of such Holder appearing in the Bond register
maintained by the Registrar.  Such notice shall be given by the Issuer or, at
the Issuer's request, by the Trustee.  

                All notices of redemption shall identify the Bonds to be 
redeemed and shall state:

                (1)     the Redemption Date;

                (2)     the Redemption Price and the amount of accrued 
        interest, if any, to be paid;

                (3)     that, unless the Issuer defaults in making the 
        redemption payment, interest on Bonds called for redemption ceases to
        accrue on and after the Redemption Date, and the only remaining right of
        the Holders of such Bonds is to receive payment of the Redemption Price
        upon surrender to the Paying Agent of the Bonds redeemed;


                                       26

<PAGE>   32
        (4)  if less than all Bonds outstanding are to be redeemed, the
identification of (and, in case of a partial redemption, the principal amounts,
subject to minimum authorized denominations) of the particular Bonds to be
redeemed; 

        (5)  if any Bond is to be redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Bond to be redeemed and that on and after the Redemption Date, upon surrender
for cancellation of such original Bond to the Paying Agent, a new Bond or Bonds
in the aggregate principal amount equal to the unredeemed portion thereof will
be issued without charge to the Holder, subject to minimum authorized
denominations; 

        (6)  that Bonds called for redemption must be surrendered to the Paying
Agent to collect the Redemption Price and the name and address of the Paying
Agent:

        (7)  the CUSIP, ISIN or CINS numbers, if any, relating to such Bonds,
but no representation is made as to the correctness or accuracy of any such
CUSIP, ISIN or CINS numbers; and

        (8)  the Section of this Indenture pursuant to which the Bonds are
being redeemed

        Section 3.04 Effect of Notice of Redemption.
        
        Once notice of redemption is sent to Holders.  Bonds called for
redemption become due and payable on the Redemption Date and at the Redemption
Price.  Upon surrender to the Paying Agents, such Bonds called for redemption
shall be paid at the Redemption Price plus accrued interest to the Redemption
Date, but interest installments whose maturity is on or prior to such Redemption
Date will be payable on the relevant Interest Payment Dates to the Holders of
record at the close of business on the relevant record dates referred to in the
Bonds.

        Section 3.05 Deposit of Redemption Price

        (a)  On or prior to 10:00 am New York time on any Redemption Date, the
issuer shall deposit with the Paying Agents an amount of money in same day funds
sufficient to pay the Redemption Price of, and accrued interest on, all the
Bonds or portions thereof which are to be redeemed on that date, other than
Bonds or portions thereof called for redemption on that date which have been 
delivered by the Issuer to the Trustee for cancellation.

        (b)  If the Issuer complies with the preceding paragraph, then, unless
the Issuer defaults in the payment of such Redemption Price, interest on the
Bonds to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Bonds are presented for payment.  If any
Bond called for redemption shall not be so paid upon surrender thereof for
redemption, the principal, premium, if any, and, to the extent lawful, accrued
interest thereon shall until paid, bear interest from the Redemption Date at the
rate provided in the Bonds.

        Section 3.06 Bonds Redeemed or Purchased in Part.

        Upon surrender to the Paying Agents of a Bond which is to be redeemed
in part, the Issuer shall execute and the Trustee shall authenticate and
deliver to the Holder of such Bond without service charge, a new Bond or Bonds
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to, and in exchange for, the unredeemed portion of the
principal of the Bond so surrendered that is not redeemed.


                                27
 
<PAGE>   33
     Section 3.07.  Redemption for Tax Reasons

       (a)  The Issuer may redeem any Bond in whole but not in part at any time
at a Redemption Price equal to the principal amount thereof together, if
appropriate, with accrued interest to but excluding the Redemption Date, if the
Issuer shall determine, based upon a written opinion of independent counsel
selected by the Issuer, that as a result of any change in or amendment to the
laws (or any regulations or rulings promulgated thereunder) of (i) the United
States or any political subdivision or taxing authority thereof or therein
affecting taxation, the relevant taxing jurisdiction or any change in
application or official interpretation of such laws, regulations or rulings,
which amendment or change is effective on or after the date of issuance of such
Bond, the Issuer would be required to pay Additional Amounts on the occasion of
the next payment due with respect to such Bond.

       (b)  Notice of intention to redeem Bonds pursuant to this Section will be
given not less than 30 days or more than 60 days prior to the date fixed for
redemption, provided that no such notice of redemption shall be given earlier
than 90 days prior to the effective date of such change or amendment and that
at the time notice of such redemption is given, such obligation to pay such
Additional Amounts remains in effect and cannot be avoided by the Issuer's
taking reasonable measures available to it.  From and after any Redemption
Date, if monies for the redemption of Bonds shall have been made available for
redemption on such Redemption Date, such Bonds shall cease to bear interest, if
applicable, and the only right of the Holders of such Bonds appertaining
thereto shall be to receive payment on the principal amount thereof, premium if
any, and, if appropriate, all unpaid interest accrued to such Redemption Date.

       Section 3.08  Redemption and Purchase

       (a)  Final Redemption at Maturity.  Unless previously redeemed or
converted or to be converted or purchased and cancelled, at Maturity outstanding
Bonds will be redeemed by the Issuer at their principal amount plus accrued
interest, if any.  However, in the event that a Complying Public Equity
Offering has not occurred prior to June 30, 2000, outstanding Bonds will be
redeemed at Maturity at 121.0 per cent of their principal amount, plus, accrued
interest, if any.

       (b)  Acceleration following an Event of Default.  If the Bonds are
accelerated following the occurrence of an Event of Default, the Bonds will be
repaid at their principal amount multiplied by 106.5 per cent. plus accrued
interest to the date of acceleration, if the date of acceleration occurs on or
before June 30, 1998; 113.5 per cent. plus accrued interest to the date of
acceleration if the date of acceleration occurs after such date but on or
before June 30, 1999; and 121.0 per cent. plus accrued interest to the date of
acceleration if the date of acceleration occurs thereafter, provided that
notwithstanding the foregoing, each Holder shall have the option to exercise
his Conversion Right, if any.

       (c)  Cancellation.  All Bonds redeemable pursuant to this Indenture or
purchased by the Issuer in the open market will be forthwith cancelled and may
not be reissued or sold.  The Issuer will not permit its Subsidiaries and will
to the fullest extent of the rights available to it under the relevant
contractual or organizational documents not permit its Significant Joint
Ventures to purchase any of the Bonds.

       (d)  Limited Optional Redemption by Issuer.  The Bonds are redeemable at
the option of the Issuer, in whole but not in part, on or after the second
anniversary of a Complying Public Equity Offering, on not less than 90 nor more
than 120 days' prior notice (which notice shall provide the Trustee and the
Holders information concerning the right of Holders to convert prior to the
Redemption Date and information pertinent to the Conversion Price) at the
principal amount thereof plus accrued interest to the Redemption Date, provided
that the GTS Shares into which Bonds are convertible would not be at the time
of redemption "restricted securities" in the hands of any Holder not affiliated
with the Issuer, within the meaning of the Securities Act, and provided,
further, that the average Closing Price of the GTS Shares for the 20
consecutive Trading Days prior to the date of




                                       28
<PAGE>   34

the Issuer's notice of redemption is greater than 130 per cent. of the
Conversion Price determined in conjunction with such Complying Public Equity
Offering.

                 Section 3.09. Notices to Trustee and Luxembourp, Stock
Exchange.

                 All notices required to be furnished to the Holders hereunder
shall concurrently therewith be furnished to the Trustee and the Luxembourg
Stock Exchange.

                                  ARTICLE FOUR

                                   COVENANTS

                 Section 4.01. Payment of Bonds.

                 (a) The Issuer will pay, or cause to be paid, the principal of
and interest on the Bonds on the dates and in the manner provided in the Bonds
and this Indenture. An installment of principal or interest shall be considered
paid on the date due if the Trustee or Paying Agent holds on that date money
designated and set aside for and sufficient to pay the installment in a timely
manner and is not prohibited from paying such money to the Holders of the Bonds
pursuant to the terms of this Indenture.

                 (b) The Bonds bear interest payable at the rate of 8.75 per
cent. per annum from and including the date of their issuance to but excluding
June 30, 1998, which rate will increase to 9.25 per cent. per annum from and
including June 30, 1998 to but excluding June 30, 1999 and which rate will
increase to 9.75 per cent. per annum from and including June 30, 1999 until
Maturity. However, in the event of a Complying Public Equity Offering, the
interest rate will remain at the interest rate prevailing on the day
immediately preceding such Complying Public Equity Offering until Maturity of
the Bonds. Interest on each Bond will cease to accrue from the Redemption Date
or Conversion Date thereof unless, upon due presentation of such Bond, payment
of principal is improperly withheld or refused or conversion is not
consummated, as the case may be. In such event, interest will continue to
accrue on such Bond up to and including (a) the date on which payment in full
of the principal thereof (plus accrued interest) is made or (if earlier) the
date on which the funds for the payment in full of the principal thereof (plus
accrued interest) have been received in New York City by the Trustee or (b) the
Bonds are converted to GTS Shares. Interest shall be computed on the basis of a
360 day year consisting of twelve (12) months of 30 days each and, in the case
of an incomplete month, the number of days elapsed.

                 (c) Interest is payable semiannually in arrears on July 15 and
January 15 of each year commencing January 15, 1998 (each, an "Interest Payment
Date"), to the person in whose name a Bond (or any predecessor Bond) is
registered at the close of business on the preceding June 30 or December 31,
as the case may be. Each Bond will carry a right to interest in respect of all
periods from the date of issue thereof, or the date from which interest has
been paid to, whichever is later, up to but excluding the relevant Redemption
Date or Conversion Date.

                 (d) The Issuer will pay interest on overdue principal at the
rate and in the manner provided herein and in the Bonds; it shall pay interest
on overdue installments of interest at the same rate and in the same manner, to
the extent lawful.

                 (e) The Issuer will pay additional interest in the form of
liquidated damages in accordance with the terms of the Registration Rights
Agreement entered into on the date hereof by the Issuer with the Trustee and
the Lead Manager of the initial distribution of the Bonds (and in the form of
Exhibit C hereto).



                                     29
<PAGE>   35
                 (f) The Issuer will inform the Luxembourg Stock Exchange of
each change in the interest rate of the Bonds on the date of such change.

                 Section 4.02. Maintenance of Office or Agency.

                 (a) The Issuer will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Bonds may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Issuer in respect of the Bonds and this
Indenture may be served. The Issuer will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Issuer shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the address of the Trustee as set forth in Section 12.02.

                 (b) The Issuer may also from time to time designate one or
more other offices or agencies where the Bonds may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Issuer of its obligation to maintain an office or
agency in the Borough of Manhattan, The City of New York, for such purposes.
The Issuer will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.

                 (c) The Issuer hereby initially designates the office of the
Trustee located at 101 Barclay Street, Floor 21 West, in the Borough of
Manhattan, City of New York, New York 10286 as such office of the Issuer in
accordance with this Section 4.02.

                 (d) The provisions of this Section shall not in any way
relieve the Issuer of any of its obligations under Section 2.05.

                 Section 4.03. Corporate Existence.

                 Subject to Section 4.16, the Issuer shall do or cause to be
done all things necessary to and will cause each of its Subsidiaries and will,
to the fullest extent of the rights available to it under the relevant
contractual or organizational documents, cause each of its Significant Joint
Ventures to, preserve and keep in full force and effect the corporate or
partnership existence and rights (charter and statutory), licenses and/or
franchises of the Issuer, such Subsidiaries or Significant Joint Ventures;
provided, however, that the Issuer or any of its Subsidiaries or any of its
Significant Joint Ventures shall not be required to preserve any such rights,
licenses or franchises if the Board of Directors of the Issuer shall reasonably
determine that (x) the preservation thereof is no longer desirable in the
conduct of the business of the Issuer and its Subsidiaries and its Significant
Joint Ventures taken as a whole or (y) the loss thereof is not materially
adverse to either the Issuer and its Subsidiaries and its Significant Joint
Ventures taken as a whole or to the ability of the Issuer to otherwise satisfy
its obligations hereunder.

                 Section 4.04. Payment of Taxes and Other Claims.

                 The Issuer will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Issuer or any of its
Subsidiaries or any of its Significant Joint Ventures or upon the income,
profits or property of the Issuer or any of its Subsidiaries or any of its
Significant Joint Ventures, and (b) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon the property of the
Issuer or any Subsidiary or Significant Joint Venture of the Issuer, provided,
however, that subject to the other provisions of this Indenture the Issuer
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim the amount, applicability or validity of
which is being contested in good faith by appropriate proceedings and for



                                     30
<PAGE>   36
which adequate provision has been made or where the failure to effect such
payment or discharge is not adverse in any material respect to the Issuer.

                 Section 4.05. Maintenance of Properties Insurance; Books and
Records; Compliance with Law.

                 (a) The Issuer shall, and shall cause each of its Subsidiaries
and shall, to the fullest extent of the rights available to it under the
relevant contractual or organizational documents, cause each of its Significant
Joint Ventures to, cause all of their respective properties and assets used or
held for use in the conduct of its business to be maintained and kept in good
condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment, and shall cause to be made all necessary
repairs, renewals, replacements, additions, betterments and improvements
thereto, as shall be reasonably necessary for the proper conduct of its
business; provided, however, that subject to the other provisions of this
Indenture, nothing in this Section 4.05(a) shall prevent the Issuer or any of
its Subsidiaries or any of its Significant Joint Ventures from discontinuing
the operation and maintenance of any of their respective properties or assets
if such discontinuance is, in the judgment of the Board of Directors of the
Issuer or such Subsidiary or such Significant Joint Venture, desirable in the
conduct of its business or if such discontinuance is not materially adverse to
either the Issuer, its Subsidiaries and its Significant Joint Ventures taken as
a whole or the ability of the Issuer to otherwise satisfy its obligations
hereunder.

                 (b) The Issuer shall, and shall cause each of its Subsidiaries
and shall, to the fullest extent of the rights available to it under the
relevant contractual or organizational documents, cause each of its Significant
Joint Ventures to, maintain with financially sound and reputable insurers such
insurance as may be required by law (other than with respect to any
environmental impairment liability insurance not commercially available) and
such other insurance to such extent and against such hazards and liabilities,
as is customarily maintained by companies similarly situated (which may include
self-insurance in the same form as is customarily maintained by companies
similarly situated).

                 (c) The Issuer shall, and shall cause each of its Subsidiaries
and shall, to the fullest extent of the rights available to it under the
relevant contractual or organizational documents, cause each of its Significant
Joint Ventures to, keep proper books of record and account, in which full and
correct entries shall be made of all business and financial transactions of the
Issuer and each Subsidiary and each Significant Joint Venture of the Issuer and
reflect on its financial statements adequate accruals and appropriations to
reserves, all in accordance with GAAP consistently applied to the Issuer, its
Subsidiaries, and its Significant Joint Ventures taken as a whole.

                 (d) The Issuer shall and shall cause each of its Subsidiaries
and shall, to the fullest extent of the rights available to it under the
relevant contractual or organizational documents, cause each of its Significant
Joint Ventures to comply with all statutes, laws, ordinances, or government
rules and regulations to which it is subject, non-compliance with which would
have a Material Adverse Effect, as defined in Section 6.01.

                 Section 4.06. Compliance Certificate.

                 (a) The Issuer will deliver to the Trustee within 60 days
after the end of each of the Issuers first three fiscal quarters an Officers'
Certificate, and a certificate from its principal executive, financial or
accounting officer within 90 days after the end of the Issuer's fiscal year
stating whether or not the signer or signers know of any Default or Event of
Default under this Indenture by the Issuer or an event which, with notice or
lapse of time or both, would constitute a default by the Issuer under any
Senior Indebtedness that occurred during such fiscal period. If the signer or
signers do know of such a Default, Event of Default or default, the certificate
shall describe any such Default, Event of Default or default and its status.
The first certificate to be delivered pursuant to this Section 4.06(a) shall be
for the first fiscal quarter of the Issuer beginning after the Issue Date.

                 (b) The Issuer will deliver to the Trustee as soon as
possible, and in any event within 30 days after the Issuer becomes aware or
should reasonably have become aware of the occurrence of any Default, Event of



                                     31
<PAGE>   37
Default or an event which, with notice or lapse of time or both, would
constitute a default by the Issuer under any Senior Indebtedness, an Officers'
Certificate specifying such Default. Event of Default or default and what
action the Issuer is taking or proposes to take with respect thereto.  

                 (c) Copies of all reports distributed to Holders or the 
Trustee pursuant to this Section shall be distributed concurrently to the
Luxembourg Stock Exchange for so long as the Bonds are listed thereon.

                 Section 4.07. SEC Reports.

                 (a) For the fiscal quarters ending June 30, 1997 and September
30, 1997 and for the fiscal year ended December 31, 1997 the Issuer will (i)
transmit by mail to all Holders, as their names and addresses appear in the
Register, without cost to such Holders, and (ii) file with the Trustee copies
of the quarterly and audited annual financial reports of the Issuer (including
the condensed, combining financial data in the form and scope set forth in the
condensed, consolidated financial statements of the Issuer for the first
quarter of 1997 and for the fiscal year ending December 31, 1996, respectively)
that are generally distributed to its shareholders at the time such reports are
so distributed.

                 (b) Beginning with the financial statements of the Issuer for
the quarter ending March 31, 1998 and thereafter, whether or not the Issuer is
subject to Section 13(a) or 15(d) of the Exchange Act, or any successor
provision thereto, the Issuer shall prepare the annual and quarterly reports
which the Issuer would have been required to file with the SEC pursuant to such
Section 13(a) or 15(d) or any successor provision thereto (including the
condensed, combining financial data in the form and scope set forth in the
condensed, consolidated financial statements described above) on or prior to
the respective dates (the "Required Filing Dates") by which the Issuer would
have been required so to file such documents. The Issuer shall also in any
event within 15 days of each Required Filing Date (i) transmit by mail to all
Holders, as their names and addresses appear in the Register, without cost to
such Holders, and (ii) file with the Trustee, copies of such annual and
quarterly reports.

                 (c) To permit compliance with Rule 144A under the Securities
Act in connection with sales of Bonds or GTS Shares issued on conversion of
such Bonds, upon request of a holder of Bonds or such GTS Shares, the Issuer
(with respect to information relating to it) will furnish to such holder and
any prospective purchaser designated by such holder the information required to
be delivered under Rule 144A(d)(4) under the Securities Act if at the time of
the request the Issuer is not a reporting company under Section 13 or Section
15(d) of the Exchange Act.

                 (d) Copies of all reports distributed to Holders or the
Trustee pursuant to this Section shall be distributed concurrently to the
Luxembourg Stock Exchange for so long as the Bonds are listed thereon.

                 Section 4.08. Limitation on Indebtedness.

                 (a) The Issuer will not, and will not permit any of its
Subsidiaries to, and will to the fullest extent of the rights available to it
under the relevant contractual or organizational documents not permit its
Significant Joint Ventures to, directly or indirectly, create, incur, issue,
assume, guarantee or in any manner become directly or indirectly liable,
contingently or otherwise for the payment of (in each case, to "incur") any
Indebtedness (including any Acquired Indebtedness); provided, however, that the
Issuer, any Subsidiary or any Significant Joint Venture will be permitted to
incur Indebtedness (including Acquired Indebtedness) if (a) at the time of such
incurrence, no Default or Event of Default under this Indenture has occurred
and is continuing, (b) at the time of such incurrence, the Fixed Charge
Coverage Ratio for the four full fiscal quarters immediately preceding the
incurrence of such Indebtedness taken as one period (and after giving pro forma
effect to (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, on the first day of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Issuer,
its Subsidiaries and its Significant Joint Ventures since the first day of such
four-quarter period



                                     32
<PAGE>   38
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average daily
balance of such Indebtedness during such four-quarter period) and (iii) the
acquisition (whether by purchase, merger or otherwise) or disposition (whether
by sale, merger or otherwise) of any company, entity or business acquired or
disposed of by the Issuer or its Subsidiaries or its Significant Joint
Ventures, as the case may be, since the first day of such four-quarter period),
would have been at least equal to 2:1 and (c) in the case of the incurrence, of
Subordinated Indebtedness or Pari Passu Indebtedness, such Indebtedness has no
scheduled principal payment prior to the 91st day after the Maturity of the
Bonds.

                 (b) Notwithstanding the provisions of Section 4.08(a), the
Issuer and its Subsidiaries and Significant Joint Ventures may, to the extent
specifically set forth below, incur each and all of the following:

                 (a) Indebtedness of the Issuer evidenced by the Bonds;

                 (b) Indebtedness of the Issuer, any Subsidiary or any
         Significant Joint Venture outstanding on the Issue Date;

                 (c) Indebtedness of the Issuer, any Subsidiary and any
         Significant Joint Venture in an aggregate principal amount at any one
         time outstanding not to exceed U.S.$75,000,000 (or the foreign
         currency equivalent thereof);

                 (d) (i) Interest Rate Protection Obligations of the Issuer or
         any Subsidiary or any Significant Joint Venture covering Indebtedness
         of the Issuer, such Subsidiary or such Significant Joint Venture;
         provided, however, that, (x) any Indebtedness to which any such
         Interest Rate Protection Obligations relate bears interest at
         fluctuating interest rates and is otherwise permitted to be incurred
         under this covenant and (y) the notional principal amount of any such
         Interest Rate Protection Obligations does not exceed the principal
         amount of the Indebtedness to which such Interest Rate Protection
         Obligations relate;

                 (e) Indebtedness of any Subsidiary or Significant Joint
         Venture owed to and held by the Issuer, another Subsidiary or
         Significant Joint Venture, in each case which is not subordinated in
         right of payment to any Indebtedness of such Subsidiary or Significant
         Joint Venture, except that (i) any transfer of such Indebtedness by
         the Issuer or a Subsidiary or a Significant Joint Venture (other than
         to the Issuer or to another Subsidiary or Significant Joint Venture)
         and (ii) the sale, transfer or other disposition by the Issuer or any
         Subsidiary or Significant Joint Venture of the Capital Stock of any
         Subsidiary or ownership interest in any Significant Joint Venture
         which is owed Indebtedness from another Subsidiary or Significant
         Joint Venture such that the first such Subsidiary or Significant Joint
         Venture ceases to be a Subsidiary or Significant Joint Venture shall,
         in each case in (i) and (ii), be an incurrence of Indebtedness by the
         second such Subsidiary or Significant Joint Venture, as the case may
         be, subject to the other provisions of this covenant;

                 (f) Indebtedness of the Issuer owed to and held by any
         Subsidiary or any Significant Joint Venture which is unsecured and
         subordinated in right of payment to the payment and performance of the
         Issuer's obligations under the Indenture and the Bonds, provided that
         any subsequent issuance or transfer of Capital Stock or other
         ownership interest or any other event which results in any such
         Subsidiary or Significant Joint Venture ceasing to be a Subsidiary or
         Significant Joint Venture, as the case may be, or any subsequent
         transfer of any such Indebtedness (except to the Issuer or another
         Subsidiary or another Significant Joint Venture) shall be deemed, in
         each case, be an incurrence of Indebtedness by the Issuer, subject to
         the other provisions of this covenant;

                 (g) Indebtedness under Currency Agreements; provided that in
         the case of Currency Agreements which relate to Indebtedness, such
         Currency Agreements do not increase the outstanding Indebtedness of
         the Issuer or any Subsidiary or any Significant Joint Venture other
         than as a result of



                                     33
<PAGE>   39
         fluctuations in foreign currency exchange rates or by reason of fees,
         indemnities and compensation payable thereunder;

                 (h) Indebtedness of the Issuer or any of its Subsidiaries or
         any of its Significant Joint Ventures in an aggregate amount on the
         date of incurrence, not in excess of 80 per cent. of the average of
         the outstanding accounts receivable balances of the Issuer, its
         Subsidiaries and Significant Joint Ventures on a combined basis at
         each of the three preceding quarterly balance sheet dates;

                 (i) Indebtedness of Hermes as to which the Issuer or any
         Subsidiary or any Significant Joint Venture is not directly or
         indirectly liable by virtue of being the primary obligor on, guarantor
         of or otherwise liable with respect to, such Indebtedness;

                 (j) Indebtedness of the Issuer or any Subsidiary or any
         Significant Joint Venture represented by letters of credit for the
         account of the Issuer or such Subsidiary or such Significant Joint
         Venture, as the case may be, in order to provide security for workers'
         compensation claims, payment obligations in connection with
         self-insurance or similar requirements in the ordinary course of
         business;

                 (k) Indebtedness and Acquired Indebtedness incurred by the
         Issuer or any Subsidiary or Significant Joint Venture in order to
         finance the construction, acquisition, installation or improvement of
         Telecommunications Assets to be used in Europe and/or Asia (including
         the Russian Federation and the Commonwealth of Independent States) by
         the Issuer, any Subsidiary or any Significant Joint Venture;

                 (l) (i) Indebtedness of the Issuer the proceeds of which are
         used solely to refinance (whether by amendment renewal, extension or
         refunding) Indebtedness of the Issuer or any Subsidiary or any
         Significant Joint Venture and (ii) Indebtedness of any Subsidiary or
         Significant Joint Venture, the proceeds of which are used solely to
         refinance (whether by amendment, renewal, extension or refunding)
         Indebtedness of such Subsidiary or such Significant Joint Venture, in
         each case other than the Indebtedness incurred under the preceding
         clauses (c) through (g) and (i) through (k) of this Section 4.08;
         provided, however, that (x) the principal amount of Indebtedness
         incurred pursuant to this clause (1) (or, if such Indebtedness
         provides for an amount less than the principal amount thereof to be
         due and payable upon a declaration of acceleration of the maturity
         thereof, the original issue price of such Indebtedness) shall not
         exceed the sum of the outstanding principal amount of Indebtedness so
         refinanced, plus the amount of any premium required to be paid in
         connection with such refinancing pursuant to the terms of such
         Indebtedness or the amount of any premium reasonably determined by the
         Board of Directors of the Issuer as necessary to accomplish such
         refinancing by means of a tender offer or privately negotiated
         purchase, plus the amount of expenses in connection therewith, (y) in
         the case of Indebtedness incurred by the Issuer pursuant to this
         clause (l) to refinance Subordinated Indebtedness, such Indebtedness
         (A) has no scheduled principal payment prior to the 91st day after
         the Maturity of the Bonds, (B) has an Average Life to Stated Maturity
         greater than the remaining Average Life to Stated Maturity of the
         Bonds and (C) is subordinated to the Bonds in the same manner and to
         the same extent that the Subordinated Indebtedness being refinanced is
         subordinated to the Bonds and (z) in the case of Indebtedness incurred
         by the Issuer pursuant to this clause (l) to refinance Pari Passu
         Indebtedness, such Indebtedness (A) has no scheduled principal payment
         prior to the 91st day after the Maturity of the Bonds, (B) has an
         Average Life to Stated Maturity greater than the remaining Average
         Life to Stated Maturity of the Bonds and (C) constitutes Pari Passu
         Indebtedness or Subordinated Indebtedness.

                 Section 4.09. Limitation on Restricted Payments.

                 (a) The Issuer will not, and will not permit any of its
Subsidiaries to, and will to the fullest extent of the rights available to it
under the relevant contractual and organizational documents not permit its
Significant Joint Ventures to, directly or indirectly:



                                     34
<PAGE>   40
                          (i) declare or pay any dividend or make any other
                 distribution or payment on or in respect of Capital Stock of
                 the Issuer or any Subsidiary or any Significant Joint Venture
                 or any payment to the direct or indirect holders (in their
                 capacities as such) of Capital Stock of the Issuer or any
                 Subsidiary or any Significant Joint Venture (other than (x)
                 dividends or distributions payable solely in Capital Stock of
                 the Issuer, such Subsidiary or such Significant Joint Venture
                 (other than, in each case, Redeemable Capital Stock) or in
                 options, warrants or other rights to purchase Capital Stock of
                 the Issuer (other than, in each case, Redeemable Capital
                 Stock), (y) the declaration or payment of dividends or other
                 distributions to the extent declared or paid to the Issuer or
                 any Subsidiary or any Significant Joint Venture and (z) the
                 declaration or payment of dividends or other distributions by
                 any such entity to all holders of equity or similar economic
                 interests of such entity on a pro rata basis),

                          (ii) purchase, redeem, defease or otherwise acquire
                 or retire for value any Capital Stock or other ownership
                 interest of the Issuer or any Subsidiary or any Significant
                 Joint Venture (other than any such Capital Stock or other
                 ownership interest owned by a Wholly-Owned Subsidiary),

                          (iii) make any principal payment on, or purchase,
                 defease, repurchase, redeem or otherwise acquire or retire for
                 value, prior to any scheduled maturity, scheduled repayment,
                 scheduled sinking fund payment or other Maturity, any
                 Subordinated Indebtedness (other than any such Indebtedness
                 owned by the Issuer or a Wholly-Owned Subsidiary), or

                          (iv) make any Investment (other than any Permitted
                 Investment) in any person

                 (such payments or Investments described in the preceding
clauses (i), (ii), (iii) and (iv) are collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to the proposed
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, shall be the Fair Market Value on the date of such Restricted Payment of
the asset(s) proposed to be transferred by the Issuer or the relevant entity
described above, as the case may be, pursuant to such Restricted Payment), (A)
no Default or Event of Default under this Indenture shall have occurred and be
continuing, (B) immediately prior to and after giving effect to such Restricted
Payment, the Issuer would be able to incur $1.00 of additional Indebtedness
pursuant to Section 4.08 (assuming a market rate of interest with respect to
such additional Indebtedness) and (C) the aggregate amount of all Restricted
Payments declared or made from and after the Issue Date would not exceed the
sum of (1) 50 per cent. of the aggregate Pro rata Combined Adjusted Net Income
accrued on a cumulative basis during the period beginning on the first day of
the fiscal quarter of the Issuer during which the Issue Date occurs and ending
on the last day of the fiscal quarter of the Issuer immediately preceding the
date of such proposed Restricted Payment, which period shall be treated as a
single accounting period (or, if such aggregate cumulative Pro rata Combined
Adjusted Net Income for such period shall be a deficit, minus 100 per cent. of
such deficit) plus (2) the aggregate net cash proceeds received by the Issuer,
a Subsidiary or Significant Joint Venture either (x) as capital contributions
after the Issue Date from any person (other than a Subsidiary or Significant
Joint Venture) or (y) from the issuance or sale of Capital Stock (excluding
Redeemable Capital Stock, but including Capital Stock issued upon the
conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Redeemable Capital
Stock)) of such entity to any person (other than to a Wholly-Owned Subsidiary)
after the Issue Date plus (3) in the case of the disposition or repayment of
any Investment constituting a Restricted Payment made after the Issue Date
(excluding any Investment described in clause (v) of the following paragraph),
an amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the cost of
the disposition of such Investment. For purposes of the preceding clause
(C)(2), the value of the aggregate net proceeds received by the Issuer upon the
issuance of Capital Stock upon the conversion of convertible Indebtedness or
upon the exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or rights
plus the incremental cash amount received by the Issuer upon the conversion or
exercise thereof.



                                     35
<PAGE>   41
                 (b) None of the provisions of Section 4.09(a) will prohibit (i)
the payment of any dividend within 60 days after the date of its declaration,
if at the date of declaration such payment would be permitted by the foregoing
paragraph; (ii) the redemption, repurchase or other acquisition or retirement
of any shares of any class of Capital Stock of the Issuer or any Subsidiary of
the Issuer in exchange for, or out of the net cash proceeds of, a substantially
concurrent (x) capital contribution to the Issuer from any person (other than a
Subsidiary or Joint Venture) or (y) issue and sale of other shares of Capital
Stock (other than Redeemable Capital Stock) of the Issuer to any person (other
than to a Subsidiary or Joint Venture); provided, however, that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement shall be excluded from clause
(C)(2) of the preceding paragraph (a); (iii) any redemption, repurchase or
other acquisition or retirement of Subordinated Indebtedness by exchange for,
or out of the net cash proceeds of, a substantially concurrent (x) capital
contribution to the Issuer from any person (other than a Subsidiary or Joint
Venture) or (y) (1) issue and sale of Capital Stock (other than Redeemable
Capital Stock) of the Issuer to any person (other than to a Subsidiary or Joint
Venture); provided, however, that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase or other acquisition or
retirement shall be excluded from clause (C)(2) of the preceding paragraph or
(2) Indebtedness of the Issuer issued to any person (other than to a
Subsidiary), so long as such Indebtedness is Subordinated Indebtedness which
(A) has no Maturity earlier than the 91st day after the Maturity of the
Bonds, (B) has an Average Life to Stated Maturity equal to or greater than the
remaining Average Life to Stated Maturity of the Bonds and (C) is subordinated
to the Bonds in the same manner and at least to the same extent as the
Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired; (iv) so long as no Default or Event of Default shall have occurred and
be continuing, any redemption, repurchase or other acquisition or retirement of
Pari Passu Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Issuer from any person
(other than a Subsidiary or Joint Venture) or (y) (1) issue and sale of Capital
Stock (other than Redeemable Capital Stock) of the Issuer to any person (other
than to a Subsidiary or Joint Venture); provided, however, that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement are excluded from clause (C)(2)
of the preceding paragraph; or (2) Indebtedness of the Issuer from any person
(other than a Subsidiary or Joint Venture), so long as such Indebtedness is
Subordinated Indebtedness or Pari Passu Indebtedness which (A) has no Stated
Maturity earlier than the 91st day after the Final Maturity Date and (B) has
an Average Life to Stated Maturity equal to or greater than the remaining
Average Life to Stated Maturity of the Bonds; (v) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with Section 4.12; (vi)
payments or other actions described in clauses (i) through (vi) in Section
4.09(a) that would otherwise be Restricted Payments in an aggregate amount not
to exceed U.S.$10 million (or the foreign currency equivalent thereof); and
(vii) so long as no Default or Event of Default has occurred and is continuing,
repurchases by the Issuer of Common Stock of the Issuer from employees of the
Issuer or any of its Subsidiaries or their authorized representatives upon the
death, disability or termination of employment of such employees, in an
aggregate amount not exceeding U.S.$10 million (or the foreign currency
equivalent thereof) in any calendar year. In computing the amount of Restricted
Payments previously made for purposes of clause (C) of the preceding paragraph
(a), Restricted Payments made under the preceding clauses (vi) and (vii) shall
be included and clauses (i), (ii), (iii) (iv) and (v) of this paragraph (b)
shall not be so included.

                 Section 4. 10. Negative Pledge.

                 The Issuer will not, and will not permit any of its
Subsidiaries to, and will to the fullest extent of the rights available to it
under the relevant contractual and organizational documents not permit its
Significant Joint Ventures to, directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness on any asset or property of the
Issuer or such Subsidiary or such Significant Joint Venture, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
unless the Bonds are equally and ratably secured with the obligations so
secured (provided that any Lien securing Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Bonds with the same relative
priority as such Subordinated Indebtedness shall have with respect to the
Bonds) or until such time as such obligations are no longer secured by a Lien.



                                     36
<PAGE>   42
                 Section 4.11. Change of Control.

                 (a) Upon the occurrence of a Change of Control, the Issuer
shall be obligated to make an offer to purchase (a "Change of Control Offer")
all of the outstanding Bonds at a purchase price (the "Change of Control
Purchase Price") equal to 106.5 per cent. (if the date of such purchase occurs
on or before June 30, 1998), 113.5 per cent. (if the date of such purchase
occurs after June 30, 1998 but on or before June 30, 1999) or 121.0 per cent.
(if the date of such purchase occurs after June 30, 1999), as applicable, of
the principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date which shall be no earlier than 60 days and no later than 90 days
from the date the notice of the Change of Control Offer is distributed to the
Holders and the Trustee (the "Change of Control Purchase Date"). The Issuer
shall be required to purchase all Bonds properly tendered (or the portions
thereof equal to U.S.$10,000 or increments of U.S.$1,000 in excess thereof
that are so tendered by a Holder in the case of a partial tender) in the Change
of Control Offer and not withdrawn on the Change of Control Purchase Date. The
Change of Control Offer is required to remain open for at least 20 Business
Days and until the close of business on the Change of Control Purchase Date.

                 (b) Notice of a Change of Control Offer shall be distributed
by the Issuer not later than the 30th day after the occurrence of a Change of
Control to the Holders of Bonds at their last registered addresses with a copy
to the Trustee and the Paying Agents and to the Luxembourg Stock Exchange. The
Change of Control Offer shall remain open from the time of first distribution
to Holders for at least 20 Business Days and until 5:00 p.m., New York City
time, on the Change of Control Purchase Date. The notice, which shall govern
the terms of the Change of Control Offer, shall include such disclosures as are
required by law and shall state:

                          (i) that the Change of Control Offer is being made
                 pursuant to this Section 4.11 and that all Bonds validly
                 tendered into the Change of Control Offer and not withdrawn
                 will be accepted for payment;

                          (ii) the purchase price (including the amount of
                 accrued interest, if any) for each Bond, the Change of Control
                 Purchase Date and the date on which the Change of Control
                 Offer expires;

                          (iii) that any Bond not tendered for payment will
                 continue to accrue interest in accordance with the terms
                 thereof;

                          (iv) that, unless the Issuer shall default in the
                 payment of the purchase price, any Bond accepted for payment
                 pursuant to the Change of Control Offer shall cease to accrue
                 interest after the Change of Control Purchase Date;

                          (v) that Holders electing to have Bonds purchased
                 pursuant to a Change of Control Offer will be required to
                 surrender their Bonds to a Paying Agent at the address
                 specified in the notice prior to 5:00 p.m., New York City
                 time, on the Change of Control Purchase Date and must complete
                 any form of letter of transmittal proposed by the Issuer and
                 reasonably acceptable to the Trustee and the Paying Agents;

                          (vi) that Holders of Bonds will be entitled to
                 withdraw their election if the Paying Agent receives, not
                 later than 5:00 p.m., New York City time, on the Change of
                 Control Purchase Date, a tested telex, facsimile transmission
                 or letter setting forth the name of the Holder, the principal
                 amount of Bonds the Holder tendered for purchase, the Bond
                 certificate number (if any) and a statement that such Holder
                 is withdrawing its election to have such Bonds purchased;

                          (vii) that Holders whose Bonds are tendered only in
                 part will be issued Bonds equal in principal amount to the
                 unpurchased portion of the Bonds surrendered (subject to
                 minimum authorized denominations);



                                     37
<PAGE>   43
                          (viii) the instructions that Holders must follow in
                 order to tender their Bonds; and

                          (ix) information concerning the business of the
                 Issuer, the most recent annual and quarterly reports of the
                 Issuer filed with the SEC pursuant to the Exchange Act (or, if
                 the Issuer is not then permitted to file any such reports with
                 the SEC, the comparable reports prepared pursuant to Section
                 4.07), a description of material developments in the Issuer's
                 business, information with respect to pro forma historical
                 financial information after giving effect to such Change of
                 Control and such other information concerning the
                 circumstances and relevant facts regarding such Change of
                 Control Offer as would be material to a Holder of Bonds in
                 connection with the decision of such Holder as to whether or
                 not it should tender Bonds pursuant to the Change of Control
                 Offer.

                 (c) On the Change of Control Purchase Date, the Issuer shall
(i) accept for payment Bonds or portions thereof validly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agents money, in
immediately available funds, sufficient to pay the purchase price of all Bonds
or portions thereof so tendered and accepted and (iii) deliver to the Trustee
the Bonds so accepted together with an Officers' Certificate setting forth the
Bonds or portions thereof tendered to and accepted for payment by the Issuer.
The Paying Agents shall promptly mail or deliver to the Holders of Bonds so
accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail or deliver to such Holders a new Bond
equal in principal amount (subject to minimum authorized denominations) to any
unpurchased portion of the Bond surrendered. Any Bonds not so accepted shall be
promptly mailed or delivered by the Issuer to the Holder thereof. The Issuer
will publicly announce the results of the Change of Control Offer not later
than the first Business Day following the Change of Control Purchase Date.

                 (d) The Issuer shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements applicable to a Change of Control Offer made by the Issuer and
purchases all Bonds validly tendered and not withdrawn under such Change of
Control Offer.

                 (e) The Issuer shall comply with the requirements of Section
14(e) of the Exchange Act, and any other securities laws or regulations in
connection with the repurchase of Bonds pursuant to a Change of Control Offer.

                 Section 4.12. Disposition of Proceeds of Asset Sales.

                 (a) The Issuer will not, and will not permit any of its
Subsidiaries to, and will to the fullest extent of the rights available to it
under the relevant contractual and organizational documents not permit its
Significant Joint Ventures to, make any Asset Sale unless (a) the Issuer or
such entity, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or assets sold
or otherwise disposed of and (b) at least 75 per cent. of such consideration
consists of cash or Cash Equivalents or the assumption of Indebtedness of the
Issuer or such Subsidiary or such Significant Joint Venture or other
obligations relating to such assets and release from all liability on the
Indebtedness or other obligations assumed, or such consideration consists of
(x) property or assets that will be owned by the Issuer, or a Subsidiary or a
Significant Joint Venture of the Issuer and are to be used in a
telecommunications business or in related activities or services that
thereafter will be conducted by the Issuer or such Subsidiary or such
Significant Joint Venture or (y) Capital Stock or other securities issued by a
party to the transaction or an Affiliate thereof, which Capital Stock or other
securities are freely tradeable and which are sold for cash within 90 days of
the consummation of the Asset Sale in connection with which they were acquired.
To the extent the Net Cash Proceeds of any Asset Sale are not required to be
applied to repay, and permanently reduce the commitments under, Senior
Indebtedness or Indebtedness of a Subsidiary or Indebtedness of a Significant
Joint Venture or are not so applied, the Issuer or such entity, as the case may
be, within 360 days of such Asset Sale, will apply such Net Cash Proceeds to an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that



                                     38
<PAGE>   44

will be used in the business of the Issuer and such entities existing on the
Issue Date or in businesses reasonably related thereto ("Replacement Assets").
Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and
permanently reduce the commitments under, the Senior Indebtedness or
Indebtedness of a Subsidiary or Indebtedness of a Significant Joint Venture,
nor invested in Replacement Assets within the 360-day period described above
constitute "Excess Proceeds" subject to disposition as provided below.

         (b) When the aggregate amount of Excess Proceeds equals or exceeds US
$10,000,000, the Issuer shall make an offer to purchase (an "Asset Sale
Offer"), from all Holders of the Bonds, on a date not more than 40 Business
Days thereafter (the "Asset Sale Purchase Date"), an aggregate principal amount
of Bonds equal to such Excess Proceeds, at a price in cash, equal to 100 per
cent. of the outstanding principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date (the "Asset Sale Offer Price"). To the
extent that the aggregate principal amount of Bonds tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Issuer may use such
excess for general corporate purposes. If the aggregate principal amount of
Bonds validly tendered and not withdrawn by Holders thereof is greater than the
Excess Proceeds, Bonds to be purchased will be selected on a pro rata basis.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall
be reset to zero.

         (c) Notice of an Asset Sale Offer shall be mailed by the Issuer to all
Holders of Bonds not less than 20 Business Days nor more than 40 Business Days
before the Asset Sale Purchase Date at their last registered address with a
copy to the Trustee, the Paying Agents and the Luxembourg Stock Exchange. The
Asset Sale Offer shall remain open from the time of mailing for at least 20
Business Days and until at least 5:00 p.m., New York City time, on the Asset
Sale Purchase Date. The notice, which shall govern the terms of the Asset Sale
Offer, shall include such disclosures as are required by law and shall state:

                 (i) that the Asset Sale Offer is being made pursuant to this
         Section 4.12;

                 (ii) the Asset Sale Offer Price (including the amount of
         accrued interest, if any) for each Bond, the Asset Sale Purchase Date
         and the date on which the Asset Sale Offer expires;

                 (iii) that any Bond not tendered or accepted for payment will
         continue to accrue interest in accordance with the terms thereof,

                 (iv) that, unless the Issuer shall default in the payment of
         the Asset Sale Offer Price, any Bond accepted for payment pursuant to
         the Asset Sale Offer shall cease to accrue interest after the Asset
         Sale Purchase Date;

                 (v) that Holders electing to have Bonds purchased pursuant to
         an Asset Sale Offer will be required to surrender their Bonds to a
         Paying Agent at the address specified in the notice prior to 5:00
         p.m., New York City time, on the Asset Sale Purchase Date and must
         complete any form of letter of transmittal proposed by the Issuer and
         reasonably acceptable to the Trustee and the Paying Agent;

                 (vi) that Holders will be entitled to withdraw their election
         if a Paying Agent receives, not later than 5:00 p.m., New York City
         time, on the Asset Sale Purchase Date, a tested telex, facsimile
         transmission or letter setting forth the name of the Holder, the
         principal amount of Bonds the Holder delivered for purchase, the Bond
         certificate number (if any) and a statement that such Holder is
         withdrawing its election to have such Bonds purchased;

                 (vii) that if Bonds in a principal amount in excess of the
         Holder's pro rata share of the amount of Excess Proceeds are tendered
         pursuant to the Asset Sale Offer, the Issuer shall purchase Bonds on a
         pro rata basis among the Bonds tendered (with such adjustments as may
         be





                                       39
<PAGE>   45
         deemed appropriate by the Issuer so that only Bonds in denominations
         of U.S. $10,000 or integral multiples of U.S. $1,000 in excess
         thereof shall be acquired);

                 (viii) that Holders whose Bonds are purchased only in part
         will be issued new Bonds equal in principal amount to the unpurchased
         portion of the Bonds surrendered;

                 (ix) the instructions that Holders must follow in order to
         tender their Bonds; and

                 (x) information concerning the business of the Issuer, the
         most recent annual and quarterly reports of the Issuer filed with the
         SEC pursuant to the Exchange Act (or, if the Issuer is not permitted
         to file any such reports with the Commission, the comparable reports
         prepared pursuant to Section 4.07), a description of material
         developments in the Issuer's business, information with respect to pro
         forma historical financial information after giving effect to such
         Asset Sale and Asset Sale Offer and such other information concerning
         the circumstances and relevant facts regarding such Asset Sale Offer
         as would be material to a Holder of Bonds in connection with the
         decision of such Holder as to whether or not it should tender Bonds
         pursuant to the Asset Sale Offer.

         (d) On the Asset Sale Purchase Date, the Issuer shall (i) accept for
payment, on a pro rata basis, Bonds or portions thereof tendered pursuant to
the Asset Sale Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, in an amount sufficient to pay the Asset Sale Offer Price of
all Bonds or portions thereof so tendered and accepted and (iii) deliver to the
Trustee the Bonds so accepted together with an Officers' Certificate setting
forth the Bonds or portions thereof tendered to and accepted for payment by the
Issuer. The Paying Agent shall promptly mail or deliver to Holders of Bonds so
accepted payment in an amount equal to the Asset Sale Offer Price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Bond equal in principal amount to any unpurchased portion of the Bond
surrendered. Any Bonds not so accepted shall be promptly mailed or delivered by
the Issuer to the Holder thereof. The Issuer will publicly announce, and publish
in the Luxembourg Wort, the results of the Asset Sale Offer not later than the
first Business Day following the Asset Sale Purchase Date. To the extent that
the aggregate principal amount of Bonds tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Issuer may use such deficiency for
general corporate purposes. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset to zero. For purposes of this Section
4.12, the Trustee shall act as Paying Agent.

         (e) The Issuer shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws or regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Bonds pursuant
to the Asset Sale Offer.

         Section 4.13. Limitation on Transactions with Interested Persons.

         The Issuer will not, and will not permit any of its Subsidiaries to,
and will to the fullest extent of the rights available to it under the relevant
contractual and organizational documents not permit its Significant Joint
Ventures to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, transfer, disposition, purchase, exchange or lease of assets,
property or services) with, or for the benefit of, any Affiliate of the Issuer,
any Subsidiary or Significant Joint Venture or any beneficial owner (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has
the right to acquire, whether such right is exercisable immediately, after the
passage of time or upon the happening of an event) of 5 per cent. or more of
the Capital Stock or other ownership interest of any of the foregoing entities
at any time outstanding (each of the foregoing being "Interested Persons"),
unless (a) such transaction or series of related transactions is on terms that
are no less favorable to the Issuer or such Subsidiary or such Significant
Joint Venture, as the case may be, than those which could have been obtained in
a comparable transaction at such time from persons who are not Affiliates of
the Issuer or Interested Persons, (b) with respect to a transaction or series
of transactions involving





                                       40
<PAGE>   46
aggregate payments or value equal to or greater than U.S.$20,000,000 (or the
foreign currency equivalent thereof) the Issuer has obtained a written opinion
from an Independent Financial Advisor stating that the terms of such
transaction or series of transactions are fair to the Issuer or such Subsidiary
or such Significant Joint Venture, as the case may be, from a financial point
of view and (c) with respect to a transaction or series of transactions
involving aggregate payments or value equal to or greater than U.S.$10,000,000
(or the foreign currency equivalent thereof), the Issuer shall have delivered
an Officers' Certificate to the Trustee certifying that such transaction or
series of transactions complies with the preceding clause (a) and, if
applicable, certifying that the opinion referred to in the preceding clause (b)
has been delivered and that such transaction or series of transactions have
been approved by a majority of the disinterested members of Board of Directors
of the Issuer; provided, however, that the provisions of this Section 4.13 will
not restrict the Issuer from (i) paying dividends in respect of its Capital
Stock permitted under Section 4.09, (ii) paying reasonable and customary fees
to directors of the Issuer who are not employees of the Issuer, (iii) making
loans or advances to officers or employees of the Issuer and its Subsidiaries
or Significant Joint Ventures (including travel and moving expenses) in the
ordinary course of business for bona fide business purposes of the Issuer or
such Subsidiary or Significant Joint Venture not in excess of U.S.$5,000,000
(or the foreign currency equivalent thereof), in the aggregate at any one time
outstanding, (iv) engaging in any transaction involving the provision of
telecommunications services or related activities between or among the Issuer,
any Subsidiary or any Significant Joint Venture and, provided that such
transaction is in the ordinary course of business and consistent with
commercially reasonable practice, any Joint Venture of the Issuer that is not a
Significant Joint Venture or between any of them or (v) any agreement as in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby, as listed in Schedule I hereto (including pursuant to any
amendment thereto so long as any such amendment in the judgment of the Board of
Directors voting to approve the amendment does not have a material adverse
effect on the Holders).

         Section 4.14. Limitation on Dividends and Other Payment Restrictions
         Affecting Subsidiaries and Significant Joint Ventures.

         The Issuer will not, and will not permit any of its Subsidiaries to,
and will to the fullest extent of the rights available to it under the relevant
contractual and organizational documents not permit its Significant Joint
Ventures to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary or Significant Joint Venture to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock or any other interest or participation in, or measured by, its profits to
the Issuer or any Subsidiary or any Significant Joint Venture, (b) pay any
Indebtedness owed to the Issuer or any other Subsidiary or Significant Joint
Venture, (c) make loans or advances to, or any Investment in, the Issuer or any
other Subsidiary or Significant Joint Venture, (d) transfer any of its
properties or assets to the Issuer or any other Subsidiary or Significant Joint
Venture or (e) guarantee any Indebtedness of the Issuer or any Subsidiary or
Significant Joint Venture, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any contract or any lease governing a leasehold
interest of the Issuer or any Subsidiary or Significant Joint Venture, (iii)
customary restrictions on transfers of property subject to a Lien permitted
under this Indenture which could not materially adversely affect the Issuer's
ability to satisfy its obligations under this Indenture and the Bonds, (iv) any
agreement or other instrument of a person acquired by the Issuer or any
Subsidiary or Significant Joint Venture (or a Subsidiary of such person) in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any person, or
the properties or assets of any person, other than the person, or the property
or assets of the person, so acquired, (v) provisions contained in agreements or
instruments relating to Indebtedness which prohibit the transfer of all or
substantially all of the assets of the obligor thereunder unless the transferee
shall assume the obligations of the obligor under such agreement or instrument,
(vi) encumbrances and restrictions under Indebtedness in effect on the Issue
Date and encumbrances and restrictions in permitted refinancings or
replacements thereof which are no less favorable to the Holders of the Bonds
than those contained in the Indebtedness so refinanced or replaced, (vii) any
agreement in existence at the Issue Date or (viii) encumbrances and
restrictions in connection with Subsidiaries acquired after the Issue Date and
Significant Joint Ventures entered into after the Issue Date, including with
respect to any financing thereof, that are no more adverse to the Issuer than
those referred to in (vii) above), (ix) in the case of





                                       41
<PAGE>   47
clause (d) of this Section 4.14 above, arising or agreed to in the ordinary
course of business, not relating to any Indebtedness and that do not
individually, or together with all such encumbrances or restrictions, detract
from the value of the property or assets of the Issuer or any Subsidiary or any
Significant Joint Venture in any manner material to the Issuer or any
Subsidiary or any Significant Joint Venture, (x) contained in the terms of any
Indebtedness incurred by Hermes or any agreement pursuant to which such
Indebtedness was issued if the encumbrance or restriction is not materially
more disadvantageous to the Holders than is customary in comparable financings
(as determined by the Issuer) and the Issuer determines that any such
encumbrance or restriction will not materially affect the Issuer's ability to
make principal payments on the Bonds, (xi) contained in any stockholders or
similar agreement, so long as such encumbrance or restriction is not more
disadvantageous to the Holders than the encumbrances and restrictions contained
in comparable agreements entered into in the past by the Issuer, any of its
Subsidiaries or Significant Joint Ventures, or (xii) contained in any agreement
entered into after the Issue Date, so long as such encumbrance or restriction
is not materially more disadvantageous to the Holders than the encumbrances and
restrictions contained in agreements in existence on the Issue Date.

        Section 4.15. Limitations on Sale-Leaseback Transactions.

        The Issuer will not, and will not permit any of its Subsidiaries to, 
and will to the fullest extent of the rights available to it under the relevant
contractual and organizational documents not permit its Significant Joint
Ventures to, enter into any Sale-Leaseback Transaction with respect to any
property of the Issuer or any of its Subsidiaries or Significant Joint Ventures
other than a Sale-Leaseback Transaction between the Issuer, a Subsidiary or a
Significant Joint Venture or between any of them. Notwithstanding the
foregoing, the Issuer and its Subsidiaries or Significant Joint Ventures may
enter into Sale-Leaseback Transactions involving Telecommunications Assets;
provided that (i) the Issuer, or such Subsidiary or Significant Joint Venture,
as the case may be, would be entitled to create or incur a Lien to secure
Indebtedness pursuant to the provisions of Section 4.10 hereof equal in amount
to the Attributable Value of the Sale-Leaseback Transaction without equally and
ratably securing the Bonds and (h) the Sale-Leaseback Transaction is treated as
an Asset Sale and the provisions Section 4.12 hereof are satisfied with respect
to such Sale-Leaseback Transaction.

         Section 4.16. When Issuer May Merge, etc.

         (a) The Issuer will not, in any transaction or series of transactions,
merge or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as
an entirety to, any person or persons, and the Issuer will not permit any of
its Subsidiaries to, and will to the fullest extent of the rights available to
it under the relevant contractual and organizational documents not permit its
Significant Joint Ventures to, enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the respective properties and assets
of the Issuer and its Subsidiaries and Significant Joint Ventures on a combined
basis, to any other person or persons, unless at the time of and after giving
effect thereto (a) either (i) if the transaction or series of transactions is a
merger or consolidation, the Issuer shall be the surviving person of such
merger or consolidation, or (ii) the person formed by such consolidation or
into which the Issuer or such Subsidiary or Significant Joint Venture is merged
or to which the properties and assets of the Issuer and its Subsidiaries and
Significant Joint Ventures, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia or the United Kingdom, the Federal
Republic of Germany, France or Italy and shall expressly assume by a
supplemental indenture executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of the Issuer under
the Bonds and this Indenture and, in each case, this Indenture shall remain in
full force and effect; (b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing and the Issuer, or the Surviving Entity, as the case may be, after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in





                                       42
<PAGE>   48
respect of such transaction or series of transactions), could incur $ 1.00 of
additional Indebtedness under Section 4.08(a) (assuming a market rate of
interest with respect to such additional Indebtedness); (c) immediately after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), the Consolidated Net Worth of the Issuer or the Surviving
Entity, as the case may be, is at least equal to the Consolidated Net Worth of
the Issuer immediately before such transaction or series of transactions; (d)
such consolidation, merger, conveyance, transfer, lease or other disposition
does not adversely affect the validity or enforceability of the Bonds; and (e)
if the Surviving Entity is organized in a jurisdiction other than the United
States of America, any state thereof or the District of Columbia, such entity
appoints CT Corporation System, Inc., New York, New York, as its agent for
service of process in any suit, action or proceeding with respect to the
Indenture or the Bonds issued thereunder and for actions brought under federal
or state securities laws brought in any federal or state court located in the
Borough of Manhattan in The City of New York and submits to such jurisdiction,
waives forum non conveniens, waives or is not subject to immunity from suit and
any judgments brought against such entity in respect of the Indenture and the
Bonds may be recognized and enforced in such jurisdiction of its organization.

         In connection with any consolidation, merger, transfer, lease,
assignment or other disposition contemplated hereby, the Issuer shall deliver,
or cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officer's certificate and an Opinion of
Counsel, each stating that, such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental indenture in respect
thereof comply with the foregoing requirements; provided, however, that solely
for purposes of computing amounts described in subclause (C) of Section
4.09(a), any such successor person shall only be deemed to have succeeded to
and be substituted for the Issuer with respect to periods subsequent to the
effective time of such merger, consolidation or transfer of assets.

         Section 4.17. Successor Substituted.

         (a) Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
assets of the Issuer in accordance with Section 4.16 hereof, the successor
person or persons formed by such consolidation or into which the Issuer is
merged or the successor person to which such sale, assignment, conveyance,
transfer, lease or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Issuer under
this Indenture and the Bonds with the same effect as if such successor had been
named as the Issuer herein; provided, however, that solely for purposes of
computing amounts described in subclause (C) of Section 4.09(a), any such
successor person shall only be deemed to have succeeded to and be substituted
for the Issuer with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.

         (b) Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Issuer in accordance with the foregoing,
in which the Issuer is not the continuing corporation, the successor
corporation formed by such a consolidation or into which the Issuer is merged
or to which such transfer is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under the Indenture with the
same effect as if such successor corporation had been named as the Issuer
therein.

         Section 4. 18. Limitation on Guarantees by Subsidiaries.

         The Issuer will not permit any Subsidiary to, and will, to the fullest
extent of the rights available to it under the relevant contractual and
organizational documents, not permit its Significant Joint Ventures to,
directly or indirectly, assume, guarantee or in any manner become liable with
respect to any Indebtedness of the Issuer which is Subordinated Indebtedness or
Pari Passu Indebtedness unless such Subsidiary or Significant Joint Venture, as
the case may be, simultaneously executes and delivers a supplemental indenture
to this Indenture, pursuant to provisions in form and substance satisfactory to
the Trustee, providing for a guarantee of payment of the Bonds by such
Subsidiary or Significant Joint Venture and (A) if any such assumption,
guarantee or other





                                       43
<PAGE>   49
liability is subordinated, the guarantee under such supplemental indenture
shall be subordinated to the same extent as the Bonds are subordinated to
Senior Indebtedness of the Issuer under this Indenture and (B) any such
assumption, guarantee or other liability of such Subsidiary or Significant
Joint Venture with respect to Subordinated Indebtedness shall be subordinated
to such Subsidiary's or Significant Joint Venture's, as applicable, assumption,
guarantee or other liability with respect to the Bonds to the same extent as
such Subordinated Indebtedness is subordinated or junior to the Bonds under
this Indenture.

         Section 4.19. Waiver of Stay, Extension or Usury Laws.

         The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law which would prohibit or forgive the Issuer from paying
all or any portion of the principal of, premium, if any, or interest on the
Bonds as contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this Indenture;
and (to the extent that it may lawfully do so) the Issuer hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.

         Section 4.20. [Reserved).

         Section 4.21. Listing on the Luxembourg Stock Exchange.

         The Issuer shall use its best efforts to cause and maintain the
listing of all the Bonds on the Luxembourg Stock Exchange for so long as any of
the Bonds are outstanding.

         Section 4.22. Reservation of GTS Shares.

         The Issuer shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance or delivery upon
conversion of the Bonds, the number of GTS Shares that it reasonably believes
will be required to be delivered in connection with such conversion pursuant to
the terms of this Indenture.

         Section 4.23. [Reserved].

         Section 4.24. Limitation on Other Subordinated Indebtedness.

         The Issuer will not create, incur, assume, guarantee or in any other
manner become liable with respect to any Indebtedness that is subordinate in
right of payment to any Senior Indebtedness unless such Indebtedness is also
pari passu with, or subordinate in right of payment to, the Bonds.

         Section 4.25. Effectiveness of Certain Covenants.

         So long as any Bond remains outstanding or any amount remains unpaid
with respect to any of the Bonds, the Issuer shall comply with each and every
one of the covenants contained in this Article Four; provided, however, that
the effectiveness of Section 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15,
4.16, 4.17 and 4.18 shall terminate upon the occurrence of a Complying Public
Equity Offering and for so long as a Covenant Defeasance pursuant to Section
8.02 is in effect.

                                 ARTICLE FIVE    
                             MEETINGS OF HOLDERS 


                                       44
<PAGE>   50
                                                 
                                                 


     Section 5.01 Purpose for Which Meetings May Be Called

     A meeting of the Holders may be called at any time and from time to
time pursuant to this Article Five to make, give, or take any request, demand,
authorization, notice, consent, election, waiver or other action permitted by
this Indenture.

     Section 5.02 Call, Notice and Place of Meetings.

     The Issuer or the Trustee, upon the request of Holders having at
least 5 per cent. in aggregate principal amount of the outstanding Bonds, or
the Issuer, at its discretion, may call a meeting of the Holders for any
purpose specified in Section 5.01. Any such meeting will be held in New York
City. Notice of every meeting of Holders, setting forth, in general, the time
and the place of, and the agenda for, such meeting, shall be given not less
than 10 days nor more than 30 days prior to the date fixed for the meeting, in
the manner provided under Section 12.01 and publication thereof shall be for
three (3) consecutive Business Days in each place of publication. In the
absence of quorum within 45 minutes of the time appointed for any such meeting,
a second call meeting (the "second call meeting") may be called to take place.

     Section 5.03 Persons Entitled to Vote at Meetings.

     To be entitled to vote at any meeting of Holders, a person shall be
(1) a Holder of one or more outstanding Bonds, or (2) a person appointed by an
instrument in writing as proxy for a Holder or Holders of one or more
outstanding Bonds by such Holder or Holders. The only persons who shall be
entitled to be present or to speak at any meeting of Holders shall be persons
entitled to vote at such meeting and their counsel, and representatives of the
Trustee and its counsel and any representatives of the Issuer and its counsel.

     Section 5.04 Quorum; Action.

     (a) Persons holding or representing a majority of the aggregate
principal amount of the Bonds at the time outstanding, or in the case of any
second all meeting, the Holders present or represented at such meeting, shall
constitute a quorum for any meeting of Holders. Notice of the second call
meeting shall be given as provided in Section 5.02, except that such notice
need be given not less than five days prior to the date on which the second
call meeting is scheduled. Notice of the second call meeting shall expressly
state the percentage of the outstanding Bonds which shall constitute a quorum.
Any Holder who has executed an instrument in writing appointing a person as
proxy shall be deemed to be present for the purposes of determining a quorum
and be deemed to have voted; provided, that such Holder shall be considered as
present and voting only in respect to the matters covered by such instrument in
writing (which may include authorization to vote on any other matters as may
come before the meeting).

     (b) Any modifications, amendments or waivers to this Indenture shall
require the lesser of (i) the written consent of the Holders of a majority in
principal amount of the outstanding Bonds or (ii) the approval of persons
entitled to vote a majority of the principal amount of such Bonds represented
and voting at a meeting of the Holders duly called in accordance with the
provisions hereof and at which a quorum is present; provided, however, that the
unanimous affirmative vote of the Holders will be required to adopt any action
or resolution of such action or resolution to be taken relates to the matters
set forth in clauses (i) through (ix) of Section 9.02(a).

     (c) Except as provided above, any modifications, amendments, or
waivers to the terms and conditions of the Bonds will be conclusive and binding
on all Holders, whether or not they have given such consent or were present at
any meeting of Holders, and whether or not notation of such modifications,
amendments or waivers is made upon the Bonds.





                                      45
<PAGE>   51
         Section 5.05. Determination of Voting Rights, Conduct and Adjournment
of Meeting.

         (a) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for any
meeting of Holders in regard to proof of the holding of Bonds and to the
appointment of proxies and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates
and other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of Bonds shall be
proved in Section 12.01 and the appointment of any proxy shall be proved in the
manner specified in Section 12.01 or by having the signature of the person
executing the proxy witnessed or guaranteed by a trust company, bank or banker
to certify the holding of Bonds.  Such regulations may provide that written
instruments appointing proxies, regular on their face, may be presumed valid
and genuine without the proof specified in Section 12.01 or other proof.

         (b) The Issuer or the Holders calling the meeting, as the case may be,
shall appoint a temporary chairman of the meeting. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the persons
entitled to vote a majority in principal amount of the outstanding Bonds
represented at the meeting.

         (c) At any meeting each Holder of a Bond or proxy shall be entitled to
one vote for each U.S. $10,000 principal amount of Bonds held or represented
by him; provided, however, that no vote shall be cast or counted at any meeting
in respect of any Bond challenged as not outstanding and ruled by the chairman
of the meeting to be not outstanding. The chairman of the meeting shall have no
right to vote, except as a Holder of a Bond or proxy.

         (d) Any meeting of Holders duly called pursuant to Section 5.02 at
which a quorum is present may be adjourned from time to time by persons
entitled to vote a majority in principal amount of the outstanding Bonds
represented at the meeting; and the meeting may be held as so adjourned without
further notice.

         Section 5.06. Counting Votes and Recording Action of Meetings.

         The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the
Holders or their representatives by proxy and the principal amounts and serial
numbers of the outstanding Bonds held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports, in
duplicate, of the proceedings of each meeting. A record, at least in duplicate,
of the proceedings of each meeting of the Holders shall be prepared by the
secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote or ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
given as provided in Section 5.04. Each copy shall be signed and verified by
the affidavits of the permanent chairman and secretary of the meeting and one
such copy shall be delivered to the Issuer and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.

                                  ARTICLE SIX

                          EVENTS OF DEFAULT: REMEDIES

         Section 6.01. Events of Default.

         An "Event of Default" means any of the following events:





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<PAGE>   52
                 (a) the Issuer fails to pay the principal of or any premium
         (if any) or interest (including Additional Amounts) on any of the
         Bonds when due (upon Maturity, acceleration, redemption, required
         purchase or otherwise and whether or not prohibited by Article Ten)
         and, in the case of interest only, such failure continues for a period
         of 30 days; or

                 (b) the Issuer does not perform or comply with any one or more
         of its other obligations in the Bonds or this Indenture (other than a
         default under (a) above) for a period of 60 days after written notice
         of such default shall have been given to the Issuer by the Trustee or
         to the Issuer and the Trustee by Holders of at least 25 per cent. in
         aggregate principal amount of Bonds then outstanding; or

                 (c) (i) one or more defaults in the payment of principal of or
         premium, if any, on Indebtedness of the Issuer or any Material
         Subsidiary or any Significant Joint Venture aggregating U.S.$10
         million (or the foreign currency equivalent thereof) or more, when the
         same becomes due and payable at the Maturity thereof, and such default
         or defaults shall have continued after any applicable grace period and
         shall not have been cured or waived or (ii) Indebtedness of the Issuer
         or any Material Subsidiary or any Significant Joint Venture
         aggregating U.S.$10 million (or the foreign currency equivalent
         thereof) or more shall have been accelerated or otherwise declared due
         and payable, or required to be prepaid or repurchased (other than by
         regularly scheduled required prepayment) prior to the Maturity
         thereof; or

                 (d) any holder or holders of Indebtedness aggregating U.S.$10
         million (or the foreign currency equivalent thereof) or more of the
         Issuer or any Material Subsidiary or any Significant Joint Venture
         shall notify the Issuer or the Trustee of the intended sale or
         disposition of any assets of the Issuer or any such Material
         Subsidiary or Significant Joint Venture that have been pledged to or
         for the benefit of such person to secure such Indebtedness, or shall
         commence proceedings, or take action (including by way of set-off) to
         retain in satisfaction of any such Indebtedness, or to collect on,
         seize, dispose of or apply, any such assets of the Issuer or any
         Material Subsidiary or any Significant Joint Venture pursuant to the
         terms of any agreement or instrument evidencing any such Indebtedness
         or in accordance with applicable law; or

                 (e) one or more final judgements (or judgements which can no
         longer be appealed) or orders or similar judicial or administrative
         action shall be rendered against the Issuer or any Material Subsidiary
         or Significant Joint Venture for the payment of money, either
         individually or in an aggregate amount, in excess of U.S.$10 million
         (or the foreign currency equivalent thereof) and which shall not have
         been discharged and either (i) an enforcement proceeding shall have
         been commenced by any creditor upon such judgement or order or similar
         judicial or administrative action or (ii) there shall have been a
         period of 60 consecutive days during which a stay of enforcement of
         such judgement or order, by reason of a pending appeal or otherwise,
         was not in effect;

                 (f) the Issuer or any Material Subsidiary or Material Joint
         Venture, pursuant to or under or within any applicable bankruptcy,
         insolvency, reorganization, moratorium, liquidation or like law; (i)
         commences a voluntary case or proceeding; (ii) consents to the entry
         of an order for relief against it in an involuntary case or
         proceeding; (iii) makes a general assignment for the benefit of its
         creditors; (iv) or shall generally not pay its debts when such debts
         become due or shall admit in writing its inability to pay its debts
         generally, (v) or a court of competent jurisdiction (or like entity)
         shall enter an order or decree under any applicable law described
         above that is for relief against the Issuer or any Material Subsidiary
         or Material Joint Venture, as applicable, in an involuntary case or
         proceeding, appoints a custodian for the Issuer or such other entity
         for all or substantially all its properties or orders the liquidation
         of the Issuer or such other entity, as applicable, and in each such
         case in this clause (v), the order or decree remains unstayed and in
         effect for 60 days; (vi) or the Issuer or such other entity shall take
         any corporate action regarding any of the foregoing; or





                                       47
<PAGE>   53
                 (g) excluding the events referred to in paragraph (f) above,
         any seizure, compulsory acquisition, expropriation or nationalization
         of any assets of the Issuer, any Subsidiary or Significant Joint
         Venture for which there is not paid Fair Market Value and where the
         seizure, compulsory acquisition, expropriation nationalization
         (whether by an outright taking or by confiscatory tax or other
         policies), individually or in the aggregate, could reasonably be
         expected to result in a material adverse effect on the business
         (including, without limitation, the ability to generate cash flow over
         the life of the Bonds), the condition (financial or other), the
         properties or the results of operations of the Issuer, its
         Subsidiaries, and Significant Joint Ventures on a combined basis (a
         "Material Adverse Effect").

         Subject to the provisions of Sections 7.01 and 7.02, the Trustee shall
not be charged with knowledge of any Default or Event of Default unless written
notice thereof shall have been given to a Trust Officer at the Corporate Trust
Office of the Trustee by the Issuer, any Paying Agent, Transfer Agent or
Conversion Agent, any Holder, any holder of Senior Indebtedness or any of their
respective agents.

         Section 6.02. Acceleration.

         (a) If an Event of Default (other than as specified in subparagraph
(f) above) shall occur and be continuing, the Trustee, by notice to the Issuer,
or the Holders of at least 25 per cent. in aggregate principal amount of the
Bonds then outstanding by notice to the Trustee and the Issuer, may declare the
principal of, premium, if any, and accrued and unpaid interest on all of the
outstanding Bonds due and payable immediately upon which declaration, all
amounts payable in respect of the outstanding Bonds shall be due and payable
immediately. If an Event of Default specified in subparagraph (f) above occurs
and is continuing, then the principal of, premium, if any, and accrued and
unpaid interest, on all of the outstanding Bonds shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders of Bonds.

         (b) After a declaration of acceleration under this Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders at least of a majority in aggregate principal amount
of the outstanding Bonds, by written notice to the Issuer and the Trustee, may
rescind such declaration if (i) the Issuer has paid or deposited with the
Trustee a sum sufficient to pay (1) all sums paid or advanced by the Trustee
under this Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (2) all overdue interest
on all Bonds, (3) the unpaid principal of and premium, if any, on any
outstanding Bonds which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Bonds, and (4) to
the extent that payment of such interest is lawful, interest upon overdue
interest and overdue principal at the rate borne by the Bonds which has become
due otherwise than by such declaration of acceleration; (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction; and (iii) all Events of Defaults, other than the non-payment of
principal of, premium, if any, and interest on the Bonds that have become due
solely by such declaration of acceleration, have been cured or waived. No such
rescission shall affect any subsequent Default or Event of Default or impair
any right subsequent thereto.

         Section 6.03. Other Remedies.

         (a) If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, premium, if any, or interest on the Bonds or to
enforce the performance of any provision of the Bonds or this Indenture.

         (b) All rights of action and claims under this Indenture or the Bonds
may be enforced by the Trustee even if it does not possess any of the Bonds or
does not produce any of them in the proceeding. A delay or omission by the
Trustee or any Holder in exercising any right or remedy accruing upon an Event
of Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.





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<PAGE>   54

                 Section 6.04. Waiver of Past Defaults.

                 Subject to the provisions of Section 6.02, 6.07 and 9.02, the
Holders of not less than a majority in aggregate principal amount of the
outstanding Bonds by notice to the Trustee may, on behalf of the Holders of all
the Bonds, waive any existing Default or Event of Default and its consequences,
except a Default or Event of Default specified in Section 6.01(a) or in
respect of any provision hereof which cannot be modified or amended without the
consent of the Holder so affected pursuant to Section 9.02. When a Default or
Event of Default is so waived, it shall be deemed cured and shall cease to
exist.

                 Section 6.05. Control by Majority.

                 (a) The Holders of not less than a majority in aggregate
principal amount of the outstanding Bonds shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee,
provided, however, that the Trustee may refuse to follow any direction (i) that
conflicts with any rule of law or this Indenture, (ii) that the Trustee
determines may be unduly prejudicial to the rights of another Holder, or (iii)
that may expose the Trustee to personal liability unless the Trustee has been
provided reasonable indemnity against any loss or expense caused by its
following such direction; and provided, further, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction.

                 (b) During the existence of an Event of Default, the Trustee
is required to exercise such rights and powers vested in it under this
Indenture and use the same degree of care and skill in its exercise thereof as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs. Subject to the provisions of this Indenture relating to
the duties of the Trustee, whether or not an Event of Default shall occur and
be continuing, the Trustee under this Indenture is not under any obligation to
exercise any of its rights or powers hereunder at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity. Subject to certain provisions concerning the
rights of the Trustee, the Holders of not less than a majority in aggregate
principal amount of the outstanding Bonds have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee under this
Indenture.

                 Section 6.06. Limitation on Suits.

                 (a) No Holder of any Bonds shall have any right to institute
any proceeding or pursue any remedy with respect to this Indenture or the Bonds
unless:

                 (i) the Holder gives written notice to the Trustee of a
         continuing Event of Default;

                 (ii) the Holders of at least 25 per cent. in aggregate
         principal amount of the outstanding Bonds make a written request to
         the Trustee to pursue the proceeding or remedy;

                 (iii) such Holder or Holders offer and, if requested, provide
         to the Trustee reasonable indemnity against any loss, liability or
         expense;

                 (iv) the Trustee does not comply with the request within 30
         days after receipt of the request and the offer and, if requested,
         provision of indemnity; and

                 (v) during such 30-day period the Holders of at least a
         majority in aggregate principal amount of the outstanding Bonds do not
         give the Trustee a direction which is inconsistent with the request.





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<PAGE>   55
                 (b) The limitations of Section 6.06(a) shall not apply to a
suit instituted by a Holder for the enforcement of the payment of principal of,
premium, if any, or accrued interest on, any Bond on or after the respective
due dates set forth in such Bond.

                 (c) A Holder may not use this Indenture to prejudice the
rights of any other Holders or to obtain priority or preference over such other
Holders.

                 Section 6.07. Right of Holders To Receive Payment.

                 Notwithstanding any other provision in this Indenture, the
right of any Holder of a Bond to receive payment of the principal of, premium,
if any, and interest on such Bond, on or after the respective Maturities
expressed in such Bond, or to bring suit for the enforcement of any such
payment on or after the respective Maturities, is absolute and unconditional
and shall not be impaired or affected without the consent of the Holder.

                 Section 6.08. Collection Suit by Trustee.

                 If an Event of Default specified in clause (a) of Section 6.01
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Issuer, or any other obligor on the
Bonds for the whole amount of principal of, premium, if any, and accrued
interest remaining unpaid, together with interest on overdue principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum then borne by the
Bonds and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

                 Section 6.09. Trustee May File Proofs of Claims.

                 The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Issuer or the
Subsidiaries or Joint Ventures of the Issuer (or any other obligor upon the
Bonds), their creditors or their property and shall be entitled and empowered
to collect and receive any monies or other property payable or deliverable on
any such claims and to distribute the same, and any Custodian in any such
judicial proceedings is hereby authorized by each Holder to make such payments
to the Trustee and, in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
to it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Bonds
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

                 Section 6.10. Priorities.

                 (a) If the Trustee collects any money pursuant to this Article
Six, it shall pay out such money in the following order:

                 First: to the Trustee for amounts due under Section 7.07;

                 Second: subject to Article Ten, to Holders for interest (and
         any Additional Amounts) accrued on the Bonds, ratably, without
         preference or priority of any kind, according to the amounts due and
         payable on the Bonds for interest;





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<PAGE>   56
                 Third: subject to Article Ten, to Holders for principal
         amounts (including any premium) owing under the Bonds, ratably,
         without preference or priority of any kind, according to the amounts
         due and payable on the Bonds for principal (including any premium);
         and

                 Fourth: the balance, if any, to the Issuer.

                 (b) The Trustee, upon prior written notice to the Issuer, may
fix a record date and payment date for any payment to Holders pursuant to this
Section 6.10.

                 Section 6.11. Undertaking for Costs.

                 In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to any suit by the Trustee, any suit
by a Holder pursuant to Section 6.06, or a suit by Holders of more than 10 per
cent. in aggregate principal amount of the outstanding Bonds.

                 Section 6.12. Restoration of Rights and Remedies.

                 If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Bond and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Issuer, the Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.

                 Section 6.13. Notice to Holders of Event of Default.

                 If a Default or an Event of Default occurs and is continuing
and is known to the Trustee, the Trustee shall mail to each Holder of the Bonds
and to the Luxembourg Stock Exchange, for so long as the Bonds are listed
thereon, notice of the Default or Event of Default within 30 days after
obtaining knowledge thereof. Except in the case of a Default or an Event of
Default in payment of principal or premium, if any, or interest on any Bonds,
the Trustee may withhold the notice to the Holders of such Bonds if a committee
of its Trust Officers in good faith determines that withholding the notice is
in the interest of the Holders of the Bonds.

                                 ARTICLE SEVEN

                                  THE TRUSTEE

                 Section 7.01. Duties.

                 (a) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.

                 (b) Except during the continuance of an Event of Default,





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<PAGE>   57
                 (i) the Trustee need perform only such duties as are
         specifically set forth in this Indenture, and no implied covenants or
         obligations shall be read into this Indenture against the Trustee; and

                 (ii) in the absence of bad faith on its part, the Trustee may
         conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements
         of this Indenture; but in the case of any such certificates or
         opinions which by any provision hereof are specifically required to be
         furnished to the Trustee, the Trustee shall be under a duty to examine
         the same to determine whether or not they conform to the requirements
         of this Indenture.

                 (c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that

                 (i) this paragraph does not limit the effect of paragraph (b)
         of this Section 7.01;

                 (ii) the Trustee shall not be liable for any error of judgment
         made in good faith by a Trust Officer, unless it is proved that the
         Trustee was negligent in ascertaining the pertinent facts;

                 (iii) the Trustee shall not be liable with respect to any
         action it takes or omits to take in good faith in accordance with a
         direction received by it pursuant to Section 6.05;

                 (d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

                 (e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01.

                 Section 7.02. Rights of Trustee.

                 Subject to Section 7.01 hereof

                 (a) The Trustee may rely on any document reasonably believed
by it to be genuine and to have been signed or presented by the proper person
and need not investigate any fact or matter stated in the document.

                 (b) Before the Trustee acts or refrains from acting, it may
consult with counsel of its selection and may require an Officers' Certificate
or an Opinion of Counsel, which shall conform to Sections 12.04 and 12.05. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such certificate or opinion.

                 (c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.

                 (d) The Trustee shall not be liable for any action taken or
omitted by it in good faith and reasonably believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this Indenture
other than any liabilities arising out of its own negligence.

                 (e) The Trustee may consult with counsel of its own choosing
and the advice or opinion of such counsel as to matters of law shall be full
and complete authorization and protection in respect of any





                                       52
<PAGE>   58
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.

                 (f) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit.

                 (g) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.

                 Section 7.03. Individual Rights of Trustee.

                 The Trustee, any Paying Agent, Registrar or any other agent of
the Issuer, in its individual or any other capacity, may become the owner or
pledgee of Bonds and, subject to Section 7.10, may otherwise deal with the
Issuer and its Subsidiaries and Joint Ventures with the same rights it would
have if it were not the Trustee or any Agent.

                 Section 7.04. Trustee's Disclaimer.

                 The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Bonds, it shall not be accountable for
the Issuer's use or application of the proceeds from the Bonds, it shall not be
responsible for the use or application of any money received by any Paying
Agent other than the Trustee and it shall not be responsible for any statement
in the Bonds other than the Trustee's certificate of authentication.

                 Section 7.05. [Reserved].

                 Section 7.06. Money Held in Trust.

                 All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required herein or by law. The Trustee shall not be under any liability for
interest on any moneys received by it hereunder, except as the Trustee may
agree with the Issuer.

                 Section 7.07. Compensation and Indemnity.

                 (a) The Issuer covenants and agrees to pay the Trustee from
time to time such compensation for its services as the parties shall agree from
time to time. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuer shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.

                 (b) The Issuer shall indemnify the Trustee for, and hold it
harmless against, any loss or liability incurred by it arising out of or in
connection with the administration of this trust and its rights or duties
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. The Trustee shall notify the Issuer promptly of any
claim asserted against the Trustee for which it may seek indemnity. The Issuer
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Issuer shall pay the reasonable fees
and expenses of such counsel. The Issuer need not pay for any settlement made
without its prior written consent.





                                       53
<PAGE>   59
The Issuer need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.

                 (c) To secure the Issuer's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Bonds on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of, premium, if any, or interest on particular Bonds.

                 (d) When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 6.01(f), the expenses
and the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.

                 (e) The Issuer's obligations under this Section 7.07 and any
Lien arising hereunder shall survive the resignation or removal of any trustee,
the discharge of the Issuer's obligations pursuant to Article Eight and/or the
termination of this Indenture.

                 Section 7.08. Replacement of Trustee.

                 A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.

                 (a) The Trustee may resign by so notifying the Issuer in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Bonds may remove
the Trustee by so notifying the Issuer and the Trustee and may appoint a
successor trustee with the Issuer's prior written consent.  The Issuer may
remove the Trustee if:

                 (i) the Trustee fails to comply with Section 7.10;

                 (ii) the Trustee is adjudged a bankrupt or an insolvent or an
         order for relief is entered with respect to the Trustee under any
         Bankruptcy Law;

                 (iii) a receiver or other public officer takes charge of the
         Trustee or its property; or

                 (iv) the Trustee becomes incapable of acting.

                 (b) If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason, the Issuer shall notify each
Holder of such event and shall promptly appoint a successor Trustee. The
Trustee shall be entitled to payment of its fees and reimbursement of its
expenses while acting as Trustee, and to the extent such amounts remain unpaid,
the Trustee that has resigned or has been removed shall retain the Lien
afforded by Section 7.07. Within one year after the successor Trustee takes
office, the Holders of a majority in principal amount of the outstanding Bonds
may, with the Issuer's prior written consent, appoint a successor Trustee to
replace the successor Trustee appointed by the Issuer.

                 (c) A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Issuer. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, subject to the Lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession
to each Holder.

                 (d) If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Issuer or the Holders of at least 10 per cent. in principal amount of





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the outstanding Bonds may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

                 (e) If the Trustee fails to comply with Section 7.10, any
Holder may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.

                 (f) Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Issuer's obligations under Section 7.07 shall continue
for the benefit of the retiring Trustee.

                 Section 7.09. Successor Trustee by Merger, etc.

                 If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association without any further act
shall, if such resulting, surviving or transferee corporation or national
banking association is otherwise eligible hereunder, be the successor Trustee.

                 Section 7.10. Eligibility; Disqualification.

                 There shall at all times be a Trustee hereunder which shall
have a combined capital and surplus of at least U.S.$50,000,000. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.


                                 ARTICLE EIGHT

                    SATISFACTION AND DISCHARGE OF INDENTURE

                 Section 8.01. Termination of the Issuer's Obligations.

                 The Issuer may terminate its obligations under the Bonds and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.01 and rights to registration of transfer or
exchange of the Bonds, if all Bonds previously authenticated and delivered
(other than destroyed, lost or stolen Bonds which have been replaced or paid or
Bonds for whose payment money has theretofore been deposited with the Trustee
or any Paying Agent in trust or segregated and held in trust by the Issuer and
thereafter repaid to the Issuer, as provided in Section 8.04) have been
delivered to the Trustee for cancellation and the Issuer has paid all other
sums payable by it hereunder, or if:

                 (1) either (i) pursuant to Article Three, the Issuer shall
         have given notice to the Trustee and mailed a notice of redemption to
         each Holder of the redemption of all of the Bonds under arrangements
         satisfactory to the Trustee for the giving of such notice or (ii) all
         Bonds have otherwise become due and payable hereunder;

                 (2) all Bonds not theretofore delivered to the Trustee for
         cancellation (except lost, stolen or destroyed Bonds which have been
         replaced or paid) have been called for redemption pursuant to the
         terms of the Bonds or have otherwise become due and payable and the
         Issuer has irrevocably deposited or caused to be deposited with the
         Trustee funds in an amount sufficient to pay and discharge the entire
         Indebtedness on the Bonds not theretofore delivered to the Trustee for
         cancellation, for principal of,





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<PAGE>   61
         premium, if any, and interest on the Bonds to the date of deposit
         together with irrevocable instructions from the Issuer directing the
         Trustee to apply such funds to the payment thereof at maturity or
         redemption, as the case may be;

                 (3) the Issuer shall have irrevocably deposited or caused to
         be deposited with the Trustee or a trustee reasonably satisfactory to
         the Trustee, under the terms of an irrevocable trust agreement in form
         and substance satisfactory to the Trustee, as trust funds in trust
         solely for the benefit of the Holders for that purpose, money in such
         amount as is sufficient without consideration of reinvestment of such
         interest, to pay principal of, premium, if any, and interest on the
         outstanding Bonds to Maturity or redemption, as certified in a
         certificate of a nationally recognized firm of independent public
         accountants; provided that the Trustee shall have been irrevocably
         instructed to apply such money to the payment of said principal,
         premium, if any, and interest with respect to the Bonds and, provided,
         further, that from and after the time of deposit, the money deposited
         shall not be subject to the rights of holders of Senior Indebtedness
         pursuant to the provisions of Article Ten;

                 (4) no Default or Event of Default with respect to this
         Indenture or the Bonds shall have occurred and be continuing on the
         date of such deposit or shall occur as a result of such deposit and
         such deposit will not result in a breach or violation of, or
         constitute a default under, any other instrument to which the Issuer
         is a party or by which it is bound;

                 (5) the Issuer shall have paid all other sums payable by it
         hereunder; and

                 (6) the Issuer shall have delivered to the Trustee an
         Officers' Certificate and an Opinion of Counsel, each stating that all
         conditions precedent providing for the termination of the Issuer's
         obligation under the Bonds and this Indenture have been complied with.

                 Notwithstanding the foregoing paragraph, the Issuer's
obligations in Sections 2.05, 2.06, 2.07, 2.08, 2.09 4.01, 4.02, 7.07, 8.03,
8.04, and 8.05 shall survive until the Bonds are no longer outstanding pursuant
to Section 3.08. After the Bonds are no longer outstanding, the Issuer's
obligations in Sections 7.07, 8.03, 8.04 and 8.05 shall survive.

                 After such delivery or irrevocable deposit the Trustee upon
request shall acknowledge in writing the discharge of the Issuer's obligations
under the Bonds and this Indenture except for those surviving obligations
specified above.

                 Section 8.02. Covenant Defeasance.

                 (a) The Issuer may, at its option by Board Resolution of the
Board of Directors of the Issuer, at any time, with respect to the Bonds, elect
to have paragraph (b) below be applied to the outstanding Bonds upon compliance
with the conditions set forth in paragraphs (c) and (d).

                 (b) Upon the Issuer's exercise under paragraph (a) of the
option applicable to this paragraph (b), the Issuer shall be released and
discharged from its obligations under any covenant contained in Article Ten and
in Sections 4.08 through 4.18 with respect to the outstanding Bonds on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Bonds shall thereafter be deemed to be not
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder and Holders of the Bonds and any amounts deposited under paragraph
(c) below shall cease to be subject to any obligations to, or the rights of,
any holder of Senior Indebtedness under Article Ten or otherwise. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Bonds, the Issuer may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant
listed above, whether directly or indirectly, by reason of





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<PAGE>   62
any reference elsewhere herein to any such covenant or by reason of any
reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01(c), but, except as specified above, the remainder
of this Indenture and such Bonds shall be unaffected thereby.

                 (c) The following shall constitute a "Covenant Defeasance"
pursuant to paragraph (b) above with respect to the Bonds:

                 (i) the 123rd day after the Issuer has irrevocably deposited
         with the Trustee, in trust, for the benefit of the Holder, cash in
         U.S. dollars, non-callable U.S. Government Obligations, or a
         combination thereof, in such amounts as will be sufficient, in the
         opinion of a nationally recognized firm of independent public
         accountants selected by the Issuer, to pay the principal of and
         premium, if any, on the outstanding Bonds at their Maturity or on the
         applicable optional redemption date, as the case may be, of such
         principal or installment of principal of, or premium, if any, on the
         outstanding Bonds;

                 (ii) the Issuer must have delivered to the Trustee an Opinion
         of Counsel in the United States reasonably acceptable to the Trustee
         confirming that the Holders of the outstanding Bonds will not
         recognize income, gain or loss for federal income tax purposes as a
         result of such Covenant Defeasance and will be subject to federal
         income tax on the same amounts, in the same manner and at the same
         times as would have been the case if such Covenant Defeasance had not
         occurred;

                 (iii) no Default or Event of Default shall have occurred and
         be continuing on the date of such deposit or insofar as Events of
         Default from bankruptcy or insolvency events are concerned, at any
         time in the period ending on the 91st day after the date of deposit;

                 (iv) such Covenant Defeasance will not result in a breach or
         violation of, or constitute a default under any material agreement or
         instrument (other than this Indenture) to which the Issuer or any of
         its Subsidiaries or Significant Joint Ventures is a party or by which
         the Issuer of any of its Subsidiaries or Significant Joint Ventures is
         bound;

                 (v) the Issuer must have delivered to the Trustee an Opinion
         of Counsel to the effect that after the 123rd day (or such other
         applicable date) following the deposit of the instruments referred to
         in (i), the trust funds will not be subject to the effect of any
         applicable bankruptcy, insolvency, reorganization or similar laws
         affecting creditors' rights generally and the creation of the
         defeasance trust does not violate the Investment Company Act of 1940,
         as amended;

                 (vi) the Issuer must have delivered to the Trustee an
         Officers' Certificate of the Issuer stating that the deposit was not
         made by the Issuer with the intent of preferring the Holders over the
         other creditors of the Issuer with the intent of defeating, hindering,
         delaying or defrauding creditors of the Issuer or others; and

                 (vii) the Issuer must have delivered to the Trustee an
         Officers' Certificate of the Issuer and an Opinion of Counsel in the
         United States acceptable to the Trustee, each stating that all
         conditions precedent provided for relating to the Covenant Defeasance
         have been complied with.

                 (d) All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this paragraph (d), the "Trustee") pursuant to
paragraph (c) above in respect of the outstanding Bonds shall be held in trust
and applied by the Trustee, in accordance with the provisions of such Bonds and
this Indenture, to the payment, either directly or through any Paying Agent as
the Trustee may determine, to the Holders of such Bonds of all sums due and to
become due thereon in respect of principal, premium and interest, but such
money need not be segregated from other funds except to the extent required by
law. The Issuer shall pay and indemnify the Trustee against any tax, fee or
other





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<PAGE>   63
charge imposed on or assessed against the U.S. Government Obligations deposited
pursuant to paragraph (c) above or the principal, premium, if any, and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Bonds.

                 (e) Anything in this Section 8.02 to the contrary
notwithstanding, the Trustee shall deliver or pay to the Issuer from time to
time upon the request, in writing, by the Issuer any money or U.S. Government
Obligations held by it as provided in paragraph (c) above which, in the opinion
of a nationally recognized firm of independent public accountants expressed in
a written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect an
equivalent Covenant Defeasance.

                 Section 8.03. Application of Trust Money.

                 The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Sections 8.01 and 8.02, and shall
apply the deposited money and the money from U.S. Government Obligations in
accordance with this Indenture to the payment of principal of, premium, if any,
and interest on the Bonds.

                 Section 8.04. Repayment to Issuer.

                 Subject to Sections 7.07, 8.01 and 8.02, the Trustee shall
promptly pay to the Issuer, upon receipt by the Trustee of an Officers'
Certificate, any excess money, determined in accordance with Section 8.02, held
by it at any time. The Trustee and any Paying Agent shall pay to the Issuer,
upon receipt by the Trustee or such Paying Agent, as the case may be, of an
Officers' Certificate, any money held by it for the payment of principal,
premium, if any, or interest that remains unclaimed for two years after payment
to the Holders is required; provided, however, that the Trustee and any Paying
Agent before being required to make any payment may, but need not, at the
expense of the Issuer cause to be published once in a newspaper of general
circulation in The City of New York and in the Luxemburger Wort for so long as
the Bonds are listed on the Luxembourg Stock Exchange or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after
a date specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Issuer. After payment to the Issuer, Holders entitled to money
must look solely to the Issuer for payment as general creditors unless an
applicable abandoned property law designates another person, and all liability
of the Trustee or Paying Agent with respect to such money shall thereupon
cease.

                 Section 8.05. Reinstatement.

                 If the Trustee or any Paying Agent is unable to apply any
money or U.S. Government Obligations in accordance with this Indenture by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then and only then the Issuer's obligations under
this Indenture and the Bonds shall be revived and reinstated as though no
deposit had been made pursuant to this Indenture until such time as the Trustee
is permitted to apply all such money or U.S. Government Obligations in
accordance with this Indenture; provided, however, that if the Issuer has made
any payment of principal of, premium, if any, or interest on any Bonds because
of the reinstatement of its obligations, the Issuer shall be subrogated to the
rights of the Holders of such Bonds to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.





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<PAGE>   64

                                  ARTICLE NINE

                      AMENDMENTS, SUPPLEMENTS AND WAIVERS


                 Section 9.01. Without Consent of Holders.

                 Subject to Section 6.04, the Issuer, when authorized by a
Board Resolution and the Trustee may amend, waive or supplement this Indenture
or the Bonds without the consent of the Holders of any Bonds then outstanding
for the purpose of (i) curing ambiguities, defects or inconsistencies, (ii)
qualifying, or maintaining the qualification of, this Indenture under the Trust
Indenture Act of 1939, (iii) evidencing the succession of another Person to the
Issuer or any other obligor on the Bonds, and the assumption by any such
successor of the covenants of the Issuer or such obligor in the Indenture and
in the Bonds in accordance with Section 4.16; (iv) adding to the covenants of
the Issuer or any other obligor upon the Bonds for the benefit of the holders
of the Bonds or surrendering any right or power conferred upon the Issuer or
any other obligor upon the Bonds, as applicable, or in the Indenture or in the
Bonds; (v) evidencing the replacement of the Trustee by a trustee that is
appointed to so act pursuant to the terms of this Indenture; and (vi)
evidencing or making any other change that does not adversely affect the rights
of any holder of Bonds; provided, however, that no change may be made pursuant
to this Section 9.01 that adversely affects the rights of any Holder and the
Issuer shall deliver to the Trustee an Opinion of Counsel to such effect.

                 Section 9.02. With Consent of Holders.

                 (a) With the written consent of the Holders of a majority in
principal amount of the Bonds the Issuer, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating or waiving any of the provisions of this Indenture or
of modifying in any manner the rights of Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
written consent of each Holder affected:

                 (i) reduce the principal amount of, extend the fixed maturity
         of or alter the redemption provisions of, the Bonds,

                 (ii) change the currency in which any Bonds or any premium or
         the interest thereon is payable or make the principal of, premium, if
         any, or interest on any Bond payable in money other than that stated
         in the Bond,

                 (iii) reduce the percentage in principal amount of outstanding
         Bonds that must consent to an amendment, supplement or waiver or
         consent to take any action under this Indenture or the Bonds,

                 (iv) impair the right to institute suit for the enforcement of
         any payment on or with respect to the Bonds,

                 (v) waive a default in payment with respect to the Bonds,

                 (vi) amend, change or modify the obligations of the Issuer to
         make and consummate a Change of Control Offer in the event of a Change
         of Control or make and consummate the offer with respect to any Asset
         Sale or modify any of the provisions or definitions with respect
         thereto,

                 (vii) reduce or change the rate or time for payment of
         interest on the Bonds,

                 (viii) modify or change any provisions of this Indenture
         affecting the subordination or ranking of the Bonds in a manner
         adverse to the Holders of the Bonds, or





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<PAGE>   65
                 (ix) take any other action otherwise prohibited by this
         Indenture to be taken without the consent of each Holder affected
         thereby.

                 (b) It shall not be necessary for the consent of the Holders
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof.

                 (c) After an amendment, supplement or waiver under this
Section 9.02 becomes effective, the Issuer shall mail to the Holder of each
Bond affected thereby, with a copy to the Trustee, a notice briefly describing
the amendment, supplement or waiver. Any failure of the Issuer to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any amendment, supplement or waiver.

                 Section 9.03. Effect of Supplemental Indenture. Upon the
execution of any supplemental indenture under this Article Nine, this Indenture
shall be modified in accordance therewith, and such supplemental indenture
shall form a part of this Indenture for all purposes; and every Holder of Bonds
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.

                 Section 9.04. Revocation and Effect of Consents.

                 (a) Until an amendment, supplement or waiver becomes
effective, a consent to it by a Holder is a continuing consent by such Holder
and every subsequent Holder of that Bond or portion of that Bond that evidences
the same debt as the consenting Holder's Bond (and such consenting Holder shall
procure that such consent is a continuing consent by such subsequent Holder),
even if notation of the consent is not made on any Bond. However, any such
Holder or subsequent Holder may revoke the consent as to his Bond or portion of
a Bond prior to such amendment, supplement or waiver becoming effective. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective.

                 (b) The Issuer may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled to consent to
any amendment, supplement or waiver. If a record date is fixed, then
notwithstanding the second and third sentences of the immediately preceding
paragraph, those persons who were Holders at such record date (or their duly
designated proxies), and only those persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such persons continue to be Holders after such record date. Such
consent shall be effective only for actions taken within 90 days after such
record date.

                 (c) After an amendment, supplement or waiver becomes
effective, it shall bind every Holder; unless it makes a change described in
any of clauses (i) through (ix) of Section 9.02(a); if it makes such a change,
the amendment, supplement or waiver shall bind every subsequent Holder of a
Bond or portion of a Bond that evidences the same debt as the consenting
Holder's Bond (and such consenting Holder shall procure that such subsequent
Holder is so bound).

                 Section 9.05. Notation on or Exchange of Securities.

                 If an amendment, supplement or waiver changes the terms of a
Bond, the Trustee shall (in accordance with the specific direction of the
Issuer) request the Holder of the Bond to deliver it to the Trustee. The
Trustee shall (in accordance with the specific direction of the Issuer) place
an appropriate notation on the Bond about the changed terms and return it to
the Holder. Alternatively, if the Issuer or the Trustee so determines, the
Issuer in exchange for the Bond shall issue and the Trustee shall authenticate
a new Bond that reflects the changed terms. Failure to make the appropriate
notation or issue a new Bond shall not affect the validity and effect of such
amendment, supplement or waiver.





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<PAGE>   66
                 Section 9.06. Trustee May Sign Amendments, etc.

                 The Trustee shall sign any amendment, supplement or waiver
authorized pursuant to this Article Nine if the amendment, supplement or waiver
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing or
refusing to sign such amendment, supplement or waiver, the Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution of any
amendment, supplement or waiver is authorized or permitted by this Indenture,
that it is not inconsistent herewith and that it will be valid and binding upon
the Issuer in accordance with its terms.


                                  ARTICLE TEN

                             SUBORDINATION OF BONDS

                 Section 10.01. Bonds Subordinate to Senior Indebtedness.

                 The Issuer covenants and agrees, and each Holder of a Bond, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article Ten, the Indebtedness
represented by the Bonds is hereby expressly made subordinate and subject in
right of payment as provided in this Article to the prior payment in full in
cash or Cash Equivalents or, as acceptable to the holders of Senior
Indebtedness, in any other manner, of all amounts payable under all existing
and future Senior Indebtedness.

                 Section 10.02. Payment Over of Proceeds upon Dissolution, etc.

                 In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relating to the Issuer or to its
assets, or (b) any liquidation, dissolution or other winding-up of the Issuer,
whether voluntary or involuntary or (c) any assignment for the benefit of
creditors or any other marshalling of assets or liabilities of the Issuer,
then:

                 (i) the holders of Senior Indebtedness shall be entitled to
         receive payment in full in cash or Cash Equivalents or, as acceptable
         to the holders of Senior Indebtedness, in any other manner, of all
         Senior Indebtedness (including, in the case of Designated Senior
         Indebtedness, any interest accruing subsequent to the filing of a
         petition for bankruptcy at the rate provided for in the documentation
         governing such Designated Senior Indebtedness, to the extent that such
         interest is an allowed claim under applicable law), or provision shall
         be made for such payment, before the Holders of the Bonds are entitled
         to receive any payment or distribution of any kind or character
         (excluding securities of the Issuer or any other person that are
         equity securities or are subordinated in right of payment to all
         Senior Indebtedness that may at the time be outstanding, to
         substantially the same extent as, or to a greater extent than, the
         Bonds as provided in this Article; such securities are hereinafter
         collectively referred to as "Permitted Junior Securities") on account
         of principal of (including upon redemption), premium, if any, or
         interest on the Bonds or Additional Amounts; and

                 (ii) any payment or distribution of assets of the Issuer of
         any kind or character, whether in cash, property or securities
         (excluding Permitted Junior Securities), by set-off or otherwise, to
         which the Holders or the Trustee would be entitled but for the
         provisions of this Article shall be paid by the liquidating trustee or
         agent or other person making such payment or distribution, whether a
         trustee in bankruptcy, a receiver or liquidating trustee or otherwise,
         directly to the holders of Senior Indebtedness or their representative
         or representatives or to the trustee or trustees under any indenture
         under which any instruments evidencing any of such Senior Indebtedness
         may have been issued, ratably according to the





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<PAGE>   67
         aggregate amounts remaining unpaid on account of the Senior
         Indebtedness held or represented by each, to the extent necessary to
         make payment in full in cash or Cash Equivalents or, as acceptable to
         the holders of Senior Indebtedness, in any other manner, of all Senior
         Indebtedness remaining unpaid, after giving effect to any concurrent
         payment or distribution to the holders of such Senior Indebtedness;
         and

                 (iii) in the event that, notwithstanding the foregoing
         provisions of this Section 10.02, the Trustee or the Holder of any
         Bond shall have received any payment or distribution of assets of the
         Issuer of any kind or character, whether in cash, property or
         securities, in respect of principal of, premium, if any, or interest
         on the Bonds before all Senior Indebtedness is paid in full in cash or
         Cash Equivalents or, as acceptable to the holders of Senior
         Indebtedness, in any other manner, or payment thereof provided for,
         then and in such event such payment or distribution (excluding
         Permitted Junior Securities) shall be paid over or delivered forthwith
         to the trustee in bankruptcy, receiver, liquidating trustee,
         custodian, assignee, agent or other person making payment or
         distribution of assets of the Issuer for application to the payment of
         all Senior Indebtedness remaining unpaid, to the extent necessary to
         pay all Senior Indebtedness in full in cash or Cash Equivalents or, as
         acceptable to the holders of Senior Indebtedness, in any other manner,
         after giving effect to any concurrent payment or distribution to or
         for the holders of Senior Indebtedness.

                 The consolidation of the Issuer with, or the merger of the
Issuer with or into, another person or the liquidation or dissolution of the
Issuer following the conveyance, transfer or lease of its properties and assets
substantially as an entirety to another person upon the terms and conditions
set forth in Section 4.16 hereof shall not be deemed a dissolution, winding-up,
liquidation, reorganization, assignment for the benefit of creditors or
marshalling of assets and liabilities of the Issuer for the purposes of this
Article Ten if the person formed by such consolidation or the surviving entity
of such merger or the person which acquires by conveyance, transfer or lease
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance, transfer or lease,
comply with the conditions set forth in such Section 4.16.

                 Section 10.03. Suspension of Payment When Senior Indebtedness
                                in Default.
 
                 (a) Unless Section 10.02 shall be applicable, upon the
occurrence of a Payment Default, and after receipt by the Trustee and the
Issuer from a Senior Representative of written notice of such default no
payment or distribution of any assets of the Issuer of any kind or character
(excluding Permitted Junior Securities) shall be made by or on behalf of the
Issuer on account of principal of, premium, if any, or interest on the Bonds or
on account of the purchase, redemption or other acquisition of any Bonds (other
than payments previously made pursuant to Article Eight) unless and until such
Payment Default shall have been cured or waived or shall have ceased to exist
or such Designated Senior Indebtedness as to which such Payment Default relates
shall have been discharged or paid in full in cash or Cash Equivalents, after
which, subject to Section 10.02 (if applicable), the Issuer shall resume making
any and all required payments in respect of the Bonds, including any missed
payments.

                 (b) Unless Section 10.02 shall be applicable, upon the
occurrence of a Non-payment Default and upon the receipt by the Trustee from a
Senior Representative of written notice of such occurrence stating that such
notice is a Payment Blockage Notice pursuant to Section 10.03(b) of this
Indenture, no payment or distribution of any assets of the Issuer of any kind
or character (excluding Permitted Junior Securities and other than payments
previously made pursuant to Article Eight) shall be made by or on behalf of the
Issuer on account of principal of, premium, if any, or interest on the Bonds or
on account of the purchase, redemption or other acquisition of Bonds for a
period ("Payment Blockage Period") commencing on the receipt by the Trustee of
such Payment Blockage Notice above, as the case may be, until the earliest to
occur of the following events: (i) 179 days shall have elapsed since receipt of
such Payment Blockage Notice by the Trustee (provided such Designated Senior
Indebtedness shall not theretofore have been accelerated), (ii) such
Non-payment Default shall have been cured or waived or shall have ceased to
exist, (iii) such Designated Senior Indebtedness shall have been discharged or
paid in full in cash or Cash Equivalents or (iv) such Payment Blockage Period
shall have been terminated by written notice to the Issuer or the Trustee from
the Senior Representative initiating such Payment Blockage Period, after which,
in each case, the Issuer shall resume making any and all required payments in
respect of the Bonds,





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including any missed payments. Notwithstanding any other provision of this
Indenture, only one Payment Blockage Period may be commenced within any
consecutive 365-day period. No Non-payment Default with respect to Designated
Senior Indebtedness which existed or was continuing on the date of the
commencement of any Payment Blockage Period shall be, or be made, the basis for
the commencement of a second Payment Blockage Period, whether or not within a
period of 365 consecutive days, unless such default shall have been cured for a
period of not less than 90 consecutive days. In no event shall a Payment
Blockage Period extend beyond 179 days from the receipt by the Trustee of the
Payment Blockage Notice and there must be a 186 consecutive day period in any
365 consecutive day period during which no Payment Blockage Period is in
effect. Notwithstanding the foregoing, no further notice may be given in
respect of any Non-payment Default unless and until all scheduled payments of
principal, premium, if any, and interest not paid on the Bonds during any such
Payment Blockage Period as a result of any Payment Blockage Notice shall have
been paid in full in cash or Cash Equivalents.

                 (c) In the event that, notwithstanding the foregoing, the
Trustee or the Holder of any Bond shall have received any payment prohibited by
the foregoing provisions of this Section 10.03, then and in such event such
payment shall be paid over and delivered forthwith to the Senior
Representatives or as a court of competent jurisdiction shall direct for
application to the payment of any due and unpaid Senior Indebtedness, to the
extent necessary to pay all such due and unpaid Senior Indebtedness in cash or
Cash Equivalents, after giving effect to any concurrent payment to or for the
holders of Senior Indebtedness.

                 Section 10.04. Trustee's Relation to Senior Indebtedness.

                 With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Ten, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee.  The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and
the Trustee shall not be liable to any holder of Senior Indebtedness if it
shall mistakenly pay over or deliver to Holders, the Issuer or any other person
moneys or assets to which any holder of Senior Indebtedness shall be entitled
by virtue of this Article Ten or otherwise.

                 Section 10.05. Subrogation to Rights of Holders of Senior
                                Indebtedness.

                 (a) Upon the payment in full of all Senior Indebtedness, the
Holders of the Bonds shall be subrogated to the rights of the holders of such
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on the Bonds shall be paid in full in cash or
Cash Equivalents. For purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness of any cash, property or
securities to which the Holders of the Bonds or the Trustee would be entitled
except for the provisions of this Article, and no payments over pursuant to the
provisions of this Article Ten to the holders of Senior Indebtedness by Holders
of the Bonds or the Trustee shall, as among the Issuer, its creditors other
than holders of Senior Indebtedness, and the Holders of the Bonds, be deemed to
be a payment or distribution by the Issuer to or on account of the Senior
Indebtedness.

                 (b) If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Ten shall
have been applied, pursuant to the provisions of this Article Ten, to the
payment of all amounts payable under the Senior Indebtedness of the Issuer,
then and in such case the Holders shall be entitled to receive from the holders
of such Senior Indebtedness at the time outstanding any payments or
distributions received by such holders of such Senior Indebtedness in excess of
the amount sufficient to pay all amounts payable under or in respect of such
Senior Indebtedness in full.

                 Section 10.06. Provisions Solely To Define Relative Rights.

                 (a) The provisions of this Article Ten are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Bonds on the one hand and the holders of Senior Indebtedness on the other





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<PAGE>   69
hand. Nothing contained in this Article Ten or elsewhere in this Indenture or
in the Bonds is intended to or shall (i) impair, as among the Issuer, its
creditors other than holders of Senior Indebtedness and the Holders of the
Bonds, the obligation of the Issuer, which is absolute and unconditional, to
pay to the Holders of the Bonds the principal of, premium, if any, and interest
on the Bonds as and when the same shall become due and payable in accordance
with their terms; or (ii) affect the relative rights against the Issuer of the
Holders of the Bonds and creditors of the Issuer other than the holders of
Senior Indebtedness; or (iii) prevent the Trustee or the Holder of any Bond
from exercising all remedies otherwise permitted by applicable law upon a
Default or an Event of Default under this Indenture, subject to the rights, if
any, under this Article Ten of the holders of Senior Indebtedness (1) in any
case, proceeding, dissolution, liquidation or other winding up, assignment for
the benefit of creditors or other marshalling of assets and liabilities of the
Issuer referred to in Section 10.02, to receive, pursuant to and in accordance
with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions
specified in Section 10.03, to prevent any payment prohibited by such Section
or enforce their rights pursuant to Section 10.03(c).

                 (b) The failure to make a payment on account of principal of,
premium, if any, or interest on the Bonds by reason of any provision of this
Article Ten shall not be construed as preventing the occurrence of a Default or
an Event of Default hereunder. The Issuer shall promptly notify holders of
Senior Indebtedness if payment on the Bonds is accelerated because of an Event
of Default.

                 Section 10.07. Trustee To Effectuate Subordination.

                 Each Holder of a Bond by such Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Ten and appoints the Trustee his attorney-in-fact for any and all
such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of the Issuer whether in bankruptcy, insolvency,
receivership proceedings, or otherwise, the timely filing of a claim for the
unpaid balance of the Indebtedness of the Issuer owing to such Holder in the
form required in such proceedings and the causing of such claim to be approved.
If the Trustee does not file such a claim prior to 30 days before the
expiration of the time to file such a claim, the holders of Senior
Indebtedness, or any Senior Representative, may file such a claim on behalf of
Holders of the Bonds.

                 Section 10.08. No Waiver of Subordination Provisions.

                 (a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Issuer or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Issuer with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.

                 (b) Without limiting the generality of Section 10.08(a), the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Bonds, without
incurring responsibility to the Holders of the Bonds and without impairing or
releasing the subordination provided in this Article Ten or the obligations
hereunder of the Holders of the Bonds to the holders of Senior Indebtedness, do
any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any person liable in any manner for the collection
or payment of Senior Indebtedness; and (iv) exercise or refrain from exercising
any rights against the Issuer and any other person; provided, however, that in
no event shall any such actions limit the right of the Holders of the Bonds to
take any action to accelerate the maturity of the Bonds pursuant to Article Six
hereof or to pursue any rights or remedies hereunder or under applicable laws
if the taking of such action does not otherwise violate the terms of this
Indenture.





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                 Section 10.09. Notice to Trustee.

                 (a) The Issuer shall give prompt written notice to the Trustee
of any fact known to the Issuer which would prohibit the making of any payment
to or by the Trustee in respect of the Bonds. Notwithstanding the provisions of
this Article Ten or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the
Bonds, unless and until the Trustee shall have received written notice thereof
from the Issuer or a holder of Senior Indebtedness or from any trustee,
fiduciary or agent therefor; and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of this Section 10.09, shall be
entitled in all respects to assume that no such facts exist; provided, however,
that if the Trustee shall not have received the notice provided for in this
Section 10.09 at least three Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose under this Indenture
(including, without limitation, the payment of the principal of, premium, if
any, or interest on any Bond), then, anything herein contained to the contrary
notwithstanding but without limiting the rights and remedies of the holders of
Senior Indebtedness or any trustee, fiduciary or agent thereof, the Trustee
shall have full power and authority to receive such money and to apply the same
to the purpose for which such money was received and shall not be affected by
any notice to the contrary which may be received by it within three Business
Days prior to such date; nor shall the Trustee be charged with knowledge of the
curing of any such default or the elimination of the act or condition
preventing any such payment unless and until the Trustee shall have received an
Officers' Certificate to such effect.

                 (b) Subject to the provisions of Section 7.01, the Trustee
shall be entitled to rely on the delivery to it of a written notice to the
Trustee and the Issuer by a person representing himself to be a holder of
Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish
that such notice has been given by a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of
any person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article Ten, the Trustee may request such person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such person under this Article Ten, and if
such evidence is not furnished, the Trustee may defer any payment to such
person pending judicial determination as to the right of such person to receive
such payment.

                 Section 10.10. Reliance on Judicial Order or Certificate of
                                Liquidating Agent.

                 Upon any payment or distribution of assets of the Issuer
referred to in this Article Ten, the Trustee, subject to the provisions of
Section 7.01, and the Holders shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Issuer, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article.

                 Section 10.11. Rights of Trustee as a Holder of Senior
                                Indebtedness; Preservation of Trustee's Rights.

                 The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article Ten with respect to any Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.  Nothing in this
Article Ten shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 7.07.





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                 Section 10.12. Article Applicable to Paying Agents.

                 In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Issuer and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying
Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article Ten in addition to or in place of the
Trustee.

                 Section 10.13. No Suspension of Remedies.

                 Nothing contained in this Article Ten shall limit the right of
the Trustee or the Holders of Bonds to take any action to accelerate the
maturity of the Bonds pursuant to Article Six or to pursue any rights or
remedies hereunder or under applicable law, subject to the rights, if any,
under this Article Ten of the holders, from time to time, of Senior
Indebtedness.


                                ARTICLE ELEVEN

                              CONVERSION OF BONDS

                 Section 11.01 Conversion Right.

                 (a) Subject to and upon compliance with the provisions of this
Indenture, the Holder of any Bond shall have the right (the "Conversion
Right"), at its option, at any time on or after the occurrence of a Complying
Public Equity Offering and under the other circumstances specified in Section
11.02 and prior to the close of business on June 30, 2000, to convert the
principal amount of any such Bond, or any portion of such principal amount
(subject to Section 2.01 concerning minimum denominations of the Bonds), into
that number of fully paid and non-assessable GTS Shares (as such shares shall
then be constituted) obtained by dividing the principal amount of the Bond or
portion thereof surrendered for conversion by the Conversion Price in effect at
such time, by surrender of the Bond so to be converted in whole or in part in
the manner provided in Section 11.02. A Holder of Bonds is not entitled to any
rights of a holder of GTS Shares until such holder has converted its Bonds to
GTS Shares, and only to the extent such Bonds are deemed to have been converted
to GTS Shares under this Article Eleven.

                 Section 11.02 Exercise of Conversion Right; Issuance of GTS
                               Shares on Conversion.

                 (a) Holders have a Conversion Right which is exercisable in
whole or in part at any time and from time to time (i) in the case of
subparagraph (b) of this Section 11.02, subsequent to the Conversion Date but
not later than the Maturity of the Bond (as such Maturity may be extended
pursuant to the other provisions of this Section), (ii) if a notice of
redemption of the Bonds pursuant to this Indenture has been given, after the
date of such notice and prior to the date of redemption specified in such
notice, (iii) if the Bonds are subject to acceleration as a result of an Event
of Default, following the date notice thereof is given to Holders until the
Bonds are paid in full upon such acceleration; or (iv) if any Non-Complying
Equity Offering occurs, within the 60 day period prior to the Maturity of the
Bonds (provided, however, that such Conversion Right may be exercised prior to
the 60th day prior to Maturity of the Bonds if a Change of Control shall have
occurred, upon delivery of a Conversion Notice by the Bondholder pursuant to
this subparagraph at any time on or after the time the Change of Control Offer
is made pursuant to Section 4.11, until the Maturity of the Bonds). In order to
exercise its Conversion Right, a Holder shall complete a notice in the then
current form obtainable from the Trustee or a specified office of a Conversion
Agent (a "Conversion Notice") (which may be accompanied by a share transfer
form, or other instrument which may be required, signed by the Holder or may
include an authorization signed by the Holder, authorizing the Holder's nominee
to become the registered transferee and to execute any requisite transfer form
or other instrument which may be required, on behalf of the Holder) and deliver
such Conversion Notice and where appropriate, an executed





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share transfer form, or other instrument which may be required, to the Trustee
or a specified office of any Conversion Agent (together with the relevant Bond
or Bonds if in definitive form) and any payment required by Section 11.06. Once
given, a Conversion Notice shall be irrevocable and may not be withdrawn
without the consent in writing of the Issuer.

                 (b) If a Complying Public Equity Offering occurs prior to the
Maturity of the Bonds, then the Issuer shall, no earlier than twenty Business
Days and not later than fifteen Business Days prior to the anticipated
completion of such offering, cause notice to be given to the Trustee, the
Holders and the Luxembourg Stock Exchange to the effect that a Complying Public
Equity Offering is expected to occur on a specified date (the Conversion Date)
and that on and after the Conversion Date the Holders may from time to time
until Maturity of the Bonds by delivery of a notice pursuant to paragraph (a)
above, elect to exercise their Conversion Right, in whole or in part. Following
the completion of such Complying Public Equity Offering, the Issuer shall
promptly cause notice to be given to the Trustee, the Holders and the
Luxembourg Stock Exchange stating that the Complying Public Equity Offering has
been completed and confirming the Conversion Date. The Issuer shall also
provide in the Notice of Offering all information concerning the Complying
Public Equity Offering and all prior offerings since the Issue Date that may be
relevant to a Conversion Price determination or requested by the Trustee in
relation thereto.

                 (c) If any Non-Complying Equity Offering occurs prior to the
Maturity of the Bonds on June 30, 2000, then the Issuer shall no later than ten
Business Days after the completion of such offering cause a Notice of Offering
to be given to the Trustee, the Holders and the Luxembourg Stock Exchange of
such fact and that at any time and from time to time, in whole or in part (but
not earlier than the 60th day prior to the Maturity of the Bonds, subject to
the provisions of paragraph (i)(d) above) the Holders may by delivery of notice
pursuant to subparagraph (a) of this Section elect to exercise their Conversion
Right. The Issuer shall also provide in the Notice of Offering all information
concerning all offerings since the Issue Date that may be relevant to a
Conversion Price determination or requested by the Trustee in relation thereto.

                 (d) If a Complying Public Equity Offering or a Non-Complying
Equity Offering occurs within the 60 day period prior to and ending at the
original Maturity of the Bonds, then for purposes of exercise of the Conversion
Right by Holders, the Maturity for all Bonds shall be postponed to the 60th day
following the date of the Notice of Offering and the Bonds will continue to
accrue interest to the date the Bonds are converted, provided that, in no event
will interest accrue for a period longer than 60 days from June 30, 2000.

                 (e) The Conversion Right of any Holder in respect of a Bond
becoming redeemable pursuant to this Indenture and in respect of which the
conditions required for conversion have not been satisfied by the relevant
Holder by the end of the second Business Day prior to any date for redemption
thereof shall, except as provided below, thereupon terminate. Notwithstanding
the foregoing, if there is a default in making full payment when due of the
redemption monies in respect of any Bond, the Conversion Right in respect
thereof shall extend up to and including the date on which payment has been
received by a Paying Agent or the Trustee. The Conversion Right of a Holder in
respect of a Bond becoming due and payable as a result of the acceleration of
the Maturity thereof following an Event of Default shall terminate on the date
that payment with respect to such Bonds has been received by a Paying Agent or
the Trustee.

                 (e) In the event where Holders have elected to convert their
Bonds pursuant to this Article Eleven by giving notice thereof to the Issuer in
accordance with the terms of this Indenture, then any subsequent redemption of
the Bonds shall not affect the right of the Holders of such Bonds to receive
GTS Shares and such Bonds shall not be so redeemed. No earlier than 60 days and
no later than 30 days prior to the Maturity of the Bonds, the Issuer shall
deliver a notice to the Trustee, the Holders and the Luxembourg Stock Exchange
of the status of the Conversion Rights, if any, of the Holders.

                 (f) In order to exercise the Conversion Right with respect to
any Bond in certificated form, the Holder of any such Bond to be converted in
whole or in part shall surrender such Bond, duly endorsed, at an office or
agency maintained by the Issuer and shall give written notice of conversion in
the form provided on the





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<PAGE>   73
Bonds (or such other notice which is acceptable to the Issuer) to the office or
agency that the Holder elects to convert such Bond or such portion thereof
specified in said notice. Such notice shall also state the name or names (with
address) in which the certificate or certificates for GTS Shares which shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer taxes, if required pursuant to Section 11.07. Each such Bond
surrendered for conversion shall, unless the GTS Shares issuable on conversion
are to be issued in the same name as the registration of such Bond, be duly
endorsed by, or be accompanied by instruments of transfer in form satisfactory
to the Issuer duly executed by, the Holder or its duly authorized attorney.

                 (g) In order to exercise the Conversion Right with respect to
any interest in a Bond in global form, the beneficial holder must complete the
appropriate instruction form for conversion pursuant to the Depository's
book-entry conversion program, deliver by book-entry delivery an interest in
such Bond in global form, furnish appropriate endorsements and transfer
documents if required by the Issuer or the Trustee or Conversion Agent, and pay
any transfer taxes, if required pursuant to Section 11.07.

                 (h) As promptly as practicable after satisfaction of the
requirements for conversion set forth above, subject to compliance with any
restrictions on transfer if GTS Shares issuable on conversion are to be issued
in a name other than that of the Holder (as if such transfer were a transfer of
the Bond or Bonds (or portion thereof) so converted), the Issuer shall issue
and shall deliver to such Holder at the office or agency maintained by the
Issuer for such purpose, a certificate or certificates for the number of full
GTS Shares issuable upon the conversion of such Bond or portion thereof in
accordance with the provisions of this Article and a check or cash in respect
of any fractional interest in respect of a share of GTS Common Stock arising
upon such conversion, as provided in Section 11.03. In case any Bond of a
denomination greater than U.S.$10,000 shall be surrendered for partial
conversion, and subject to Section 2.01, the Issuer shall execute and the
Trustee shall authenticate and deliver to the Holder of the Bond so
surrendered, without charge to such Holder, a new Bond or Bonds in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Bond.

                 (i) Each conversion shall be deemed to have been effected as
to any such Bond (or portion thereof) within three Business Days of the date on
which the Bond requirements set forth above in this Section 11.02 have been
satisfied as to such Bond (or portion thereof), and the person in whose name
any certificate or certificates for GTS Shares shall be issuable upon such
conversion shall become the holder of record of the shares represented thereby
on such conversion date; provided, however, that any such surrender on any date
when the stock transfer books of the Issuer shall be closed shall constitute
the person in whose name the certificates are to be issued as the record holder
thereof for all purposes on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price
in effect on the date upon which such Bond shall be surrendered.

                 (j) Interest on the principal amount of any Bond or portion
thereof surrendered for conversion shall cease to accrue from and after the
effective date of such conversion.

                 (k) Upon the conversion of an interest in a Bond in global
form, the Trustee, or the Custodian at the direction of the Trustee, shall make
a notation on such Bond in global form as to the reduction in the principal
amount represented thereby.

                 Section 11.03 Cash Payments in Lieu of Fractional Shares.

                 No fractional shares of GTS Common Stock or scrip representing
fractional shares shall be issued upon conversion of Bonds. If more than one
Bond shall be surrendered for conversion at one time by the same Holder, the
number of full shares which shall be issuable upon conversion shall be computed
on the basis of the aggregate principal amount of the Bonds (or specified
portions thereof to the extent permitted hereby) so surrendered for conversion.
If any fractional share of stock otherwise would be issuable upon the
conversion of any Bond or Bonds, the Issuer shall make an adjustment therefor
in cash at the current market value thereof to the





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<PAGE>   74
Holder of such Bonds.  Upon exercise of its Conversion Right a Holder shall,
when delivering the relevant Conversion Notice or no later than 21 days
following the relevant Conversion Date, give directions to a Conversion Agent
for payment of any cash sum (rounded up to the nearest $0.01) which such
Holder is entitled to receive pursuant to this Section 11.03 and which shall
be paid by way of U.S. dollar check drawn on a bank in the City of New York or,
by wire transfer to a U.S. dollar account maintained by the Holder with a bank
in the City of New York.

                 Section 11.04 Conversion Price.

                 (a)    The applicable Conversion Price of the Bonds 
shall be determined as follows:

                 (i)    where a Complying Public Equity Offering has not been 
      preceded, since the Issue Date, by a Non-Complying Equity Offering, the
      Conversion Price shall be equal to the per share price to the public in
      the Complying Public Equity Offering multiplied by (A) 100 per cent. if
      the Complying Public Equity Offering occurs on or before June 30, 1998,
      (B) 93 per cent. if the Complying Public Equity Offering occurs on or
      before June 30, 1999 and after June 30, 1998, or (C) 85 per cent. if the
      Complying Public Equity Offering occurs after June 30, 1999;

                 (ii)   where a Complying Public Equity Offering has been 
      preceded by one or more Non-Complying Equity Offerings since the Issue
      Date, the Conversion Price shall be equal to the lower of (1) the
      dollar-weighted average conversion price for all of such Non-Complying
      Equity Offerings and the Complying Public Equity Offering (as calculated
      for each such offering by multiplying the gross per share offering price
      for the applicable offering by (A) 100 per cent. if the closing date of
      such offering occurs on or before June 30, 1998, (B) 93 per cent. if the
      closing date of such offering occurs on or before June 30, 1999 and after
      June 30, 1998, or (C) 85 per cent. if the closing date of such offering
      occurs after June 30, 1999) and (2) the conversion price for the
      Complying Public Equity Offering alone (as calculated in clause (i)
      above);

                 (iii)  where a Non-Complying Public Equity Offering has an 
      offering size of at least $50,000,000 and (A) no Complying Public Equity
      Offering has occurred since the issuance of the Bonds, and (B) there has
      been one or more Non-Complying Equity Offerings, the Conversion Price
      shall be equal to lower of (1) the dollar-weighted average conversion
      price for all of such Non-Complying Equity Offerings and the
      Non-Complying Public Equity Offering (as calculated for each
      Non-Complying Equity Offering by multiplying the per share offering price
      by (A) 100 per cent. if the closing date of such offering occurs on or
      before June 30, 1998, (B) 93 per cent. if the closing date of such
      offering occurs on or before June 30, 1999 and after June 30, 1998, or
      (C) 85 per cent. if the closing date of such offering occurs after June
      30, 1999) and (2) the conversion price for the Non-Complying Public
      Equity Offering (as calculated in (1) above); or

                 (iv)   in the case of any other Non-Complying Equity Offering 
      not provided for in clause (iii) above, where no Complying Public Equity
      Offering has occurred since the Issue Date, the applicable Conversion
      Price shall be equal to the lowest conversion price calculated for each
      Non-Complying Equity Offering that has occurred since the Issue Date,
      where each such conversion price will be determined by multiplying the
      gross per share offering price for each such offering by (A) 100 per
      cent. if the closing date of such offering occurs on or before June 30,
      1998, (B) 93 per cent. if the closing date of such offering occurs on or
      before June 30, 1999 and after June 30, 1998, or (C) 85 per cent. if the
      closing date of such offering occurs after June 30, 1999.

                 (b)   There shall be excluded from the calculation of the
applicable Conversion Price any Private Equity Offerings aggregating no more
than $100 million in gross proceeds if such offering or offerings are
consummated on or prior to December 31, 1997 and any Strategic Equity Offering
that occurs from the Issue Date so long as there shall have occurred a Complying
Public Equity Offering or a Non-Complying Equity Offering.




                                       69
<PAGE>   75
                 
                (c)   Upon receipt of a Conversion Notice from a Holder, the
Issuer shall promptly file with the Trustee and any Conversion Agent other 
than the Trustee an Officers' Certificate setting forth the applicable 
Conversion Price and setting forth all the information relevant to a
determination of such Conversion Price.

                (d)   The Issuer will publish the Conversion Price and the
specified procedures regarding the manner in which Holders will receive GTS
Shares upon conversion of the Bonds in the Luxemburger Wort and will notify the
Luxembourg Stock Exchange of the Conversion Price when determined for so long
as the Bonds are listed on the Luxembourg Stock Exchange.

                Section 11.05 [Reserved].

                Section 11.06 Stamp and Other Duties and Exchange Costs. 
Payment of all stamp, transfer and registration duties (if any) and any
brokers' commission and stock exchange transaction charges and any other tax
thereon arising on exercise of Conversion Rights and/or on the transfer or
delivery of GTS Shares by the Issuer (or the Trustee pursuant to this
Indenture) to or to the order of the Trustee or the relevant Holder in
connection therewith, payable in or imposed by the United States, any state or
other political sub-division thereof and any other jurisdiction in which the
register in the respect of any securities is located will be made or procured
by the Issuer.  If the Issuer shall fail to pay any such duties or costs, the
relevant Holder shall be entitled to tender and pay the same.  The Issuer shall
promptly reimburse each Holder in respect of the payment of such duties or
costs and any penalties paid in respect thereof.  A Holder exercising
Conversion Rights must pay to the relevant Conversion Agent any such duties or
costs arising in any other circumstances.

                Section 11.07 Reservation of Shares; Shares to Be 
Fully Paid; Listing of GTS Shares.

                (a)   The Issuer shall provide, free from preemptive rights,
out of its authorized but unissued Common Stock held in treasury, sufficient
shares to provide for the conversion of the Bonds from time to time as such
Bonds are presented for conversion.

                (b)   The Issuer covenants that all shares of GTS Common Stock
issued upon conversion of Bonds will be fully paid and non-assessable and free
from all taxes, liens and charges with respect to the issue thereof.

                (c)   The Issuer further covenants that promptly after the GTS
Common Stock shall have been listed on the New York Stock Exchange, the
American Stock Exchange, the London Stock Exchange, the Nasdaq National Market
or any other national securities exchange or automated quotation system the
Issuer will, to the extent permitted by the rules of such exchange or automated
quotation system, list and keep listed, so long as the GTS Common Stock shall
be so listed on such exchange or automated quotation system, all GTS Common
Stock issuable upon conversion of the Bonds.

                Section 11.08 Responsibility of Trustee.  The Trustee and any
other Conversion Agent shall not be accountable with respect to the validity or
value (or the kind or amount) of any shares of GTS Common Stock, or of any
securities or property, which may at any time be issued or delivered upon the
conversion of any Bond; and the Trustee and any other Conversion Agent make no
representations with respect thereto, and are entitled to rely conclusively on
the Issuer therefor.  Subject to the other provisions of this Indenture,
neither the Trustee nor any Conversion Agent shall be responsible for any
failure of the Issuer to issue, transfer or deliver any shares of GTS Common
Stock or stock certificates or other securities or property or cash upon the
surrender of any Bond for the purpose of conversion or to comply with any of
the duties, responsibilities or covenants of the Issuer contained in this
Article.  Without limiting the generality of the foregoing, neither the Trustee
nor any Conversion Agent shall be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture entered
into pursuant to Section 11.05 relating either to the kind or amount of shares
of stock or securities or property (including cash) receivable by Holders upon
the conversion of their Bonds after any event referred to in such Section 11.05
or to any adjustment to be made with respect thereto, but, subject to the other




                                       70
<PAGE>   76
provisions of this Indenture may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, the
Officers' Certificate (which the Issuer shall be obligated to file with the
Trustee prior to the execution of any such supplemental indenture) with respect
thereto.

                 Section 11.09 Notice to Holders Prior to Certain 
Actions.  In case:

                 (a)   of any reclassification of the Common Stock of the Issuer
   (other than a subdivision or combination of its outstanding Common Stock, or
   a change in par value, or from par value to no par value, or from no par
   value to par value), or of any consolidation or merger to which the Issuer is
   a party and for which approval of any stockholders of the Issuer is required,
   or of the sale or transfer of all or substantially all of the assets of the
   Issuer; or

                 (b)   of the voluntary or involuntary dissolution, liquidation
   or winding-up of the Issuer;  

the Issuer shall cause to be filed with the Trustee and to be mailed to each 
holder of Bonds at its address appearing on the Register, as promptly as
possible but in any event at least fifteen days prior to the applicable date 
hereinafter specified, a notice stating the date on which such 
reclassification, consolidation, merger, sale, transfer, dissolution, 
liquidation or winding-up is expected to become effective or occur, and the 
date as of which it is expected that holders of GTS Common Stock of record 
shall be entitled to exchange their GTS Common Stock for securities or other 
property deliverable upon such reclassification, consolidation, merger, sale, 
transfer, dissolution, liquidation or winding-up.  Failure to give such notice,
or any defect therein, shall not affect the legality or validity of such 
dividend, distribution, reclassification, consolidation, merger, sale, 
transfer, dissolution, liquidation or winding-up.





                                       71
<PAGE>   77
                                 ARTICLE TWELVE

                                 MISCELLANEOUS

                    Section 12.01. Acts of Holders, Record Dates.

                    (l)     Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture
to be given or taken by Holders may be embodied in and evidenced by (i) one or
more instruments of substantially similar tenor signed by such Holders in 
person or by agent or proxy duly appointed in writing or (ii) the record of 
Holders voting in favor thereof, either in person or by proxies duly appointed 
in writing, at any meeting of Holders duly called and held in accordance with 
the provisions of Article Five.  Such action shall become effective when such 
instrument or instruments or record is delivered to the Trustee and, where it 
is hereby expressly required, to the Issuer.  The Trustee shall promptly 
deliver to the Issuer copies of all such instruments and records delivered to
the Trustee.  Such instrument or instruments (and the action embodied therein 
and evidenced thereby) are herein sometimes referred to as the "Act" of the 
Holders signing such instrument or instruments or so voting at such meeting. 
Proof of execution of any such instrument or of a writing appointing any such 
agent or proxy shall be sufficient of any purpose of this Indenture and 
(subject to Section 7.01) conclusive in favor of the Trustee and the 
Company, if made in the manner provided in the Section.  The record of any 
meeting of Holder shall be proved in the manner provided in Section 5.06.

                    (2)     The fact and date of the execution by any person 
of any such instrument or writing may be proved by the affidavit of a witness
of such execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than
his individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.  The and date of the execution of any such
instrument or writing, or the authority of the person the same, may also be
proved in any other manner which the Trustee deems sufficient.

                    (3)     The ownership of Bonds shall be proved by the 
Register.

                    (4)     Any request, demand, authorization, direction, 
notice, consent, waiver or other Act of the Holder of any Bond shall bind every
future Holder of the same Bond and the Holder of every Bond issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Issuer in reliance thereon, whether or not notation of such action is made upon
such Bond.

                    (5)    Without limiting the foregoing, a Holder
entitled hereunder to give or take any action hereunder with regard to any
particular Bond may do so with regard to all or any part of the principal
amount of such Bond or by one or more duly appointed agent or proxy each of
which may do so pursuant to such appointment with regard to all or any
different part of such principal amount.

                    (6)    The provisions of this Section 12.01 are subject 
to the provision of Section 5.05(a).

                    Section 12.02. Notices.

                    Any notice or communication shall be sufficiently given if
in writing and delivered in person or mailed by first class mail, postage
prepaid, addressed as follows:

                    If to the Issuer to:



                                       72
<PAGE>   78
                       Global TeleSystems Group, Inc.
                       1751 Pinnacle Drive
                       North Tower 12th Floor
                       McLean, VA 22102
                       Attention:  Chief Financial Officer

                    If to the Trustee to:

                       The Bank of New York
                       101 Barclay Street, Floor 21 West
                       New York, New York 10286
                       Attention:  Corporate Trust Administration

                    The parties hereto by notice to the other parties may
designate additional or different addresses for subsequent notices or
communications.

                    Notices to Holders shall be validly given if (i) mailed to
them at their respective addresses in the Register and (ii) published in an
English Language newspaper of general circulation in Europe approved by the
Trustee, currently expected to be the Financial Times, and, so long as the
Bonds are listed on the Luxembourg Stock Exchange, published in a daily
newspaper of general circulation in Luxembourg approved by the Trustee,
currently expected to be the Luxemburger Wort.  Any such notice shall be deemed
to have been given on the first date on which both conditions have been met.

                    Failure to mail a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other
Holders.  Except for a notice to the Trustee, which is deemed given only when
received, if a notice or communication is mailed in the manner provided above,
it is duly given, whether or not the addressee receives it.

                    Section 12.03. Communication by Holders with Other
Holders.

                    Holders may communicate with other Holders with respect to
their rights under this Indenture or the Bonds.

                    Section 12.04. Certificate and Opinion as to Conditions
Precedent.

                    Upon any request or application by the Issuer to the
Trustee to take any action under this Indenture, such obligor shall furnish to
the Trustee:

                    (i) an Officers' Certificate stating that, in the opinion
                 of the signers, all conditions precedent, if any, provided for
                 in this Indenture relating to the proposed action have been
                 complied with; and

                    (ii) an Opinion of Counsel stating that, in the opinion of
                 such counsel, all such conditions precedent have been complied
                 with.

                    Section 12.05. Statements Required in Certificate or 
Opinion.

                    Each certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture shall include:

                    (i)  a statement that the person making such certificate
                 or opinion has read such covenant or condition;



                    

                                      73
<PAGE>   79
                    (ii) a brief statement as to the nature and scope of the
                 examination or investigation upon which the statement or
                 opinions contained in such certificate or opinion are based;

                    (iii) a statement that, in the opinion of such person, he
                 has made such examination or investigation as is necessary to
                 enable him to express an opinion as to whether or not such
                 covenant or condition has been complied with; and

                    (iv) a statement as to whether or not, in the opinion of
                 such person, such condition or covenant has been complied with;
                 provided, however, that with respect to matters of fact an
                 Opinion of Counsel may rely on an Officers' Certificate or
                 certificates of public officials.

                    Section 12.06. Rules by Trustee, Transfer Agents, 
Conversion Agents, Paying Agents, Registrar.

                    The Trustee may make reasonable rules for action by or at
a meeting of Holders.  The Transfer Agents, Conversion Agents, Paying Agents or
Registrar may make reasonable rules for its functions.

                    Section 12.07. Governing Law.

                    The internal laws of the State of New York shall govern
this Indenture and the Bonds.  The Trustee, the Issuer and the Holders agree to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Indenture or the Bonds.

                    Section 12.08. No Interpretation of Other Agreements.

                    This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Issuer, any Subsidiary or Significant
Joint Venture.  Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.

                    Section 12.09. No Recourse Against Others.

                    A director, officer, employee, stockholder or Affiliate, as
such, of the Issuer shall not have any liability for any obligations of the
Issuer under the Bonds or this Indenture or for any claim based on, in respect
of or by reason of, such obligations or their creation.  Each Holder by
accepting a Bond waives and releases all such liability.

                    Section 12.10. Successors.

                    All agreements of the Issuer in this Indenture and the
Bonds shall bind its successors.  All agreements of the Trustee in this
Indenture shall bind its successors.

                    Section 12.11. Duplicate Originals.

                    The parties may sign any number of copies of this
Indenture.  Each signed copy shall be an original, but all such executed copies
together represent the same agreement.

                    Section 12.12. Separability.

                    In case any provision in this Indenture or the Bonds shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and a Holder shall have no claim therefor against any party hereto.





                                       74
<PAGE>   80
                    Section 12.13. Table of Contents, Headings, etc.

                    The Table of Contents and headings of the Articles and
Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof

                    Section 12.14. Benefits of Indenture.

                    Except as provided in Article Ten, nothing in this
Indenture or in the Bonds, express or implied, shall give to any person, other
than the parties hereto and their successors hereunder, and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.





                                       75
<PAGE>   81
        IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be 
duly executed as of the day and year first above written.


                                        GLOBAL TELESYSTEMS GROUP, INC.



                                        By: [ILLEGIBLE]
                                           --------------------------------
                                           Name:
                                           Title:




                                        THE BANK OF NEW YORK, as Trustee

                                              
                                               
                                        By: /s/ STEVEN D. TORGESON
                                           --------------------------------
                                           Name:  Steven D. Torgeson     
                                           Title: Assistant Vice President
<PAGE>   82
                                                                EXHIBIT A-1


                                FORM OF SECURITY


        This instrument was issued with "original issue discount" and the
following information is supplied for purposes of Sections 1273 and 1275 of the
Internal Revenue Code:

        Issue Date:  July 14, 1997      Original issue discount under Section 
                                        1273 of the Internal Revenue Code (for 
                                        each $1,000 principal amount): $10

        Yield to maturity for period    Issue Price for each $1,000 principal 
        from Issue Date to June 30,     amount): $1,000
        2000: 9.07% compounded 
        semiannually.        
                                        

(The yield to maturity and the amount of original issue discount have been
computed without giving effect to (i) the additional interest that will accrue
in the event the Issuer fails to file a registration statement or cause such a
statement to remain effective as required by the Registration Rights Agreement,
(ii) the increase in the rate of interest in the event the Issuer fails to
consummate a Complying Equity Offering on or before June 30, 1999 and (iii) a
redemption premium equal to 21% of the principal amount of the instrument
payable in the event the Issuer fails to consummate a complying Public Equity
Offering prior to June 30, 2000; each as described on the reverse hereof.  In
the event that any of the foregoing contingencies occur, or in the event that a
Complying Public Equity Offering occurs on or before June 30, 1998, the yield
to maturity and the amount of original issue discount will change.)

                         GLOBAL TELESYSTEMS GROUP, INC.
                 SENIOR SUBORDINATED CONVERTIBLE BOND DUE 2000


CUSIP NO. ____
ISIN NO.  ____


NO. _____                                                              $_______


[APPROPRIATE FORM OF LEGEND SET FORTH IN EXHIBIT A-2 TO BE INSERTED HERE.]

        Global TeleSystems Group, Inc., a corporation incorporated under the
laws of the State of Delaware (herein called the "Issuer", which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co. or registered assigns, the
principal sum of _________ Dollars on June 30, 2000, at the office or agency of
the Issuer referred to below, and to pay interest thereon on January 15 and
July 15, in each year, commencing on January 15, 1998, accruing from the most
recent Interest Payment Date to which interest has been paid or duly provided
for or, if no interest has been paid, from the original date of issuance.  The
Bonds bear interest payable at the rate of 8.75 per cent. per annum from and
including the date of their issuance to but excluding June 30, 1998, which rate
will increase to 9.25 per cent. per annum from and including June 30, 1998 to
but excluding June 30, 1999 and which rate will increase to 9.75 per cent. per
annum from and including June 30, 1999 until Maturity.  However, in the event 
of a Complying Public Equity Offering, the interest rate will remain at the
interest rate prevailing on the day immediately preceding such Complying Public
Equity Offering until Maturity of the Bonds.  Interest on each Bond will 
cease to accrue from the Redemption Date or Conversion Date thereof unless, 
upon due presentation of such Bond, payment of principal is improperly 
withheld or refused or conversion is not consummated, as the case may be.  In 
such event, interest will continue to accrue on such Bond up to and including 
(a) the date on which payment in full of the principal thereof (plus accrued 
interest) is made or (if earlier) the date on which the funds for the payment 
in full of the principal thereof (plus accrued interest) have been received in 
New York City by the Trustee 


                                     A-1/1
<PAGE>   83
or (b) the Bonds are converted to GTS Shares. Interest shall be computed on the
basis of a 360 day year consisting of twelve (12) months of 30 days each and, in
the case of an incomplete month, the number of days elapsed.

        The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in the Indenture referred to on the
reverse hereof, be paid to the person in whose name this Bond (or one or more
Predecessor Bonds) is registered at the close of business on the Regular Record
Date for such interest, which shall be June 30 or December 31 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date
(each a "Regular Record Date"). Any such interest not so punctually paid, or
duly provided for, and interest on such defaulted interest at the rate borne by
the Bonds, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may be paid to the person in whose name
this Bond (or one or more Predecessor Bonds) is registered at the close of
business on a special record date for the payment of such defaulted interest
to be fixed by the Trustee, notice of which shall be given to Holders of bonds
not less than 10 days prior to such special record date, or may be paid at any
time in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Bonds may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in such Indenture.

        Payment of the principal of, premium, if any, and interest on this Bond
will be made at the office or agency of the Issuer maintained for that purpose
in the Borough of Manhattan in The City of New York, or at such other office or
agency of the Issuer as may be maintained for such purpose, in such coin or
currency of the United states of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Issuer by check mailed to
the address of the person entitled thereto as such address shall appear on the
security register maintained by the Registrar.

        Reference is hereby made to the further provisions of this Bond set
forth on the reverse hereof.

        Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, and a
seal has been affixed hereon, this Bond shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.






                                     A-1/2
<PAGE>   84
        IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed.



Dated:                                  GLOBAL TELESYSTEMS GROUP, INC.


                                        By:
                                           ---------------------------------
                                           Name:
                                           Title:



Attest:


- ----------------------------------
Authorized Signature















                                     A-1/3
             
<PAGE>   85
                    TRUSTEE'S CERTIFICATE OF AUTHENTICATION


        This is one of the Bonds of Global TeleSystems Group, Inc. referred to 
in the within-mentioned Indenture.


Dated:                                  THE BANK OF NEW YORK, as Trustee


                                        By:
                                           -------------------------------
                                           Authorized Signatory








                                     A-1/4
<PAGE>   86

                               (Reverse of Bond)

1.       General

                          The Senior Subordinated Convertible Bonds due 2000
(the "Bonds") of Global TeleSystems Group, Inc. (the "Issuer") are issued under
an indenture dated as of July 14, 1997 (the "Indenture") between the Issuer,
The Bank of New York, as trustee (the "Trustee"), registrar (the "Registrar")
and paying, conversion and transfer agent (the "Principal Paying Agent"). The
issue of the Bonds was authorized by a resolution of the Board of Directors of
the Issuer on July 8, 1997. Certain statements herein are summaries of, and are
subject to, the detailed provisions of the Indenture, which contains the forms
of Bonds. Copies of the Indenture are available for inspection at the
registered office of the Trustee, being at the date hereof at One Wall Street,
New York, New York 10286 and at the specified offices of each of the Paying
Agents. The Bondholders are entitled to the benefit of, are bound by, and are
deemed to have notice of all the provisions of the Indenture. The Bonds mature
on June 30, 2000. In the event the provisions of this Bond differ from the
provisions contained in the Indenture, the provisions contained in the
Indenture shall control.

2.       Status, Form, Denomination and Title

(A)              Status

                          The Bonds are direct, unsecured, senior subordinated
obligations of the Issuer and will rank pari passu with each other and with all
other present and future unsecured, senior subordinated indebtedness of the
Issuer.

(B)              Form and Denomination

                          The Bonds are issued in registered form in the
minimum denomination of U.S. $10,000 and integral multiples of $1,000 in excess
thereof.

(C)              Title

                          Title to the Bonds passes only by registration in the
register of Bondholders (the "Register") maintained by the Registrar. The
registered holder of any Bond will (except as otherwise required by law) be
treated as its absolute owner for all purposes (whether or not such bond is
overdue and regardless of any notice of ownership, trust or any interest in it
or any writing on, or the theft or loss of, the certificate issued in respect
of it) and no person will be liable for so treating the holder. As used herein,
"Bondholder" and (in relation to a Bond) "holder", mean the person in whose
name a Bond is registered.

3.       Interest

                          The Bonds bear interest payable at the rate of 8.75
per cent. per annum from and including the date of their issuance to but
excluding June 30, 1998, which rate will increase to 9.25 per cent. per annum
from and including June 30, 1998 to but excluding June 30, 1999 and which rate
will increase to 9.75 per cent. per annum from and including June 30, 1999
until Maturity. However, in the event of a Complying Public Equity Offering,
the interest rate will remain at the interest rate prevailing on the day
immediately preceding such Complying Public Equity Offering until Maturity of
the Bonds. Interest on each Bond will cease to accrue from the Redemption Date
or Conversion Date thereof unless, upon due presentation of such Bond, payment
of principal is improperly withheld or refused or conversion is not
consummated, as the case may be. In such event, interest will continue to
accrue on such Bond up to and including: (a) the date on which payment in full
of the principal thereof (plus accrued interest) is made or (if earlier) the
date on which the funds for the payment in full of the principal thereof (plus
accrued interest) have been received in New York City by the Trustee or (b) the
Bonds are converted to GTS Shares. Interest shall be computed on the basis of a
360 day year consisting of twelve (12) months of 30 days each and, in the case
of an incomplete month, the number of days elapsed.




                                    A-1/5
<PAGE>   87
         Interest is payable semiannually in arrears on July 15 and January     
15 of each year commencing January 15, 1998 (each, an "Interest Payment Date"),
to the person in whose name a Bond (or any predecessor Bond) is registered at
the close of business on the preceding June 30 or December 31, as the case may
be. Each Bond will carry a right to interest in respect of all periods from the
date of issue thereof, or the date from which interest has been paid to,
whichever is later, up to but excluding the relevant Redemption Date or
Conversion Date.

         The Luxembourg Stock Exchange will be informed of each change in the
interest rate of the Bonds on the date of such change.

4.       Transfers of Bonds; Issue of Certificates

(A)              Transfers

         A Bond may be transferred by depositing the certificate issued in
respect of that Bond, with the form of transfer on the back duly completed and
signed, at the specified office of the Registrar or any of the Transfer Agents.

(B)              Definitive Bonds

         Bonds represented by interests in Global Certificates  are
exchangeable for certificated physical Bonds in registered form only if (i) DTC
is at any time unwilling or unable to continue as a depositary and a successor
depositary is not appointed by the Issuer within 90 days of notice of such
fact, or (ii) the Trustee has instituted or been directed to institute any
judicial proceeding in a court to enforce the rights of the Bondholders under
the Bonds and has been advised by counsel that it is necessary or appropriate
to obtain possession of certificated physical   Bonds.

(C)              Replacement of Bonds

         In case any certificate representing a Bond shall become mutilated,
defaced, destroyed, lost or stolen, the Issuer will execute and, upon the
Issuer's request, the Trustee will authenticate and deliver a new certificate
of like tenor (including the same date of issuance) and equal principal amount,
registered in the same manner, dated the date of its authentication and bearing
interest from the date to which interest has been paid on such Bond, in
exchange and substitution for such certificate (upon surrender and cancellation
thereof in the case of mutilated or defaced certificates) or in lieu of and
substitution for such certificate. In case such certificate is destroyed, lost
or stolen, the applicant for a substitute certificate shall furnish to the
Issuer satisfactory evidence of the destruction, loss or theft of such
certificate and of the ownership thereof. Upon the issuance of any substituted
certificate, the Issuer may require the payment by the registered holder
thereof of a sum sufficient to cover fees and expenses connected therewith,
together with such indemnity as the Issuer and Trustee shall require.

(D)              Formalities free of charge 

         Registration of transfer of Bonds will be effected without charge but
only upon payment (or the giving of such indemnity as the Issuer, the Trustee
or any of the Paying Agents may require) in respect of any tax or other
governmental charges which may be imposed in relation to it.

(E)              Closed periods

         No Bondholder may require the transfer of a Bond to be registered
during the period of 15 days ending on the due date for any payment of
principal of or interest on or Additional Amounts, if any, on that Bond or
after a Conversion Notice (as defined below) has been delivered with respect
thereto.





                                    A-1/6
<PAGE>   88
(F)                     Regulations

                          All transfers of Bonds and entries on the Register
will be made subject to the detailed regulations concerning transfer of Bonds
set forth in the Indenture. The regulations may be changed by the Issuer, with
the prior written approval of the Trustee. A copy of the current regulations
will be mailed (at the Issuer's expense) by the Trustee to any Bondholder who
asks for one.

(G)                     Payments

                          The principal of, and premium, if any, on the Bonds
will be paid against surrender thereof at the main office of the Paying Agent
in New York City or, subject to applicable laws and regulations, at the office
of the paying agent in Luxembourg by U.S. dollar check drawn on a bank in the
City of New York, or by a wire transfer to a U.S. dollar account maintained by
the payee with a bank in the City of New York. The Issuer will at all times
maintain a Principal Paying Agent and Conversion Agent in New York City, and,
so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules
of the Luxembourg Stock Exchange so require, a Paying Agent, Conversion Agent
and Transfer Agent in Luxembourg.

                          Payment in respect of interest on any Interest
Payment Date with respect to any Bond will be made to the person in whose name
such Bond is registered at the close of business on the June 30 or December 31,
as the case may be, preceding such Interest Payment Date by U.S. dollar
check drawn on a bank in the City of New York mailed to such person at the
address specified in the Register on such day or, under certain circumstances,
by wire transfer to a U.S. dollar account maintained by the payee with a bank
in the City of New York, provided that a written request from such holder to
such effect designating such account is received by the relevant Paying Agent
no later than fifteen days before the relevant Interest Payment Date. Unless
such designation is revoked, any such designation made by such person with
respect to such Bond will remain in effect with respect to any future payments
with respect to such Bond payable to such person.

                          If any payment on a Bond is due on a day that is, at
any place of payment, a day on which banking institutions are authorized or
obligated by law or executive order to close, then, at each place of payment,
such payment need not be made on such day but may be made on the next
succeeding day that is not, at such place of payment, a day on which banking
institutions are authorized or obligated by law or executive order to close (a
"Business Day"), with the same force and effect as if made on the originally
scheduled date of such payment, and no interest will accrue for the period from
and after such date.

5.   Additional Amounts

                          All payments of principal, premium, if any, and
interest with respect to the Bonds will be made without withholding or
deduction at source for, or on account of, any present or future taxes, fees,
duties, assessments or governmental charges of whatever nature imposed or
levied by the United States or any political subdivision or taxing authority
thereof or therein, unless such withholding or deduction is required by (i) the
laws (or any regulations or rulings promulgated thereunder) of the United
States or any political subdivision or taxing authority thereof or therein or
(ii) an official position regarding the application, administration,
interpretation or enforcement of any such laws, regulations or rulings
(including, without limitation, a holding by a court of competent jurisdiction
or by a taxing authority in the United States or any political subdivision
thereof). If a withholding or deduction at source is required, the Issuer will,
subject to certain limitations and exceptions (set forth below), pay to a
holder of Bonds who is a Non-U.S. Holder (as defined herein) such additional
amounts ("Additional Amounts") as may be necessary so that every net payment of
principal, premium, if any, or interest with respect to such Bonds after such
withholding or deduction, will not be less than the amount provided for the
Bonds. However, the Issuer shall not be required to make any payment of
Additional Amounts for or on account of:

                          (a)     any tax, fee, duty, assessment or other
         governmental charge which would not have been imposed but for (i) the
         existence of any present or former connection between such Bondholder
         (or between a fiduciary, settlor, beneficiary, member or shareholder
         of, or possessor of a power over, such





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         Bondholder, if such Bondholder is an estate, trust. partnership or
         corporation) and the United States, including without limitation, such
         Bondholder (or such fiduciary, settlor, beneficiary, member,
         shareholder or possessor) being or having been a citizen or resident
         thereof or being or having been present or engaged in trade or
         business therein or having or having had a permanent establishment
         therein, or (ii) the presentation of a Bond for payment on a date more
         than 15 days after the date on which such payment became due and
         payable or the date on which payment thereof is duly provided for,
         whichever occurs later;

                          (b)     any estate, inheritance, gift, sales,
         transfer, personal property or similar tax, assessment or other
         governmental charge;

                          (c)     any tax, fee, duty, or future assessment or
         other governmental charge imposed by reason of such Bondholder's past
         or present status as a personal holding company, foreign personal
         holding company, passive foreign investment company or controlled
         foreign corporation with respect to the United States or as a
         corporation which accumulates earnings to avoid United States federal
         income tax;

                          (d)     any tax, fee, duty, assessment or other
         governmental charge which is payable otherwise than by withholding
         from payments of principal or interest with respect to the Bonds;

                          (e)     any tax, fee, duty, assessment or other
         governmental charge imposed on any interest received (x) by a holder
         or beneficial owner of Bonds that for U.S. federal income tax purposes
         is treated as actually or constructively owning 10% or more of the
         voting power of the Issuer's stock, (y) on an extension of credit made
         pursuant to a loan agreement entered into in the ordinary course of
         business by a holder or beneficial owner of Bonds that is a bank and
         (z) by a holder or beneficial owner of Bonds that is a controlled
         foreign corporation and with respect to which the Issuer is a related
         person;

                          (f)     any tax, fee, duty, assessment or other
         governmental charge required to be withheld by any paying agent from
         any payment of principal, premium, if any, or interest with respect to
         any Bond, if such payment can be made without such withholding by any
         other paying agent with respect to the Bonds;

                          (g)     any tax, fee, duty, assessment or other
         governmental charge which would not have been imposed but for the
         failure to comply with certification, identification, documentation,
         information or other reporting requirements concerning the
         nationality, residence, identity or connection with the United States
         of the Bondholder or of the beneficial owner of such Bond, if such
         compliance is required by a present or future statute, treaty,
         regulation, ruling or administrative practice as a precondition to a
         reduction of or relief or exemption from such tax, assessment or other
         governmental charge; or

                          (h)     any combination of items (a), (b), (c), (d), 
         (e), (f) and (g);

nor shall Additional Amounts be paid to any holder of a Bond who is a fiduciary
or partnership or other than the sole beneficial owner of the Bond to the
extent a beneficiary or settlor with respect to such fiduciary or a member of
such partnership or a beneficial owner of the Bond would not have been entitled
to payment of the Additional Amounts had such beneficiary, settlor, member or
beneficial owner been the holder of the Bond.

                          The term "Non-U.S. Holder" means any corporation,
individual, fiduciary or partnership that for United States federal income tax
purposes is foreign corporation, nonresident alien individual, nonresident
alien fiduciary of a foreign estate or trust, or foreign partnership one or
more members of which is a foreign corporation, nonresident alien individual or
nonresident alien fiduciary of a foreign estate or trust.

6.       Redemption for Tax Reasons

                          The Issuer may redeem any Bond in whole but not in
part at any time at a redemption price equal to the principal amount thereof
together, if appropriate, with accrued interest to but excluding the date fixed
for redemption, if the Issuer shall determine, based upon a written opinion of
independent counsel selected by the





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Issuer, that as a result of any change in or amendment to the laws (or any
regulations or rulings promulgated thereunder) of (i) the United States or any
political subdivision or taxing authority thereof affecting taxation or (ii)
the relevant taxing jurisdiction or any political subdivision or taxing
authority thereof or therein affecting taxation, or any change in application
or official interpretation of such laws, regulations or rulings, which
amendment or change is effective on or after the original Issue Date, the
Issuer would be required to pay Additional Amounts on the occasion of the next
payment due with respect to such Bond.

                          Notice of intention to redeem Bonds will be given not
less than 30 days nor more than 60 days prior to the date fixed for redemption,
provided that no such notice of redemption shall be given earlier than 90 days
prior to the effective date of such change or amendment and that at the time
notice of such redemption is given, such obligation to pay such Additional
Amounts remains in effect and cannot be avoided by the Issuer's taking
reasonable measures available to it. From and after any redemption date, if
monies for the redemption of Bonds shall have been made available for
redemption on such redemption date, such Bonds shall cease to bear interest and
the only right of the holders of such Bonds appertaining thereto shall be to
receive payment of the principal amount thereof, premium if any, and, if
appropriate, all unpaid interest accrued to such redemption date.

7.       Subordination

                          The indebtedness evidenced by the Bonds will, to the
extent set forth in the Indenture, be subordinated in right of payment to the
prior payment in full in cash or Cash Equivalents of all existing and future
Senior Indebtedness. In the event of any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relating to the Issuer or its
assets, or any liquidation, dissolution or other winding-up of the Issuer,
whether voluntary or involuntary, or any assignment for the benefit of
creditors or other marshalling of assets or liabilities of the Issuer, all
Senior Indebtedness will be entitled to be paid in full before any payment or
distribution is made on account of the principal of (including upon
redemption), premium, if any, or interest on the Bonds or Additional Amounts.
Notwithstanding the foregoing, Bondholders may receive shares of stock and any
debt securities that are subordinated at least to the same extent as the Bonds
to Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness.

                          During the continuance of any default in the payment
of principal, premium, if any, or interest on any Designated Senior
Indebtedness, when the same becomes due and such default is continuing beyond
any applicable grace periods, and after receipt by the Trustee and the Issuer
from the representative of holders of such Designated Senior Indebtedness of
written notice of such default, no direct or indirect payment by or on behalf
of the Issuer of any kind or character may be made on account of the principal
of (including redemption amount), premium, if any, or interest or Additional
Amounts on, or the purchase, redemption or other acquisition of, the Bonds
unless and until such default has been cured or waived or has ceased to exist
or such Designated Senior Indebtedness shall have been discharged or paid in
full.

                          In addition, upon the occurrence and during the
continuance of any other default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated as a
result of such default (a "Non-payment Default") and upon receipt by the
Trustee and the Issuer from the representative of holders of such Designated
Senior Indebtedness of written notice of such Non-payment Default, no payment
of any kind or character may be made by the Issuer on account of the principal
of, premium, if any, or interest or Additional Amounts on, or the purchase,
redemption or other acquisition of, the Bonds for the period specified below
(the "Payment Blockage Period").

                          The Payment Blockage Period shall commence upon
receipt of written notice of a Non-payment Default by the Trustee from the
representatives of holders of Designated Senior Indebtedness and shall end on
the earliest to occur of the following events: (i) 179 days has elapsed since
the receipt of such notice (provided such Designated Senior Indebtedness shall
not theretofore have been accelerated), (ii) such default is cured or waived or
ceases to exist or such Designated Senior Indebtedness is discharged or paid in
full, or (iii) such Payment Blockage Period shall have been terminated by
written notice to the Issuer or the Trustee from the representative of holders
of Designated Senior Indebtedness initiating such Payment Blockage Period,
after which the Issuer shall promptly





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resume making any and all required payments in respect of the Bonds, including
any missed payments. Only one Payment Blockage Period with respect to the Bonds
may be commenced within any 365 consecutive day period. No Non-payment Default
that existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In no event will a Payment Blockage Period
extend beyond 179 days from the receipt by the Trustee of the notice initiating
such Payment Blockage Period and there must be a 186 consecutive day period in
any 365 day period during which no Payment Blockage Period is in effect.
Notwithstanding the foregoing, no further notice may be given in respect of any
Non-payment Default unless and until all scheduled payments of principal,
premium, if any, and interest not paid on the Bonds during any such Payment
Blockage Period as a result of any notice or acceleration shall have been paid
in full in cash.

                          If the Issuer fails to make any payment on the Bonds
when due after giving effect to any applicable grace period, whether or not on
account of the payment blockage provisions referred to above, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Bonds to accelerate the maturity thereof. The Issuer will
promptly notify holders of Senior Indebtedness if payment of the Bonds is
accelerated because of an Event of Default. See "--Events of Default."

8.       Undertakings

                          Subject to market conditions, it is the intention of 
GTS to effect a Complying Public Equity Offering of its Common Stock before
June 30, 2000. The Issuer has agreed with the Managers that, if a Complying
Public Equity Offering has not occurred on or before June 30, 2000, the Issuer
will not effect any public equity offering for a period of six months
thereafter.

9.       Conversion

(A)              Conversion Right

                          Subject to and upon compliance with the provisions of
the Indenture, any Bondholder shall have the right (the "Conversion Right"), at
its option, at any time and from time to time on or after the occurrence of a
Complying Public Equity Offering and under the other circumstances specified in
paragraph (B)(i) below and prior to the close of business on June 30, 2000, to
convert the principal amount of any Bond, or any portion of such principal
amount (subject to minimum authorized denominations of the Bonds), into that
number of fully paid and non-assessable GTS Shares (as such shares shall then
be constituted) obtained by dividing the principal amount of the Bond or
portion thereof surrendered for conversion by the Conversion Price in effect at
such time, by surrender of the Bond so to be converted in whole or in part in
the manner provided in paragraph (B)(i) below. A Bondholder is not entitled to
any rights of a holder of GTS Shares until such Holder has converted its Bonds
(or any part thereof) to GTS Shares, and only to the extent such Bonds are
deemed to have been converted to GTS Shares under the Indenture.

(B)               Exercise of Conversion Right; Issuance of GTS Shares on
                  Conversion

                          (i)     Exercise of Conversion Right

                          Bondholders have a Conversion Right which is
                 exercisable in whole or in part at any time and from time to
                 time (a) in the case of subparagraph (ii) below, subsequent to
                 the Conversion Date but not later than the Maturity of the
                 Bond (as such Maturity may be extended pursuant to the other
                 provisions of this paragraph (B)(i), (b) if a notice of
                 redemption of the Bonds pursuant to the Indenture has been
                 given, after the date of such notice and prior to the date of
                 redemption specified in such notice, (c) if the Bonds are
                 subject to acceleration as a result of an Event of Default,
                 following the date notice thereof is given to Bondholders
                 until the Bonds are paid in full upon such acceleration, or
                 (d) if any Non-Complying Equity Offering occurs, within the 60
                 day period prior to the Maturity of the Bonds (provided,
                 however, that such Conversion Right may be exercised prior to
                 the 60th day prior to Maturity of the Bonds if a Change of





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                 Control shall have occurred, upon delivery of a Conversion
                 Notice by the Bondholder pursuant to this subparagraph at any
                 time on or after the time the Change of Control Offer is made
                 pursuant to the terms of the Indenture, until the Maturity of
                 the Bonds). In order to exercise its Conversion Right, a
                 Bondholder shall complete a notice in the then current form
                 obtainable from the Trustee or a specified office of a
                 Conversion Agent (a "Conversion Notice") (which may be
                 accompanied by a share transfer form, or other instrument
                 which may be required, signed by the Bondholder or may include
                 an authorization signed by the Bondholder, authorizing the
                 Bondholder's nominee to become the registered transferee and
                 to execute any requisite transfer form or other instrument
                 which may be required, on behalf of the Bondholder) and deliver
                 such Conversion Notice and where appropriate, an executed
                 share transfer form, or other instrument which may be
                 required, to the Trustee or a specified office of any
                 Conversion Agent (together with the relevant Bond or Bonds if
                 in definitive form) and any payment required by paragraph (D)
                 below. Once given, a Conversion Notice shall be irrevocable
                 and may not be withdrawn without the consent in writing of the
                 Issuer.

                          (ii)    Complying Public Equity Offering

                          If a Complying Public Equity Offering occurs prior to
                 the Maturity of the Bonds on June 30, 2000, then the Issuer
                 shall, no earlier than twenty Business Days and no later than
                 fifteen Business Days prior to the anticipated completion of
                 such offering, cause notice to be given to the Trustee, the
                 Bondholders and the Luxembourg Stock Exchange to the effect
                 that a Complying Public Equity Offering is expected to occur
                 on a specified date and that on and after the Conversion Date
                 the Bondholders may from time to time until Maturity of the
                 Bonds by delivery of a notice pursuant to paragraph (B)(i)
                 above, elect to exercise their Conversion Right, in whole or
                 in part. Following the completion of such Complying Public
                 Equity Offering, the Issuer shall promptly cause a Notice of
                 Offering to be given to the Trustee, the Bondholders and the
                 Luxembourg Stock Exchange stating that the Complying Public
                 Equity Offering has been completed and confirming the
                 Conversion Date and the applicable Conversion Price. The
                 Issuer shall also provide in the Notice of Offering all
                 information concerning the Complying Public Equity Offering
                 and all prior offerings since the Issue Date that may be
                 relevant to a Conversion Price determination or requested by
                 the Trustee in relation thereto.

                          (iii)   Non-Complying Equity Offering

                          If any Non-Complying Equity Offering occurs prior to
                 the Maturity of the Bonds on June 30, 2000, then the Issuer
                 shall no later than ten Business Days after the completion of
                 such offering cause a Notice of Offering to be given to the
                 Trustee, the Bondholders and the Luxembourg Stock Exchange of
                 such fact and the applicable Conversion Price and that at any
                 time and from time to time, in whole or in part (but no
                 earlier than the 60th day prior to the Maturity of the Bonds
                 subject to the provisions of paragraph (B)(i)(d) above) the
                 Bondholders may by delivery of a notice pursuant to paragraph
                 (B)(i) above elect to exercise their Conversion Right. The
                 Issuer shall also provide in the Notice of Offering all
                 information concerning all offerings since the Issue Date that
                 may be relevant to a Conversion Price determination or
                 requested by the Trustee in relation thereto.

                          (iv) Delayed Closing Date

                          If a Complying Public Equity Offering or a
                 Non-Complying Equity Offering occurs within the 60 day period
                 prior to and ending at the original Maturity of the Bonds,
                 then for purposes of exercise of the Conversion Right by
                 Bondholders, the Maturity for all Bonds shall be postponed to
                 the 60th day following the date of the Notice of Offering and
                 the Bonds will continue to accrue interest to the date the
                 Bonds are converted, provided that, in no event will interest
                 accrue for a period longer than 60 days from June 30, 2000.





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                          (v)     Conversion Right Termination

                          The Conversion Right of any Bondholder in respect of
                 a Bond becoming redeemable pursuant to the Indenture and in
                 respect of which the conditions required for conversion have
                 not been satisfied by the relevant Bondholder by the end of
                 the second Business Day prior to any date for redemption
                 thereof shall, except as provided below, thereupon terminate.
                 Notwithstanding the foregoing, if there is a default in making
                 full payment when due of the redemption monies in respect of
                 any Bond, the Conversion Right in respect thereof shall extend
                 up to and including the date on which payment has been
                 received by a Paying Agent or the Trustee. The Conversion
                 Right of a Bondholder in respect of a Bond becoming due and
                 payable as a result of the acceleration of the Maturity
                 thereof following an Event of Default shall terminate on the
                 date that payment with respect to such Bonds has been received
                 by a Paying Agent or the Trustee.

                          (vi)    General

                          In the event where Bondholders have elected to
                 convert their Bonds pursuant to paragraph (ii) or (iii) above
                 by giving notice thereof to the Issuer in accordance with the
                 terms of the Indenture, then any subsequent redemption of the
                 Bonds shall not affect the right of the holders of such Bonds
                 to receive GTS Shares and such Bonds shall not be so redeemed.
                 No earlier than 60 days and no later than 30 days prior to the
                 Maturity of the Bonds, the Issuer shall deliver a notice to
                 the Trustee, the Bondholders and the Luxembourg Stock Exchange
                 of the status of the Conversion Rights, if any, of the
                 Bondholders.

(C)              Conversion Price

                          Each Bond will be converted into such number of GTS
Shares as is equal to the principal amount of such Bond divided by the
applicable Conversion Price.

                          The applicable Conversion Price of the Bonds shall be
determined as follows:

                          (i)     where a Complying Public Equity Offering has
                 not been preceded, since the Issue Date, by a Non-Complying
                 Equity Offering, the Conversion Price shall be equal to the
                 gross per share price to the public in the Complying Public
                 Equity Offering multiplied by (A) 100 per cent. if the
                 Complying Public Equity Offering occurs on or before June 30,
                 1998, (B) 93 per cent. if the Complying Public Equity Offering
                 occurs on or before June 30, 1999 and after June 30, 1998, or
                 (C) 85 per cent. if the Complying Public Equity Offering
                 occurs after June 30, 1999;

                          (ii)    where a Complying Public Equity Offering has
                 been preceded by one or more Non-Complying Equity Offerings
                 since the Issue Date, the Conversion Price shall be equal to
                 the lower of (a) the dollar-weighted average conversion price
                 for all of such Non-Complying Equity Offerings and the
                 Complying Public Equity Offering (as calculated for each such
                 offering by multiplying the gross per share offering price for
                 the applicable offering by (A) 100 per cent. if the closing
                 date of such offering occurs on or before June 30, 1998, (B)
                 93 per cent. if the closing date of such offering occurs on or
                 before June 30, 1999 and after June 30, 1998, or (C) 85 per
                 cent. if the closing date of such offering occurs after June
                 30, 1999) and (b) the conversion price for the Complying
                 Public Equity Offering alone (as calculated in clause (i)
                 above);

                          (iii)   where a Non-Complying Public Equity Offering
                 has an offering size of at least $50,000,000 and (A) no
                 Complying Public Equity Offering has occurred since the
                 issuance of the Bonds, and (B) there has been one or more
                 Non-Complying Equity Offerings, the Conversion Price shall be
                 equal to the lower of (a) the dollar-weighted average
                 conversion price for all of such Non-Complying Equity
                 Offerings and the Non-Complying Public Equity Offering (as
                 calculated for each such offering by multiplying the gross per
                 share offering price by (A) 100 per cent. if the closing date
                 of such offering occurs on or before June 30, 1998, (B) 93 per
                 cent. if the closing date of such offering occurs on or before
                 June 30, 1999 and after June 30, 1998, or (C) 85 per cent. if
                 the closing date of such offering occurs after June 30, 1999)
                 and (b) the conversion price for the Non-Complying Public
                 Equity Offering (as calculated in (a) above); or





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                          (iv)    in the case of any other Non-Complying Equity
                 Offering not provided for in clause (iii) above, where no
                 Complying Public Equity Offering has occurred since the Issue
                 Date, the applicable Conversion Price shall be equal to the
                 lowest conversion price calculated for each such offering that
                 has occurred since the Issue Date, where each such conversion
                 price will be determined by multiplying the gross per share
                 offering price for each such offering by (A) 100 per cent. if
                 the closing date of such offering occurs on or before June 30,
                 1998, (B) 93 per cent. if the closing date of such offering
                 occurs on or before June 30, 1999 and after June 30, 1998, or
                 (C) 85 per cent. if the closing date of such offering occurs
                 after June 30, 1999.

                          There shall be excluded from the calculation of the
applicable Conversion Price any Private Equity Offerings aggregating no more
than $100 million in gross proceeds if such offering or offerings (i) are
consummated on or prior to December 31, 1997 and (ii) any Strategic Equity
Offering that occurs from the Issue Date so long as there has occurred a
Complying Public Equity Offering or a Non-Complying Equity Offering.

                          The Issuer will publish the Conversion Price in the
Luxemburger Wort and will notify the Luxembourg Stock Exchange of the
Conversion Price when determined for so long as the Bonds are listed on the
Luxembourg Stock Exchange.

(D)              Stamp and Other Duties and Exchange Costs

                          Payment of all stamp, transfer and registration
duties (if any) and any brokers' commission and stock exchange transaction
charges and any other tax thereon arising on exercise of Conversion Rights
and/or on the transfer or delivery of GTS Shares by the Issuer (or the Trustee
pursuant to the Indenture) to or to the order of the Trustee or the relevant
Bondholder in connection therewith, payable in or imposed by the United States,
any state or other political sub-division thereof and any other jurisdiction in
which the register in respect of any securities is located will be made or
procured by the Issuer. If the Issuer shall fail to pay any such duties or
costs, the relevant Bondholder shall be entitled to tender and pay the same.
The Issuer has in the Indenture covenanted to reimburse each such Bondholder in
respect of the payment of such duties or costs and any penalties paid in
respect thereof. A Bondholder exercising Conversion Rights must pay to the
relevant Conversion Agent any such duties or costs arising in any other
circumstances.

(E)              Cash Payment Instructions

                          Upon the exercise of Conversion Rights, a Bondholder
shall, when delivering the relevant Conversion Notice, give directions to the
relevant Conversion Agent for payment of any cash sum which such Bondholder is
entitled to receive pursuant to the Indenture and which shall be paid by way of
U.S. dollar check drawn on a bank in the City of New York or by wire transfer
to a U.S. dollar account maintained by the payee with a bank in the City of New
York.

(F)              Fractions arising on Conversion

                          No fraction of a GTS Share shall be delivered on
exercise of Conversion Rights but a cash payment shall be made by the Issuer to
the relevant Bondholder, pursuant to directions given to the relevant
Conversion Agent by the Bondholder as provided in (E) above, not later than 21
days after the Conversion Date, of an amount equal to the value of such
fraction (such amount to be rounded up to the nearest U.S. $0.01).

10.      Redemption and Purchase

(A)              Final Redemption at Maturity

                          Unless previously redeemed or converted or to be
converted or purchased and cancelled, on June 30, 2000 outstanding Bonds will
be redeemed by the Issuer at their principal amount plus accrued interest, if
any.  However, in the event that a Complying Public Equity Offering has not
occurred prior to June 30, 2000,





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<PAGE>   95
outstanding Bonds will be redeemed at Maturity at 121.0 per cent. of their
principal amount, plus accrued interest, if any.

(B)              Acceleration following an Event of Default

                          If the Bonds are accelerated following the occurrence
of an Event of Default, the Bonds will be repaid at their principal amount
multiplied by 106.5 per cent. plus accrued interest to the date of
acceleration, if the date of acceleration occurs on or before June 30, 1998;
113.5 per cent. plus accrued interest to the date of acceleration if the date of
acceleration occurs after such date but on or before June 30, 1999; and 121.0
per cent. if the date of acceleration occurs thereafter; provided that
notwithstanding the foregoing, each Bondholder shall have the option to
exercise his Conversion Right, if any.

(C)              Cancellation

                          All Bonds redeemed pursuant to the Indenture or
purchased by the Issuer in the open market will be forthwith cancelled and may
not be reissued or sold. The Issuer will not permit its Subsidiaries and will
to the fullest extent of the rights available to it under the relevant
contractual or organizational documents not permit its Significant Joint
Ventures to purchase any of the Bonds.

(D)              Limited Optional Redemption

                          The Bonds are redeemable at the option of the Issuer,
in whole but not in part on or after the second anniversary of a Complying
Public Equity Offering, on not less than 90 nor more than 120 days' prior
notice (which notice shall provide the Trustee and the Bondholders information
concerning the right of Bondholders to convert prior to the Redemption Date and
information pertinent to the Conversion Price) at the principal amount thereof
plus accrued interest to the Redemption Date, provided that the GTS shares into
which Bonds are convertible would not be at the time of redemption "restricted
securities" in the hands of any Bondholder not affiliated with the Issuer,
within the meaning of the Securities Act, and provided, further, that the
average Closing Price of the GTS Shares for the 20 consecutive Trading Days
prior to the date of the Issuer's notice of redemption is greater than 130 per
cent. of the Conversion Price determined in conjunction with such Complying
Public Equity Offering.

11.              Events of Default

                          The following are "Events of Default" under the
Indenture:

                          (a)     the Issuer fails to pay the principal of or
                 any premium (if any) or interest (including Additional
                 Amounts) on any of the Bonds when due (upon Maturity,
                 acceleration, redemption, required purchase or otherwise and
                 whether or not prohibited by the subordination provisions)
                 and, in the case of interest only, such failure continues for
                 a period of 30 days; or

                          (b)     the Issuer does not perform or comply with
                 any one or more of its other obligations in the Bonds or the
                 Indenture (other than a default under (a) above) for a period
                 of 60 days after written notice of such default shall have
                 been given to the Issuer by the Trustee or to the Issuer and
                 the Trustee by holders of at least 25 per cent. in aggregate
                 principal amount of Bonds then outstanding; or

                          (c)     (i) one or more defaults in the payment of
                 principal of or premium, if any, on Indebtedness of the Issuer
                 or any Material Subsidiary or any Significant Joint Venture
                 aggregating U.S.$10 million (or the foreign currency
                 equivalent thereof) or more, when the same becomes due and
                 payable at the Maturity thereof, and such default or defaults
                 shall have continued after any applicable grace period and
                 shall not have been cured or waived or (ii) Indebtedness of
                 the Issuer or any Material Subsidiary or any Significant Joint
                 Venture aggregating U.S.$10 million (or the foreign currency
                 equivalent thereof) or more shall have been accelerated or
                 otherwise declared due and payable, or required to be prepaid
                 or repurchased (other than by regularly scheduled required
                 prepayment) prior to the Maturity thereof; or





                                   A-1/14
<PAGE>   96

                 (d)      any holder or holders of Indebtedness aggregating
         U.S.$10 million (or the foreign currency equivalent thereof) or more
         of the Issuer or any Material Subsidiary or any Significant Joint
         Venture shall notify the Issuer or the Trustee of the intended sale or
         disposition of any assets of the Issuer or any such Material Subsidiary
         or Significant Joint Venture that have been pledged to or for the
         benefit of such person to secure such Indebtedness, or shall commence
         proceedings, or take action (including by way of set-off) to retain in
         satisfaction of any such Indebtedness, or to collect on, seize,
         dispose of or apply, any such assets of the Issuer or any Material
         Subsidiary or any Significant Joint Venture pursuant to the terms of
         any agreement or instrument evidencing any such Indebtedness or in
         accordance with applicable law; or
         
                 (e)      one or more final judgments (or judgments which can
         no longer be appealed) or orders or similar judicial or administrative
         action shall be rendered against the Issuer or any Material Subsidiary
         or Significant Joint Venture for the payment of money, either
         individually or in an aggregate amount, in excess of U.S.$10 million
         (or the foreign currency equivalent thereof) and which shall not have
         been discharged and either (i) an enforcement proceeding shall have
         been commenced by any creditor upon such judgment or order or similar
         judicial or administrative action or (ii) there shall have been a
         period of 60 consecutive days during which a stay of enforcement of
         such judgment or order, by reason of a pending appeal or otherwise,
         was not in effect; or

                 (f)      the Issuer or any Material Subsidiary or Material
         Joint Venture, pursuant to or under or within any applicable
         bankruptcy, insolvency, reorganization, moratorium, liquidation or
         like law; (i) commences a voluntary case or proceeding; (ii) consents
         to the entry of an order for relief against it in an involuntary case
         or proceeding; (iii) makes a general assignment for the benefit of its
         creditors; (iv) or shall generally not pay its debts when such debts
         become due or shall admit in writing its inability to pay its debts
         generally; (v) or a court of competent jurisdiction (or like entity)
         shall enter an order or decree under any applicable law described
         above that is for relief against the Issuer or any Material Subsidiary
         or Material Joint Venture, as applicable, in an involuntary case or
         proceeding, appoints a custodian for the Issuer or such other entity
         for all or substantially all its properties or orders the liquidation
         of the Issuer or such other entity, as applicable, and in each such
         case in this clause (v), the order or decree remains unstayed and in
         effect for 60 days; (vi) or the Issuer or such other entity shall take
         any corporate action regarding any of the foregoing; or 

                 (g)      excluding the events referred to in paragraph (f)
         above, any seizure, compulsory acquisition, expropriation or
         nationalization of any assets of the Issuer, any Subsidiary or
         Significant Joint Venture for which there is not paid Fair Market
         Value and where the seizure, compulsory acquisition, expropriation or
         nationalization (whether by an outright taking or by confiscatory tax
         or other policies), individually or in the aggregate, could reasonably
         be expected to result in a material adverse effect on the business
         (including without limitation the ability to generate cash flow over
         the life of the Bonds) the condition (financial or other), the
         properties or the results of operations of the Issuer, its
         Subsidiaries, and Significant Joint Ventures on a combined basis (a
         "Material Adverse Effect").

                 If an Event of Default (other than as specified in
subparagraph (f) above) shall occur and be continuing, the Trustee, by notice
to the Issuer, or the holders of at least 25 per cent. in aggregate principal
amount of the Bonds then outstanding by notice to the Trustee and the Issuer,
may declare the principal of, premium, if any, and accrued and unpaid interest
on all of the outstanding Bonds due and payable immediately upon which
declaration, all accounts payable in respect of the outstanding Bonds shall be
due and payable immediately. If an Event of Default specified in subparagraph
(f) above occurs and is continuing, then the principal of, premium if any, and
accrued and unpaid interest, on all of the outstanding Bonds shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of Bonds.

                 After a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Bonds, by written notice to the Issuer and the Trustee, may rescind
such declaration if (a) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the

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<PAGE>   97
Trustee under the Indenture and the reasonable compensation, expenses, 
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Bonds, (iii) the unpaid principal of and premium, if
any, on any outstanding Bonds which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Bonds, and (iv) to the extent that payment of such interest is lawful, interest
upon overdue interest and overdue principal at the rate borne by the Bonds
which has become due otherwise that by such declaration of acceleration; (b)
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction; and (c) all Events of Default, other than the
non-payment of principal of, premium, if any, and interest on the Bonds that
have become due solely by such declaration of acceleration, have been cured or
waived. No such recission shall affect any subsequent Default or Event of
Default or impair any rights subsequent thereto.

                 Subject to certain provisions of the Indenture, the holders of
not less than a majority in aggregate principal amount of the outstanding Bonds
may on behalf of the holders of all the Bonds waive any past defects under the
Indenture, existing Default or Event of Default, except a Default or Event of
Default in the payment of the principal of, premium, if any, or interest on any
Bond, or in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the Holder of each Bond
outstanding.

                 No Holder of any of the Bonds has any right to institute any
proceeding with respect to the Indenture or the Bonds or pursue any remedy
thereunder, unless the holder gives written notice to the Trustee of a
continuing Event of Default and the holders of at least 25% in aggregate
principal amount of outstanding Bonds have made written requests, and offered
reasonable indemnity, to the Trustee to such proceeding or remedy as Trustee
under the Bonds and the Indenture, and the Trustee has failed to institute such
proceeding within 30 days after receipt of such notice and the Trustee, within
such 30-day period, has not received directions inconsistent with such written
request by holders of at least majority in aggregate principal amount of the
outstanding Bonds. Such limitations do not apply, however, to a suit instituted
by a holder of a Bond for the enforcement of the payment of the principal of,
premium, if any, or interest on such Bond on or after the respective due dates
expressed in such Bonds.

                 During the existence of an Event of Default, the Trustee is
required to exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in its exercise thereof as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. Subject to the provisions of the Indenture relating to the duties
of the Trustee, whether or not an Event of Default shall occur and be
continuing, the Trustee is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity.  Subject to certain provisions concerning the rights of
the Trustee, the holders of not less than a majority in aggregate principal
amount of the outstanding Bonds have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.

                 If a Default or an Event of Default occurs and is continuing
and is known to the Trustee, the Trustee shall mail to each Holder of the
Bonds, and to the Luxembourg Stock Exchange for so long as the Bonds are listed
thereon, notice of the Default or Event of Default within 30 days after
obtaining knowledge thereof. Except in the case of a Default or an Event of
Default in payment of principal or premium, if any, or interest on any Bonds,
the Trustee may withhold the notice to the holders of such Bonds if a committee
of its trust officers in good faith determines that withholding the notice is
in the interest of the holders of the Bonds.

12.      Reporting Requirements

                 For the fiscal quarters ended June 30, 1997 and September 30,
1997 and for the fiscal year ended December 31, 1997 the Issuer will (i)
transmit by mail to all Bondholders, as their names and addresses appear in the
Register, without cost to such Bondholders, and (ii) file with the Trustee
copies of the quarterly and audited annual financial reports of the Issuer
(including the condensed, combining financial data in the form and scope set
forth in the condensed, consolidated financial statements of the Issuer for the
first quarter of 1997 and for the fiscal



                                     A-1/16
<PAGE>   98
year ending December 31, 1996, respectively) that are generally distributed to
its shareholders at the time such reports are so distributed.

                 Beginning with the financial statements of the Issuer for the
quarter ending March 31, 1998 and thereafter, whether or not the Issuer is
subject to Section 13(a) or 15(d) of the Exchange Act, or any successor
provision thereto, the Issuer shall prepare the annual and quarterly reports
which the Issuer would have been required to file with the Securities and
Exchange Commission pursuant to such Section 13(a) or 15(d) or any successor
provision thereto (including, until such time as the Company is required to
file reports with the Commission pursuant to Section 13(a) or 13(d) of the
Exchange Act, the condensed, combining financial data in the form and scope set
forth in the condensed, consolidated financial statements described above) on
or prior to the respective dates (the "Required Filing Dates") by which the
Issuer would have been required so to file such documents. The Issuer shall
also in any event within 15 days of each Required Filing Date (i) transmit by
mail to all Bondholders, as their names and addresses appear in the Register,
without cost to such Bondholders, and (ii) file with the Trustee, copies of
such annual and quarterly reports.

                 The Issuer is required to furnish to the Trustee annual and
quarterly statements as to the performance by the Issuer of its obligations
under the Indenture. Default or Event of Default the Issuer is also required to
notify the Trustee within thirty (30) days after the Issuer becomes aware or
should reasonably have become aware of any event which is, or after notice or
lapse of time or both would become, an Event of Default.

13.      Negative Pledge and Covenants

                 So long as any Bond remains outstanding or any amount remains
unpaid with respect to any of the Bonds or up to and including the date of (a)
the Complying Public Equity Offering or (b) a Covenant Defeasance, the Issuer,
its Subsidiaries and Significant Joint Ventures will be subject to the
following negative pledge and covenants:

(A)      Negative Pledge

                 The Issuer will not, and will not permit any of its
Subsidiaries to, and will to the fullest extent of the rights available to it
under the relevant contractual and organizational documents not permit its
Significant Joint Ventures to, directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness on any asset or property of the
Issuer or such Subsidiary or such Significant Joint Venture, or any income or
profits therefrom, or assign or convey any right to receive income therefrom,
unless the Bonds are equally and ratably secured with the obligations so
secured (provided that any Lien securing Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Bonds with the same relative
priority as such Subordinated Indebtedness shall have with respect to the
Bonds) or until such time as such obligations are no longer secured by a Lien.

(B)      Covenants

         (a)     Limitation on Indebtedness. The Issuer will not, and will not 
permit any of its Subsidiaries to, and will to the fullest extent of the rights
available to it under the relevant contractual or organizational documents not
permit its Significant Joint Ventures to, directly or indirectly, create,
incur, issue, assume, guarantee or in any manner become directly or indirectly
liable, contingently or otherwise, for the payment of (in each case, to
"incur") any Indebtedness (including any Acquired Indebtedness); provided,
however, that the Issuer, any Subsidiary or any Significant Joint Venture will
be permitted to incur Indebtedness (including Acquired Indebtedness) if (a) at
the time of such incurrence, no Default or Event of Default under the Indenture
has occurred and is continuing, (b) at the time of such incurrence the Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period (and after giving pro
forma effect to (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, on the first day of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Issuer,
its Subsidiaries and its Significant Joint Ventures since the first day of such
four-quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving

                                     A-1/17
<PAGE>   99
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period) and (iii) the acquisition
(whether by purchase, merger or otherwise) or disposition (whether by sale,
merger or otherwise) of any company, entity or business acquired or disposed of
by the Issuer or its Subsidiaries or its Significant Joint Ventures, as the
case may be, since the first day of such four-quarter period), would have been
at least equal to 2:1 and (c) in the case of the incurrence of Subordinated
Indebtedness or Pari Passu Indebtedness, such Indebtedness has no scheduled
principal payment prior to the 91st day after the Maturity of the Bonds.

         Notwithstanding the foregoing, the Issuer and its Subsidiaries and
Significant Joint Ventures may, to the extent specifically set forth below, 
incur each and all of the following:

                 (a)      Indebtedness of the Issuer evidenced by the Bonds;

                 (b)      Indebtedness of the Issuer or its Subsidiaries or
         Significant Joint Ventures outstanding on the Issue Date;

                 (c)      Indebtedness of the Issuer, any Subsidiaries and any
         Significant subsidiary in an aggregate principal amount at any one
         time outstanding not to exceed U.S.$75,000,000 (or the foreign
         currency equivalent thereof);

                 (d)      (i) Interest Rate Protection Obligations of the
         Issuer or any Subsidiary or any Significant Joint Venture covering
         Indebtedness of the Issuer, such Subsidiary or such Significant Joint
         Venture; provided, however, that, (x) any Indebtedness to which any
         such Interest Rate Protection Obligations relate bears interest at
         fluctuating interest rates and is otherwise permitted to be incurred 
         under this covenant and (y) the notional principal amount of any such
         Interest Rate Protection Obligations does not exceed the principal 
         amount of the Indebtedness to which such Interest Rate Protection 
         Obligations relate;

                 (e)      Indebtedness of a Subsidiary or Significant Joint
         Venture owed to and held by the Issuer, another Subsidiary or
         Significant Joint Venture, in each case which is not subordinated in
         right of payment to any Indebtedness of such Subsidiary or Significant
         Joint Venture, except that (i) any transfer of such Indebtedness by
         the Issuer or a Subsidiary or Significant Joint Venture (other than to
         the Issuer or to another Subsidiary or Significant Joint Venture) and
         (ii) the sale, transfer or other disposition by the Issuer or any
         Subsidiary or Significant Joint Venture of the Capital Stock of any
         Subsidiary or ownership interest in any Significant Joint Venture
         which is owed Indebtedness from another Subsidiary or Significant
         Joint Venture such that the first such Subsidiary or Significant Joint
         Venture ceases to be a Subsidiary or Significant Joint Venture shall,
         in each case in (i) and (ii), be an incurrence of Indebtedness by the
         second such Subsidiary or Significant Joint Venture, as the case may
         be, subject to the other provisions of this covenant;      

                 (f)      Indebtedness of the Issuer owed to and held by any
         Subsidiary or any Significant Joint Venture which is unsecured and
         subordinated in right of payment to the payment and performance of the
         Issuer's obligations under the Indenture and the Bonds, provided that
         any subsequent issuance or transfer of Capital Stock or other
         ownership interest or any other event which results in any such
         Subsidiary or Significant Joint Venture ceasing to be a Subsidiary or
         Significant Joint Venture, as the case may be, or any subsequent
         transfer of any such Indebtedness (except to the Issuer or another
         Subsidiary or another Significant Joint Venture) shall be deemed, in
         each case, be an incurrence of Indebtedness by the Issuer, subject to
         the other provisions of this covenant;                

                 (g)      Indebtedness under Currency Agreements; provided that
         in the case of Currency Agreements which relate to Indebtedness, such
         Currency Agreements do not increase the outstanding Indebtedness of
         the Issuer or any Subsidiary or any Significant Joint Venture other
         than as a result of fluctuations in foreign currency exchange rates or
         by reason of fees, indemnities and compensation payable thereunder; 

                 (h)      Indebtedness of the Issuer or any of its Subsidiaries
         or any of its Significant Joint Ventures in an aggregate amount on the
         date of incurrence, not in excess of 80% of the average of the 
         outstanding accounts



                                     A-1/18
<PAGE>   100
    receivable balances of the Issuer, its Subsidiaries and Significant Joint
    Venture on a combined basis at each of the three preceding quarterly
    balance sheet dates;                                    

        (i)     Indebtedness of Hermes as to which the Issuer or any other
    Subsidiary or any Significant Joint Venture is not directly or indirectly
    liable by virtue of being the primary obligor on, guarantor of or otherwise 
    liable with respect to, such Indebtedness;                               

        (j)     Indebtedness of the Issuer of any of its Subsidiaries or
    Significant Joint Ventures represented by letters of credit for the account
    of the Issuer of such Subsidiary of such Significant Joint Venture, as the
    case may be, in order to provide security for workers' compensation claims,
    payment obligations in connection with self-insurance or similar
    requirements in the ordinary course of business;           

        (k)     Indebtedness and Acquired Indebtedness incurred by the Issuer
    or a Subsidiary of Significant Joint Venture issued to finance the
    construction, acquisition, generation, installation or improvement of
    Telecommunications Assets to be used in Europe and/or Asia (including
    Russia and the CIS) by the Issuer, any Subsidiary or any Significant
    Joint Venture;

        (l)     (i) Indebtedness of the Issuer the proceeds of which are used
    solely to refinance (whether by amendment, renewal, extension or refunding)
    Indebtedness of the Issuer or any Subsidiary or any Significant Joint
    Venture and (ii) Indebtedness of any Subsidiary or Significant Joint
    Venture, the proceedings of which are used solely to refinance (whether by
    amendment, renewal, extension or refunding) Indebtedness of such Subsidiary
    of such Significant Joint Venture, in each case other than the Indebtedness
    incurred under the preceding clauses (c) through (g) and (i) through (k) of
    this covenant; provided, however, that (x) the principal amount of
    Indebtedness incurred pursuant to this clause (l) (or, if such Indebtedness
    provides for an amount less than the principal amount thereof to be due and
    payable upon a declaration of acceleration of the maturity thereof, the
    original issue price of such Indebtedness) shall not exceed the sum of the
    outstanding principal amount of Indebtedness so refinanced, plus the amount
    of any premium required to be paid in connection with such refinancing
    pursuant to the terms of such Indebtedness or the amount of any premium
    reasonably determined by the Board of Directors of the Issuer as necessary
    to accomplish such refinancing by means of a tender offer or privately
    negotiated purchase, plus the amount of expenses in connection therewith,
    (y) in the case of Indebtedness incurred by the Issuer pursuant to this
    clause (l) to refinance Subordinated Indebtedness, such Indebtedness (A)
    has no scheduled principal payment prior to the 91st day after the Maturity
    of the Bonds, (B) has an Average Life to Stated Maturity greater than the
    remaining Average Life to Stated Maturity of the Bonds and (C) is
    subordinated to the Bonds in the same manner and to the same manner and to
    the same extent that the Subordinated Indebtedness being refinanced is
    subordinated to the Bonds and (z) in the case of Indebtedness incurred by
    the Issuer pursuant to this clause (l) to refinance Pari Passu
    Indebtedness, such Indebtedness (A) has no scheduled principal payment
    prior to the 91st day after the Maturity of the Bonds, (B) has an Average
    Life to Stated Maturity greater than the remaining Average Life to Stated
    Maturity of the Bonds and (C) constitutes Pari Passu Indebtedness or
    Subordinated Indebtedness.          

    (b)     Limitation on Restricted Payments. The Issuer will not, and will 
not permit any of its Subsidiaries to, and will to the fullest extent of the
rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to, directly or indirectly;

                (i)     declare or pay any dividend or make any other
    distribution or payment on or in respect of Capital Stock of the Issuer or
    any Subsidiary or any Significant Joint Venture or any payment to the
    direct or indirect holders (in their capacities as such) of Capital Stock
    of the Issuer or any Subsidiary or any Significant Joint Venture (other
    than (x) dividends or distributions payable solely in Capital Stock of the
    Issuer, such Subsidiary or such Significant Joint Venture (other than, in
    each case, Redeemable Capital Stock) or in options, warrants or other
    rights to purchase Capital Stock of the Issuer (other than, in each case,
    Redeemable Capital Stock), (y) the declaration or payment of dividends or
    other distributions to the extent declared or paid to the Issuer or any
    Subsidiary or Significant Joint Venture and (z) the declaration or payment
    of dividends or other distributions by any such entity to all holders of
    equity or similar economic interest of such entity on a pro rata basis),



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<PAGE>   101
        (ii)    purchase, redeem, defense or otherwise acquire or retire for
    value any Capital Stock or other ownership interest of the Issuer or any 
    Subsidiary or any Significant Joint Venture (other than any such Capital 
    Stock or other ownership interest owned by a Wholly-Owned Subsidiary),

        (iii)   make any principal payment on, or purchase, defense,
    repurchase, redeem or otherwise acquire or retire for value, prior to any
    scheduled maturity, scheduled repayment, scheduled sinking fund payment or
    other Maturity, and Subordinated Indebtedness (other than any such  
    Indebtedness owned by the Issuer or a Wholly-Owned Subsidiary), or

        (iv)    make any Investment (other than any Permitted Investment) in 
     any person

(such payments or Investments described in the preceding clauses (i), (ii),
(iii) and (iv) are collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to the propose Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the Fair
Market Value on the date of such Restricted Payment of the asset(s) proposed to
be transferred by the Issuer or the relevant entity described above, as the
case may be, pursuant to such Restricted Payment), (A) no Default or Event of
Default under the Indenture shall have occurred and be continuing, (B)
immediately prior to and after giving effect to such Restricted Payment, the
Issuer would be able to incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under "--Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness) and (C) the aggregate amount of all Restricted Payments declared
or made from and after the Issue Date would not exceed the sum of (1) 50 per
cent. of the aggregate Pro rata Combined Adjusted Net Income accrued on a
cumulative basis during the period beginning on the first day of the fiscal
quarter of the Issuer during which the Issue Date occurs and ending on the last
day of the fiscal quarter of the Issuer immediately preceding the date of such
proposed Restricted Payment, which period shall be treated as a single
accounting period (or, if such aggregate cumulative Pro rata Combined Adjusted
Net Income for such period shall be a deficit, minus 100 per cent. of such
deficit) plus (2) the aggregate net cash proceeds received by the Issuer, such
Subsidiary or such Significant Joint Venture either (x) as capital contribution
after the Issue Date from any person (other than a Subsidiary or Significant
Joint Venture) or (y) from the issuance or sale of Capital Stock (excluding
Redeemable Capital Stock, but including Capital Stock issued upon the
conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Redeemable Capital 
Stock)) of such entity to any person (other than to a Wholly-Owned Subsidiary) 
after the Issue Date plus (3) in the case of the disposition or repayment of
any Investment constituting a Restricted Payment made after the Issue Date
(excluding any Investment described in clause (v) of the following paragraph),
an amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the cost of
the disposition of such Investment.  For purposes of the preceding clause
(C)(2), the value of the aggregate net proceeds received by the Issuer upon the
issuance of Capital Stock upon the conversion of convertible Indebtedness or
upon the exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or rights
plus the incremental cash amount received by the Issuer upon the conversion or
exercise thereof.

        None of the foregoing provisions will prohibit (i) the payment of any 
dividend within 60 days after the date of its declaration, if at the date of 
declaration such payment would be permitted by the foregoing paragraph; (ii) the
redemption, repurchase or other acquisition or retirement of any shares of any
class of Capital Stock of the Issuer or any Subsidiary in exchange for, or out
of the net cash proceeds of, a substantially concurrent (x) capital
contribution to the Issuer from any person (other than a Subsidiary or Joint
Venture) or (y) issue and sale of other shares of Capital Stock (other than
Redeemable Capital Stock) of the Issuer to any person (other than to a
Subsidiary or Joint Venture); provided, however, that the amount of any such
net cash proceeds that are utilized from any such redemption, repurchase or
other acquisition or retirement shall be excluded from clause (C)(2) of the
preceding paragraph; (iii) any redemption, repurchase or other acquisition or
retirement of Subordinated Indebtedness by exchange for, or out of the net cash
proceeds of, a substantially concurrent (x) capital contribution to  the Issuer
from any person (other than a Subsidiary or Joint Venture) or (y)(1) issue and
sale of Capital Stock (other than Redeemable Capital Stock) of the Issuer to
any person other than to a Subsidiary or Joint Venture ); provided,  however,
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase or other acquisition or retirement shall be excluded
from clause (C)(2) of the preceding paragraph; or (2) Indebtedness of the
Issuer issued to any person (other than a Subsidiary or Joint Venture), so long
as such Indebtedness is Subordinated Indebtedness which (A) has no Maturity
earlier than the 91st day after the Maturity of


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<PAGE>   102
the Bonds, (B) has an Average Life to Stated Maturity equal to or greater than
the remaining Average Life to Stated Maturity of the Bonds and (C) is
subordinated to the Bonds in the same manner and at least to the same extent as
the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired; (iv) so long as no Default or Event of Default shall have occurred and
be continuing, any redemption, repurchase or other acquisition or retirement of
Pari Passu Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Issuer from any person
(other than a Subsidiary or Joint Venture) or (y)(1) issue and sale of Capital
Stock (other than Redeemable Capital Stock) of the Issuer to any person (other
than to a Subsidiary or Joint Venture); provided, however, that the amount of
any such net cash proceeds that are utilized for any such redemption,
repurchase or other acquisition or retirement is excluded from clause (C)(2) of
the preceding paragraph or (2) Indebtedness of the Issuer issued to any person
(other than a Subsidiary), so long as such Indebtedness is Subordinated
Indebtedness or Pari Passu Indebtedness which (A) has no Maturity earlier than
the 91st day after the Maturity of the Bonds and (B) has an Average Life to
Stated Maturity equal to or greater than the remaining Average Life to Stated
Maturity of the Bonds; (v) Investments constituting Restricted Payments made as
a result of the receipt of non-cash consideration from any Asset Sale made
pursuant to and in compliance with the covenant described under "--Disposition
of Proceeds of Asset Sales" below; (vi) payments or other actions described in
clauses (i) throughout (iv) in the next preceding paragraph above that would
otherwise be Restricted Payments in an aggregate amount not to exceed U.S.$10
million (or the foreign currency equivalent thereof): and (vii) so long as no
Default or Event of Default has occurred and is continuing, repurchases by the
Issuer of Common Stock of the Issuer from employees of the Issuer or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount not
exceeding U.S.$10 million (or the foreign currency equivalent thereof) in any
calendar year. In computing the amount of Restricted Payments previously made
for purposes of clause (C) of the preceding paragraph, Restricted Payments made
under the preceding clauses (vi) and (vii) shall be included and clauses (i),
(ii), (iii), (iv) and (v) shall not be so included.

     (c) Change of Control. Upon the occurrence of a Change of Control, the
Issuer shall be obligated to make an offer to purchase (a "Change of Control
Offer") all of the outstanding Bonds at a purchase price (the "Change of
Control Purchase Price") equal to 106.5 per cent. (if the date of such purchase
occurs on or before June 30, 1998), 113.5 per cent. (if the date of purchase
occurs after June 30, 1998 but on or before June 30, 1999) or 121.0 per cent.
(if the date of purchase occurs after June 30, 1999), as applicable, of the
principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date which shall be no earlier than 60 days and no later than 90 days
from the date the notice of Change of Control Offer is mailed to the Bondholders
and the Trustee (the "Change of Control Purchase Dates"). The Issuer shall be
required to purchase all Bonds properly tendered (or the portions thereof equal
to U.S. $10,000 or increments of U.S. $1,000 in excess thereof that are so
tendered by a Bondholder in the case of a partial tender) in the Change of
Control Offer and not withdrawn on the Change of Control Purchase Date. The
Change of Control Offer is required to remain open for at least 20 Business
Days and until the close of business on the Second Business Day preceding the
Change of Control Purchase Date.

     In order to effect such Change of Control Offer, the Issuer shall, not
later than the 30th day prior to the occurrence of the Change of Control, give
to each holder of Bonds notice of the proposed Change of Control Offer, which
notice shall govern the terms of the Change of Control Offer and shall state,
among other things, the procedures that holders of Bonds must follow to accept
the Change of Control Offer.

     (d) Disposition of Proceeds of Asset Sales. The Issuer will not, and will
not permit any of its Subsidiaries to, and will to the fullest extent of the
rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to, make any Asset Sale
unless (a) the Issuer or such entity, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least
75% of such consideration consists of cash or Cash Equivalents or the
assumption of Indebtedness of the Issuer or such Subsidiary or such Significant
Joint Venture or other obligations relating to such assets and release from all
liability on the Indebtedness or other obligations assumed, or such
consideration consists of (x) property or assets that will be owned by the
Issuer, or a Subsidiary or a Significant Joint Venture and are to be used in a
telecommunications business or in related activities or services that
thereafter will be conducted by the Issuer or such Subsidiary or such
Significant Joint Venture or (y) Capital Stock or other securities issued by a
party to the transaction or an Affiliate thereof, which Capital Stock or other
securities are freely tradable and which are sold for cash within 90 days of
the consummation of the Asset Sale in connection with which they were acquired.
To the extent the Net Cash Proceeds of any Asset Sale are not required to be
applied to repay, and permanently reduce the commitments under Senior


                                     A-1/21
<PAGE>   103
Indebtedness or Indebtedness of a Subsidiary or Indebtedness of a Significant
Joint Venture or are not so applied, the Issuer or such entity, as the case may
be, within 360 days of such Asset Sale, will apply such Net Cash Proceeds to an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the business of the Issuer and such entities existing on the Issue Date
or in businesses reasonably related thereto ("Replacement Assets"). Any Net
Cash Proceeds from any Asset Sale that are neither used to repay, and
permanently reduce the commitments under Senior Indebtedness or Indebtedness of
a Subsidiary or Indebtedness of a Significant Joint Venture, nor invested in
Replacement Assets within the 360-day period described above constitute "Excess
Proceeds" subject to disposition as provided below.

        When the aggregate amount of Excess Proceeds equals or exceeds U.S.
$10,000,000, the Issuer shall make an offer to purchase (an "Asset Sale
Offer"), from all holders of the Bonds, on a date not more than 40 Business Days
thereafter, an aggregate principal amount of Bonds equal to such Excess
Proceeds, at a price in cash equal to 100% of the outstanding principal amount
thereof plus accrued and unpaid interest, if any, to the purchase date. To the
extent that the aggregate principal amount of Bonds tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Issuer may use such
excess for general corporate purposes. If the aggregate principal amount of
Bonds validly tendered and not withdrawn by holders thereof is greater than the
Excess Proceeds, Bonds to be purchased will be selected on a pro rata basis.
Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall
be reset to zero.

        (e) Limitation on Transactions with Interested Persons. The Issuer will
not, and will not permit any of its Subsidiaries to, and will to the fullest
extent of the rights available to it under the relevant contractual or
organizational documents not permit its Significant Joint Ventures to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, transfer,
disposition, purchase, exchange or lease of assets, property or services) with,
or for the benefit of, any Affiliate of the Issuer, any Subsidiary or
Significant Joint Venture or any beneficial owner (determined in accordance
with the Indenture) of 5 percent or more of the Capital Stock or other
ownership interest of any of the foregoing entities at any time outstanding
(each of the foregoing being "Interested Persons"), unless (a) such transaction
or series of related transactions is on terms that are no less favorable to the
Issuer or such Subsidiary or Significant Joint Venture, as the case may be,
than those which could have been obtained in a comparable transaction at such
time from persons who are not Affiliates or the Issuer or Interested Persons,
(b) with respect to a transaction or series of transactions involving aggregate
payments or value equal to or greater than U.S.$20,000,000 (or the foreign
currency equivalent thereof), the Issuer has obtained a written opinion from an
Independent Financial Advisor stating that the terms of such transaction or
series of transactions are fair to the Issuer or such Subsidiary or such
Significant Joint Venture, as the case may be, from a financial point of view
and (c) with respect to a transaction or series of transactions involving
aggregate payments or value equal to or greater than U.S.$10,000,000 (or the
foreign currency equivalent thereof), the Issuer shall have delivered an
officer's certificate to the Trustee certifying that such transaction or series
of transactions complies with the preceding clause (a) and, if applicable,
certifying that the opinion referred to in the preceding clause (b) has been
delivered and that such transaction or series of transactions has been approved
by a majority of the disinterested members of the Board of Directors of the
Issuer, provided, however, that this covenant will not restrict the Issuer from
(i) paying dividends in respect of its Capital Stock permitted under the
covenant described under "--Limitation on Restricted Payments" above, (ii)
paying reasonable and customary fees to directors of the Issuer who are not
employees of the Issuer, (iii) making loans or advances to officers or
employees of the Issuer and its Subsidiaries or Significant Joint Ventures
(including travel and moving expenses) in the ordinary course of business for
bona fide business purposes of the Issuer or such Subsidiary or Significant
Joint Venture not in excess of U.S.$45,000,000 (or the foreign currency
equivalent thereof), in the aggregate at any one time outstanding; (iv)
engaging in any transaction involving the provision of telecommunications
services or related activities between or among the Issuer, any Subsidiary or
any Significant Joint Venture and, provided that such transaction is in the
ordinary course of business and consistent with commercially reasonable
practice, any Joint Venture of the Issuer that is not a Significant Joint
Venture or between any of them or (v) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby, as
listed in a schedule to the Indenture (including pursuant to any amendment
thereto so long as any such amendment in the judgment of the Board of Directors
voting to approve the amendment does not have a material adverse effect on the
Bondholders).

        (f) Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries and Significant Joint Ventures. The Issuer will not, and will not
permit any of its Subsidiaries to, and will to the fullest extent of the rights
available to it under the relevant contractual or organizational documents not
permit its Significant Joint Ventures to,


                                     A-1/22
<PAGE>   104
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any such Subsidiary
or Significant Joint Venture to (a) pay dividends, in cash or otherwise, or
make any other distributions on or in respect of its Capital Stock or any other
interest or participation in, or measured by, its profits to the Issuer or any
Subsidiary or any Significant Joint Venture, (b) pay any Indebtedness owed to
the Issuer or any other Subsidiary or Significant Joint Venture, (c) make loans
or advances to, or any investment in, the Issuer or any other Subsidiary or
Significant Joint Venture, (d) transfer any of its properties or assets to the
Issuer or any other Subsidiary or Significant Joint Venture or (e) guarantee
any Indebtedness of the Issuer or any Subsidiary or Significant Joint Venture,
except for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) customary non-assignment provisions of any contract or any
lease governing a leasehold interest of the Issuer or any Subsidiary or
Significant Joint Venture, (iii) customary restrictions on transfers of
property subject to a Lien permitted under the Indenture which could not
materially adversely affect the Issuer's ability to satisfy its obligations
under the Indenture and the Bonds, (iv) any agreement or other instrument of a
person acquired by the Issuer or any Subsidiary or Significant Joint Venture
(or a Subsidiary of such person) in existence at the time of such acquisition
(but not created in contemplation thereof), which encumbrance or restriction is
not applicable to any person, or the properties or assets of any person, other
than the person, or the properties or assets of the person, so acquired, (v)
provisions contained in agreements or instruments relating to Indebtedness
which prohibit the transfer of all or substantially all of the assets of the
obligor thereunder unless the transferee shall assume the obligations of the
obligor under such agreement or instrument, (vi) encumbrances and restrictions
under Indebtedness in effect on the Issue Date and encumbrances and
restrictions in permitted refinancings or replacements thereof which are no
less favorable to the holders of the Bonds than those contained in the
Indebtedness so refinanced or replaced, (vii) any agreement in existence at the
Issue Date, (viii) encumbrances and restrictions in connection with Subsidiaries
acquired after the Issue Date and Significant Joint Ventures entered into after
the Issue Date, including with respect to any financing thereof, that are no
more adverse to the Issuer than those referred to in (vii) above), (ix) in the
case of clause (d) of this covenant above, arising or agreed to in the ordinary
course of business, not relating to any Indebtedness and that do not
individually, or together with all such encumbrances or restrictions, detract
from the value of the property or assets of the Issuer or any Subsidiary or any
Significant Joint Venture in any manner material to the Issuer or any
Subsidiary or any Significant Joint Venture, (x) contained in the terms of any
Indebtedness incurred by Hermes or any agreement pursuant to which such
Indebtedness was issued if the encumbrance or restriction is not materially
more disadvantageous to the Bondholders than is customary in comparable
financings (as determined by the Company) and the Company determines that any
such encumbrance or restriction will not materially affect the Company's
ability to make principal payments on the Bonds, (xi) contained in any
stockholders or similar agreement, so long as such encumbrance or restriction
is not more disadvantageous to the Bondholders than the encumbrances and
restrictions contained in comparable agreements entered into in the past by the
Issuer, any of its Subsidiaries or Significant Joint Ventures, or (xii)
contained in any agreement entered into after the Issue Date, so long as such
encumbrance or restriction is not materially more disadvantageous to the
Bondholders than the encumbrances and restrictions contained in agreements in
existence on the Issue Date.
                                                                               
        (g)  Limitation on Sale-Leaseback Transactions. The Issuer will not,
and will not permit any of its Subsidiaries to, and will to the fullest extent
of the rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to, enter into any
Sale-Leaseback Transaction with respect to any property of the Issuer or any of
its Subsidiaries or Significant Joint Ventures other than a Sale-Leaseback
Transaction between the Issuer, a Subsidiary or Significant Joint Venture or
between any of them.  Notwithstanding the foregoing, the Issuer and its
Subsidiaries or Significant Joint Ventures may enter into Sale-Leaseback
Transactions involving Telecommunications Assets; provided that (i) the Issuer,
or such Subsidiary or Significant Joint Venture, as the case may be, would be
entitled to create or incur a Lien to secure Indebtedness pursuant to the
provisions of the "Negative Pledge" covenant equal in amount to the
Attributable Value of the Sale-Leaseback Transaction without equally and
ratably securing the Bonds and (ii) the Sale-Leaseback Transaction is treated
as an Asset Sale and the provisions of the "Disposition of Proceeds of Asset
Sales" covenant are satisfied with respect to such Sale-Leaseback Transaction.

        (h)  Limitation on Guarantees by Subsidiaries.  The Issuer will not
permit any Subsidiary to, and will to the fullest extent of the rights
available to it under the relevant contractual or organizational documents not
permit its Significant Joint Ventures to, directly or indirectly, assume,
guarantee or in any other manner become liable with respect to any Indebtedness
of the Issuer which is subordinated Indebtedness or Pari Passu Indebtedness
unless such Subsidiary or Significant Joint Venture, as the case may be,
simultaneously executes and delivers a supplemental indenture to the Indenture,
pursuant to provisions in form and substance satisfactory to the Trustee,
providing for a guarantee of payment



                                     A-1/23
<PAGE>   105
of the Bonds by such Subsidiary or Significant Joint Venture and (A) if any
such assumption, guarantee or other liability is subordinated, the guarantee
under such supplemental indenture shall be subordinated to the same extent as
the Bonds are subordinated to Senior Indebtedness of the Issuer under the
Indenture and (B) any such assumption, guarantee or other liability of such
Subsidiary or Significant Joint Venture with respect to Subordinated
Indebtedness shall be subordinated to such Subsidiary's or Significant Joint
Venture's, as applicable assumption, guarantee or other liability with respect
to the Bonds to the same extent as such Subordinated Indebtedness is
subordinated or junior to the Bonds under the Indenture.

        (i) Merger Sale of Assets, Etc.  The Issuer will not, in any
transaction or series of transactions, merger or consolidate with or into, or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to, any person or
persons, and the Issuer will not permit any of its Subsidiaries to, and will to
the fullest extent of the rights available to it under the relevant contractual
or organizational documents not permit its Significant Joint Ventures to, enter
into such any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the respective properties and assets of the Issuer and its Subsidiaries and
Significant Joint Ventures on a combined basis, to any other person or persons,
unless at the time of and after giving effect thereto (a) either (i) if the
transaction or series of transactions is a merger or consolidation, the Issuer
shall be the surviving person of such merger or consolidation, or (ii) the
person formed by such consolidation or into which the Issuer or such Subsidiary
or Significant Joint Venture is merged or to which the properties and assets of
the Issuer and its Subsidiaries and Significant Joint Ventures are transferred
(any such surviving person or transferee person being the "Surviving Entity")
shall be a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia or the United
Kingdom, the Federal Republic of Germany, France or Italy and shall expressly
assume by a supplemental indenture executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, all the obligations of the Issuer
under the Bonds and the Indenture, and in each case, the Indenture shall remain
in full force and effect; (b) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing and the Issuer or the Surviving Entity, as the case may be, after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), could incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under "--Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness); (c) immediately after giving effect to such transaction or
series of transactions on a pro form basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth of the Issuer or the Surviving Entity, as the case may be, is at least
equal to the Consolidated New Worth of the Issuer immediately before such
transaction or series of transactions; (d) such consolidation, merger,
conveyance, transfer, lease, or other disposition does not adversely affect the
validity or enforceability of the Bonds; and (e) if the Surviving Entity is
organized in a jurisdiction other than the United States of America, any state
thereof or the District of Columbia, such entity appoints CT Corporation
System, New York, New York, as its agent for service of process in any suit,
action or proceeding with respect to the Indenture or the Bonds issued
thereunder and for actions brought under federal or state securities laws
brought in federal or state court located in the Borough of Manhattan in The
City of New York and submits to such jurisdiction, waives forum non conveniens,
waives or is not subject to immunity from suit and any judgments brought
against such entity in respect to the Indenture and the Bonds may be recognized
and enforced in such jurisdiction of its organization. 

        In connection with any consolidation, merger, transfer, lease, 
assignment or other disposition contemplated hereby, the Issuer shall deliver,
or cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officer's certificate and an opinion of
counsel, each stating that such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental indenture in respect
thereof comply with the foregoing requirements; provided, however, that solely
for purposes of computing amounts described in subclause (C) of the covenant
described under "--Limitation on Restricted Payments" above, any such successor
person shall only be deemed to have succeeded to and be substituted for the
Issuer with respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets.



                                     A-1/24
<PAGE>   106



         Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Issuer in accordance with the foregoing,
in which the Issuer is not the continuing corporation, the successor
corporation formed by such a consolidation or into which the Issuer is merged
or to which such transfer is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under the Indenture with the
same effect as if such successor corporation had been named as the Issuer
therein.

         (j)     Limitation on Other Subordinated Indebtedness. The Company
will not create, incur, assume, guarantee or in any other manner become liable
with respect to any Indebtedness that is subordinate in right of payment to any
Senior Indebtedness unless such Indebtedness is also pari passu with, or
subordinate in right of payment to, the Bonds.

14.       Reservation of GTS Shares

                          The Issuer shall at all times reserve and keep
available out of its authorized common stock, solely for the purpose of
issuance or delivery upon conversion of the Bonds, the number of GTS Shares
that it reasonably believes will be required to be delivered in connection with
such conversion pursuant to the terms of the Indenture.

15. Governing Law

                          The Indenture and the Bonds will be governed by the
laws of the State of New York.

16.      Guarantees

                          This Bond may after the date hereof be entitled to
certain senior subordinated guarantees made for the benefit of the Holders.
Reference is hereby made to Section 4.18 of the Indenture for the terms of any
guarantee.

17.      Covenant Defeasance

                          The Indenture contains provisions (which provisions
apply to this Bond) for defeasance at any time of (a) the entire indebtedness
of the Issuer under this Bond and (b) certain restrictive covenants and related
Defaults and Events of Default, in each case upon compliance by the Issuer with
certain conditions set forth therein.

18.      Enforcement

                          At any time after the Bonds shall have become due and
payable, the Trustee may, at its discretion and without further notice, take
such proceedings against the Issuer as it may think fit to enforce repayment of
the Bonds together with premium (if any) and accrued interest and to enforce
the provisions of the Indenture, but it shall not be bound to take any such
proceedings unless (a) it shall have been so directed in writing by the holders
of at least 25 per cent. in principal amount of the Bonds then outstanding, and
(b) it shall have been indemnified to its satisfaction. No Bondholder shall be
entitled to proceed directly against the Issuer unless the Trustee, having
become bound so to proceed, fails to do so within 30 days after the receipt of
the request and offer, such request has not been rescinded pursuant to the
terms of the Indenture and such failure shall be continuing.

19.      Notices

                          Notices to Bondholders shall be validly given if (i)
mailed to them at their respective addresses in the register and (ii) published
in an English language daily newspaper of general circulation in Europe
approved by the Trustee, currently expected to be the Financial Times, and, so
long as the Bonds are listed on the Luxembourg Stock Exchange, published in a
daily newspaper of general circulation in Luxembourg approved by the Trustee,
currently expected to be the Luxemburger Wort. Any such notice shall be deemed
to have been given on the first date on which both conditions shall have been
met.





                                    A-1/25
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20.       Meetings of Bondholders, Modification and Waiver

                          The Indenture contains provisions for convening
meetings of Bondholders to consider any matter affecting their interests,
including any modification of, or arrangement in respect of, the terms and
conditions of the Bonds or of the provisions of the Indenture. Certain special
quorum provisions apply for meetings of Bondholders convened for the purpose of
amending certain terms concerning, inter alia, the amounts payable on and the
currency of payment of the Bonds and the Conversion Rights. Any resolution duly
passed at any such meeting will be binding on all Bondholders, whether present
or not.

21.      Satisfaction and Discharge

                          The Indenture will be discharged and will cease to be
of further effect (except as to surviving rights or registration of transfer or
exchange of the Bonds, as expressly provided for in the Indenture) as to all
outstanding Bonds when either (a) all the Bonds theretofore authenticated and
delivered (except lost, stolen or destroyed Bonds which have been replaced or
repaid and Bonds for whose payment money has theretofore been deposited with
the Trustee or any Paying Agent in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust) have
been delivered to the Trustee for cancellation and the Issuer has paid all
other sums payable by it under the Indenture or (b)(i) the Issuer has
distributed to the Trustee and each holder of Bonds notice of redemption or all
Bonds have otherwise become due and payable (ii) all Bonds not theretofore
delivered to the Trustee for cancellation (except lost, stolen or destroyed
Bonds which have been replaced or paid) have been called for redemption
pursuant to the terms of the Bonds or have otherwise become due and payable and
the Issuer has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Bonds not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Bonds to the date of deposit
together with irrevocable instructions from the Issuer directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (iii) there exists no Default or Event of Default under the Indenture;
(iv) the Issuer shall have paid all other sums payable under the Indenture by
the Issuer and (v) the Issuer has delivered to the Trustee an officer's
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the termination of the Issuer's obligations
under the Bonds and the Indenture have been complied with.

22.      Amendments and Waivers

                          From time to time, the Issuer, when authorized by a
resolution of its Board of Directors, and the Trustee may, without the consent
of the holders of any outstanding Bonds, amend, waive or supplement the
Indenture or the Bonds for certain specified purposes, including, among other
things, (a) curing ambiguities, defects or inconsistencies, (b) qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act
of 1939, (c) evidencing the succession of another Person to the Issuer or any
other obligor on the Bonds, and the assumption by any such successor of the
covenants of the Issuer or such obligor in the Indenture and in the Bonds in
accordance with the "Merger, Sale of Assets, Etc." covenant; (d) adding to the
covenants of the Issuer or any other obligor upon the Bonds for the benefit of
the holders of the Bonds or surrendering any right or power conferred upon the
Issuer or any other obligor upon the Bonds, as applicable, in the Indenture or
in the Bonds; (e) evidencing the replacement of the Trustee by a trustee that
is appointed to so act pursuant to the terms of the Indenture; and (f)
evidencing or making any other change that does not adversely affect the rights
of any holder of Bonds; provided, however, that such change does not adversely
affect the rights of any holder of Bonds and the Issuer has delivered to the
Trustee an opinion of counsel to such effect.

                          Other amendments and modifications of the Indenture
or the Bonds may be made by the Issuer and the Trustee with the consent of the
holders of not less than a majority of the aggregate principal amount of the
outstanding Bonds; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Bond affected
thereby, (i) reduce the principal amount of, extend the fixed maturity of or
alter the redemption provisions of, the Bonds, (ii) change the currency in which
any Bonds or any premium or the interest thereon is payable or make the
principal of, premium, if any, or interest on any Bond payable in money other
than that stated in the Bond, (iii) reduce the percentage in principal amount
of outstanding Bonds that must





                                    A-1/26
<PAGE>   108
consent to an amendment, supplement or waiver or consent to take any action
under the Indenture or the Bonds, (iv) impair the right to institute suit for
the enforcement of any payment on or with respect to the Bonds, (v) waive a
default in payment with respect to the Bonds, (vi) amend, change or modify the
obligations of the Issuer to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate the offer with respect
to any Asset Sale or modify any of the provisions or definitions with respect
thereto, (vii) reduce or change the rate or time for payment of interest on the
Bonds, (viii) modify or change any provision of the Indenture affecting the
subordination or ranking of the Bonds in a manner adverse to the holders of the
Bonds, or (ix) take any other action otherwise prohibited by the Indenture to
be taken without the consent of each Bondholder affected thereby.

23.      The Trustee

                          The Indenture provides that, except during the 
continuance of an Event of Default, the Trustee thereunder will perform only
such duties as are specifically set forth in the Indenture. If an Event of
Default has occurred and is continuing, the Trustee will exercise such rights
and powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.

            The Trustee may, without the consent of the Bondholders:

                                  (i) agree to any modification of the
            provisions of the Indenture or the Bonds which, in the opinion of 
            the Trustee, is of a formal, minor or technical nature, is made to
            correct a manifest error or to comply with mandatory provisions of
            law or is not materially prejudicial to the interests of the 
            Bondholders;

                                  (ii) waive or authorize any breach or
            proposed breach by the Issuer of the provisions of the Indenture or
            the Bonds, or determine that the occurrence of any Event of Default
            shall not be treated as such, which, in the opinion of the Trustee,
            is not materially prejudicial to the interests of the Bondholders.

Any such modification, waiver or authorization shall be binding on the
Bondholders and, if the Trustee so requires, such modification shall be
notified by the Issuer to the Bondholders as soon as possible.

24.      Indemnification of the Trustee

                          The Indenture contains provisions for the
indemnification of the Trustee and for its relief from responsibility,
including provisions relieving it from taking proceedings to enforce repayment
or taking steps to enforce the Conversion Rights unless indemnified to its
satisfaction. The Trustee is entitled to enter into business transactions with
the Issuer or any entity related to it without accounting for any profit.

25.      Certain Definitions

                          "Acquired Indebtedness" means, with respect to any
specified person, (i) Indebtedness of any other person at the time such other
person merged with or into or became a Subsidiary or Significant Joint Venture
of any specified person, and (ii) Indebtedness encumbering any asset acquired
by any specified person.

                          "Affiliate" means, with respect to any specified
person, any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person.

                          "Asset Sale" means any sale, issuance, conveyance,
transfer, lease or other disposition to any person other than the Issuer or a
Wholly-Owned Subsidiary of the Issuer, in one or a series of related
transactions, of (a) any Capital Stock of any Subsidiary or Significant Joint
Venture (other than in respect of director's qualifying shares or investments
by foreign nationals mandated by applicable law); (b) all or substantially all
of the properties and assets of any division or line of business of the Issuer
or any Subsidiary or Significant Joint Venture;





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or (c) any other properties or assets of the Issuer or any Subsidiary or
Significant Joint Venture other than in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include (i)
any sale, transfer or other disposition of equipment, tools or other assets
(including Capital Stock or other equity of any Subsidiary or Significant Joint
Venture) by the Issuer or any of its Subsidiaries or Significant Joint Ventures
in one or a series of related transactions in respect of which the Issuer or
such Subsidiary or Significant Joint Venture receives cash or property with an
aggregate Fair Market Value of U.S.$10,000,000 (or the foreign currency
equivalent thereof) or less; (ii) any sale, issuance, conveyance, transfer,
lease or other disposition of properties or assets that is governed by the
provisions described under "-- Merger, Sale of Assets, Etc." above and (iii)
any direct or indirect sale, transfer or other disposition of shares of Capital
Stock of Hermes so long as after such sale, transfer or other disposition the
Issuer owns or controls at least 51 per cent. of the Voting Stock of Hermes.

                          "Average Life to Stated Maturity" means, with
respect to any Indebtedness, as at any date of determination, the quotient
obtained by dividing (i) the sum of the products of (a) the number of years (or
any fraction thereof) from such date to the date or dates of each successive
scheduled principal payment (including, without limitation, any sinking fund
requirements) of such Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.

                          "Capital Research Notes" means the aggregate $30
million of notes issued pursuant to (i) the Senior Note Purchase Agreement,
dated as of February 2, 1996, as amended, between the Issuer and Emerging
Markets Growth Fund, Inc. and (ii) the Senior Note Purchase Agreement dated as
of February 2, 1996, as amended, between the Issuer and Capital International
Emerging Markets Funds.

                          "Capital Stock" means, with respect to any person,
any and all shares, interests, participations, rights in or other equivalents
(however designated) of such person's capital stock, and any rights (other than
debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock.

                          "Capitalized Lease Obligation" means any obligation
under a lease of (or other agreement conveying the right to use) any property
(whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and the amount of any
such obligation at any date shall be the capitalized amount thereof at such
date, determined in accordance with GAAP.

                          "Cash Equivalents" means, at any time, (a) any
evidence of Indebtedness with a maturity of 180 days or less issued or directly
and fully guaranteed or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof); (b) certificates of
deposit or acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than U.S.$500,000,000;
(c) certificates of deposit with a maturity of 180 days or less of any
financial institution that is not organized under the laws of the United
States, any state thereof or the District of Columbia that are rated at least
A-1 by S&P or at least P-1 by Moodys or at least an equivalent rating category
of another nationally recognized securities rating agency; and (d) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
180 days from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985.

                          "Change of Control" means the occurrence of any of
the following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 40 per cent. of the total Voting Stock of the Issuer
(50.1 per cent. in the case of a Strategic Investor); (b) the Issuer
consolidates with, or merges with or into, another





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person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person
consolidates with, or merges with or into, the Issuer, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Issuer
is converted into or exchanged for cash, securities or other property, other
than any such transaction where (i) the outstanding Voting Stock of the Issuer
is converted into or exchanged for (1) Voting Stock (other than Redeemable
Capital Stock) of the surviving or transferee corporation or (2) cash,
securities and other property in an amount which could then be paid by the
Issuer as a Restricted Payment under the Indenture, or a combination thereof,
and (ii) immediately after such transaction no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 50 per cent. of the total Voting Stock of the
surviving or transferee corporation; (c) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted
the Board of Directors of the Issuer (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Issuer was approved by a vote of 66 2/3 per cent. of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Issuer then in office; or (d) the Issuer is liquidated or
dissolved or adopts a plan of liquidation.

                          "Chatterjee Notes" means the aggregate $40 million of
notes issued pursuant to (a) the Senior Note Purchase Agreement, dated as of
January 19, 1996, as amended, among the Issuer, The Open Society Institute and
Chatterjee Fund Management, L.P. and (b) the Senior Note Purchase Agreement,
dated as of June 6, 1996, as amended, among the Issuer, The Open Society
Institute, Winston Partners II LDC and Winston Partners II LLC.

                          "Closing Price" means the closing price of the GTS
Shares on a Qualifying Stock Exchange or if the GTS Shares are listed on more
than one such exchange the average of such closing prices on all such
exchanges.

                          "Common Stock" means, with respect to any person, any
and all shares, interests or other participations in, and other equivalents
(however designated and whether voting or nonvoting) of, such person's common
stock, whether outstanding at the Issue Date or issued after the Issue Date,
and includes, without limitation, all series and classes of such common stock.

                          "Complying Public Equity Conditions" means all of the
following: (a) the Issuer has made public sales of GTS Shares with a cumulative
public offering price of at least U.S.$100,000,000 to an aggregate of not
less than 50 purchasers; (b) the GTS Shares have been listed or shall be listed
in connection with the offering on either the New York Stock Exchange, the
London Stock Exchange, the American Stock Exchange or the Nasdaq National
Market; and (c) the Issuer shall have registered additional GTS Shares from
Private Equity Offerings with a market value of at least U.S.$100,000,000
calculated using the offering price in the Complying Public Equity Offering.

                          "Complying Public Equity Offering" means a public
offering of GTS Shares where, immediately following completion thereof, (a) the
Complying Public Equity Conditions have been met and (b) the aggregate number
of GTS Shares sold thereby, together with any GTS Shares sold in any prior
public offerings plus the number of GTS Shares into which the Bonds may be
converted (calculated as if such conversion were to be effected at the time of
such public offering) does not exceed 50 per cent. of the total GTS Shares
outstanding on a fully diluted basis.

                          "Consolidated Net Worth" means, with respect to any
person at any date, the consolidated stockholders' equity of such person less
the amount of such stockholders' equity attributable to Redeemable Capital
Stock of such person and its subsidiaries, as determined in accordance with
GAAP.

                          "Conversion Agent" means the office or agency where
Bonds may be presented for conversion.





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                          "Conversion Date" means the earliest date possible
after the listing of the GTS Shares on the New York Stock Exchange, London
Stock Exchange, the American Stock Exchange or the Nasdaq National Market that
the Issuer may deliver GTS Shares to converting Bondholders.

                          "Covenant Defeasance" means the 123rd day after (i)
the Issuer has irrevocably deposited with the Trustee, in trust, for the
benefit of the Holder, cash in U.S. dollars, non-callable U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants selected by the Issuer, to pay the principal of and premium, if
any, on the outstanding Bonds at their Maturity or on the applicable optional
redemption date, as the case may be, of such principal or installment of
principal of, or premium, if any, on the outstanding Bonds; (ii) the Issuer
must have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of the
outstanding Bonds will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (iv) such Covenant of Defeasance will not result
in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Issuer or any
of its Subsidiaries or Significant Joint Ventures is a party or by which the
Issuer of any of its Subsidiaries or Significant Joint Ventures is bound; (v)
the Issuer must have delivered to the Trustee an opinion of counsel to the
effect that after the 123rd day (or such other applicable date) following the
deposit of the instruments referred to in (i), the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and the creation of the
defeasance trust does not violate the Investment Company Act of 1940, as
amended; (vi) the Issuer must have delivered to the Trustee an Officers'
Certificate of the Issuer stating that the deposit was not made by the Issuer
with the intent of preferring the Bondholders over the other creditors of the
Issuer with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuer or others; and (vii) the Issuer must have delivered to
the Trustee an Officers' Certificate of the Issuer and an opinion of counsel in
the United States acceptable to the Trustee, each stating that all conditions
precedent provided for relating to the Covenant Defeasance have been complied
with.

                          "Currency Agreement" means any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement
designed to protect the Issuer or any Subsidiary or any Significant Joint
Venture against fluctuations in currency values.

                          "Default" means any event that is, or after notice or
passage of time or both would be, an Event of Default.

                          "Designated Senior Indebtedness" means Senior
Indebtedness permitted under the Indenture the principal amount of which is
$30,000,000 (or the foreign currency equivalent) or more and has been
designated by the Issuer as "Designated Senior Indebtedness" (which includes
the Chatterjee Notes and the Capital Research Notes).

                          "Eligible Joint Venture" means a Joint Venture (other
than a Subsidiary) (a) that is formed with respect to the construction,
development, acquisition, servicing, ownership, improvement, operation or
management of a telecommunications business, (b) in which the Issuer, directly
or indirectly, owns at least 25 per cent. of the Capital Stock or other
ownership interest therein and (c) in respect of which the Issuer, directly or
indirectly, either (i) controls, by voting power, membership on the board of
directors or management committee or other similar governing body, or through
the provisions of any applicable partnership, joint venture, shareholder or
other similar agreement or under an operating, maintenance or management
agreement or otherwise, the management and operation of the Joint Venture and
any telecommunications project of such Joint Venture or (ii) otherwise has the
right to control or veto material acts and decisions with respect to the
management or operation of the Joint Venture that, taken as a whole, are
substantially similar to the rights of the Issuer with respect to the Existing
Joint Ventures as of the Issue Date.





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                          "Event of Default" has the meaning set forth under
"Events of Default" herein.

                          "Existing Joint Venture" means each of PrymTelefon,
Bancomsvyaz, TeleCommunications of Moscow, Hermes Europe Railtel B.V.,
LvNet-Telport, GTS Monaco Access S.A.M., Sovam Teleport Kiev Division L.L.C.,
EDN Sovintel, all the entities in which SFMT-Rusnet, Inc. currently has an
interest, all the entities in which Vostok Mobile b.v. currently has an
interest and their respective successors.

                          "Exchange Act" means the Securities Exchange Act of
1934, as amended.

                          "Fair Market Value" means, with respect to any asset,
the price, as determined by the Board of Directors of the Issuer, acting in
good faith, which could be negotiated in an arm's-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
which is under pressure or compulsion to complete the transaction; provided,
however, that with respect to any transaction or related series of transactions
which involves an asset or assets in excess of U.S. $10,000,000 (or the foreign
currency equivalent thereof), in the aggregate, such determination shall be
evidenced by a resolution of the majority of disinterested members of the Board
of Directors of the Issuer delivered to the Trustee.

                          "Fixed Charge Coverage Ratio" of the Issuer means,
for any period, the ratio of (a) the sum of Pro rata Combined Adjusted Net
Income, Pro rata Combined Interest Expense, Pro rata Combined Income Tax
Expense and Pro rata Combined Non-cash Charges deducted in computing Pro rata
Combined Adjusted Net Income, in each case, for such period to (b) Pro rata
Combined Interest Expense for such period.

                          "GAAP" means generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States of America, which are applicable
from time to time and are consistently applied.

                          "Indebtedness" means, with respect to any person,
without duplication, (a) all liabilities of such person for borrowed money or
for the deferred purchase price of property or services, excluding any (i)
trade account payables arising in the ordinary course of business and (ii)
other accrued current liabilities incurred in the ordinary course of business,
including, without limitation, all obligations, contingent or otherwise, of
such person in connection with any letters of credit, banker's acceptance or
other similar credit transaction; (b) all obligations of such person evidenced
by bonds, debentures or other similar instruments; (c) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business; (d) all Capitalized Lease
Obligations of such person; (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured); (f) all guarantees of Indebtedness referred to in this
definition by such person; (g) all Redeemable Capital Stock of such person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends; (h) all obligations under or in respect of
Currency Agreements and Interest Rate Protection Obligations of such person;
(i) any Preferred Stock of such person that provides for payments of
liquidation value by way of a sinking fund, or by way of a mandatory
redemption, defeasance, retirement, repurchase or otherwise, or allows the
holder the option to redeem, in each case prior to the 91st day prior to the
Maturity of the Bonds (valued at the sum of (without duplication) (A) the
liquidation preference thereof, (B) any mandatory redemption payment
obligations in respect thereof and (C) accrued dividends thereon); and (j) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (a) through (i) above. For
purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such





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Redeemable Capital Stock were purchased on any date on which Indebtedness shall
be required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Redeemable Capital
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.

                          "Independent Financial Advisor" means a firm (i)
which does not, and whose directors, officers and employees or Affiliates do
not, have a material direct or indirect financial interest in the Issuer, any
Subsidiary or Significant Joint Venture and (ii) which, in the judgment of the
Board of Directors of the Issuer, is otherwise independent and qualified to
perform the task for which it is to be engaged.

                          "Interest Rate Protection Agreement" means any
arrangement with any other person whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include without limitation, interest rate swaps, caps, floors, collars
and similar agreements.

                          "Interest Rate Protection Obligations" means the
obligations of any person pursuant to an Interest Rate Protection Agreement.

                          "Investment" means, with respect to any person, any
direct or indirect loan or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or
acquisition by such person of any Capital Stock, bonds, debentures or other
securities or evidences of Indebtedness issued by, any other person.
"Investments" shall exclude extensions of trade credit in the ordinary course
of business in accordance with normal trade practices.

                          "Issue Date" means the closing date for the sale and
issuance of the Bonds under the Indenture.

                          "Joint Venture" means a joint venture, partnership or
other similar arrangement, whether corporation, partnership or other legal form
where the Issuer or one or more Subsidiaries has, directly or indirectly, less
than a majority of the Voting Stock or other ownership interest.

                          "Lien" means any mortgage, charge, pledge, lien
(statutory or other), security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind; provided that in no event shall an
operating lease be deemed to constitute a Lien. A person shall be deemed to own
subject to a Lien any property which such person has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement

                          "Material Joint Venture" means a Joint Venture that,
as of the end of the most recent four-quarter period, had (i) total assets
which exceeded 10 per cent. of the total combined assets of the Issuer at the
end of such period or (ii) total revenues which exceeded 15 per cent. of the
total combined revenues of the Issuer for such period.

                          "Material Subsidiary" means a Subsidiary that, as of
the end of the most recent four-quarter period, had (i) total assets which
exceeded 10 per cent. of the total combined assets of the Issuer at the end of
such period or (ii) total revenues which exceeded 15 per cent. of the total
combined revenues of the Issuer for such period.

                          "Maturity" means, (i) when used with respect to the
Bonds, June 30, 2000, unless otherwise extended and (ii) when used with respect
to any Indebtedness other than the Bonds, the date specified in the instrument
governing such Indebtedness as the fixed date on which the principal of such
Indebtedness, or any installment of interest thereon, is due and payable.





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                          "Moody's" means Moody's Investors Service, Inc. and
its successors.

                          "Net Cash Proceeds" means, with respect to any Asset
Sale, the proceeds thereof in the form of cash or Cash Equivalents including
payments in respect of deferred payment obligations when received in the form
of cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse) net of (i) brokerage commissions and other fees
and expenses (including, without limitation, fees and expenses of legal counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes payable as a result of such Asset Sale, (iii) amounts required to be paid
to any person (other than the Issuer or any Subsidiary or Significant Joint
Venture) owning a beneficial interest in the assets subject to the Asset Sale
and (iv) appropriate amounts to be provided by the Issuer or any Subsidiary or
Significant Joint Venture, as the case may be, as a reserve required in
accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the Issuer or any Subsidiary or Significant Joint Venture, as
the case may be, after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate
delivered to the Trustee.

                          "Non-Complying Equity Offering" means (i) a Private
Equity Offering of GTS Shares or (ii) a public offering of GTS Shares that is
not a Complying Public Equity Offering.

                          "Non-Complying Public Equity Offering" means a public
equity offering of GTS Shares that satisfies all the Complying Public Equity
Conditions, except that the cumulative public offering price is less than U.S.
$100,000,000.

                          "Notice of Offering" means a notice given to the
Trustee or the Bondholders and, if required by the Indenture, the Luxembourg
Stock Exchange, that a Complying Public Equity Offering or a Non-Complying
Public Equity Offering has occurred.

                          "Pari Passu Indebtedness" means Indebtedness of the
Issuer which ranks pari passu in right of payment with the Bonds.

                          "Paying Agent" means the office or agency where Bonds
may be presented for payment of principal, premium, if any, and interest.

                          "Permitted Holder" means (A) Alan B. Slifka and any
entity controlled by him, (B) one or more of George Soros, Soros Fund
Management LLC, Purnendu Chatterjee or Chatterjee Management Company or
affiliates of any of the foregoing, and any person or entity for which any such
person or entity acts as the investment advisor or investment manager and (C)
any person that acquires the Capital Stock of the Issuer in a Strategic Equity
Offering.

                          "Permitted Investments" means any of the following:
(i) Investments in any Subsidiary or Significant Joint Venture; (ii) Investments
in any person that is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, the Issuer or any Subsidiary
or Significant Joint Venture at the time such Investment is made; (iii)
Investments in cash or Cash Equivalents; (iv) Investments in deposits with
respect to leases or utilities provided to third parties in the ordinary course
of business; (v) Investments in the Bonds; (vi) Investments in Currency
Agreements on commercially reasonable terms entered into by the Issuer or any
of its Subsidiaries or Significant Joint Ventures in the ordinary course of
business in connection with the operations of the business of the Issuer or its
Subsidiaries or Significant Joint Ventures to hedge against fluctuations in
foreign exchange rates; (vii) loans or advances to officers or employees of the
Issuer and its Subsidiaries or Significant Joint Ventures in the ordinary
course of business for bona fide business purposes of the Issuer, and its
Subsidiaries or Significant Joint Ventures (including travel and moving
expenses) not in excess of U.S. $5,000,000 (or the foreign currency equivalent)
in the aggregate at any one time outstanding; (viii) Investments in evidences
of Indebtedness, securities or other property received from another person by
the Issuer or any of its Subsidiaries or Significant Joint Ventures in
connection with any bankruptcy proceeding or by reason of a composition or
readjustment of debt or a reorganization of such person or as a result of
foreclosure, perfection or enforcement of





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any Lien in exchange for evidences of Indebtedness, securities or other
property of such person held by the Issuer or any of its Subsidiaries or
Significant Joint Ventures, or for other liabilities or obligations of such
other person to the Issuer or any of its Subsidiaries or Significant Joint
Ventures that were created, in accordance with the terms of the Indenture; (ix)
Investments in Interest Rate Protection Agreements on commercially reasonable
terms entered into by the Issuer or any of its Subsidiaries or Significant
Joint Ventures in the ordinary course of business in connection with the
operations of the business of the Issuer or its Subsidiaries or Significant
Joint Ventures to hedge against fluctuations in interest rates; and (x)
Investments in entities that are not Subsidiaries or Significant Joint
Ventures, to finance the construction, installation, improvement, acquisition
or operation of Telecommunication Assets, provided that such Investments do not
exceed in the aggregate, the greater of U.S. $25,000,000 (or the foreign 
currency equivalent) or 10 per cent. of the pro rata combined assets of the 
Issuer or, individually, the greater of U.S. $5,000,000 (or the foreign currency
equivalent) or 2 per cent. of the pro rata combined assets of the Issuer.

                          "person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint-stock
company, trust, charitable foundation, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.

                          "PORTAL" means the Private Offerings, Resales and
Trading through Automated Linkages market operated by the National Association
of Securities Dealers, Inc. or any successor thereto.

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

                          "Private Equity Offering" means a private offering of
GTS Shares pursuant to an exemption from registration under the Securities Act.

                          "Pro rata Combined Adjusted Net Income" means, for
any period, the pro rata combined net income (or loss) of the Issuer and its
Subsidiaries and Significant Joint Ventures for such period, adjusted by
excluding, without duplication, (a) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto), (b) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
asset dispositions other than in the ordinary course of business, and (c) the
portion of net income (or loss) of any person (other than the Issuer or a
Subsidiary or a Significant Joint Venture), in which the Issuer or any such
Subsidiary or Significant Joint Venture has an ownership interest, except to
the extent of the amount of dividends or other distributions actually paid to
the Issuer or any Subsidiary or any Significant Joint Venture in cash dividends
or distributions during such period.

                          "Pro rata Combined Interest Expense" means, for any
period, without duplication, the sum of (a) the pro rata combined interest
expense of the Issuer and its Subsidiaries and its Significant Joint Ventures
for such period, including, without limitation, (i) amortization of debt
discount, (ii) the net cost of Interest Rate Protection Agreements (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation and (iv) amortization of debt issuance costs, plus (b) the pro rata
combined interest component of Capitalized Lease Obligations of the Issuer, its
Subsidiaries and Significant Joint Ventures during such period, less (c) pro
rata interest income of the Issuer, its Subsidiaries and Significant Joint
Ventures; provided that (x) the Pro rata Combined Interest Expense attributable
to interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date
of computation had been the applicable rate for the entire period and (B) which
was not outstanding during the period for which the computation is being made
but which bears, at the option of the Issuer, a Subsidiary or Significant Joint
Venture, as the case may be, a fixed or floating rate of interest, shall be
computed by applying at the option of the Issuer, either the fixed or floating
rate, and (y) in making such computation, the Pro rata Combined Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period; provided
further that, notwithstanding the foregoing, the interest rate with respect to
any Indebtedness covered by any Interest Rate





                                   A-1/34
<PAGE>   116

Protection Agreement shall be deemed to be the effective interest rate with
respect to such Indebtedness after taking into account such Interest Rate
Protection Agreement.

                          "Pro rata Combined Income Tax Expense" means, for any
period the provision for federal, state, local and foreign income taxes of the
Issuer, its Subsidiaries and Significant Joint Ventures for such period as
determined on a pro rata combined basis.

                          "Pro rata Combined Non-cash Charges" means, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Issuer and its Subsidiaries and Significant Joint Ventures reducing Pro
rata Combined Adjusted Net Income for such period, determined on a pro rata
combined basis (excluding any such non-cash charge that requires an accrual of
or reserve for cash charges for any future period).

                          "Qualifying Stock Exchange" means the New York Stock
Exchange, the American Stock Exchange, the London Stock Exchange or the Nasdaq
National Market.

                          "Redeemable Capital Stock" means any shares of any
class or series of Capital Stock that, either by the terms thereof, by the
terms of any security into which it is convertible or exchangeable or by
contract or otherwise, is or upon the happening of an event or passage of time
would be, required to be redeemed prior to the Maturity with respect to the
principal of the Bonds or is redeemable at the option of the holder thereof at
any time prior to any such Maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such Maturity.

                          "Redemption Date" means, with respect to any Bonds
hereunder to be redeemed, the date fixed by the Issuer for such redemption
pursuant to the Indenture and the Bonds.

                          "Sale-Leaseback Transaction" of any person means an
arrangement with any lender or investor or to which such lender or investor is
a party providing for the leasing by such person of any property or asset of
such person which has been or is being sold or transferred by such person after
the acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty

                          "Senior Indebtedness" means the principal of,
premium, if any, interest, and other amounts payable on or in respect of any
Indebtedness of the Issuer, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Bonds. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (a) Indebtedness evidenced by the
Bonds, (b) Indebtedness that is pursuant to the instrument creating such
Indebtedness expressly subordinate or junior in right of payment to any
Indebtedness of the Issuer, (c) Indebtedness which, when incurred and without
respect to any election under Section 1111 (b) of Title II of the United States
Code, is without recourse to the Issuer, (d) Indebtedness which is represented
by Redeemable Capital Stock, (e) Indebtedness for goods, materials or services
purchased in the ordinary course of business or Indebtedness consisting of
trade account payables or other current liabilities incurred in the ordinary
course of business, (f) Indebtedness of or amounts owed by the Issuer for
compensation to employees or for services rendered to the Issuer, (g) any
liability for federal, state, local or other taxes owed or owing by the Issuer,
(h) other than the Chatterjee Notes and the Capital Research Notes,
Indebtedness of the Issuer to a Wholly-Owned Subsidiary or any other Affiliate
of the Issuer or any of such Affiliate's Wholly-Owned Subsidiaries, (i) that
portion of any Indebtedness which is incurred by the Issuer in violation of the
Indenture and 0) amounts owing under leases (other than Capitalized Lease
Obligations).

                          "Significant Joint Venture" means any Existing Joint
Venture or any Eligible Joint Venture.





                                    A-1/135
<PAGE>   117
                          "S&P" means Standard & Poor's Ratings Group, and its
successors.

                          "Strategic Equity Offering" means a private sale of
more than 10 per cent. and less than 30 per cent. (calculated on a fully-diluted
basis after giving effect to such offering) of GTS Shares to a Strategic
Investor.

                          "Strategic Investor" means an entity that has a total
market capitalization of at least $3,000,000,000 or a rating of at least BBB-
from S&P and/or a rating of Baa3 from Moody's, and is engaged in the business
of providing telecommunications services or in the manufacture and sale of
telecommunications equipment, or any subsidiary of such person.

                          "Subordinated Indebtedness" means Indebtedness of the
Issuer which is by its terms subordinated in right of payment to the Bonds.

                          "Subsidiary" means, with respect to the Issuer, (i) a
corporation a majority of whose Voting Stock is at the time, directly or
indirectly, owned by the Issuer, by one or more Subsidiaries of the Issuer or
by the Issuer and one or more Subsidiaries and (ii) any other person (other
than a corporation), including, without limitation, a joint venture, in which
the Issuer, one or more Subsidiaries or the Issuer and one or more
Subsidiaries, directly or indirectly, at the date of determination thereof, has
at least majority ownership interest entitled to vote in the election of
directors, managers or trustees thereof (or other person performing similar
functions). For purposes of this definition, any directors' qualifying shares
or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.

                          "Telecommunications Assets" means, with respect to
any person, any tangible or intangible asset (including the capital stock of
another person) that is utilized by such person, directly or indirectly, for
the design, development, installation, integration, management or provision of
telecommunications systems and/or services, including, without limitation, any
business or services in which the Issuer, or any Subsidiary or any Significant
Joint Venture of the Issuer is engaged at the Issue Date.

                          "Trading Days" means, with respect to a securities
exchange or automated quotation system, a day on which such exchange or system
is open for a full day of trading.

                          "Transfer Agent" means the office or agency where
Bonds may be presented for registration of transfer or for exchange.

                          "U.S. Government Obligations" means securities that
are (a) direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (b) obligations of a
person controlled or supervised by and acting as an agency or instrumentality
of the United States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with
respect to any such U.S. Government Obligations or a specific payment of
principal of or interest on any such U.S. Government Obligations held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligations or the specific payment of principal of or interest on the U.S.
Government Obligations evidenced by such depository receipt.

                          "Voting Stock" means any class or classes of Capital
Stock pursuant to which the holders thereof under ordinary circumstances have
the power to vote in the election of the board of directors, managers or
trustees of any person (irrespective of whether or not, at the time, Capital
Stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).

                          "Wholly-Owned Subsidiary" means any Subsidiary of the
Issuer of which 100 per cent. of the outstanding Capital Stock is owned by the
Issuer or by one or more Wholly-Owned Subsidiaries of the Issuer or by





                                    A-1/136
<PAGE>   118
the Issuer and one or more Wholly-Owned Subsidiaries of the Issuer. For
purposes of this definition, any directors' qualifying shares or investments by
foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary.





                                    A-1/137
<PAGE>   119
                           [FORM OF TRANSFER NOTICE]

                          FOR VALUE RECEIVED the undersigned registered holder
hereby sell(s), assign(s) and transfer(s) unto


- ------------------------------------------
Insert Taxpayer Identification No.


- ------------------------------------------
Please print or typewrite name and address including zip code of assignee


- ------------------------------------------
the within Bond and all rights thereunder, hereby irrevocably constituting and
appointing


- ------------------------------------------
attorney to transfer said Bond on the books of the Issuer with full power of
substitution in the premises.

                          In connection with any transfer of this Bond
occurring prior to the date which is the earlier of (i) the date of an
effective registration statement under the U.S. Securities Act of 1933, as
amended (the "Securities Act") or (ii) two years after the later of the
original issuance of this Bond or the last date on which this Bond was held by
an Affiliate of the Issuer, the undersigned confirms, that without utilizing
any general solicitation or general advertising:

[Check One]

[ ](a)   this Bond is being transferred in compliance with the exemption from
         registration under the Securities Act provided by Rule 144A thereunder.

                                       or

[ ](b)   this Bond is being transferred other than in accordance with (a) above
         and documents are being furnished which comply with the conditions of
         transfer set forth in this Bond and the Indenture.

If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Bond in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.

- ---------------------------------       ---------------------------------------
Date:                                   Signature

                                        NOTICE: The signature to this
                                        assignment must correspond with the
                                        name as written upon the face of the
                                        within-mentioned instrument in every
                                        particular, without alteration or any
                                        change whatsoever.

TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.

                          The undersigned represents and warrants that it is
purchasing this Bond for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act and is aware that the sale





                                    A-1/38
<PAGE>   120
to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Issuer as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon the undersigned's
foregoing representations in order to claim the exemption from registration
provided by Rule 144A.


Dated:                                                                          
      ----------------------------      ---------------------------------------
                                        Signature




                                    A-1/39
<PAGE>   121
                          [FORM OF CONVERSION NOTICE]

            The undersigned registered owner of this Bond hereby irrevocably
exercises the option to convert this Bond, or the portion hereof (which is
$1,000 or a multiple thereof) designated below, into shares of Common Stock in
accordance with the terms of the Indenture referred to in this Bond, and
directs that the shares issuable and deliverable upon the conversion, together
with any check in payment for a fractional share and any Bond representing any
unconverted principal amount hereof, be issued and delivered to the registered
owner hereof unless a different name has been provided below. If this Notice is
being delivered on a date after the close of business on a regular record date
and prior to the close of business on the related Interest Payment Date, this
Notice is accompanied by payment in New York Clearing House funds, or other
funds acceptable to the Issuer, of an amount equal to the interest payable on
such Interest Payment Date on the principal of this Bond to be converted. If
shares or any portion of this Bond not converted are to be issued in the name
of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto.

Dated:                                                                          
     ----------------------------       ---------------------------------------
                                        Signature

                                        NOTICE: This signature must correspond
                                        with the name as written upon the face
                                        of the within-mentioned instrument
                                        in every particular, without 
                                        alteration or any change whatsoever.


Fill in for registration of
shares of Common Stock if they
are to be delivered, or Bonds if
they are to be issued, other than
to and in the name of the
registered owner:


- ----------------------------------
(Name)


- ----------------------------------
(Street Address)


- ----------------------------------
(City, State and zip code)
(Please print name and address)
Register:          Common Stock
                 --
                   Bonds 
                 --

(Check appropriate line(s)).
                                        Principal amount to be converted (if
                                        not less than all):

                                                    $   , 000
                                                     ---

                                        ------------------------------------
                                        Social Bond or other Taxpayer
                                        Identification Number of owner





                                    A-1/40 
<PAGE>   122
                       OPTION OF HOLDER TO ELECT PURCHASE

                 If you wish to have this Bond purchased by the Issuer pursuant
to Section 4.11 of the Indenture, check the box: [ ]

                 If you wish to have a portion of this Bond purchased by the
Issuer pursuant to Section 4.11 of the Indenture, state the amount:

                         $            principal amount
                           ----------
Date:                                   Your Signature:
     -------------------------------
                                        ---------------------------------------
                                        (Sign exactly as your name appears on
                                        the other side of this Security)

Signature Guarantee: 
                     ----------




                                    A-1/41
<PAGE>   123
                                                                     EXHIBIT A-2

                                FORM OF LEGENDS

[INCLUDE IF BOND IS A REGULATION S GLOBAL CERTIFICATE 
THIS BOND IS A REGULATION S GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
INDENTURE REFERRED TO HEREINAFTER. EXCEPT IN THE CIRCUMSTANCES DESCRIBED IN
SECTION 2.18(b) OF THE INDENTURE, NO TRANSFER OR EXCHANGE OF AN INTEREST IN THIS
REGULATION S GLOBAL CERTIFICATE MAY BE MADE FOR AN INTEREST IN THE RESTRICTED
GLOBAL CERTIFICATE DURING THE RESTRICTED PERIOD. THIS LEGEND WELL BE REMOVED
AFTER THE EXPIRATION OF 365 DAYS FROM THE ORIGINAL ISSUANCE OF THE SENIOR
SUBORDINATED CONVERTIBLE BONDS DUE 2000 OF GLOBAL TELESYSTEMS GROUP, INC. IN
ADDITION, THE BONDS MAY NOT BE CONVERTED INTO GTS SHARES EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT.]

[INCLUDE IF BOND IS A GLOBAL CERTIFICATE --

         "UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
         THE DEPOSITORY TRUST COMPANY TO THE ISSUER OR ITS AGENT FOR
         REGISTRATION OF TRANSFER, CONVERSION, EXCHANGE OR PAYMENT, AND ANY
         SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH
         OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
         DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
         OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
         REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE
         OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
         WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
         INTEREST HEREIN. TRANSFERS OF THIS GLOBAL CERTIFICATE SHALL BE LIMITED
         TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR
         TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
         PORTIONS OF THIS GLOBAL CERTIFICATE SHALL BE LIMITED TO TRANSFERS MADE
         IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.18 OF THE
         INDENTURE."

[INCLUDE ON ALL CERTIFICATES --

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
         SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY
         SECURITIES REGULATORY AUTHORITY OF ANY JURISDICTION. THE HOLDER
         HEREOF, BY PURCHASING THIS SECURITY, AGREES THAT THIS SECURITY MAY BE
         OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(I) TO
         GLOBAL TELESYSTEMS GROUP, INC., (2) PROVIDED THIS SECURITY IS ELIGIBLE
         FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
         144A"), TO A PERSON THAT THE SELLER REASONABLY BELIEVES IS A QUALIFIED
         INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A) IN ACCORDANCE WITH RULE
         144A, (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR
         904 OF REGULATION S UNDER THE SECURITIES ACT OR (4) PURSUANT TO AN
         EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
         ACT (IF AVAILABLE), OR (B) PURSUANT TO AN EFFECTIVE REGISTRATION
         STATEMENT UNDER THE SECURITIES ACT, AND IN EACH CASE IN ACCORDANCE
         WITH ANY AND ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
         UNITED STATES. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
         REPRESENTS AND AGREES THAT IT WILL NOTIFY ANY PURCHASER OF THIS
         SECURITY FROM IT (OTHER THAN A TRANSFER PURSUANT TO (B) ABOVE) OF THE
         RESALE RESTRICTIONS REFERRED TO ABOVE. THIS LEGEND WILL BE REMOVED
         AFTER THE EXPIRATION OF TWO YEARS FROM THE LATER OF THE ORIGINAL
         ISSUANCE OF THE SENIOR SUBORDINATED CONVERTIBLE BONDS DUE





                                    A-2/1
<PAGE>   124
         2000 OF GLOBAL TELESYSTEMS GROUP, INC. OR IF THIS SECURITY HAS BEEN
         ACQUIRED BY SUCH ISSUER OR AN AFFILIATE OF SUCH ISSUER, THE DATE ON
         WHICH IT IS SUBSEQUENTLY TRANSFERRED TO A NON-AFFILIATE OF THE ISSUER,
         OR UPON THE EARLIER SATISFACTION OF THE ISSUER HEREOF OR ITS TRANSFER
         AGENT OR REGISTRAR THAT THIS SECURITY HAS BEEN OR IS BEING SOLD IN
         COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT.]



                                    A-2/2
<PAGE>   125

                                                                       EXHIBIT B



                          FORM OF CERTIFICATE (DTC)




[TO BE ADDED]















                                     B-1
<PAGE>   126

                                                                    EXHIBIT C-1

                   FORM OF CERTIFICATES TO BE DELIVERED IN
                        CONNECTION WITH TRANSFERS OF
                      SECURITIES PURSUANT TO RULE 144A
                ---------------------------------------------

                                   PART I

                         Clearing System Certificate

               Global TeleSystems Group, Inc. (the "Company")
        Senior Subordinated Convertible Bonds due 2000 (the "Bonds")

To:      THE BANK OF NEW YORK,
         as Trustee and Registrar


                 This is to certify that, based solely on a certificate we have
received in writing, by tested telex or by electronic transmission from a
member organization appearing in our records as a person being entitled to the
principal amount set out below (our "Member Organization") substantially to the
effect set out in this certificate as of the date hereof, U.S. $      
principal amount of the Bonds (i) has been sold by such Member Organization
pursuant to and in accordance with Rule 144A under the U.S. Securities Act of
1933, as amended, and (ii) is being transferred to a transferee which such
Member Organization reasonably believes is purchasing the Bonds for its own
account or an account with respect to which the transferee exercises sole
investment discretion and the transferee and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A and the transferee is
aware that the sale to it is being made in reliance on Rule 144A, in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction.

                 [We hereby request that you issue [insert details of the
relevant accounts at Euroclear/Cedel Bank and The Depository Trust Company to
be debited and credited.]

                 We understand that this certificate is required in connection
with certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certificate is or would be relevant, we irrevocably authorize
you to produce this certificate to any interested party in such proceedings.


                                        Yours, faithfully,

                                        [MORGAN GUARANTY TRUST COMPANY OF NEW
                                        YORK, Brussels office, as
                                        operator of the Euroclear
                                        System] or [Cedel Bank,
                                        societe anonyme]
                                        
                                        By: 
                                           -----------------------------
                                            Name:
                                            Title:
                                            
Dated:(1) 
         --------------

- ----------------------------------------
(1)      Not earlier that the certification event to which the certificate
         relates.

                                    C-1/1
<PAGE>   127

                                   PART II

                      Member Organization Certification

                 Global TeleSystems Group, Inc. (the "Company")
          Senior Subordinated Convertible Bonds due  2000 (the "Bonds")
                        -----------------------------

To:     THE DEPOSITORY TRUST COMPANY
        [MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
        Brussels office, as operator of the Euroclear System
        /Cedel Bank, societe anonyme]


                 This letter relates to U.S.$ _____ principal amount of Bonds
in registered form (the "Bonds"), which are held in [book-entry form with The
Depository Trust Company of New York] [the form of Definitive Bonds] by [name
of transferor] (the "Transferor") to [name of transferee].

                 The Transferor hereby requests the Trustee to register the
transfer of the Bonds.

                 In connection with such request, and in respect to such Bonds,
the Transferor does hereby certify as follows:

                 Such Bonds are being transferred in accordance with Rule 144A
         under the Securities Act of 1933, as amended, to a transferee that the
         Transferor reasonably believes is purchasing the Bonds for its own
         account or an account with respect to which the transferee exercises
         sole investment discretion and that the transferee and any such
         account is a "qualified institutional buyer" within the meaning of
         Rule 144A, and such transferee is aware that the sale to it is being
         made in reliance on Rule 144A and the transferee is aware that the
         sale to it is being made in reliance on Rule 144A, in a transaction
         meeting the requirements of Rule 144A and in accordance with any
         applicable securities laws of any state of the United States or any
         other jurisdiction.

                 Details of the relevant accounts at [Euroclear/Cedel Bank] and
The Depository Trust Company to be credited and debited respectively, as
follows: [Insert Details]

                                        [Name of Transferor]

                                        By: 
                                           -----------------------------
                                            Name:
                                            Title:
                                            

Dated: -------------



                                    C-1/2
<PAGE>   128
                                                            EXHIBIT C-2

                  FORM OF REGULATION S TRANSFER CERTIFICATE

                 CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
                  TRANSFERS OF NOTES PURSUANT TO REGULATION S

                 Global TeleSystems Group, Inc. (the "Company")
       Senior Subordinated Convertible Bonds due 2000 (the "Securities")

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

Euroclear/Cedel Bank # ------
DTC # ------

To:     THE BANK OF NEW YORK 
        101 Barclay Street, 21-W 
        New York, New York
        Attention: Corporate Trust Administration

                 In connection with our sale of U.S.$[           ] principal
amount of Securities, we confirm that such sale has been effected pursuant to
and in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly we represent that:

                                  (1)      the offer of the Securities was made
                 in an offshore transaction within the meaning of Rule 902 of
                 Regulation S;

                                  (2)      no directed selling efforts have
                 been made in the United States within the meaning of Rule
                 903(b) or Rule 904(b) of Regulation S, as applicable;

                                  (3)      the transferor or Holder, as the
                 case may be, is not a dealer or a person receiving a selling
                 concession; and

                                  (4)      the transaction is not part of a
               plan or scheme to evade the registration requirements of the
               Securities Act.

                          In addition, (a) if such sale is made during the
restricted period applicable to the Securities (i) and the provisions of Rule
903(c)(2) or Rule 904(c)(1) of Regulation S are applicable thereto, we confirm
that such sale has been made in accordance with the applicable provisions of
Rule 903(c)(2) or Rule 904(c)(1), as the case may be and (ii) we confirm that,
upon completion of the transaction described herein the beneficial interest
transferred hereby will be held with DTC through Euroclear or Cedel Bank or
both, or (b) if the undersigned is an officer or director of the Company, or a
distributor or any Affiliate (as such term is defined under Rule 144 of the
Securities Act) of the Company, such sale is made in accordance with the
applicable provisions of Rule 904(c)(2) of Regulation S.

                          Details of the relevant account(s) at
[Euroclear/Cedel Bank] and the Depository Trust Company to be credited and
debited, respectively, are as follows:

                          [Insert Details].


                                    C-2/1
<PAGE>   129
                 This certificate and the statements contained herein are made
for your benefit and the benefit of the Company. Conditions used in this
certificate have the meanings set forth in Regulation S.

                          [Name of Transferor]

                          By: 
                              ------------------------------
                                 Authorized Signature
                          
                          Dated:
                                ------------------                          

                                    C-2/2
<PAGE>   130
                                                                     EXHIBIT C-3

                        FORM OF TRANSFER CERTIFICATE
                  FOR EXCHANGE OR TRANSFER FROM RESTRICTED
                  GLOBAL BOND OR RESTRICTED DEFINITIVE BOND
                  TO PERMANENT REGULATION S GLOBAL CERTIFICATE

To:      THE BANK OF NEW YORK
         101 Barclay Street, 21-W
         New York, New York
         Attention: Corporate Trust Administration

                This letter relates to U.S.$      principal amount of Bonds 
which are held as a beneficial interest in the (i) Restricted Global 
Certificate with the Depositary in the name of [insert name of transferor] 
(the "Transferor" or (ii) Restricted Definitive Bonds). The transferor or 
Holder, as the case may be, has requested an exchange or transfer of such 
beneficial interest in the Bonds for an interest in the Permanent Regulation 
S Certificate.

                 In connection with such request, and in respect of such Bonds,
the transferor or Holder, as the case may be, does hereby certify that such
exchange or transfer has been effected in accordance with the transfer
restrictions set forth in the Bonds and with respect to transfers made in
reliance on Regulation S under the U.S. Securities Act of 1933, as amended
(the "Securities Act"), the transferor or Holder, as the case may be, does
hereby certify that:

                 1.       the offer of the Bonds was not made to a person in
the United States;

                 2.       the transaction was executed in, on, or through the
facilities of a designated offshore securities market and neither the
transferor nor any person acting on our behalf knows that the transaction was
pre-arranged by a buyer in the United States;

                 3.       no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) Regulation S, as
applicable;

                 4.       The transferor or Holder, as the case may be, is not
a dealer or a person receiving a selling concession; and

                 5.       the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act;



                                     C-3/1
<PAGE>   131
                 Accordingly, we request that you issue Bonds in respect of
this transfer which do not bear the Securities Act Legend.

                 This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuer.

                                        [Insert name of transferor or Holder,
                                        as the case may be]

                                        By: 
                                           -----------------------------
                                            Name:
                                            Title:
                                            
Dated:
       ---------------


                                    C-3/2
<PAGE>   132
                                                                    EXHIBIT C-4

                          Form of Certificate to Be
                        Delivered in Connection with
                  Certain Transfers to Accredited Investors


                                              ------------------,  -----------
  
The Bank of New York
101 Barclay Street
21-W
New York, New York 10286
Attention: Corporate Trust Administration

         Re:     Global TeleSystems Group, Inc. (the "Company")
                 Senior Subordinated Convertible Bonds
                 due 2000 (the "Securities")

Dear Sirs:

                 In connection with our proposed purchase of $
aggregate principal amount of the Securities, we confirm that:

                 1.       We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth in the
Indenture relating to the Securities (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the
Securities except in compliance with, such restrictions and conditions and the
Securities Act of 1933, as amended (the "Securities Act").

                 2.       We understand that the offer and sale of the
Securities have not been registered under the Securities Act, and that the
Securities may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for with we
are acting as hereinafter stated, that if we should sell any Securities, we
will do so only (A) to the Company or any subsidiary thereof, (B) to the extent
available, in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and
to the Company a signed letter substantially in the form of this letter, and if
such transfer is in respect of a principal amount of Securities at the time of
such transfer of less than $250,000, an opinion of counsel acceptable to the
Company that such transfer is in compliance with the Securities Act, (D)
outside the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act, or (F) pursuant to an effective registration
statement under the Securities Act. We further agree to provide to any person
purchasing any of the Securities from us a notice advising such purchaser that
resales of the Securities are restricted as stated herein.

                 3.       We understand that, in connection with any proposed
resale of any Securities, we will be required to furnish to you and the Company
such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Securities purchased
by us will bear a legend to the foregoing effect.

                 4.       We are an "accredited investor" (as defined in Rule
501 of Regulation D under the Securities Act) and have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any accounts
for which we are acting are each able to bear the economic risk of our or their
investment.

                                     C-4/1
<PAGE>   133
                 5.       We are acquiring the Securities purchased by us for
our own account or for one or more accounts (each of which is an "accredited
investor") as to each of which we exercise sole investment discretion.

                 You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.

                                  Very truly yours,

                                  [Name of Transferee]

                                  By:
                                     --------------------------------   
                                      Authorized Signature



                                      C-4/2
<PAGE>   134
                                                                     EXHIBIT C-5

             FORM OF REGULATION S TRANSFER RESTRICTION CERTIFICATE

The Bank of New York
1 Wall Street
27th Floor
New York, NY 10286

Attention: Corporate Trust Administration

                         GLOBAL TELESYSTEM GROUP, INC.

Dear Sirs:

                 This letter relates to U.S. $           principal amount at
maturity of Bonds represented by a certificate (the "Temporary Regulation S
Global Certificate") which bears a legend outlining restrictions upon transfer
of such legended certificate. Pursuant to section 2.02(b) of the Indenture (the
"Indenture") dated as of July 14, 1997 relating to the Bonds, we hereby certify
that we are (or we will hold such certificate on behalf of) (a) a person
outside the United States to whom the Bonds could be transferred in accordance
with Rule 904 of Regulation S promulgated under the Securities Act of 1933, as
amended ("Regulation S") or (b) a U.S. Person who purchased the Bonds pursuant
to an exemption from, or in a transaction not subject to, the Securities Act of
1933, as amended. Accordingly, you are hereby requested to exchange the
Temporary Regulation S Global Certificate for an unlegended permanent
Regulation S Global Certificate representing an identical principal amount at
maturity of Bonds, all in the manner provided for in the Indenture.

                 You and Global TeleSystems Group, Inc. are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceedings
or official inquiry with respect to the matters covered hereby. Terms used in
this certificate have the meanings set forth in Regulation S.

                                Very truly yours, 
        

                                Name of Holder 



                                -------------------------------
                                Authorized Signature


cc: Global TeleSystems Group, Inc.





                                    C-5/1

<PAGE>   135

                                                                       EXHIBIT D
                         REGISTRATION RIGHTS AGREEMENT

                 This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into this July 14, 1997 between GLOBAL TELESYSTEMS GROUP INC., a
Delaware corporation (the "Company"), UNION BANK OF SWITZERLAND (the "Lead
Manager") on behalf of all the Managers pursuant to the Subscription Agreement
dated July 9, 1997 between the Company and the Managers (the "Subscription
Agreement"), and THE BANK OF NEW YORK, as Trustee (the "Trustee") pursuant to
an Indenture (the "Indenture"), dated as of July 14, 1997, between the Company
and the Trustee on behalf of the Bondholders (as defined therein).

                 The Subscription Agreement provides for the sale by the
Company to the Managers named therein of Senior subordinated Convertible Bonds
due 2000 of the Company (the "Bonds") having an aggregate principal amount of
up to U.S. $155,250,000 (after giving effect to the over-allotment option) each
of which entitles the holder thereof to convert such Bond into shares of Common
Stock of the Company at the conversion price set forth in the Indenture. In
order to induce the Managers named therein to enter into the Subscription
Agreement and to induce the Trustee to enter into the Indenture, the Company
has agreed to provide for the benefit of the Managers and their direct and
indirect transferees and for the Trustee for the benefit of the Holders of
Bonds from time to time, the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the closing under the
Subscription Agreement and the Indenture.

                 In consideration of the foregoing, the parties hereto agree as
follows:

                 1.        Definitions. As used in this Agreement, capitalized
terms shall have the meanings set forth below, or to the extent not set forth
below, capitalized terms shall have the meanings set forth in the Subscription
Agreement.

                 "Bonds" shall mean the Senior Subordinated Convertible Bonds
         due 2000 of the Company.

                 "Business Day" shall mean any day other than a day on which
         banking institutions are authorized or





<PAGE>   136
         obligated by law or executive order to close in London and New York.

                 "Common Stock " shall mean the Common Stock, par value $.0001
         per share, of the Company.

                 "Company" shall have the meaning set forth in the preamble
         and also includes the Company's successors.

                 "Exchange Act" shall mean the Securities Exchange Act of 1934,
         as amended.


                 "First Conversion Date" shall have the meaning set forth in
         Section 2(a) of this Agreement.

                 "Holder" Shall mean the Managers, for so long as they own any
         Bonds or Registrable Securities, and each of their successors, assigns
         and direct and indirect transferees who become registered owners of
         Bonds or Registrable Securities.

                 "Indenture" shall mean the Indenture relating to the Bonds,
         dated as of July 14, 1997, between the Company and the Trustee, as the
         same may be amended from time to time in accordance with the terms
         thereof.

                 "Issuance Registration Statement" shall have the meaning set
         forth in Section 2(a) of this Agreement.

                 "Lead Manager" shall have the meaning set forth in the preamble
         to this Agreement.

                 "Liquidated Damages" shall have the meaning set forth in
         Section 5(1) of this Agreement.

                 "Majority Holders" shall mean the Holders holding a majority
         of the Bonds or Registrable Securities; provided that whenever the
         consent or approval of a specified percentage of Holders is required
         hereunder, Bonds or Registrable Securities held by the Company or any
         of its affiliates (as such term is defined in Rule 405 under the
         Securities Act, "Affiliates") (other than the Managers or subsequent
         holders of Bonds or Registrable Securities, if such subsequent holders
         are deemed to be such affiliates solely by reason of their holding
         Bonds or Registrable Securities and other than affiliates that control
         or are under common control with the Company) shall not be counted in
         determining whether such consent or approval





                                       2
<PAGE>   137
         was given by the Holders of such required percentage or amount.

                 "Managers" shall mean the Managers named in the Subscription
         Agreement.

                 "NASDAQ" shall mean the National Association of Securities
         Dealers Automated Quotation System. 

                 "person" shall mean an individual, partnership, corporation, 
         trust or unincorporated organization, or a government or agency or 
         political subdivision thereof.

                 "Prospectus" shall mean the prospectus included in a Shelf
         Registration Statement, including any preliminary prospectus, and any
         such prospectus as amended or supplemented by any prospectus
         supplement, and all other amendments and supplements to such
         prospectus, including post-effective amendments, and in each case
         including all material incorporated by reference therein.

                 "Registrable Securities" shall mean the Shares; provided,
         however, that the Shares shall cease to be Registrable Securities when
         (i) an issuance Registration Statement with respect to all the Shares
         shall have been declared effective; (ii) a Shelf Registration
         Statement with respect to the Shares shall have been declared
         effective under the Securities Act and all such Shares shall have been
         transferred or otherwise disposed of pursuant to such Shelf
         Registration Statement; or (iii) the Shares may be distributed to the
         public pursuant to Rule 144(k) (or any similar provision then in
         force, but not Rule 144A) under the Securities Act in respect of all
         beneficial holders of Shares that are not Affiliates of the company.

                 "Registration Default" shall have the meaning set forth in
         Section 5(1) of this Agreement.

                 "Registration Expenses" shall mean (a) any and all fees and 
         expenses incurred incident to the Company's performance of or 
         compliance with this Agreement (whether or not any Shelf Registration 
         Statement is filed or becomes effective and whether or not any 
         securities are sold pursuant to any Shelf Registration Statement), 
         including, without limitation, (i) all SEC registration and filing 
         fees, all United States national stock





                                       3
<PAGE>   138
         exchange or NASDAQ listing fees and National Association Of Securities
         Dealers, Inc. registration and filing fees, (ii) all fees and expenses
         incurred in connection with compliance with U.S. state securities or
         "blue sky" laws (including, without limitation and in addition to that
         provided in clause (vii) below, fees and disbursements of counsel for
         any Underwriters in connection with "blue sky" qualification of any of
         the Registrable Securities under the laws of such jurisdictions as the
         managing underwriter of the Underwritten Offering, if any, or the
         Majority Holders, as the case may be, may designate), (iii) all
         expenses of any persons retained by the Company in preparing or
         assisting in preparing, word processing, printing and distributing the
         Shelf Registration Statement or any Prospectus, or, in each case, any
         amendments or supplements thereto, (iv) the fees and expenses incurred
         by any Underwriter in connection with the preparation of any
         underwriting agreements, securities sales agreements and other
         documents relating to the performance of and compliance with this
         Agreement, (v) the fees or any listing agent, (vi) the fees and
         disbursements of the Trustee or any paying, conversion or transfer
         agent retained by the Company, (vii) the reasonable fees and
         disbursements of counsel (in addition to local Counsel) for the
         Company and the fees and disbursements of counsel (in addition to
         local counsel) for the Holders in connection with such Underwritten
         Offering (which counsel shall be Chadbourne & Parke LLP unless and
         until another counsel is selected by the Majority Holders (or, in the
         case of an Underwritten Offering, a majority of the Holders
         participating in such Underwritten offering) and which counsel also
         may be counsel for the Lead Manager) (viii) the fees and disbursements
         of the independent public accountants of the Company and any
         partnership or joint venture in which the Company or any of its
         subsidiaries has an ownership interest, including the expenses of any
         special audits or "cold comfort" letters required by or incident to
         such performance and compliance, (ix) fees and expenses of all other
         persons retained by the Company, and (x) the Company's internal
         expenses, but (b) excluding underwriting discounts and commissions and
         transfer taxes, if any, relating to the sale or disposition of
         Registrable Securities by a Holder.

                 "SEC" shall mean the Securities and Exchange Commission.





                                       4
<PAGE>   139
                 "Securities Act" shall mean the Securities Act of 1933, as
         amended.

                 "Shares" means the shares of Common Stock issuable upon the
         conversion of the Bonds.

                 "Shelf Registration Statement" shall mean a "shelf"
         registration statement of the Company pursuant to the provisions of
         Section 2(a) of this Agreement covering the resale of all of the
         Registrable Securities by the holders thereof (but no other
         securities, unless approved by the Majority Holders) on an appropriate
         form in connection with an offering to be made on a continuous basis
         pursuant to Rule 415 under the Securities Act, or any similar rule
         that may be adopted by the SEC, and all amendments and supplements to
         such registration statement, including post-effective amendments, and
         in each case including the Prospectus contained therein, all exhibits
         thereto and all material incorporated by reference therein.

                 "Subscription Agreement" shall have the meaning set forth in
         the first paragraph of this Agreement.

                 "Underwriter" shall have the meaning set forth in Section 2(c)
         of this Agreement.

                 "Underwritten Offering" shall mean a registration in which
         Registrable Securities are sold to an Underwriter for reoffering to
         the public.

                 2. Registration Under the Securities Act.

                 (a) To the extent not prohibited by any applicable law or
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed a Registration statement (the "Issuance Registration
Statement") covering the issuance of the Shares upon conversion of the Bonds
prior to the first date upon which the Bonds become convertible (the "First
Conversion Date") and shall use its best efforts to cause such Issuance
Registration Statement to become effective by the First Conversion Date. The
Company shall use its best efforts to keep such Issuance Registration Statement
continuously effective until such time as all Bonds have been converted or
redeemed. The Company further agrees to supplement or amend the Issuance
Registration Statement if required by the rules, regulations or instructions
applicable to the 





                                       5
<PAGE>   140
registration form used by the Company for such Issuance Registration Statement
or by the Securities Act or by any other rules and regulations thereunder, and
to use its best efforts to cause any such amendment or supplement to become
effective and such Issuance Registration Statement to become usable as soon as
thereafter practicable.

                 (b) In the event that (i) the Company determines that,
notwithstanding its best efforts, the Issuance Registration Statement provided
for in Section 2(a) above is not available or would not be declared effective
by the SEC on or before the First Conversion Date because it would violate
applicable law or the applicable interpretations of the Staff of the SEC or
(ii) in the opinion of counsel for the Managers or the Holders, as applicable,
which shall be given reasonably promptly, a Shelf Registration Statement must
be filed and a Prospectus must be delivered by a Manager or a Holder in
connection with any offering or sale of Shares then the Company shall file and
shall use its best efforts to cause a Shelf Registration Statement pertaining
to the Shares to be declared effective by the SEC prior to the First Conversion
Date. The Company shall not permit any securities other than the Registrable
Securities to be included in the Shelf Registration Statement. In the event the
Company is required to file a Shelf Registration Statement solely as a result
of the matters referred to in clause (ii) of the first sentence of this Section
2(b), the Company shall file and have declared effective by the SEC both an
Issuance Registration Statement pursuant to Section 2(a) with respect to all
Shares and a Shelf Registration Statement (which may be a combined Shelf
Registration Statement with the Issuance Registration Statement) with respect
to offers and sales of Shares after the First Conversion Date. The Company
agrees to use its best efforts to keep the Shelf Registration Statement
continuously effective for so long as any of the Shares covered thereby
(without regard to whether such Shares actually have been issued) shall
constitute Registrable Securities. The Company further agrees to supplement or
amend the Shelf Registration Statement, if required by the rules, regulations
or instructions applicable to the registration form used by the Company for the
Shelf Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder in order to
accurately reflect information regarding such Holder or such Holder's plan of
distribution as required by the Shelf Registration





                                       6
<PAGE>   141
Statement, and to use its best efforts to cause any such amendment to become
effective and the Prospectus contained in such Shelf Registration Statement to
become usable as soon as thereafter practicable; provided, however that the
Company shall not be required to supplement or amend the Shelf Registration
Statement to update information relating to any new Holder on more than one
occasion in each calendar month in respect of a Holder or Holders who in the
aggregate hold $10,000,000 or more in value of Registrable Securities or on
more than one occasion in each calendar quarter in respect of a Holder or
Holders who hold in the aggregate less than such value of Registrable
Securities. The Company agrees to furnish to the Holders copies of any such
supplement or amendment promptly after its being made available for use or
filed with the SEC.

                 (c)(i) Subject to the proviso in Section 3(o), the Holders
whose Registrable Securities are covered by a Shelf Registration Statement who
desire to do so may sell Registrable Securities in an Underwritten Offering. In
any such Underwritten Offering, the investment banker or investment bankers and
manager or managers (the Underwriters") that will administer the offering will
be selected (subject to the Company's approval which shall not be unreasonably
withheld) by the Holders holding a majority of the Registrable Securities
(determined on an as-converted basis) included in such offering. Notwithstanding
anything to the contrary set forth herein, the Company may suspend a Holder's
use of a Prospectus which is part of the Shelf Registration Statement for up to
two periods not to exceed 45 consecutive days (but not more than 60 days in any
365-day period) if the Company in its reasonable judgment believes it possesses
material non-public information the disclosure of which would have an adverse
effect on the company, or any of its Subsidiaries or any Significant Joint
Venture (each as defined in the Indenture).

                 (ii) Each Holder whose Registrable Securities are covered by
the Shelf Registration Statement and are of the same class or type as any
Registrable Securities being sold in an Underwritten Offering agrees, upon the
request of the Underwriter(s) in any Underwritten Offering permitted pursuant
to this Agreement, not to effect any public sale or distribution of securities
of the Company of the same class or type as the Registrable Securities included
in such Shelf Registration Statement (except as part of such Underwritten
Offering), including a sale pursuant to Rule 144 under the Securities Act,
during the 10-day period prior to, and during





                                       7
<PAGE>   142
the 90-day period beginning on, the closing date of any such Underwritten
Offering made pursuant to such Shelf Registration Statement, provided that the
Company or such Underwriter(s) shall have given such Holder timely notice in
writing of such closing date.

                 The foregoing provision shall not apply to any Holder if such
Holder is prevented by applicable statute or regulation from entering into any
such agreement; provided, however, that any such Holder shall undertake, in its
request to participate in any such Underwritten Offering, not to effect any
public sale or distribution of any of its Registrable Securities not sold in
such Underwritten Offering, commencing on the date of sale of Registrable
Securities pursuant to such Underwritten offering and ending on the date that
is 90 days after the closing date of such Underwritten Offering, unless it has
provided 45 days' prior written notice of such sale or distribution to the
Underwriter(s).

                 (iii) Unless otherwise agreed to by the Underwriter(s), the
Company agrees not to effect any public or private offer, sale or distribution
of securities of the same class and type as the Registrable Securities being
sold in the Underwritten Offering, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each Underwritten Offering
permitted pursuant to Section 3(o) hereof made pursuant to the Shelf
Registration Statement, provided that the Underwriter(s) shall have given the
Company timely notice in writing of such closing date. Notwithstanding the
foregoing, the Company may effect a private offer, sale or distribution of
securities of the same class or type as the Registrable Securities being sold in
the Underwritten offering to the extent that, at the time that the price of such
securities is determined, the price of such securities is in excess of the
market price of the Registrable Securities; provided that the limitation on
private offers, sales and distributions set forth in this sentence shall apply
only to the extent so requested by the Underwriter(s) in the Underwritten
Offering within three Business Days following notice of such proposed offer,
sale or distribution by the Company (which notice shall be provided by the
Company at least seven Business Days prior to any such proposed offer, sale or
distribution).

                 (d) The Company shall promptly pay upon incurrence all
Registration Expenses in connection with any registration pursuant to Section
2. Each Holder shall pay all underwriting





                                       8
<PAGE>   143
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to the Shelf
Registration Statement.

                 (e) Upon the occurrence or failure to occur of certain events
described in this Agreement, Liquidated Damages will accrue on the Bonds as
provided in this Agreement.

                 (f) Without limiting the remedies available to the Managers
and Holders, the Company acknowledges that any failure by the Company to comply
with its obligations under Section 2 hereof may result in material irreparable
injury to the Managers and/or Holders for which there is no adequate remedy at
law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Managers or any
Holder may obtain such relief as may be required to specifically enforce the
Company's obligations under Section 2 hereof.

                 (g) If after the Shelf Registration Statement is declared
effective by the SEC, the offering of Registrable Securities pursuant thereto
is interfered with by any stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such Shelf Registration
Statement will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Shelf Registration Statement may legally resume.

                 3. Registration Procedures. In connection with the obligations
of the Company with respect to Section 2(a) hereof, the Company shall, to the
extent required by Section 2, as expeditiously as practicable:

                 (a) prepare and file with the SEC a Shelf Registration
         Statement on the appropriate form under the Securities Act, which form
         shall, (x) be selected by the Company and (y) comply as to form in all
         material respects with the requirements of the applicable form
         (including, without limitation, the requirement pursuant Item 7 of
         Form S-3 and Item 507 of Regulation S-K under the Securities Act that
         the Prospectus identify and describe Holders that sell Registrable
         Securities under the Shelf Registration Statement as selling security
         holders) and include all financial statements required by the SEC to
         be filed therewith, and use its best efforts to cause such Shelf
         Registration Statement to become





                                       9
<PAGE>   144
effective and remain effective for the applicable period in accordance with 
Section 2 hereof;

                 (b) prepare and file with the SEC such amendments and
         post-effective amendments to the Shelf Registration Statement as may
         be necessary to (x) keep such Shelf Registration Statement effective
         for the applicable period in accordance with Section 2 hereof, and (y)
         cause each Prospectus to be supplemented by any required prospectus
         supplement and, as so supplemented, to be filed pursuant to Rule 424
         under the Securities Act and (z) keep each Prospectus current during
         the period described under Section 4(3) and Rule 174 under the
         Securities Act that is applicable to transactions by brokers or
         dealers with respect to the securities covered by such Prospectus;

                 (c) furnish to each Holder of securities registered
         thereunder, to counsel for such Holders, to counsel for the Managers,
         to each Underwriter, if any, and to counsel for each such Underwriter,
         without charge, as many copies of each Prospectus, including each
         preliminary Prospectus, and any amendment or supplement thereto and
         such other documents as such Holder or Underwriter may reasonably
         request, in order to facilitate the public sale or other disposition
         of the Registrable Securities; the Company consents to the use of such
         Prospectus and any amendment or supplement thereto in accordance with
         applicable law by each of the Holders selling Registrable Securities
         and any such Underwriters in connection with the offering and sale of
         the Registrable Securities covered by and in the manner described in
         such Prospectus or any amendment or supplement thereto in accordance
         with applicable law;

                 (d) use its best efforts to register or qualify the
         Registrable Securities under all applicable U.S. state securities or
         "blue sky" laws of such U.S. jurisdictions as any Holder with
         Registrable Securities covered by the Shelf Registration Statement
         shall reasonably request in writing by the time the Shelf Registration
         Statement is declared effective by the SEC, to cooperate with such
         Holders in connection with any filings required to be made with the
         National Association of Securities Dealers, Inc. and to do any and all
         other acts and things which may be necessary or advisable to enable
         such Holder to consummate the disposition in each such jurisdiction of
         such Registrable Securities; provided, however, that the





                                       10
<PAGE>   145
         Company shall not be required, as a result of compliance herewith, to
         (i) qualify as a foreign entity or as a dealer in securities in any
         jurisdiction where it would not otherwise be required to qualify but
         for this Section 3(d), (ii) file any general consent to service of
         process or (iii) subject itself to taxation in any jurisdiction if it
         is not so subject;

                 (e) notify each Holder, counsel for the Holders and counsel
         for the Managers promptly upon the Company's obtaining actual
         knowledge thereof and, if requested by any such Holder or the
         Managers, confirm such advice in writing, (i) when the Shelf
         Registration Statement has become effective and when any
         post-effective amendments and supplements thereto have been filed and
         become effective, (ii) of any request by the SEC or any state
         securities authority for amendments and supplements to the Shelf
         Registration Statement and related Prospectus or for additional
         information after the Shelf Registration Statement has become
         effective, (iii) of the issuance by the SEC or any state securities
         authority of any stop order suspending the effectiveness of the Shelf
         Registration Statement or the initiation of any proceedings for that
         purpose, (iv) if, between the effective date of the Shelf Registration
         Statement and the closing of any sale of Registrable Securities
         covered thereby, the representations and warranties of the Company
         contained in any underwriting agreement, securities sales agreement or
         other similar agreement, if any, relating to such offering cease to be
         true and correct in all material respects or if the Company receives
         any notification with respect to the suspension of the qualification
         of the Registrable Securities for sale in any jurisdiction or the
         initiation of any proceeding for such purpose, (v) of the happening of
         any event which makes any statement made in the Shelf Registration
         Statement or the related Prospectus untrue in any material respect or
         which requires the making of any changes in the Shelf Registration
         Statement or the Prospectus in order to make the statements therein
         not misleading and (vi) of any determination by the Company that a
         post-effective amendment to the Shelf Registration Statement would be
         appropriate (in which event the Company shall forthwith prepare and
         have declared effective such post-effective amendment and make the
         Prospectus therein available to selling Holders);





                                       11
<PAGE>   146
                 (f) use its best efforts to obtain the withdrawal of any order
         suspending the effectiveness of the Shelf Registration Statement at
         the earliest practicable moment and provide prompt notice to each
         Holder and the Managers of the withdrawal of any such order;

                 (g) furnish to each Holder and the Managers, without charge,
         at least one conformed copy of the Shelf Registration statement and
         any post-effective amendment thereto, together with any documents
         incorporated therein by reference (in each case, without exhibits
         thereto, unless requested);

                 (h) cooperate with the selling Holders of Registrable
         Securities to facilitate the timely preparation and delivery of
         certificates representing such Registrable Securities not bearing any
         restrictive legends and to enable such certificates to be in such
         amounts and registered in such names as such Holders may reasonably
         request at least two business days prior to the closing of any sale of
         Registrable Securities;

                 (i) upon the occurrence of any event contemplated by Section 3
         (e) (v) hereof, use its best efforts to prepare a supplement or
         post-effective amendment to the Shelf Registration Statement or the
         related Prospectus or any document incorporated therein by reference
         or file any other required document so that, as thereafter delivered
         to the purchasers of Registrable Securities, such Prospectus will not
         contain any untrue statement of a material fact or omit to state a
         material fact necessary to make the statements therein, in light of
         the circumstances under which they were made, not misleading; the
         Company agrees to notify each Holder and the Managers and Underwriters
         to suspend use of the Prospectus included in a Shelf Registration
         Statement as promptly as practicable after the Company becomes aware
         of the occurrence of such an event and each Holder hereby agrees to
         suspend use of the Prospectus until the Company has amended or
         supplemented the Prospectus to correct such misstatement or omission;

                 (j) within a reasonable time prior to the filing of the Shelf
         Registration statement, the Prospectus to be included therein, or
         amendment or supplement to either of the foregoing, provide copies of
         such document to the Managers and their counsel, and the Holders and
         Underwriters and their counsel, and make





                                       12
<PAGE>   147
         such of the representatives of the Company as shall be reasonably
         requested by the Managers or their counsel and the Holders and
         Underwriters or their counsel available for discussion of such
         document, and shall not at any time file or make any amendment or
         supplement to any such document of which the Managers and their
         counsel and the Holders and their counsel, shall not have previously
         been advised and furnished a copy or in a form to which the Managers
         or their counsel and the Majority Holders or their counsel shall
         reasonably object; provided, however, that any document incorporated
         by reference in any such Prospectus by any amendment or supplement
         shall be provided to the Managers and their counsel and to the Holders
         and Underwriters and their counsel at the time that such amendment or
         supplement is filed with the SEC;

                 (k) obtain a CUSIP number for the Registrable Securities
         covered by the Shelf Registration Statement not later than the
         effective date thereof;

                 (l) make available for inspection by a representative of all
         of the Holders, any Underwriter participating in any disposition
         pursuant to the Shelf Registration Statement and attorneys and
         accountants designated by the Holders or any Underwriter, at
         reasonable times and in a reasonable manner, all financial and other
         records, documents and properties of the Company, and cause the
         respective officers, directors and employees of the Company to supply
         all information reasonably requested by any such representative,
         Underwriter, attorney or accountant in connection with the Shelf
         Registration Statement; provided, however, that such Underwriters,
         representatives, attorneys or accountants agree to keep confidential
         any records, information or documents that are designated by the
         Company in writing as confidential and to use such information
         obtained pursuant to this provision only in connection with the
         transaction for which such information was obtained, and not for any
         other purpose, unless (i) such records, information or documents (x)
         are available to the public, (y) were already in such Underwriters',
         representatives', attorneys' or accountants' possession prior to their
         receipt from the Company and they do not otherwise have any obligation
         to keep such records, information or documents confidential or (z) are
         obtained by such Underwriters, representatives, attorneys or
         accountants from a third





                                       13
<PAGE>   148
         person who, insofar as is known to such Underwriters, representatives,
         attorneys or accountants, is not prohibited from transmitting the
         information to such Underwriters, representatives, attorneys or
         accountants by a contractual, legal or fiduciary obligation to the
         Company or a third party, or (ii) disclosure of such records,
         information or documents is required by (A) any regulatory agency or
         (B) any court or administrative order, in the case of (A) or (B), after
         the exhaustion of appeals therefrom;

                 (m) list all Registrable Securities covered by the Shelf
         Registration Statement on all securities exchanges or quotation
         systems on which the Common Stock is then listed, or if not so listed,
         cause such Registrable Securities to be quoted on the NASDAQ National
         Market System at the time of resale or issuance, as applicable;

                 (n) if reasonably requested by any Holder of Registrable
         Securities covered by the Shelf Registration Statement in order to
         accurately reflect information regarding such Holder or such Holder's
         plan of distribution as required by such Shelf Registration Statement,
         (i) promptly incorporate in a Prospectus supplement or post-effective
         amendment such information with respect to such Holder as such Holder
         reasonably requests to be included therein and (ii) make all required
         filings of such Prospectus supplement or such post-effective amendment
         as soon as the Company has received satisfactory notification of the
         matters to be incorporated in such filing; provided, however, that the
         Company shall not be required to supplement or amend the Shelf
         Registration Statement to update information relating to any new
         Holder on more than one occasion in each calendar month in respect of
         a Holder or Holders who in the aggregate hold $10,000,000 or more in
         value of Registrable Securities and more than one occasion in each
         calendar quarter in respect of a Holder or Holders who hold in the
         aggregate less than such value of Registrable Securities; and

                 (o) use its best efforts to enter into such customary
         agreements and take all such other reasonable actions in connection
         therewith (including those requested by the Holders holding a majority
         of the Registrable Securities (determined on an as-converted basis)
         being sold) in order to expedite or facilitate the disposition of such
         Registrable Securities including, but





                                       14
<PAGE>   149

         not limited to, one Underwritten Offering and in connection with such
         Underwritten Offering, (i) to the extent possible, make such
         representations and warranties to the Holders and any Underwriters of
         such Registrable Securities with respect to the business of the
         Company and its Subsidiaries and its or its subsidiaries' Joint
         Ventures, the Shelf Registration Statement, the Prospectus and
         documents incorporated by reference or deemed incorporated by
         reference, if any, in each case, in form, substance and scope as are
         customarily made by issuers to underwriters in underwritten offerings
         and confirm the same if and when reasonably requested, (ii) use its
         best efforts to obtain opinions of counsel to the Company (which
         counsel and opinions, in form, scope and substance, shall be
         reasonably satisfactory to the Holders of a majority of the
         Registrable Securities to be sold in such Underwritten Offering
         (determined on an as-converted basis) and their counsel and any
         Underwriters and their counsel) addressed to each selling Holder and
         any Underwriter of Registrable Securities, covering the matters
         customarily covered in opinions requested in underwritten offerings,
         (iii) obtain "cold comfort" letters from the independent certified
         public accountants of the Company (and, if necessary, any other
         certified public accountant of any Subsidiary of the Company or any
         Significant Joint Venture of the Company (each as defined in the
         Indenture) or of any business acquired by the Company for which
         financial statements and financial data are or are required to be
         included in the Shelf Registration Statement) addressed to each
         selling holder and any Underwriter of Registrable Securities, such
         letters to be in customary form and covering matters of the type
         customarily covered in "cold comfort" letters in connection with
         underwritten offerings, and (iv) deliver such documents and
         certificates as may be reasonably requested by the Holders of a
         majority of the Registrable Securities being sold by any Underwriter,
         and which are customarily delivered in underwritten offerings, to
         evidence the continued validity of the representations and warranties
         of the Company made pursuant to clause (i) above and to evidence
         compliance with any customary conditions contained in an underwriting
         agreement; provided that the Company shall be required to use its best
         efforts to facilitate an Underwritten Offering only upon the request
         of Holders of at least 25% of the Registrable Securities outstanding
         (determined on an as-converted basis) at the time such request is
         delivered to the Company (determined





                                       15
<PAGE>   150
         on an as-converted basis after giving effect to any stock splits,
         combinations or reclassifications).  In the case of any Underwritten
         Offering, the Company shall (x) provide written notice of such
         Underwritten Offering to the Managers and each of the Holders at least
         30 days prior to the filing of a prospectus supplement for such
         Underwritten Offering, (y) specify a date, which shall be no earlier
         than 10 days following the date of such notice, by which each such
         Holder must inform the Company of its intent to participate in such
         Underwritten Offering and (z) include the instructions such Holder
         must follow in order to participate in such Underwritten Offering.

                 Each Holder shall, as a pre-condition to the exercise of its
right to sell Registrable Securities pursuant to the Shelf Registration
Statement, furnish to the Company such information regarding the Holder and the
proposed distribution by such Holder of Registrable Securities pursuant to the
Shelf Registration Statement as shall be required by the Staff of the SEC or
the rules and regulations under the Securities Act. Each such Holder shall
provide the Company with any such information within five business days after
such information is requested by the Company and shall provide to the Company,
within five Business Days after such Holder receives a draft of the Shelf
Registration Statement or amendment thereto in which such information is
included, comments on such Shelf Registration Statement or amendment thereto;
provided, that no Holder shall be required to comment on any information not
provided to the Company by such Holder.

                 Each Holder, as pre-condition to the exercise of its right to
sell Registrable Securities pursuant to the Shelf Registration Statement,
agrees to notify the Company no later than three Business Days prior to any
proposed sale by such Holder of Registrable Securities pursuant to the Shelf
Registration Statement, which notice shall be effective for five Business Days.
In addition, each Holder shall, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3 (e)(iii), (v) or
(vi) hereof, forthwith discontinue disposition of Registrable Securities
pursuant to the Shelf Registration Statement until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 3(i)
hereof.

                 4. Indemnification and Contribution. (a) The Company shall
indemnify and hold harmless the Managers, each Holder, each person, if any, who
controls the Managers or any





                                       16
<PAGE>   151
Holder within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act or is under common control with or is controlled by the
Managers or any Holder and any investment advisor otherwise affiliated with any
Holder and each of their respective directors and officers (each a "Non-Company
Indemnitee") and each of their respective counsel from and against any and all
losses, claims, damages, liabilities and expenses (including, without
limitation, any legal or other expenses reasonably incurred by the Non-Company
Indemnitee in connection with defending or investigating any such action or
claim) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Shelf Registration Statement (or
any amendment or supplement thereto), including all documents incorporated
therein by reference, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they were made
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with information relating to the
Managers or any Holder furnished to the Company in writing by the Managers or
any selling Holder expressly for use therein; provided, however, that the
indemnification provided for in this paragraph (a) shall not inure to the
benefit of any Non-Company Indemnitee with respect to any sale or disposition of
Registrable Securities by such Holder in violation of the provisions of the
last paragraph of Section 3 hereof. In connection with any Underwritten
Offering contemplated by Section 3(o), the Company also shall indemnify the
Underwriters, if any, selling brokers, dealers and similar securities industry
professionals participating in the distribution, their officers and directors
and each person who controls such persons (within the meaning of the Securities
Act and the Exchange Act) to the same extent as provided above with respect to
the indemnification of the Holders, if requested in connection with the Shelf
Registration Statement. The indemnification obligation of the Company set forth
in this paragraph (a) shall be in addition to any liability which





                                       17
<PAGE>   152
the Company may otherwise have, including, without limitation, for any breach
of any covenant contained in this Agreement.

                 (b) Each Holder shall, severally and not jointly, to indemnify
and hold harmless the Company, the Managers, the other selling Holders, each of
their respective directors and officers, each person, if any, who controls the
Company, the Managers, or any other selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act or is under
common control with or is controlled by the Company, the Managers or any other
selling Holder and any investment advisor affiliated with any of the foregoing
to the same extent as the foregoing indemnity from the Company to the Managers
and the Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in the
Shelf Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto).

                 (c) If any action, suit or proceeding shall be instituted
involving any person in respect of which such person is entitled to indemnity
pursuant to either paragraph (a) or (b) above, such person (the "indemnified
party") shall promptly notify the parties against whom indemnification is being
sought (each an "indemnifying party") and such indemnifying parties shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such indemnified party, shall have the right to counsel,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying parties have agreed in writing to
pay such fees and expenses, (ii) the indemnifying parties shall have failed to
assume the defense and employ counsel or (iii) the named parties to any such
action, suit, or proceeding (including any impleaded parties) include both such
indemnifying parties and such indemnified party and such indemnified party
shall have been advised by its counsel that representation of such indemnified
party and any indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed due to actual or potential
differing interests between them (in which case the indemnifying parties shall
not have the right to assume the defense of such action, suit or proceeding on
behalf of the indemnified party)). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding, or substantially similar action, suit or proceeding or related
actions, suits or proceedings in





                                       18
<PAGE>   153
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
the Managers and all persons, if any, who control the Managers within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act or is under common control with or is controlled by the Managers,
any investment advisor affiliated with any of the foregoing and each of their
respective directors and officers, and the reasonable fees and expenses of only
one separate firm of attorneys (in addition to any local counsel) at any time
for all other Holders and all persons, if any, who control any such Holders
within the meaning of either such Section, or are under common control with or
are controlled by such Holders, any investment advisor affiliated with any of
the foregoing and each of their respective directors and officers. In such case
involving the Managers, persons who control, are controlled by or under common
control with the Managers, or their respective directors or officers, such firm
shall be designated in writing by the Managers. In such case involving other
Holders and such persons who control, are controlled by or under common control
with such Holders, any investment advisor affiliated with any of the foregoing
or their respective directors or officers, such firm shall be designated in
writing by such Holders holding a majority of the Registrable Securities sold
under the Shelf Registration Statement by all such Holders. The indemnifying
parties shall not be liable for any settlement of any action, suit or
proceeding effected without their written consent, but if settled with such
written consent or if there be a final judgment for the plaintiff, the
indemnifying parties agree to indemnify and hold harmless the indemnified party
from and against any loss, action, damage, liability or expense by reason of
such settlement or judgment.

                 (d) if the indemnification provided for in this Section 4 is
unavailable to an indemnified party under paragraphs (a) or (b) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties, on the one hand, and of the indemnified party or parties, on
the other hand, in connection with such statements or omissions that resulted
in such losses, claims, damages,





                                       19
<PAGE>   154
liabilities or expenses as well as any other relevant equitable consideration.
The relative fault of the Company, on the one hand, and any Holder, on the
other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, on the one hand, or by such Holder, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders' respective
obligations to contribute pursuant to this Section 4(d) are several in
proportion to the respective number of Registrable Securities of such Holders
that were registered pursuant to the Shelf Registration Statement.

                 (e) The Company, the Managers and each Holder agree that it
would not be just or equitable if contribution pursuant to this Section 4 were
determined by a pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to in paragraph
(d) above. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages and liabilities referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 4, no Holder shall
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such Holder exceeds the
amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 4 are not exclusive and shall not limit
any rights or remedies that may otherwise be available to any indemnified party
at law or in equity.

                 (f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 4 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained





                                       20
<PAGE>   155
in this Section 4 shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf any indemnified party,
(ii) any sale of Registrable Securities by an indemnified party and (iii) any
termination of this Agreement. A successor to any indemnified party shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 4.

                 (g) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.

                 5.  Miscellaneous.  (a) No Inconsistent Agreements.  The 
Company has not entered into, and on or after the date of this Agreement will
not enter into, any agreement that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights currently granted to the holders
of the Company's other issued and outstanding securities under any such
agreements.

                 (b) Amendments and Waivers.  The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement,
waiver or consent to the departure with respect to the provisions of Section 4
hereof shall be effective as against any person unless consented to in writing
by such person.

                 (c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions of
this Section 5(c), which address initially is, with respect to the Managers,
the address set





                                       21
<PAGE>   156
forth in the Subscription Agreement; and (ii) if to the Company, initially at
the Company's address set forth in the Subscription Agreement, and, thereafter,
at such other address, notice of which is given in accordance with the
provisions of this Section 5(c).

                 All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied;
and on the next business day, if timely delivered to an air courier
guaranteeing overnight delivery.

                 Copies of all such notices, demands, or other communications
shall be concurrently delivered by the person giving the same to the Trustee,
at the address specified in the Indenture.

                 (d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Subscription Agreement. The Company
shall not assign its rights or obligations hereunder without the prior written
consent of each Holder other than by operation of law pursuant to a merger or
consolidation to which the Company is a party.  If any transferee of any Holder
shall acquire Registrable Securities, in any manner, whether by operation of
law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement and by taking and holding such Registrable
Securities, such transferee shall be conclusively deemed to have agreed to be
bound by and to perform all of the terms and provisions of this Agreement and,
as a result, such person shall be entitled to receive the benefits hereof. The
Managers shall have no liability or obligation to the Company with respect to
any failure by any other Holder to comply with, or any breach by any other
Holder of, any of the obligations of such other Holder under this Agreement. In
the event the Bonds become convertible into common stock of another person
pursuant to the Indenture, the Company shall cause such person to assume the
Company's obligations hereunder.





                                       22
<PAGE>   157
                 (e) Purchases and Sale of Bonds. The Company shall not, and
shall use its best efforts to cause its Affiliates not to, purchase and then
resell or otherwise transfer any Bonds.

                 (f) Third Party Beneficiary. The Holders shall be
third party beneficiaries to the agreements made hereunder between the Company,
on the one hand, and the Managers, on the other hand, and the Managers and the
Holders shall have the right to enforce such agreements directly to the extent
they deem such enforcement necessary or advisable to protect the rights of the
Managers or the Holders hereunder.

                 (g) Counterparts. This Agreement may be signed in various
counterparts which constitute one and the same instrument. If signed in
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.

                 (h) Headings. The headings of the Sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.

                 (i) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed in the State of New York.

                 (j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.

                 (k) Submission to Jurisdiction. The Company irrevocably
submits to the jurisdiction of any United States or State court located in the
State of New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in any such court. The Company irrevocably waives
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company hereby agrees to designate and appoint The United
States Corporation Company as an agent upon whom process may be served in any
suit or proceeding based on or arising under this Agreement. The Company
further agrees that service of process upon the





                                       23
<PAGE>   158
Company, or upon an agent appointed pursuant to the preceding sentence
accompanied with written notice of said service to the Company, as the case may
be, mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the Managers' or any Holder's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.

                 (1) Liquidated Damages. If a Shelf Registration Statement has
not been filed and does not remain in effect with the SEC as required by
Section 2 of this Agreement or the prospectus therein is not available for use
by a Holder entitled to such use in accordance with the terms of this Agreement
(a "Registration Default"), additional interest ("Liquidated Damages") will
accrue on the Bonds from and including the day following the Registration
Default to but excluding the day on which the Registration Default has been
cured. Liquidated Damages will be paid semi-annually in arrears, with the first
semi-annual payment due on the first date on which interest is payable under
the Indenture following the date on which such Liquidated Damages begin to
accrue. Liquidated Damages will accrue at a rate per annum of one quarter of
one per cent. (.25%) of the principal amount, to and including the 90th day
following such Registration Default and at a rate per annum of one half of one
per cent. (.5%) of the principal amount, from and after the 91st day following
the Registration Default. In no event will the Liquidated Damages accrue at a
rate per annum exceeding one half of one per cent. (.5%).

                 (m) No Adverse Action. The Company will not take any action
with respect to the Registrable Securities which would adversely affect the
ability of any Holder to include such Registrable Securities in a registration
undertaken pursuant to this Agreement. 





                                       24
<PAGE>   159
                 IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.

                                                  GLOBAL TELESYSTEMS GROUP, INC.


                                                  By:
                                                     --------------------------
                                                     Name:
                                                     Title:

Confirmed and accepted as of
the date first above written:
UBS Securities LLC, on behalf
of the Managers

By:
   --------------------------
   Name:
   Title:


THE BANK OF NEW YORK,
as Trustee under the
Indenture

By:
   --------------------------
   Name:
   Title:





                                       25
<PAGE>   160
                                                                      Schedule I


1.       Senior Note Purchase Agreement, dated as of January 19, 1996, among
         Global TeleSystems Group, Inc., The Open Society Institute and
         Chatterjee Fund Management, L.P.

2.       Registration Rights Letter Agreement, dated as of January 19, 1996,
         among Global TeleSystems Group, Inc., The Open Society Institute and
         Chatterjee Fund Management, L.P.

3.       Warrant Agreement, dated as of January 19, 1996, among Global
         TeleSystems Group, Inc., The Open Society Institute and Chatterjee
         Fund Management, L.P.

4.       Joint Venture Letter Agreement, dated January 19, 1996, among Global
         TeleSystems Group, Inc., The Open Society Institute and Chatterjee
         Fund Management, L.P.

5.       Senior Note Purchase Agreement, dated as of June 6, 1996, among the
         Global TeleSystems Group, Inc., The Open Society Institute, Winston
         Partners II LDC and Winston Partners II LLC.

6.       Registration Rights Letter Agreement, dated June 6, 1996, among the
         Global TeleSystems Group, Inc., The Open Society Institute, Winston
         Partners II LDC and Winston Partners II LLC.

7.       Warrant Agreement, dated as of June 6, 1996, between Global TeleSystems
         Group, Inc., The Open Society Institute, Winston Partners II LDC and
         Winston Partners II LLC.

8.       Limited Liability Company Agreement of GTS-China Investments, L.L.C.
         among Global TeleSystems Group, Inc., Winston Partners II LDC and
         Winston Partners II LLC, dated as of August 27, 1996.





<PAGE>   161
                                                                      Schedule I


1.       Senior Note Purchase Agreement, dated as of January 19, 1996, among
         Global TeleSystems Group, Inc., The Open Society Institute and
         Chatterjee Fund Management, L.P.

2.       Registration Rights Letter Agreement, dated as of January 19, 1996,
         among Global TeleSystems Group, Inc., The Open Society Institute and
         Chatterjee Fund Management, L.P.

3.       Warrant Agreement, dated as of January 19, 1996, among Global
         TeleSystems Group, Inc., The Open Society Institute and Chatterjee Fund
         Management, L.P.

4.       Joint Venture Letter Agreement, dated January 19, 1996, among Global
         TeleSystems Group, Inc., The Open Society Institute and Chatterjee Fund
         Management, L.P.

5.       Senior Note Purchase Agreement, dated as of June 6, 1996, among the
         Global TeleSystems Group, Inc., The Open Society Institute, Winston
         Partners II LDC and Winston Partners II LLC.

6.       Registration Rights Letter Agreement, dated June 6, 1996, among the
         Global TeleSystems Group, Inc., The Open Society Institute, Winston
         Partners II LDC and Winston Partners II LLC.

7.       Warrant Agreement, dated as of June 6, 1996, between Global TeleSystems
         Group, Inc., The Open Society Institute, Winston Partners II LDC and
         Winston Partners II LLC.

8.       Limited Liability Company Agreement of GTS-China Investments, L.L.C.
         among Global TeleSystems Group, Inc., Winston Partners II LDC and
         Winston Partners II LLC, dated as of August 27, 1996.






<PAGE>   1
                                                                    EXHIBIT 4.3

                              REGISTRATION RIGHTS AGREEMENT



         This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into this July 14, 1997 between GLOBAL TELESYSTEMS GROUP, INC., a
Delaware corporation (the "Company"), UNION BANK OF SWITZERLAND (the "Lead
Manager") on behalf of all the Managers pursuant to the Subscription Agreement
dated July 9, 1997 between the Company and the Managers (the "Subscription
Agreement"), and THE BANK OF NEW YORK, as Trustee (the "Trustee") pursuant to an
Indenture (the "Indenture"), dated as of July 14, 1997, between the Company and
the Trustee on behalf of the Bondholders (as defined therein).

         The Subscription Agreement provides for the sale by the Company to the
Managers named therein of Senior Subordinated Convertible Bonds due 2000 of
the Company (the "Bonds") having an aggregate principal amount of up to
U.S.$155,250,000 (after giving effect to the over-allotment option) each of
which entitles the holder thereof to convert such Bond into shares of Common
Stock of the Company at the conversion price set forth in the Indenture. In
order to induce the Managers named therein to enter into the Subscription
Agreement and to induce the Trustee to enter into the Indenture, the Company
has agreed to provide for the benefit of the Managers and their direct and
indirect transferees and for the Trustee for the benefit of the Holders of
Bonds from time to time, the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the closing under the
Subscription Agreement and the Indenture.

         In consideration of the foregoing, the parties hereto agree as
follows:

         1.    Definitions. As used in this Agreement, capitalized terms shall
have the meanings set forth below, or to the extent not set forth below,
capitalized terms shall have the meanings set forth in the Subscription
Agreement.

          "Bonds" shall mean the Senior Subordinated Convertible Bonds due 2000
     of the Company.

          "Business Day" shall mean any day other than a day on which banking
     institutions are authorized or


<PAGE>   2


     obligated by law or executive order to close in London and New York.

          "Common Stock" shall mean the Common Stock, par value $.OOO1 per
     share, of the Company.

          "Company" shall have the meaning set forth in the preamble and also
     includes the Company's successors.

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as
     amended.

          "First Conversion Date" shall have the meaning set forth in Section
     2(a) of this Agreement.

          "Holder" shall mean the Managers, for so long as they own any Bonds
     or Registrable Securities, and each of their successors, assigns and
     direct and indirect transferees who become registered owners of Bonds or
     Registrable Securities.

          "Indenture" shall mean the Indenture relating to the Bonds, dated as
     of July 14, 1997, between the Company and the Trustee, as the same may be
     amended from time to time in accordance with the terms thereof.

          "Issuance Registration Statement" shall have the meaning set forth in
     Section 2(a) of this Agreement.

          "Lead Manager" shall have the meaning set forth in the preamble to
     this Agreement.

          "Liquidated Damages" shall have the meaning set forth in Section 5(l)
     of this Agreement.

          "Majority Holders" shall mean the Holders holding a majority of the
     Bonds or Registrable Securities; provided that whenever the consent or
     approval of a specified percentage of Holders is required hereunder, Bonds
     or Registrable Securities held by the Company or any of its affiliates (as
     such term is defined in Rule 405 under the Securities Act, "Affiliates")
     (other than the Managers or subsequent holders of Bonds or Registrable
     Securities, if such subsequent holders are deemed to be such affiliates
     solely by reason of their holding Bonds or Registrable Securities and
     other than affiliates that control or are under common control with the
     Company) shall not be counted in determining whether such consent or
     approval





                                       2


<PAGE>   3


     was given by the Holders of such required percentage or amount.

          "Managers" shall mean the Managers named in the Subscription
     Agreement.

          "NASDAQ" shall mean the National Association of Securities Dealers
     Automated Quotation System.

          "person" shall mean an individual, partnership, corporation, trust or
     unincorporated organization, or a government or agency or political
     subdivision thereof.

          "Prospectus" shall mean the prospectus included in a Shelf
     Registration Statement, including any preliminary prospectus, and any such
     prospectus as amended or supplemented by any prospectus supplement, and
     all other amendments and supplements to such prospectus, including
     post-effective amendments, and in each case including all material
     incorporated by reference therein.

          "Registration Securities" shall mean the Shares; provided, however,
     that the Shares shall cease to be Registrable Securities when (i) an
     Issuance Registration Statement with respect to all the Shares shall have
     been declared effective; (ii) a Shelf Registration Statement with respect
     to the Shares shall have been declared effective under the Securities Act
     and all such Shares shall have been transferred or otherwise disposed of
     pursuant to such Shelf Registration Statement; or (iii) the Shares may be
     distributed to the public pursuant to Rule 144(k) (or any similar
     provision then in force, but not Rule 144A) under the Securities Act in
     respect of all beneficial holders of Shares that are not Affiliates of the
     Company.

          "Registration Default" shall have the meaning set forth in Section
     5(l) of this Agreement.

          "Registration Expenses" shall mean (a) any and all fees and expenses
     incurred incident to the Company's performance of or compliance with this
     Agreement (whether or not any Shelf Registration Statement is filed or
     becomes effective and whether or not any securities are sold pursuant to
     any Shelf Registration Statement), including, without limitation, (i) all
     SEC registration and filing fees, all United States national stock





                                       3


<PAGE>   4


     exchange or NASDAQ listing fees and National Association of Securities 
     Dealers, Inc. registration and filing fees, (ii) all fees and expenses
     incurred in connection with compliance with U.S. state securities or "blue
     sky" laws (including, without limitation and in addition to that provided
     in clause (vii) below, fees and disbursements of counsel for any
     Underwriters in connection with "blue sky" qualification of any of the
     Registrable Securities under the laws of such jurisdictions as the
     managing underwriter of the Underwritten Offering, if any, or the Majority
     Holders, as the case may be, may designate), (iii) all expenses of any
     persons retained by the Company in preparing or assisting in preparing,
     word processing, printing and distributing the Shelf Registration
     Statement or any Prospectus, or, in each case, any amendments or
     supplements thereto, (iv) the fees and expenses incurred by any
     Underwriter in connection with the preparation of any underwriting
     agreements, securities sales agreements and other documents relating to
     the performance of and compliance with this Agreement, (v) the fees of any
     listing agent, (vi) the fees and disbursements of the Trustee or any
     paying, conversion or transfer agent retained by the Company, (vii) the
     reasonable fees and disbursements of counsel (in addition to local
     counsel) for the Company and the fees and disbursements of counsel (in
     addition to local counsel) for the Holders in connection with such
     Underwritten Offering (which counsel shall be Chadbourne & Parke LLP
     unless and until another counsel is selected by the Majority Holders (or,
     in the case of an Underwritten Offering, a majority of the Holders
     participating in such Underwritten Offering) and which counsel also may be
     counsel for the Lead Manager) (viii) the fees and disbursements of the
     independent public accountants of the Company and any partnership or joint
     venture in which the Company or any of its subsidiaries has an ownership
     interest, including the expenses of any special audits or "cold comfort"
     letters required by or incident to such performance and compliance, (ix)
     fees and expenses of all other persons retained by the Company, and (x)
     the Company's internal expenses, but (b) excluding underwriting discounts
     and commissions and transfer taxes, if any, relating to the sale or
     disposition of Registrable Securities by a Holder.

          "SEC" shall mean the Securities and Exchange Commission.





                                       4


<PAGE>   5


               "Securities Act" shall mean the Securities Act of 1933, as
          amended.

               "Shares" means the shares of Common Stock issuable upon the
          conversion of the Bonds.

               "Shelf Registration Statement" shall mean a "shelf" registration
          statement of the Company pursuant to the provisions of Section 2(a)
          of this Agreement covering the resale of all of the Registrable
          Securities by the holders thereof (but no other securities, unless
          approved by the Majority Holders) on an appropriate form in
          connection with an offering to be made on a continuous basis pursuant
          to Rule 415 under the Securities Act, or any similar rule that may be
          adopted by the SEC, and all amendments and supplements to such
          registration statement, including post-effective amendments, and in
          each case including the Prospectus contained therein, all exhibits
          thereto and all material incorporated by reference therein.

               "Subscription Agreement" shall have the meaning set forth in the
          first paragraph of this Agreement.

               "Underwriter" shall have the meaning set forth in Section 2(c)
          of this Agreement.

               "Underwritten Offering" shall mean a registration in which
          Registrable Securities are sold to an Underwriter for reoffering to
          the public.

          2.   Registration Under the Securities Act.

          (a)  To the extent not prohibited by any applicable law or
interpretation of the Staff of the SEC, the Company shall use its best efforts
to cause to be filed a Registration Statement (the "Issuance Registration
Statement") covering the issuance of the Shares upon conversion of the Bonds
prior to the first date upon which the Bonds become convertible (the "First
Conversion Date") and shall use its best efforts to cause such Issuance
Registration Statement to become effective by the First Conversion Date. The
Company shall use its best efforts to keep such Issuance Registration Statement
continuously effective until such time as all Bonds have been converted or
redeemed. The Company further agrees to supplement or amend the Issuance
Registration Statement if required by the rules, regulations or instructions
applicable to the





                                       5


<PAGE>   6


registration form used by the Company for such Issuance Registration Statement
or by the Securities Act or by any other rules and regulations thereunder, and
to use its best efforts to cause any such amendment or supplement to become
effective and such Issuance Registration Statement to become usable as soon as
thereafter practicable.

         (b) In the event that (i) the Company determines that, notwithstanding
its beat efforts, the Issuance Registration Statement provided for in Section
2(a) above is not available or would not be declared effective by the SEC on or
before the First Conversion Date because it would violate applicable law or the
applicable interpretations of the Staff of the SEC or (ii) in the opinion of
counsel for the Managers or the Holders, as applicable, which shall be given
reasonably promptly, a Shelf Registration Statement must be filed and a
Prospectus must be delivered by a Manager or a Holder in connection with any
offering or sale of Shares then the Company shall file and shall use its best
efforts to cause a Shelf Registration Statement pertaining to the Shares to be
declared effective by the SEC prior to the First Conversion Date. The Company
shall not permit any securities other than the Registrable Securities to be
included in the Shelf Registration Statement. In the event the Company is
required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (ii) of the first sentence of this Section 2(b),
the Company shall file and have declared effective by the SEC both an Issuance
Registration Statement pursuant to Section 2(a) with respect to all Shares and
a Shelf Registration Statement (which may be a combined Shelf Registration
Statement with the Issuance Registration Statement) with respect to offers and
sales of Shares after the First Conversion Date. The Company agrees to use its
best efforts to keep the Shelf Registration Statement continuously effective
for so long as any of the Shares covered thereby (without regard to whether
such Shares actually have been issued) shall constitute Registrable Securities.
The Company further agrees to supplement or amend the Shelf Registration
Statement, if required by the rules, regulations or instructions applicable to
the registration form used by the Company for the Shelf Registration Statement
or by the Securities Act or by any other rules and regulations thereunder for
shelf registration or if reasonably requested by a Holder with respect to
information relating to such Holder in order to accurately reflect information
regarding such Holder or such Holder's plan of distribution as required by the
Shelf Registration


                                       6

<PAGE>   7


Statement, and to use its best efforts to cause any such amendment to become
effective and the Prospectus contained in such Shelf Registration Statement to
become usable as soon as thereafter practicable; provided, however, that the
Company shall not be required to supplement or amend the Shelf Registration
Statement to update information relating to any new Holder on more than one
occasion in each calendar month in respect of a Holder or Holders who in the
aggregate hold $10,000,000 or more in value of Registrable Securities or on
more than one occasion in each calendar quarter in respect of a Holder or
Holders who hold in the aggregate less than such value of Registrable
Securities. The Company agrees to furnish to the Holders copies of any such
supplement or amendment promptly after its being made available for use or
filed with the SEC.

         (c) (i) Subject to the proviso in Section 3 (o), the Holders whose
Registrable Securities are covered by a Shelf Registration Statement who desire
to do so may sell Registrable Securities in an Underwritten Offering. In any
such Underwritten Offering, the investment banker or investment bankers and
manager or managers (the "Underwriters") that will administer the offering will
be selected (subject to the Company's approval which shall not be unreasonably
withheld) by the Holders holding a majority of the Registrable Securities
(determined on an as-converted basis) included in such offering.
Notwithstanding anything to the contrary set forth herein, the Company may
suspend a Holder's use of a Prospectus which is part of the Shelf Registration
Statement for up to two periods not to exceed 45 consecutive days (but not more
than 60 days in any 365-day period) if the Company in its reasonable judgment
believes it possesses material non-public information the disclosure of which
would have an adverse effect on the Company, or any of its Subsidiaries or any
Significant Joint Venture (each as defined in the Indenture).

         (ii) Each Holder whose Registrable Securities are covered by the Shelf
Registration Statement and are of the same class or type as any Registrable
Securities being sold in an Underwritten Offering agrees, upon the request of
the Underwriter(s) in any Underwritten Offering permitted pursuant to this
Agreement, not to effect any public sale or distribution of securities of the
Company of the same class or type as the Registrable Securities included in
such Shelf Registration Statement (except as part of such Underwritten
Offering), including a sale pursuant to Rule 144 under the Securities Act,
during the 10-day period prior to, and during





                                       7


<PAGE>   8


the 90-day period beginning on, the closing date of any such Underwritten
Offering made pursuant to such Shelf Registration Statement, provided that the
Company or such Underwriter(s) shall have given such Holder timely notice in
writing of such closing date.

         The foregoing provision shall not apply to any Holder if such Holder
is prevented by applicable statute or regulation from entering into any such
agreement; provided, however, that any such Holder shall undertake, in its
request to participate in any such Underwritten Offering, not to affect any
public sale or distribution of any of its Registrable Securities not sold in
such Underwritten Offering, commencing on the date of sale of Registrable
Securities pursuant to such Underwritten Offering and ending on the date that
is 90 days after the closing date of such Underwritten Offering, unless it has
provided 45 days, prior written notice of such sale or distribution to the
Underwriter(s).

         (iii) Unless otherwise agreed to by the Underwriter(s), the Company
agrees not to effect any public or private offer, sale or distribution of
securities of the same class and type as the Registrable Securities being sold
in the Underwritten Offering, including a sale pursuant to Regulation D under
the Securities Act, during the 10-day period prior to, and during the 90-day
period beginning on, the closing date of each Underwritten Offering permitted
pursuant to Section 3(o) hereof made pursuant to the Shelf Registration
Statement, provided that the Underwriter(s) shall have given the Company timely
notice in writing of such closing date. Notwithstanding the foregoing, the
Company may effect a private offer, sale or distribution of securities of the
same class or type as the Registrable Securities being sold in the
Underwritten Offering to the extent that, at the time that the price of such
securities is determined, the price of such securities is in excess of the
market price of the Registrable Securities; provided that the limitation on
private offers, sales and distributions set forth in this sentence shall apply
only to the extent so requested by the Underwriter(s) in the Underwritten
Offering within three Business Days following notice of such proposed offer,
sale or distribution by the Company (which notice shall be provided by the
Company at least seven Business Days prior to any such proposed offer, sale or
distribution).

         (d) The Company shall promptly pay upon incurrence all Registration
Expenses in connection with any registration pursuant to Section 2. Each Holder
shall pay all underwriting





                                       8


<PAGE>   9


discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to the Shelf
Registration Statement.

         (e) Upon the occurrence or failure to occur of certain events
described in this Agreement, Liquidated Damages will accrue on the Bonds as
provided in this Agreement.

         (f) Without limiting the remedies available to the Managers and
Holders, the Company acknowledges that any failure by the Company to comply
with its obligations under Section 2 hereof may result in material irreparable
injury to the Managers and/or Holders for which there is no adequate remedy at
law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the Managers or any
Holder may obtain such relief as may be required to specifically enforce the
Company's obligations under Section 2 hereof.

         (g) If after the Shelf Registration Statement is declared effective by
the SEC, the offering of Registrable Securities pursuant thereto is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Shelf Registration Statement will
be deemed not to have become effective during the period of such interference
until the offering of Registrable Securities pursuant to such Shelf
Registration Statement may legally resume.

          3.   Registration Procedures. In connection with the obligations of 
the Company with respect to Section 2(a) hereof, the Company shall, to the
extent required by Section 2, as expeditiously as practicable:

          (a) prepare and file with the SEC a Shelf Registration Statement on
     the appropriate form under the Securities Act, which form shall, (x) be
     selected by the Company and (y) comply as to form in all material respects
     with the requirements of the applicable form (including, without
     limitation, the requirement pursuant Item 7 of Form S-3 and Item 507 of
     Regulation S-K under the Securities Act that the Prospectus identify and
     describe Holders that sell Registrable Securities under the Shelf
     Registration Statement as selling security holders) and include all
     financial statements required by the SEC to be filed therewith, and use
     its best efforts to cause such Shelf Registration Statement to become





                                       9


<PAGE>   10


     effective and remain effective for the applicable period in accordance
     with Section 2 hereof;

          (b) prepare and file with the SEC such amendments and post-effective
     amendments to the Shelf Registration Statement as may be necessary to (x)
     keep such Shelf Registration Statement effective for the applicable period
     in accordance with Section 2 hereof, and (y) cause each Prospectus to be
     supplemented by any required prospectus supplement and, as so
     supplemented, to be filed pursuant to Rule 424 under the Securities Act
     and (z) keep each Prospectus current during the period described under
     Section 4(3) and Rule 174 under the Securities Act that is applicable to
     transactions by brokers or dealers with respect to the securities covered
     by such Prospectus;

          (c) furnish to each Holder of securities registered thereunder, to
     counsel for such Holders, to counsel for the Managers, to each
     Underwriter, if any, and to counsel for each such Underwriter, without
     charge, as many copies of each Prospectus, including each preliminary
     Prospectus, and any amendment or supplement thereto and such other
     documents as such Holder or Underwriter may reasonably request, in order
     to facilitate the public sale or other disposition of the Registrable
     Securities; the Company consents to the use of such Prospectus and any
     amendment or supplement thereto in accordance with applicable law by each
     of the Holders selling Registrable Securities and any such Underwriters in
     connection with the offering and sale of the Registrable Securities
     covered by and in the manner described in such Prospectus or any amendment
     or supplement thereto in accordance with applicable law;

          (d) use its best efforts to register or qualify the Registrable
     Securities under all applicable U.S. state securities or "blue sky" laws
     of such U.S. jurisdictions as any Holder with Registrable Securities
     covered by the Shelf Registration Statement shall reasonably request in
     writing by the time the Shelf Registration Statement is declared effective
     by the SEC, to cooperate with such Holders in connection with any filings
     required to be made with the National Association of Securities Dealers,
     Inc. and to do any and all other acts and things which may be necessary or
     advisable to enable such Holder to consummate the disposition in each such
     jurisdiction of such Registrable Securities; provided, however, that the





                                      10


<PAGE>   11


     Company shall not be required, as a result of compliance herewith, to (i)
     qualify as a foreign entity or as a dealer in securities in any
     jurisdiction where it would not otherwise be required to qualify but for
     this Section 3(d), (ii) file any general consent to service of process or
     (iii) subject itself to taxation in any jurisdiction if it is not so
     subject;

          (e) notify each Holder, counsel for the Holders and counsel for the
     Managers promptly upon the Company's obtaining actual knowledge thereof
     and, if requested by any such Holder or the Managers, confirm such advice
     in writing, (i) when the Shelf Registration Statement has become effective
     and when any post-effective amendments and supplements thereto have been
     filed and become effective, (ii) of any request by the SEC or any state
     securities authority for amendments and supplements to the Shelf
     Registration Statement and related Prospectus or for additional
     information after the Shelf Registration Statement has become effective,
     (iii) of the issuance by the SEC or any state securities authority of any
     stop order suspending the effectiveness of the Shelf Registration
     Statement or the initiation of any proceedings for that purpose, (iv) if,
     between the effective date of the Shelf Registration Statement and the
     closing of any sale of Registrable Securities covered thereby, the
     representations and warranties of the Company contained in any
     underwriting agreement, securities sales agreement or other similar
     agreement, if any, relating to such offering cease to be true and correct
     in all material respects or if the Company receives any notification with
     respect to the suspension of the qualification of the Registrable
     Securities for sale in any jurisdiction or the initiation of any
     proceeding for such purpose, (v) of the happening of any event which makes
     any statement made in the Shelf Registration Statement or the related
     Prospectus untrue in any material respect or which requires the making of
     any changes in the Shelf Registration Statement or the Prospectus in order
     to make the statements therein not misleading and (vi) of any
     determination by the Company that a post-effective amendment to the Shelf
     Registration Statement would be appropriate (in which event the Company
     shall forthwith prepare and have declared effective such post-effective
     amendment and make the Prospectus therein available to selling Holders);


                                      11

<PAGE>   12


          (f) use its best efforts to obtain the withdrawal of any order
     suspending the effectiveness of the Shelf Registration Statement at the
     earliest practicable moment and provide prompt notice to each Holder and
     the Managers of the withdrawal of any such order;

          (g) furnish to each Holder and the Managers, without charge, at least
     one conformed copy of the Shelf Registration Statement and any
     post-effective amendment thereto, together with any documents incorporated
     therein by reference (in each case, without exhibits thereto, unless
     requested);

          (h) cooperate with the selling Holders of Registrable Securities to
     facilitate the timely preparation and delivery of certificates
     representing such Registrable Securities not bearing any restrictive
     legends and to enable such certificates to be in such amounts and
     registered in such names as such Holders may reasonably request at least
     two business days prior to the closing of any sale of Registrable
     Securities;

          (i) upon the occurrence of any event contemplated by Section 3(e)(v)
     hereof, use its best efforts to prepare a supplement or post-effective
     amendment to the Shelf Registration Statement or the related Prospectus or
     any document incorporated therein by reference or file any other required
     document so that, as thereafter delivered to the purchasers of Registrable
     Securities, such Prospectus will not contain any untrue statement of a
     material fact or omit to state a material fact necessary to make the
     statements therein, in light of the circumstances under which they were
     made, not misleading; the Company agrees to notify each Holder and the
     Managers and Underwriters to suspend use of the Prospectus included in a
     Shelf Registration Statement as promptly as practicable after the Company
     becomes aware of the occurrence of such an event and each Holder hereby
     agrees to suspend use of the Prospectus until the Company has amended or
     supplemented the Prospectus to correct such misstatement or omission;

          (j) within a reasonable time prior to the filing of the Shelf
     Registration Statement, the Prospectus to be included therein, or
     amendment or supplement to either of the foregoing, provide copies of such
     document to the Managers and their counsel, and the Holders and
     Underwriters and their counsel, and make





                                      12


<PAGE>   13


     such of the representatives of the Company as shall be reasonably
     requested by the Managers or their counsel and the Holders and
     Underwriters or their counsel available for discussion of such document,
     and shall not at any time file or make any amendment or supplement to any
     such document of which the Managers and their counsel and the Holders and
     their counsel, shall not have previously been advised and furnished a copy
     or in a form to which the Managers or their counsel and the Majority
     Holders or their counsel shall reasonably object; provided, however, that
     any document incorporated by reference in any such Prospectus by any
     amendment or supplement shall be provided to the Managers and their
     counsel and to the Holders and Underwriters and their counsel at the time
     that such amendment or supplement is filed with the SEC;

          (k) obtain a CUSIP number for the Registrable Securities covered by
     the Shelf Registration Statement not later than the effective date
     thereof;

          (l) make available for inspection by a representative of all of the
     Holders, any Underwriter participating in any disposition pursuant to the
     Shelf Registration Statement and attorneys and accountants designated by
     the Holders or any Underwriter, at reasonable times and in a reasonable
     manner, all financial and other records, documents and properties of the
     Company, and cause the respective officers, directors and employees of the
     Company to supply all information reasonably requested by any such
     representative, Underwriter, attorney or accountant in connection with the
     Shelf Registration Statement; provided, however, that such Underwriters,
     representatives, attorneys or accountants agree to keep confidential any
     records, information or documents that are designated by the Company in
     writing as confidential and to use such information obtained pursuant to
     this provision only in connection with the transaction for which such
     information was obtained, and not for any other purpose, unless (i) such
     records, information or documents (x) are available to the public, (y)
     were already in such Underwriters', representatives', attorneys' or
     accountants' possession prior to their receipt from the Company and they
     do not otherwise have any obligation to keep such records, information or
     documents confidential or (z) are obtained by such Underwriters,
     representatives, attorneys or accountants from a third





                                      13


<PAGE>   14


     person who, insofar as is known to such Underwriters, representatives,
     attorneys or accountants, is not prohibited from transmitting the
     information to such Underwriters, representatives, attorneys or
     accountants by a contractual, legal or fiduciary obligation to the Company
     or a third party, or (ii) disclosure of such records, information or
     documents is required by (A) any regulatory agency or (B) any court or
     administrative order, in the case of (A) or (B), after the exhaustion of
     appeals therefrom;

          (m) list all Registrable Securities covered by the Shelf Registration
     Statement on all securities exchanges or quotation systems on which the
     Common Stock is then listed, or if not so listed, cause such Registrable
     Securities to be quoted on the NASDAQ National Market System at the time
     of resale or issuance, as applicable;

          (n) if reasonably requested by any Holder of Registrable Securities
     covered by the Shelf Registration Statement in order to accurately reflect
     information regarding such Holder or such Holder's plan of distribution as
     required by such Shelf Registration Statement, (i) promptly incorporate in
     a Prospectus supplement or post-effective amendment such information with
     respect to such Holder as such Holder reasonably requests to be included
     therein and (ii) make all required filings of such Prospectus supplement
     or such post-effective amendment as soon as the Company has received
     satisfactory notification of the matters to be incorporated in such
     filing; provided, however, that the Company shall not be required to
     supplement or amend the Shelf Registration Statement to update information
     relating to any new Holder on more than one occasion in each calendar
     month in respect of a Holder or Holders who in the aggregate hold
     $10,000,000 or more in value of Registrable Securities and more than one
     occasion in each calendar quarter in respect of a Holder or Holders who
     hold in the aggregate less than such value of Registrable Securities; and

          (o) use its best efforts to enter into such customary agreements and
     take all such other reasonable actions in connection therewith (including
     those requested by the Holders holding a majority of the Registrable
     Securities (determined on an as-converted basis) being sold) in order to
     expedite or facilitate the disposition of such Registrable Securities
     including, but





                                      14


<PAGE>   15


     not limited to, one Underwritten Offering and in connection with such
     Underwritten Offering, (i) to the extent possible, make such
     representations and warranties to the Holders and any Underwriters of such
     Registrable Securities with respect to the business of the Company and its
     Subsidiaries and its or its subsidiaries' Joint Ventures, the Shelf
     Registration Statement, the Prospectus and documents incorporated by
     reference or deemed incorporated by reference, if any, in each case, in
     form, substance and scope as are customarily made by issuers to
     underwriters in underwritten offerings and confirm the same if and when
     reasonably requested, (ii) use its best efforts to obtain opinions of
     counsel to the Company (which counsel and opinions, in form, scope and
     substance, shall be reasonably satisfactory to the Holders of a majority
     of the Registrable Securities to be sold in such Underwritten Offering
     (determined on an as-converted basis) and their counsel and any
     Underwriters and their counsel) addressed to each selling Holder and any
     Underwriter of Registrable Securities, covering the matters customarily
     covered in opinions requested in underwritten offerings, (iii) obtain
     "cold comfort" letters from the independent certified public accountants
     of the Company (and, if necessary, any other certified public accountant
     of any Subsidiary of the Company or any Significant Joint Venture of the
     Company (each as defined in the Indenture) or of any business acquired by
     the Company for which financial statements and financial data are or are
     required to be included in the Shelf Registration Statement) addressed to
     each selling Holder and any Underwriter of Registrable Securities, such
     letters to be in customary form and covering matters of the type
     customarily covered in "cold comfort" letters in connection with
     underwritten offerings, and (iv) deliver such documents and certificates
     as may be reasonably requested by the Holders of a majority of the
     Registrable Securities being sold by any Underwriter, and which are
     customarily delivered in underwritten offerings, to evidence the continued
     validity of the representations and warranties of the Company made
     pursuant to clause (i) above and to evidence compliance with any customary
     conditions contained in an underwriting agreement; provided that the
     Company shall be required to use its best efforts to facilitate an
     Underwritten Offering only upon the request of Holders of at least 25% of
     the Registrable Securities outstanding (determined on an as-converted
     basis) at the time such request is delivered to the Company (determined





                                       15


<PAGE>   16


     on an as-converted basis after giving effect to any stock splits,
     combinations or reclassifications). In the case of any Underwritten
     Offering, the Company shall (x) provide written notice of such
     Underwritten Offering to the Managers and each of the Holders at least 30
     days prior to the filing of a prospectus supplement for such Underwritten
     Offering, (y) specify a date, which shall be no earlier than 10 days
     following the date of such notice, by which each such Holder must inform
     the Company of its intent to participate in such Underwritten Offering and
     (z) include the instructions such Holder must follow in order to
     participate in such Underwritten Offering.

         Each Holder shall, as a pre-condition to the exercise of its right to
sell Registrable Securities pursuant to the Shelf Registration Statement,
furnish to the Company such information regarding the Holder and the proposed
distribution by such Holder of Registrable Securities pursuant to the Shelf
Registration Statement as shall be required by the Staff of the SEC or the
rules and regulations under the Securities Act. Each such Holder shall provide
the Company with any such information within five business days after such
information is requested by the Company and shall provide to the Company,
within five Business Days after such Holder receives a draft of the Shelf
Registration Statement or amendment thereto in which such information is
included, comments on such Shelf Registration Statement or amendment thereto;
provided that no Holder shall be required to comment on any information not
provided to the Company by such Holder.

         Each Holder, as pre-condition to the exercise of its right to sell
Registrable Securities pursuant to the Shelf Registration Statement, agrees to
notify the Company no later than three Business Days prior to any proposed sale
by such Holder of Registrable Securities pursuant to the Shelf Registration
Statement, which notice shall be effective for five Business Days. In addition,
each Holder shall, upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 3(e)(iii), (v) or (vi) hereof,
forthwith discontinue disposition of Registrable Securities pursuant to the
Shelf Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof.

          4.   Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless the Managers, each Holder, each person, if any, who controls
the Managers or any


                                       16

<PAGE>   17


Holder within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act or is under common control with or is controlled by the
Managers or any Holder and any investment advisor otherwise affiliated with any
Holder and each of their respective directors and officers (each a "Non-Company
Indemnitee") and each of their respective counsel from and against any and all
losses, claims, damages, liabilities and expenses (including, without
limitation, any legal or other expenses reasonably incurred by the Non-Company
Indemnitee in connection with defending or investigating any such action or
claim) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in the Shelf Registration Statement (or
any amendment or supplement thereto), including all documents incorporated
therein by reference, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented, if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein in light of the circumstances under which they were made
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with information relating to the
Managers or any Holder furnished to the Company in writing by the Managers or
any selling Holder expressly for use therein; provided, however, that the
indemnification provided for in this paragraph (a) shall not inure to the
benefit of any Non-Company Indemnitee with respect to any sale or disposition of
Registrable Securities by such Holder in violation of the provisions of the
last paragraph of Section 3 hereof. In connection with any Underwritten
Offering contemplated by Section 3(o), the Company also shall indemnify the
Underwriters, if any, selling brokers, dealers and similar securities industry
professionals participating in the distribution, their officers and directors
and each person who controls such persons (within the meaning of the Securities
Act and the Exchange Act) to the same extent as provided above with respect to
the indemnification of the Holders, if requested in connection with the Shelf
Registration Statement. The indemnification obligation of the Company set forth
in this paragraph (a) shall be in addition to any liability which





                                       17


<PAGE>   18


the company may otherwise have, including, without limitation, for any breach
of any covenant contained in this Agreement.

         (b) Each Holder shall, severally and not jointly, to identify and
hold harmless the Company, the Managers, the other selling Holders, each of
their respective directors and officers, each person, if any, who controls the
Company, the Managers, or any other selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act or is under
common control with or is controlled by the Company, the Managers or any other
selling Holder and any investment advisor affiliated with any of the foregoing
to the same extent as the foregoing indemnity from the Company to the Managers
and the Holders, but only with reference to information relating to such Holder
furnished to the company in writing by such Holder expressly for use in the
Shelf Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto).

         (c) If any action, suit or proceeding shall be instituted involving
any person in respect of which such person is entitled to indemnity pursuant to
either paragraph (a) or (b) above, such person (the "indemnified party") shall
promptly notify the parties against whom indemnification is being sought (each
an "indemnifying party") and such indemnifying parties shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such indemnified party, shall have the right to counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties shall have failed to assume the defense
and employ counsel or (iii) the named parties to any such action, suit, or
proceeding (including any impleaded parties) include both such indemnifying
parties and such indemnified party and such indemnified party shall have been
advised by its counsel that representation of such indemnified party and any
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed due to actual or potential differing interests
between them (in which case the indemnifying parties shall not have the right
to assume the defense of such action, suit or proceeding on behalf of the
indemnified party)). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding, or
substantially similar action, suit or proceeding or related actions, suits or
proceedings in


                                       18

<PAGE>   19


the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
the Managers and all persons, if any, who control the Managers within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act or is under common control with or is controlled by the Managers,
any investment advisor affiliated with any of the foregoing and each of their
respective directors and officers, and the reasonable fees and expenses of only
one separate firm of attorneys (in addition to any local counsel) at any time
for all other Holders and all persons, if any, who control any such Holders
within the meaning of either such Section, or are under common control with or
are controlled by such Holders, any investment advisor affiliated with any of
the foregoing and each of their respective directors and officers. In such case
involving the Managers, persons who control, are controlled by or under common
control with the Managers, or their respective directors or officers, such firm
shall be designated in writing by the Managers. In such case involving other
Holders and such persons who control, are controlled by or under common control
with such Holders, any investment advisor affiliated with any of the foregoing
or their respective directors or officers, such firm shall be designated in
writing by such Holders holding a majority of the Registrable Securities sold
under the Shelf Registration Statement by all such Holders. The indemnifying
parties shall not be liable for any settlement of any action, suit or
proceeding effected without their written consent, but if settled with such
written consent or if there be a final judgment for the plaintiff, the
indemnifying parties agree to indemnify and hold harmless the indemnified party
from and against any loss, action, damage, liability or expense by reason of
such settlement or judgment.

         (d) If the indemnification provided for in this Section 4 is
unavailable to an indemnified party under paragraphs (a) or (b) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties, on the one hand, and of the indemnified party or parties, on
the other hand, in connection with such statements or omissions that resulted
in such losses, claims, damages,


                                       19

<PAGE>   20


liabilities or expenses as well as any other relevant equitable consideration.
The relative fault of the Company, on the one hand, and any Holder, on the
other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, on the one hand, or by such Holder, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders' respective
obligations to contribute pursuant to this Section 4(d) are several in
proportion to the respective number of Registrable Securities of such Holders
that were registered pursuant to the Shelf Registration Statement.

         (e) The Company, the Managers and each Holder agree that it would not
be just or equitable if contribution pursuant to this Section 4 were determined
by a pro rata allocation or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in paragraph (d) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 4, no Holder shall
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such Holder exceeds the
amount of any damages that such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 4 are not exclusive and shall not limit
any rights or remedies that may otherwise be available to any indemnified party
at law or in equity.

         (f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 4 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained





                                       20


<PAGE>   21


in this section 4 shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf any indemnified party,
(ii) any sale of Registrable Securities by an indemnified party and (iii) any
termination of this Agreement. A successor to any indemnified party shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 4.

         (g) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.

          5.   Miscellaneous. (a)  No Inconsistent Agreements. The Company has 
not entered into, and on or after the date of this Agreement will not enter
into, any agreement that is inconsistent with the rights granted to the Holders
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights currently granted to the holders of the Company's
other issued and outstanding securities under any such agreements.

         (b) Amendments and waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders affected by such amendment, modification, supplement, waiver
or departure; provided, however, that no amendment, modification, supplement,
waiver or consent to the departure with respect to the provisions of Section 4
hereof shall be effective as against any person unless consented to in writing
by such person.

         (c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions of
this Section 5(c), which address initially is, with respect to the Managers,
the address set





                                       21


<PAGE>   22


forth in the Subscription Agreement; and (ii) if to the Company, initially at
the Company's address set forth in the Subscription Agreement, and, thereafter,
at such other address, notice of which is given in accordance with the
provisions of this Section 5(c).

         All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.

         Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee, at the
address specified in the Indenture.

         (d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Subscription Agreement. The Company shall not
assign its rights or obligations hereunder without the prior written consent of
each Holder other than by operation of law pursuant to a merger or
consolidation to which the Company is a party. If any transferee of any Holder
shall acquire Registrable Securities, in any manner, whether by operation of
law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement and by taking and holding such Registrable
Securities, such transferee shall be conclusively deemed to have agreed to be
bound by and to perform all of the terms and provisions of this Agreement and,
as a result, such person shall be entitled to receive the benefits hereof. The
Managers shall have no liability or obligation to the Company with respect to
any failure by any other Holder to comply with, or any breach by any other
Holder of, any of the obligations of such other Holder under this Agreement. In
the event the Bonds become convertible into common stock of another person
pursuant to the Indenture, the Company shall cause such person to assume the
Company's obligations hereunder.





                                       22


<PAGE>   23


         (e) Purchases and Sale of Bonds. The Company shall not, and shall use
its best efforts to cause its Affiliates not to, purchase and then resell or
otherwise transfer any Bonds.

         (f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Managers, on the other hand, and the Managers and the Holders
shall have the right to enforce such agreements directly to the extent they
deem such enforcement necessary or advisable to protect the rights of the
Managers or the Holders hereunder.

         (g) Counterparts. This Agreement may be signed in various counterparts
which constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

         (h) Headings. The headings of the Sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

         (i) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
contracts made and to be performed in the State of New York.

         (j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.

         (k) Submission to Jurisdiction. The Company irrevocably submits to
the jurisdiction of any United States or State court located in the State of
New York in any suit or proceeding based on or arising under this Agreement and
irrevocably agrees that all claims in respect of such suit or proceeding may be
determined in any such court. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
hereby agrees to designate and appoint The United States Corporation Company as
an agent upon whom process may be served in any suit or proceeding based on or
arising under this Agreement. The Company further agrees that service of
process upon the





                                       23


<PAGE>   24


Company, or upon an agent appointed pursuant to the preceding sentence
accompanied with written notice of said service to the Company, as the case may
be, mailed by first class mail shall be deemed in every respect effective
service of process upon the Company in any such suit or proceeding. Nothing
herein shall affect the Managers' or any Holder's right to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall he conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.

         (1) Liquidated Damages. If a Shelf Registration Statement has not been
filed and does not remain in effect with the SEC as required by Section 2 of
this Agreement or the prospectus therein is not available for use by a Holder
entitled to such use in accordance with the terms of this Agreement (a
"Registration Default"), additional interest ("Liquidated Damages") will accrue
on the Bonds from and including the day following the Registration Default to
but excluding the day on which the Registration Default has been cured.
Liquidated Damages will be paid semi-annually in arrears, with the first
semi-annual payment due on the first date on which interest is payable under
the Indenture following the date on which such Liquidated Damages begin to
accrue. Liquidated Damages will accrue at a rate per annum of one quarter of
one per cent. (.25%) of the principal amount, to and including the 90th day
following such Registration Default and at a rate per annum of one half of one
per cent. (.5%) of the principal amount, from and after the 91st day following
the Registration Default. In no event will the Liquidated Damages accrue at a
rate per annum exceeding one half of one per cent. (.5%).

         (m) No Adverse Action. The Company will not take any action with
respect to the Registrable Securities which would adversely affect the ability
of any Holder to include such Registrable Securities in a registration
undertaken pursuant to this Agreement.





                                       24


<PAGE>   25


          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.


                                        GLOBAL TELESYSTEMS GROUP,
                                        INC.


                                        By:   /s/ [ILLEGIBLE]
                                           ---------------------------------
                                             Name:
                                                  --------------------------
                                             Title:
                                                   -------------------------

Confirmed and accepted as of 
the date first above written:

UBS Securities LLC, on behalf
of the Managers


BY:       [ILLEGIBLE]
   -------------------------------
   Name:  [ILLEGIBLE]
        --------------------------
   Title: DIRECTOR
         -------------------------


THE BANK OF NEW YORK,
as Trustee under the
Indenture


BY:   /s/ STEVEN D. TORGESON
   -------------------------------
   Name:  STEVEN D. TORGESON
        --------------------------
   Title: Assistant Vice President
         -------------------------




                                       25


<PAGE>   1

                                                                     EXHIBIT 4.5


                          REGISTRATION RIGHTS AGREEMENT




                                     BETWEEN




                           HERMES EUROPE RAILTEL B.V.



                                       AND



              DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,

                               UBS SECURITIES LLC

                                       AND

                              LEHMAN BROTHERS INC.


<PAGE>   2
                          REGISTRATION RIGHTS AGREEMENT


                  This Registration Rights Agreement (the "Agreement") is dated
as of August 19, 1997, by and between HERMES EUROPE RAILTEL B.V., a company
incorporated under the laws of the Netherlands (the "Company"), and DONALDSON,
LUFKIN & JENRETTE SECURITIES CORPORATION, UBS SECURITIES LLC and LEHMAN BROTHERS
INC. (the "Initial Purchasers").

                  This Agreement is entered into in connection with the Purchase
Agreement, dated as of August 14, 1997, between the Company and the Initial
Purchasers (the "Purchase Agreement") relating to the sale by the Company to the
Initial Purchasers of $265,000,000 aggregate principal amount of its 11-1/2%
Senior Notes due 2007 (the "Notes"). In order to induce the Initial Purchasers
to enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement for the equal benefit of the
Initial Purchasers and its direct and indirect transferees. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.

                  The parties hereby agree as follows:

1.    DEFINITIONS

                  As used in this Agreement, the following terms shall have the
following meanings:

                  Additional Interest:   See Section 4(a).

                  Advice:   See the last paragraph of Section 5.

                  Applicable Period:   See Section 2(b).

                  Commission:  The Securities and Exchange Commission.

                  Company:   See the introductory paragraph to this Agreement.

                  Effectiveness Date: The 135th day after the Issue Date;
provided, however, that, with respect to the Initial Shelf Registration
Statement, (i) if the Filing Date in respect thereof is fewer than 60 days prior
to the 135th day after the Issue Date, then the Effectiveness Date in respect
thereof shall be the 60th day after such Filing Date and (ii) if the Filing Date
is after the filing of the Exchange Offer Registration Statement with the
Commission, then the Effectiveness Date in respect thereof shall be the 60th day
after such Filing Date.

                  Effectiveness Period:   See Section 3(a).

                  Event Date:   See Section 4(b).

                  Exchange Act: The Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.

                  Exchange Offer:  See Section 2(a).
<PAGE>   3
                                      -2-


                  Exchange Offer Registration Statement:   See Section 2(a).

                  Exchange Securities:   See Section 2(a).

                  Expiration Date:   See Section 2(a).

                  Filing Date: The 90th day after the Issue Date; provided,
however, that, with respect to the Initial Shelf Registration Statement, (i) if
a Shelf Registration Event shall have occurred fewer than 30 days prior to the
30th day after the Issue Date, then the Filing Date in respect thereof shall be
the 30th day after such Shelf Registration Event and (ii) if a Shelf
Registration Event shall have occurred after the filing of the Exchange Offer
Registration Statement with the Commission, then the Filing Date in respect
thereof shall be the 30th day after such Shelf Registration Event.

                  Guarantors:   See Section 10(d).

                  Holder:   Any record holder of Registrable Securities.

                  Indemnified Person:   See the third paragraph of Section 7.

                  Indemnifying Person:   See the third paragraph of Section 7.

                  Indenture: The Indenture, dated as of August 19, 1997, among
the Company, Global TeleSystems Group, Inc. and The Bank of New York, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms thereof.

                  Initial Purchasers: See the introductory paragraph to this
Agreement.

                  Initial Shelf Registration Statement:   See Section 3(a).

                  Inspectors:   See Section 5(o).

                  Issue Date:   The date of original issuance of the Notes.

                  NASD:   See Section 5(t).

                  Notes: See the second introductory paragraph to this
Agreement.

                  Participant:   See the first paragraph of Section 7.

                  Participating Broker-Dealer:   See Section 2(b).

                  Person: An individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.

                  Private Exchange:   See Section 2(b).

                  Private Exchange Securities:   See Section 2(b).
<PAGE>   4
                                      -3-


                  Prospectus: The prospectus included in any Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

                  Purchase Agreement: See the second introductory paragraph to
this Agreement.

                  Records: See Section 5(o).

                  Registrable Securities: The Notes upon original issuance
thereof and at all times subsequent thereto, each Exchange Security as to which
Section 2(c)(v) hereof is applicable upon original issuance and at all times
subsequent thereto and, if issued, the Private Exchange Securities, until in the
case of any such Notes, Exchange Securities or Private Exchange Securities, as
the case may be, (i) a Registration Statement (other than, with respect to any
Exchange Security as to which Section 2(c)(v) hereof is applicable, the Exchange
Offer Registration Statement) covering such Notes, Exchange Securities or
Private Exchange Securities has been declared effective by the Commission and
such Notes, Exchange Securities or Private Exchange Securities, as the case may
be, have been disposed of in accordance with such effective Registration
Statement, (ii) such Notes, Exchange Securities or Private Exchange Securities,
as the case may be, are sold in compliance with Rule 144, (iii) such Note has
been exchanged for an Exchange Note pursuant to the Exchange Offer and Section
2(c)(v) is not applicable thereto, or (iv) such Notes, Exchange Securities or
Private Exchange Securities, as the case may be, cease to be outstanding.

                  Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Offer Registration
Statement, that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

                  Rule 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the Commission providing for offers and
sales of securities made in compliance therewith resulting in offers and sales
by subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.

                  Rule 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the Commission.

                  Rule 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission.

                  Securities Act: The Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.

                  Shelf Notice: See Section 2(c).
<PAGE>   5
                                      -4-

                  Shelf Registration Statement: See Section 3(b).

                  Shelf Registration Event:  See Section 2(c).

                  Subsequent Shelf Registration Statement:  See Section 3(b).

                  TIA:  The Trust Indenture Act of 1939, as amended.

                  Trustee: The trustee under the Indenture and, if applicable,
the trustee under any indenture governing the Exchange Securities and Private
Exchange Securities (if any).

                  Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.

2.    EXCHANGE OFFER

                  (a) The Company agrees to file with the Commission on or
before the Filing Date an offer to exchange (the "Exchange Offer") any and all
of the Registrable Securities for a like aggregate principal amount of senior
debt securities of the Company that are identical to the Notes (the "Exchange
Securities") (and that are entitled to the benefits of the Indenture or a trust
indenture that is substantially identical to the Indenture (other than such
changes as are necessary to comply with any requirements of the Commission to
effect or maintain the qualification of such trust indenture under the TIA) and
that has been qualified under the TIA), except that the Exchange Securities
shall have been registered pursuant to an effective Registration Statement under
the Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer will be registered under the Securities Act on the appropriate form (the
"Exchange Offer Registration Statement") and will comply with all applicable
tender offer rules and regulations under the Exchange Act. The Company agrees to
use its reasonable best efforts (i) to cause the Exchange Offer Registration
Statement to become effective and to commence the Exchange Offer on or prior to
the Effectiveness Date, (ii) to keep the Exchange Offer open for 30 days (or
longer if required by applicable law) (the last day of such period, the
"Expiration Date") and (iii) to exchange Exchange Securities for all Notes
validly tendered and not withdrawn pursuant to the Exchange Offer on or prior to
the fifth day following the Expiration Date.

                  Each Holder who participates in the Exchange Offer will be
deemed to represent that any Exchange Securities received by it will be acquired
in the ordinary course of its business, that at the time of the consummation of
the Exchange Offer such Holder will have no arrangement with any person to
participate in the distribution of the Exchange Securities in violation of the
provisions of the Securities Act, and that such Holder is not an affiliate of
the Company within the meaning of the Securities Act.

                  Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are Private
Exchange Securities, Exchange Securities to which Section 2(c)(v) is applicable
and Exchange Securities held by Participating Broker-Dealers, and the Company
shall have no further obligation to register Registrable Securities (other than
Private Exchange Securities and other than Exchange Securities as to which
Section 2(c)(v) hereof applies) pursuant to Section 3 of this Agreement. No
Securities other than the Exchange Securities shall be included in the Exchange
Offer Registration Statement.

                  (b) The Company shall include within the Prospectus contained
in the Exchange Offer Registration Statement a Section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchasers, which
<PAGE>   6
                                      -5-

shall contain a summary statement of the positions taken or policies made by the
Staff of the Commission (and publicly disseminated) with respect to the
potential "underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities
received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"). Such "Plan of Distribution" section shall also allow the use of
the prospectus by all persons subject to the prospectus delivery requirements of
the Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Securities.

                  The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all persons subject to the prospectus delivery requirements of the
Securities Act for at least 180 days following the first bona fide offering of
securities under such Registration Statement (or such shorter time as such
persons must comply with such requirements in order to resell the Exchange
Securities) (the "Applicable Period").

                  If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them and having, or which are reasonably
likely to be determined to have, the status of an unsold allotment in the
initial distribution, the Company upon the request of the Initial Purchasers
shall, simultaneously with the delivery of the Exchange Securities in the
Exchange Offer, issue and deliver to the Initial Purchasers, in exchange (the
"Private Exchange") for the Notes held by the Initial Purchasers, a like
principal amount of debt securities of the Company that are identical to the
Exchange Securities (the "Private Exchange Securities") (and which are issued
pursuant to the same indenture as the Exchange Securities) (except for the
placement of a restrictive legend on such Private Exchange Securities). The
Private Exchange Securities shall bear the same CUSIP number as the Exchange
Securities. Interest on the Exchange Securities and Private Exchange Securities
will accrue from the last interest payment date on which interest was paid on
the Notes surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the Issue Date.

                  Any indenture under which the Exchange Securities or the
Private Exchange Securities will be issued shall provide that the holders of any
of the Exchange Securities and the Private Exchange Securities will vote and
consent together on all matters to which such holders are entitled to vote or
consent as one class and that none of the holders of the Exchange Securities and
the Private Exchange Securities will have the right to vote or consent as a
separate class on any matter.

                  (c) If, (i) because of any change in law or in currently
prevailing interpretations of the Staff of the Commission, the Company is not
permitted to effect the Exchange Offer, (ii) the Exchange Offer is not commenced
on or prior to the Effectiveness Date, (iii) the Exchange Offer is, for any
reason, not consummated on or prior to the 165th day after the Issue Date, (iv)
any Holder of Private Exchange Securities so requests, or (v) in the case of any
Holder that participates in the Exchange Offer, such Holder does not receive
Exchange Securities on the date of the exchange that may be sold without
restriction under state and federal securities laws (the occurrence of any such
event, a "Shelf Registration Event"), then, in the case of each of clauses (i)
to and including (v) of this sentence, the Company shall promptly deliver to the
Holders and the Trustee notice thereof (the "Shelf Notice") and shall thereafter
file an Initial Shelf Registration Statement pursuant to Section 3.

3.    SHELF REGISTRATION

                  If a Shelf Registration Event has occurred (and whether or not
an Exchange Offer Registration Statement has been filed with the Commission or
has become effective, or the Exchange Offer has been consummated), then:
<PAGE>   7
                                      -6-



                  (a) Initial Shelf Registration Statement. The Company shall
promptly prepare and file with the Commission a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Securities (the "Initial Shelf Registration Statement"). The
Company shall file with the Commission the Initial Shelf Registration Statement
on or prior to the Filing Date. The Initial Shelf Registration Statement shall
be on Form S-1 or another appropriate form, if available, permitting
registration of such Registrable Securities for resale by such holders in the
manner designated by them (including, without limitation, in one or more
underwritten offerings). The Company shall not permit any securities other than
the Registrable Securities to be included in the Initial Shelf Registration
Statement or any Subsequent Shelf Registration Statement. The Company shall use
its reasonable best efforts to cause the Initial Shelf Registration Statement to
be declared effective under the Securities Act on or prior to the Effectiveness
Date, and to keep the Initial Shelf Registration Statement continuously
effective under the Securities Act until the date which is 24 months from the
Issue Date (or such shorter period under Rule 144 under the Securities Act then
in effect after which non-affiliates of the issuer are permitted to resell
securities without registration), or such shorter period ending when (i) all
Registrable Securities covered by the Initial Shelf Registration Statement have
been sold in the manner set forth and as contemplated in the Initial Shelf
Registration Statement or (ii) a Subsequent Shelf Registration Statement
covering all of the Registrable Securities has been declared effective under the
Securities Act (such period, the "Effectiveness Period").

                  (b) Subsequent Shelf Registration Statements. If the Initial
Shelf Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its reasonable best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in any
event the Company shall within 45 days of such cessation of effectiveness amend
the Shelf Registration Statement in a manner reasonably expected to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
Subsequent Shelf Registration Statement is filed, the Company shall use its
reasonable best efforts to cause the Subsequent Shelf Registration Statement to
be declared effective as soon as reasonably practicable after such filing and to
keep such Registration Statement continuously effective until the end of the
Effectiveness Period. As used herein the term "Shelf Registration Statement"
means the Initial Shelf Registration Statement and any Subsequent Shelf
Registration Statement.

                  (c) Supplements and Amendments. The Company shall promptly
supplement and amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Registrable Securities covered by such Registration Statement or by any
underwriter of such Registrable Securities.

                  (d)  Hold-Back Agreements.

                  (i) Restrictions on Public Sale by Holders of Registrable
         Securities. Each Holder of Registrable Securities whose Registrable
         Securities are covered by a Shelf Registration Statement (which
         Registrable Securities are not being sold in the underwritten offering
         described below) agrees, if requested (pursuant to a timely written
         notice) by the Company or by the managing underwriter or underwriters
         in an underwritten offering of Registrable Securities, not to effect
         any public sale or distribution of any securities within the class of
         securities covered by such Shelf Registration Statement or any similar
         class of securities of the Company, including a sale pursuant to Rule
         144 or Rule 144A (except as part of such underwritten offering), during
         the period beginning 10 days prior to, and ending 60 days after, the
         Issue Date of each underwritten offering made pursuant to each Shelf
         Registration Statement, to the
<PAGE>   8
                                      -7-



         extent timely notified in writing by the Company or by the managing
         underwriter or underwriters; provided, however, that each holder of
         Registrable Securities shall be subject to the hold-back restrictions
         of this Section 3(d)(i) only once during the term of this Agreement.

                  The foregoing provisions shall not apply to any Holder of
         Registrable Securities if such Holder is prevented by applicable
         statute or regulation from entering into any such agreement; provided,
         however, that any such Holder shall undertake, in its request to
         participate in any such underwritten offering, not to effect any public
         sale or distribution of the class of securities covered by such Shelf
         Registration Statement (except as part of such underwritten offering)
         during such period unless it has provided 45 days' prior written notice
         of such sale or distribution to the Company or the managing underwriter
         or underwriters, as the case may be.

                  (ii) Restrictions on the Company and Others. The Company
         agrees (A) not to effect any public or private sale or distribution
         (including, without limitation, a sale pursuant to Regulation D under
         the Securities Act) of any securities the same as or similar to those
         covered by a Shelf Registration Statement or any securities convertible
         into or exchangeable or exercisable for such securities, during the 10
         days prior to, and during the 60-day period beginning on, the
         commencement of an underwritten public distribution of Registrable
         Securities, where the managing underwriter or underwriters so requests
         pursuant to timely written notice; (B) to include in any agreements
         entered into by the Company on or after the date of this Agreement
         (other than any underwriting agreement relating to a public offering
         registered under the Securities Act) pursuant to which the Company
         issues or agrees to issue securities the same as or similar to the
         Notes a provision substantially identical to Section 3(d)(i); and (C)
         not to grant or agree to grant any "piggy-back registration" or other
         similar rights to any holder of the Company's or any of its
         subsidiaries' securities issued on or after the date of this Agreement
         with respect to any Registration Statement.

4.    ADDITIONAL INTEREST

                  (a) The Company and the Initial Purchasers agree that the
Holders of Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages, additional interest on the
Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect):

  (i)      if either the Exchange Offer Registration Statement or the Initial
           Shelf Registration Statement has not been filed on or prior to the
           Filing Date (unless, with respect to the Exchange Offer Registration
           Statement, a Shelf Registration Event described in Section 2(c)(i)
           shall have occurred prior to the Filing Date), Additional Interest
           shall accrue on the Notes over and above the stated interest on the
           principal of a rate equal to 50 basis points for the first 90 days
           (or any part thereof) immediately following such date, such
           Additional Interest rate increasing by an additional 50 basis points
           for each subsequent 90-day period (or any part thereof);

                     (ii) if either the Exchange Offer Registration Statement or
           the Initial Shelf Registration Statement is not declared effective by
           the Commission on or prior to the Effectiveness Date (unless, with
           respect to the Exchange Offer Registration Statement, a Shelf
           Registration Event described in Section 2(c)(i) shall have occurred),
           Additional Interest shall accrue on the Notes included or which
           should have been included in such Registration Statement over and
           above the stated interest on the principal at a rate equal to 50
           basis points for the first 90 days (or any part thereof) immediately
           fol-
<PAGE>   9
                                      -8-






         lowing the day after such date, such Additional Interest rate
         increasing by an additional 50 basis points for each subsequent 90-day
         period (or any part thereof); and

                  (iii) if (A) the Company has not exchanged Exchange Securities
         for all Notes validly tendered and not withdrawn in accordance with the
         terms of the Exchange Offer on or prior to the fifth day after the
         Expiration Date, or (B) the Exchange Offer Registration Statement
         ceases to be effective at any time prior to the Expiration Date, or (C)
         if applicable, any Shelf Registration Statement has been declared
         effective and such Shelf Registration Statement ceases to be effective
         at any time during the Effectiveness Period, then Additional Interest
         shall accrue on the Notes (over and above any interest otherwise
         payable on principal of the Notes) at a rate equal to 50 basis points
         for the first 90 days (or any part thereof) commencing on (x) the sixth
         day after the Expiration Date, in the case of (A) above, or (y) the day
         the Exchange Offer Registration Statement ceases to be effective in the
         case of (B) above, or (z) the day such Shelf Registration Statement
         ceases to be effective in the case of (C) above, such Additional
         Interest rate increasing by an additional 50 basis points for each such
         subsequent 90-day period (or any part thereof);

provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 150 basis points; provided, further, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement as required hereunder (in the case of clause (i) of this
Section 4(a)), (2) upon the effectiveness of the Exchange Offer Registration
Statement or the Shelf Registration Statement as required hereunder (in the case
of clause (ii) of this Section 4(a)) or (3) upon the exchange of Exchange
Securities for all Notes validly tendered and not withdrawn (in the case of
clause (iii)(A) of this Section 4(a)), or upon the effectiveness of the Exchange
Offer Registration Statement which had ceased to remain effective (in the case
of clause (iii)(B) of this Section 4(a)), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(C) of this Section 4(a)), Additional Interest on the Notes as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue (but any accrued amount shall be payable).

                  (b) The Company shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). The Company shall
pay the Additional Interest due on the Registrable Securities by depositing with
the Trustee, in trust, for the benefit of the Holders thereof, on or before the
applicable semi-annual interest payment date, immediately available funds in
sums sufficient to pay the Additional Interest then due to Holders of
Registrable Securities. Each obligation to pay Additional Interest shall be
deemed to accrue immediately following the occurrence of the applicable Event
Date. Any accrued Additional Interest amount shall be due and payable on each
interest payment date immediately after the applicable Event Date to the record
Holder of Registrable Securities entitled to receive the interest payment to be
made on such date as set forth in the Indenture. The parties hereto agree that
the Additional Interest provided for in this Section 4 constitutes a reasonable
estimate of the damages that may be incurred by Holders of Registrable
Securities by reason of the failure of a Shelf Registration Statement or
Exchange Offer Registration Statement to be filed or declared effective, or a
Shelf Registration Statement to remain effective, as the case may be, in
accordance with this Section 4.

5.    REGISTRATION PROCEDURES

                  In connection with the registration of any Registrable
Securities pursuant to Sections 2 or 3 hereof, the Company shall use its
reasonable best efforts to effect such registrations to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
<PAGE>   10
                                      -9-



                  (a) prepare and file with the Commission on or before the
Filing Date, a Registration Statement or Registration Statements as prescribed
by Section 2 or 3, and to use its reasonable best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company shall furnish to and afford the
Holders of the Registrable Securities and each such Participating Broker-Dealer,
as the case may be, covered by such Registration Statement, their counsel and
the managing underwriters, if any, a reasonable opportunity to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein) proposed to be filed; the Company shall not file any
Registration Statement or Prospectus or any amendments or supplements thereto in
respect of which the Holders must be afforded a reasonable opportunity to review
prior to the filing of such document, if the Holders of a majority in aggregate
principal amount of the Registrable Securities covered by such Registration
Statement, or such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall not have been afforded such
opportunity or shall reasonably object, except for any amendment or supplement
or document that counsel to the Company shall advise the Company in writing is
required in order to comply with applicable law;

                  (b) prepare and file with the Commission such amendments and
post-effective amendments to each Shelf Registration Statement or Exchange Offer
Registration Statement, as the case may be, as may be necessary to keep such
Registration Statement continuously effective for the Effectiveness Period, in
the case of a Shelf Registration Statement, or until the later of the Expiration
Date and the Applicable Period (if applicable), in the case of the Exchange
Offer Registration Statement; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) under the Securities Act;
and comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations of the Commission promulgated thereunder applicable to it
with respect to the disposition of all securities covered by such Registration
Statement as so amended or in such Prospectus as so supplemented and with
respect to the subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus;

                  (c) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, notify the selling Holders of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, promptly, and
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment including financial statements and
schedules, but without documents incorporated or deemed to be incorporated by
reference or exhibits unless specifically requested); (ii) of the issuance by
the Commission of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose; (iii) if at
any time when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Securities the representations and
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated by Section 5(n) below cease to be true and correct; (iv)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of a Registration Statement
or any of the Registrable Securities or the Exchange Securities to be sold by
any Participating Broker-Dealer for offer or sale in any
<PAGE>   11
                                      -10-

jurisdiction, or the initiation or threatening of any proceeding for such
purpose; (v) of the happening of any event or any information becoming known
that makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in such Registration Statement, Prospectus or documents so that, in the
case of the Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that such notification need not
specifically identify such event if notification of the occurrence thereof would
in the Company's reasonable judgment, involve the disclosure of confidential
non-public information; and (vi) of the Company's reasonable determination that
a post-effective amendments to the Registration Statement would be appropriate;

                  (d) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, use its reasonable best efforts to
prevent the issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any of the
Registrable Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its reasonable best efforts to obtain the withdrawal of
any such order at the earliest possible moment;

                  (e) if a Shelf Registration Statement is filed pursuant to
Section 3 and if requested by the managing underwriters, if any, or the Holders
of a majority in aggregate principal amount of the Registrable Securities being
sold in connection with an underwritten offering, (i) promptly incorporate in a
prospectus supplement or post-effective amendment such information as the
managing underwriters, if any, or such Holders or their respective counsel
reasonably request to be included therein; and (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
reasonably practicable after the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;

                  (f) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, furnish to each selling Holder of
Registrable Securities and to each such Participating Broker-Dealer who so
requests and upon request to their respective counsel and each managing
underwriter, if any, without charge, one conformed copy of the Registration
Statement or Statements and each post-effective amendment thereto, including
financial statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits;

                  (g) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, deliver to each selling Holder of
Registrable Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel, and the underwriters, if any, without charge, as many
copies of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
sub-
<PAGE>   12
                                      -11-


ject to the last paragraph of this Section 5, the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling holders of Registrable Securities or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the Registrable
Securities covered by or the sale by Participating Broker-Dealers of the
Exchange Securities pursuant to such Prospectus and any amendment or supplement
thereto provided such use complies with all applicable laws and regulations;

                  (h) prior to any public offering of Registrable Securities or
any delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, use its reasonable best efforts to
register or qualify, and to cooperate with the selling Holders of Registrable
Securities or each such Participating Broker-Dealer, as the case may be, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any selling Holder, Participating Broker-Dealer, or the managing underwriters
reasonably request in writing; provided, however, that where Exchange Securities
held by Participating Broker-Dealers or Registrable Securities are offered other
than through an underwritten offering, the Company shall cause its counsel to
(i) perform Blue Sky investigations and file registrations and qualifications
required to be filed pursuant to this Section 5(h); (ii) use its reasonable best
efforts to keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective; and (iii) do any and all other acts or things necessary or advisable
to enable the disposition in such jurisdictions of the Exchange Securities held
by Participating Broker-Dealers or the Registrable Securities covered by the
applicable Registration Statement; provided, further, that the Company shall not
in any case be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject, (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction;

                  (i) if a Shelf Registration Statement is filed pursuant to
Section 3, cooperate with the selling Holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or Holders may reasonably
request;

                  (j) use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals; provided, further, that the Company shall not in any case be required
to (A) qualify generally to do business in any jurisdiction where it is not then
so qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject, (C) subject
itself to taxation in excess of a nominal dollar amount in any such
jurisdiction;

                  (k) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as
<PAGE>   13
                                      -12-

promptly as practicable prepare and (subject to Section 5(a) above) file with
the Commission, solely at the expense of the Company, a supplement or
post-effective amendment to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities being sold thereunder
or to the purchasers of the Exchange Securities to whom such Prospectus will be
delivered by a Participating Broker-Dealer, any such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The Company
agrees to notify the Holders to suspend use of any such Prospectus as promptly
as practicable after the occurrence of such event, and the Holders agree, upon
receipt of such notice, to suspend use of any such Prospectus until the Company
has amended or supplemented such Prospectus to correct such misstatement or
omission;

                  (l) use its reasonable best efforts to cause the Registrable
Securities covered by a Registration Statement or the Exchange Securities, as
the case may be, to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of
Registrable Securities covered by such Registration Statement or the Exchange
Securities, as the case may be, or the managing underwriters, if any;

                  (m) prior to the effective date of the first Registration
Statement relating to the Registrable Securities, (i) provide the Trustee with
certificates for the Registrable Securities in a form eligible for deposit with
The Depository Trust Company; and (ii) provide a CUSIP number for the
Registrable Securities;

                  (n) in connection with an underwritten offering of Registrable
Securities pursuant to a Shelf Registration Statement, enter into an
underwriting agreement as is customary in underwritten offerings, provided such
agreement is reasonably acceptable to the Company and provided that the
underwriters are reasonably acceptable to the Company, and take all such other
actions as are reasonably requested by the managing underwriters in order to
expedite or facilitate the registration or the disposition of such Registrable
Securities, and in such connection if reasonably requested, (i) make such
representations and warranties to the underwriters, with respect to the business
of the Company and its subsidiaries and the Registration Statement, Prospectus
and documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, as are customarily made by issuers to underwriters in
underwritten offerings, and confirm the same if and when reasonably requested;
(ii) use its reasonable best efforts to obtain opinions of counsel to the
Company and updates thereof in form and substance reasonably satisfactory to the
managing underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by underwriters; (iii) use its
reasonable best efforts to obtain "cold comfort" letters and updates thereof in
form and substance reasonably satisfactory to the managing underwriters from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company or any of its subsidiaries for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and such other
matters as reasonably requested by underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures comparable to those set forth in Section 7 hereof (or such other
provisions and procedures reasonably acceptable to the Company and the Holders
of a majority in aggregate principal amount of Registrable Securities covered by
such Registration Statement and the managing underwriters or agents) with
respect to all parties to be indemnified pursuant to said section, all of which
shall be done at each closing under such underwriting agreement, or as and to
the extent required thereunder;
<PAGE>   14
                                      -13-

                  (o) if (1) a Shelf Registration Statement is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Securities during the Applicable Period, subject to the prior receipt by the
Company of undertakings to use commercially reasonable best efforts to preserve
the confidentiality of any information disclosed by the Company pursuant hereto
in form and substance reasonably satisfactory to the Company, make available for
inspection by any selling Holder of such Registrable Securities being sold, or
each such Participating Broker-Dealer, as the case may be, any underwriter
participating in any such disposition of Registrable Securities, if any, and any
attorney, accountant or other agent retained by any such selling holder or each
such Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be necessary to enable them to exercise
any applicable due diligence responsibilities, and cause the officers, directors
and employees of the Company and its subsidiaries to supply all information in
each case requested by any such Inspector in connection with such Registration
Statement; however, records which the Company determines, in good faith, to be
confidential and any Records which the Company notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement; (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction;
(iii) the information in such Records has been made generally available to the
public; or (iv) release thereof is necessary or advisable in connection with any
action, suit or proceeding involving any Holder or other Inspector;

                  (p) provide for an indenture trustee for the Registrable
Securities or the Exchange Securities, as the case may be, and cause the
Indenture or the trust indenture provided for in Section 2(a), as the case may
be, to be qualified under the TIA not later than the effective date of the
Exchange Offer or the first Registration Statement relating to the Registrable
Securities; and in connection therewith, cooperate with the trustee under any
such indenture and the holders of the Registrable Securities, to effect such
changes to such indenture as may be required for such indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use its
reasonable best efforts to cause such trustee to execute, all documents as may
be required to effect such changes, and all other forms and documents required
to be filed with the Commission to enable such indenture to be so qualified in a
timely manner;

                  (q) comply with all applicable rules and regulations of the
Commission to the extent and so long as they are applicable to the Exchange
Offer Registration Statement or the Shelf Registration Statement and make
generally available to their Securityholders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a firm
commitment or best efforts underwritten offering; and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods;

                  (r) upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company in customary form,
relating to the Exchange Securities or the Private Exchange Securities, as
the case may be, addressed to the Trustee for the benefit of all Holders of
Registrable Securities participating in the Exchange Offer or the Private
Exchange, as the case may be, and which includes an opinion that (i) the Company
has duly authorized, executed and delivered the Exchange Securities and Private
Exchange Securities and the related indenture; and (ii) each of the Exchange
Securities or the Private Exchange Securities, as
<PAGE>   15
                                      -14-


the case may be, and related indenture constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms (with customary exceptions);

                  (s) if an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Securities by Holders to the
Company (or to such other Person as directed by the Company) in exchange for the
Exchange Securities or the Private Exchange Securities, as the case may be,
mark, or caused to be marked, on such Registrable Securities that such
Registrable Securities are being canceled in exchange for the Exchange
Securities or the Private Exchange Securities, as the case may be; in no event
shall such Registrable Securities be marked as paid or otherwise satisfied;

                  (t) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD"); and

                  (u) use its reasonable best efforts to take all other steps
necessary to effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby.

                  The Company may require each seller of Registrable Securities
or Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Securities of any seller or
Participating Broker-Dealer who unreasonably fails to furnish such information
within a reasonable time after receiving such request.

                  Each Holder of Registrable Securities and each Participating
Broker-Dealer agrees by acquisition of such Registrable Securities or Exchange
Securities to be sold by such Participating Broker-Dealer, as the case may be,
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus or Exchange Securities to
be sold by such Participating Broker-Dealer, as the case may be, until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and has
received copies of any amendments or supplements thereto.

6.    REGISTRATION EXPENSES

                  (a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Exchange Offer Registration Statement or a Shelf Registration
Statement is filed or becomes effective, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel) in such jurisdictions (x) where the holders of
Registrable Securities are located, in the case of the Exchange Securities, or
(y) as provided in Section 5(h), in the case of Registrable Securities to be
sold in a public offering or Exchange Securities to be sold by a Participating
Broker-Dealer during the Applicable Period)); (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
or Exchange Securities in a form eligible
<PAGE>   16
                                      -15-




for deposit with The Depository Trust Company and of printing prospectuses if
the printing of prospectuses is requested by the managing underwriters, if any,
or, in respect of Registrable Securities or Exchange Securities to be sold by
any Participating Broker-Dealer during the Applicable Period, by the Holders of
a majority in aggregate principal amount of the Registrable Securities included
in any Registration Statement or of such Exchange Securities, as the case may
be); (iii) messenger, telephone and delivery expenses incurred by the Company;
(iv) fees and disbursements of counsel for the Company and all documentation
related thereto, including any underwriting agreement and all related
documentation (subject to the provisions of Section 6(b)); (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(n)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance);
(vi) the reasonable fees and expenses of any "qualified independent underwriter"
or other independent appraiser participating in an offering pursuant to the
Conduct Rules of the NASD; (vii) rating agency fees; (viii) Securities Act
liability insurance, if the Company desires such insurance; (ix) fees and
expenses of all other Persons retained by the Company; (x) internal expenses of
the Company (including, without limitation, all salaries and expenses of
officers and employees of the Company performing legal or accounting duties);
(xi) the expense of any annual audit of the Company; (xii) the fees and expenses
incurred by the Company in connection with the listing of the Registrable
Securities on any Securities exchange; and (xiii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement. Anything contained
herein to the contrary notwithstanding, the Company shall not have any
obligation whatsoever in respect of any fees or expenses of counsel to any
underwriters, underwriters' discounts or commissions, brokerage commissions,
dealers' selling concessions, transfer taxes or any other selling expenses
(other than those expressly enumerated in clauses (i) through (xiii) above)
incurred in connection with the underwriting, offering or sale of Registrable
Securities or Exchange Securities by or on behalf of any Person.

                  (b) In connection with any Shelf Registration Statement
hereunder, the Company shall reimburse the Holders of the Registrable Securities
being registered in such registration for the reasonable fees and disbursements
of not more than one counsel (in addition to appropriate local counsel) chosen
by the Holders of a majority in aggregate principal amount of the Registrable
Securities to be included in such Registration Statement and other reasonable
out-of-pocket expenses of the Holders of Registrable Securities incurred in
connection with the registration of the Registrable Securities.

7.    INDEMNIFICATION

                  The Company agrees to indemnify and hold harmless each Holder
of Registrable Securities and each Participating Broker-Dealer selling Exchange
Securities during the Applicable Period, the officers and directors of each such
person, and each person, if any, who controls any such person within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "Participant"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal fees and
other expenses incurred in connection with any suit, action or proceeding or any
claim asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement (or any amendment thereto)
or Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to such Participant furnished to the
Company in writing by such Participant (or, if such Participant is not a Holder
or a Participating Broker-Dealer, furnished in writing by the Holder or
Participating Broker-Dealer in respect of which such person is a Participant
<PAGE>   17
                                      -16-

relating to such Participant) expressly for use therein; provided, however, that
the foregoing indemnity with respect to any preliminary prospectus shall not
inure to the benefit of any Participant (or, if such Participant is not a Holder
or a Participating Broker-Dealer, furnished in writing by the Holder or
Participating Broker-Dealer in respect of which such person is a Participant
relating to such Participant) from whom the person asserting any such losses,
claims, damages or liabilities purchased Registrable Securities to the extent
that such untrue statement or omission or alleged untrue statement or omission
made in such preliminary prospectus is eliminated or remedied in the related
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) and a copy of the related Prospectus (as so
amended or supplemented) shall not have been furnished to such person at or
prior to the sale of such Registrable Securities or Exchange Securities, as the
case may be, to such person .

                  Each Participant will be required to agree, severally and not
jointly, to indemnify and hold harmless each of the Company, its directors, its
officers who sign the Registration Statement and each person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to each Participant, but only with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or supplement
thereto, or any preliminary prospectus. The liability of any Participant under
this paragraph shall in no event exceed the proceeds received by such
Participant from sales of Registrable Securities giving rise to such
obligations.

                  If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding; and shall pay the
reasonable fees and expenses incurred by such counsel related to such
proceeding, provided, however, that the failure to so notify the Indemnifying
Person shall not relieve it of any obligation or liability which it may have
hereunder or otherwise (unless and only to the extent that such failure actually
prejudices the Indemnifying Person). In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but, other than in
circumstances involving a conflict among Indemnified Persons, the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have agreed
to the contrary; (ii) the Indemnifying Person has failed within a reasonable
time to retain counsel reasonably satisfactory to the Indemnified Person; or
(iii) the named parties in any such proceeding (including any impleaded parties)
include both the Indemnifying Person and the Indemnified Person and
representation of both parties by the same counsel would be inappropriate due to
an actual or potential conflict of interest. It is understood that, other than
in circumstances involving a conflict among Indemnified Persons, the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable
Securities sold by all such Participants and any such separate firm for the
Company, its directors, its officers and such control persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses
<PAGE>   18
                                      -17-

incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, unless such settlement includes an unconditional written release of such
Indemnified Person in form and substance satisfactory to the Indemnified Persons
from all liability on claims that are the subject matter of such proceeding.

                  If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the initial
offering of the Notes or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Participants on the other shall be deemed to be
in the same proportion as the total proceeds from the initial offering (net of
discounts and commissions but before deducting expenses) of the Notes received
by the Company bears to the total proceeds received by such Participant from the
sale of Registrable Securities. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, on the one hand,
or such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.

                  The parties shall agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Securities
exceeds the amount of any damages that such Participant has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.

                  The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
<PAGE>   19
                                      -18-



8.    RULE 144 AND RULE 144A

                  The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the Commission thereunder in a timely manner and, if
at any time the Company is not required to file such reports, it will, upon the
request of any Holder of Registrable Securities, make publicly available other
information so long as necessary to permit sales pursuant to Rule 144 and Rule
144A under the Securities Act. The Company further covenants that it will take
such further action as any Holder of Registrable Securities may reasonably
request, to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 and Rule 144A under the
Securities Act.

9.    UNDERWRITTEN REGISTRATIONS

                  If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will manage
the offering will be selected by the Holders of a majority in aggregate
principal amount of such Registrable Securities included in such offering and
reasonably acceptable to the Company.

                  No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements (however the terms applicable to each Holder shall be identical in
all respects) and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements applicable to all Holders.

10.    MISCELLANEOUS

                  (a) Remedies. In the event of a breach by the Company of any
of its obligations under this Agreement, each Holder of Registrable Securities,
in addition to being entitled to exercise all rights provided herein, in the
Indenture or, in the case of the Initial Purchasers, in the Purchase Agreement
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.

                  (b) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into and shall not, after the date of this Agreement, enter
into any agreement with respect to any of its Securities that is inconsistent
with the rights granted to the Holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The Company has not
entered into and will not enter into any agreement with respect to any of its
securities which will grant to any Person "piggy-back" rights with respect to a
Registration Statement.

                  (c) Adjustments Affecting Registrable Securities. The Company
shall not, directly or indirectly, take any action with respect to the
Registrable Securities as a class that would adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement.
<PAGE>   20
                                      -19-



                  (e) Amendments and Waivers. Except as provided in paragraph
(d) above, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than by an instrument executed and delivered by (A)
the Holders of not less than a majority in aggregate principal amount of the
then outstanding Registrable Securities and (B) in circumstances that would
adversely affect the Participating Broker-Dealers, the Participating
Broker-Dealers holding not less than a majority in aggregate principal amount of
the Exchange Securities held by all Participating Broker-Dealers; provided,
however, that Section 7 and this Section 10(e) may not be amended, modified or
supplemented except by an instrument executed and delivered by each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Securities or Exchange Securities, as
the case may be, disposed of pursuant to any Registration Statement) affected by
any such amendment, modification or supplement. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Registrable Securities
whose Securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect, impair, limit or compromise the rights
of other Holders of Registrable Securities may be given pursuant to an
instrument executed and delivered by Holders of at least a majority in aggregate
principal amount of the Registrable Securities being sold by such Holders
pursuant to such Registration Statement.

                  (f) Notices. All notices and other communications (including
without limitation any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:

                  (i) if to a Holder of Registrable Securities, at the most
current address given by the Trustee to the Company; and

                  (ii) if to the Company, at Hermes Europe Railtel B.V.,
Terhulpsesteenweg 6A, 1560 Hoeilaart, Belgium, Attention: Chief Financial
Officer with a copy to Global TeleSystems Group, Inc., 1751 Pinnacle Drive,
North Tower, 12th Floor, McLean, VA 22102, Attention: Chief Executive Officer.

                  All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.

                  Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the trustee
under the Indenture at the address specified in such Indenture.

                  (g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Securities.

                  (h) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                  (i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE>   21
                                      -20-

                  (j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

                  (k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable best efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

                  (l) Entire Agreement. This Agreement, together with the
Purchase Agreement, is intended by the parties as a final expression of their
agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.

                  (m) Securities Held by the Company or Its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its affiliates (as such term is defined in Rule 405 under the Securities Act)
shall not be deemed to be not outstanding for purposes of determining whether
such consent or approval was given by the Holders of such required percentage.

                  (n) Agent for Service; Submission to Jurisdiction; Waiver of
Immunities. By the execution and delivery of this Agreement, the Company (i)
acknowledges that it has, by separate written instruments, designated and
appointed CT Corporation System, 1633 Broadway, New York, NY 10019 ("CT
Corporation System") (and any successor entity), as its authorized agent upon
which process may be served in any suit or proceeding arising out of or relating
to this Agreement that may be instituted in any federal or state court in the
Borough of Manhattan, City of New York, State of New York or brought under
federal or state securities laws, and represent and warrant that CT Corporation
System has accepted such designation, (ii) submit to the jurisdiction of any
such court in any such suit or proceeding and (iii) agree that service of
process upon CT Corporation System and written notice of said service to the
Company in accordance with the provisions of this Agreement shall be deemed in
every respect effective service of process upon the Company in any such suit or
proceeding. The Company further agrees to take any and all action, including the
execution and filing of any and all such documents and instruments, as may be
necessary to continue such designation and appointment of CT Corporation System
in full force and effect for as long as any of the Notes remain outstanding
(subject to the limitation set forth in clause (i)); provided, however, that the
Company may, and to the extent CT Corporation System ceases to be able to be
served on the basis contemplated herein shall, by written notice to the Initial
Purchasers, designate such additional or alternative agent for service of
process that (i) maintains an office located in the Borough of Manhattan, City
of New York, State of New York, and (ii) is either (x) United States counsel for
the Company or (y) a corporate service company which acts as agent for service
of process for other persons in the ordinary course of its business. Such
written notice shall identify the name of such agent for service of process and
the address of the office of such agent for service of process in the Borough of
Manhattan, City of New York, State of New York.
<PAGE>   22
                                      -21-



                  To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court of (i) any jurisdiction in which the
Company owns or leases property or assets, (ii) the United States or the State
of New York or (iii) the Netherlands or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property and assets or
this Agreement or any of the Notes or actions to enforce judgments in respect of
any thereof, the Company hereby irrevocably waives such immunity in respect of
its obligations under the above-referenced documents, to the extent permitted by
law.

                  (o) Judgment Currency. The Company hereby agrees to indemnify
each Participant against any loss incurred by such person as a result of any
judgment or order being given or made against the Company for any U.S. dollar
amount due under this Agreement and such judgment or order being expressed and
paid in a currency (the "Judgment Currency") other than United States dollars
and as a result of any variation as between (i) the rate of exchange at which
the United States dollar amount is converted into the Judgment Currency for the
purpose of such judgment or order and (ii) the spot rate of exchange in The City
of New York at which such party on the date of payment of such judgment or order
is able to purchase United States dollars with the amount of the Judgment
Currency actually received by such party. The foregoing indemnity shall continue
in full force and effect notwithstanding any such judgment or order as
aforesaid. The term "spot rate of exchange" shall include any premiums and costs
of exchange payable in connection with the purchase of, or conversion into,
United States dollars.

                            [Signature Pages Follow]
<PAGE>   23
                                      S-1

                  IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.


                                               HERMES EUROPE RAILTEL B.V.


                                               By:___________________________
                                                 Name:
                                                 Title:


                                               DONALDSON, LUFKIN & JENRETTE
                                                 SECURITIES CORPORATION
                                               UBS SECURITIES LLC
                                               LEHMAN BROTHERS INC.

                                               By:  DONALDSON, LUFKIN & JENRETTE
                                                       SECURITIES CORPORATION


                                               By:___________________________
                                                 Name:
                                                 Title:

<PAGE>   1
                                                                    Exhibit 10.1


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




                                  $30,000,000



                                  SENIOR NOTE
                               PURCHASE AGREEMENT


                                     among


                         GLOBAL TELESYSTEMS GROUP, INC.


                                      and


                           THE OPEN SOCIETY INSTITUTE


                                      and


                        CHATTERJEE FUND MANAGEMENT, L.P.


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

                         Dated as of  January 19, 1996

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




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

<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>               <C>                                                                                          <C>
ARTICLE 1         DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
                  
     1.1          Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
     1.2          Accounting Terms; Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                  
ARTICLE 2         PURCHASE AND SALE OF THE NOTES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                  
     2.1          Purchase and Sale of The Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
     2.2          Transaction Fees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
     2.3          Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                  
ARTICLE 3         CONDITIONS TO THE OBLIGATION OF EACH PURCHASER TO CLOSE . . . . . . . . . . . . . . . . . .  14
                  
     3.1          Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     3.2          No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     3.3          Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     3.4          Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     3.5          Purchase Permitted by Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     3.6          Consents and Approvals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     3.7          Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     3.8          Warrant Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     3.9          Joint Venture Letter Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     3.10         Certificate of Incorporation and By-laws  . . . . . . . . . . . . . . . . . . . . . . . . .  16
     3.11         Opinion of Counsel  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
     3.12         No Material Adverse Change  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
     3.13         No Material Judgment or Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
                  
ARTICLE 4         CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE  . . . . . . . . . . . . . . . . . . .  16
                  
     4.1          Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
     4.2          Compliance with this Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
     4.3          Issuance Permitted by Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
     4.4          Consents and Approvals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
     4.5          No Material Judgment or Order   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                  
ARTICLE 5         REPRESENTATIONS AND WARRANTIES OF THE COMPANY   . . . . . . . . . . . . . . . . . . . . . .  17
                  
     5.1          Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
     5.2          Corporate Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . . .  18
     5.3          Governmental Authorization; Third Party Consents  . . . . . . . . . . . . . . . . . . . . .  18
     5.4          Binding Effect  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
</TABLE>          



                                      i
<PAGE>   3
<TABLE>           
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>               <C>                                                                                          <C>
     5.5          Litigation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
     5.6          Compliance with Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
     5.7          No Default or Breach  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
     5.8          Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
     5.9          Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
     5.10         Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
     5.11         Disclosure  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
     5.12         Environmental Matters   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
     5.13         Investment Company/Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . .  22
     5.14         Subsidiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
     5.15         Capitalization  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
     5.16         Broker's, Finder's or Similar Fees  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
     5.17         Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
     5.18         Employee Benefit Plans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
     5.19         Patents, Trademarks, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
     5.20         Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
                  
ARTICLE 6         REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . .  25
                  
     6.1          Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
     6.2          Binding Effect  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
     6.3          Purchase for Own Account  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
     6.4          Broker's, Finder's or Similar Fees  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
     6.5          Governmental Authorization; Third Party Consent . . . . . . . . . . . . . . . . . . . . . .  26
     6.6          Investment Company/Government Regulations   . . . . . . . . . . . . . . . . . . . . . . . .  26
     6.7          TCG as Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
                  
ARTICLE 7         INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
                  
     7.1          Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
     7.2          Notification  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
                  
ARTICLE 8         AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
                  
     8.1          Financial Statements and Other Information  . . . . . . . . . . . . . . . . . . . . . . . .  29
     8.2          Certificates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
     8.3          Preservation of Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
     8.4          Payment of Obligations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
     8.5          Compliance with Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
     8.6          Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
     8.7          Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
     8.8          Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
     8.9          Payment of Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
     8.10         Seniority of Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
     8.11         Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
</TABLE>          



                                      ii
<PAGE>   4
<TABLE>           
<CAPTION>
                                                                                                              Page
                                                                                                              ----
<S>               <C>                                                                                          <C>
     8.12         Insurance   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
     8.13         Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
     8.14         Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
                  
ARTICLE 9         NEGATIVE COVENANTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
                  
     9.1          Consolidations and Mergers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
     9.2          Transactions with Affiliates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
     9.3          Limitation on Indebtedness  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
     9.4          Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
     9.5          Limitations on Restricted Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
     9.6          Limitation on Payment Restrictions  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
     9.7          Dispositions of Assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
     9.8          Capital Expenditures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37
     9.9          Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
     9.10         Employee Benefit Plans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
     9.11         Limitation on Investment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
                  
ARTICLE 10        PREPAYMENT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
                  
     10.1         Optional Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
     10.2         Mandatory Prepayment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
     10.3         Application of Prepayments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
                  
ARTICLE 11        MONITORING FEE; TAX ALLOCATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
                  
     11.1         Monitoring Fee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
     11.2         Allocation of Purchase Price  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
                  
ARTICLE 12        BOARD OF DIRECTORS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
                  
ARTICLE 13        MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
                  
     13.1         Survival of Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . . . .  43
     13.2         Notices   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
     13.3         Successors and Assigns  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
     13.4         Amendment and Waiver  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
     13.5         Counterparts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
     13.6         Headings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
     13.7         Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
     13.8         Jurisdiction  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
     13.9         Severability  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
     13.10        Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
     13.11        Entire Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
     13.12        Certain Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
     13.13        Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
     13.14        Further Assurances  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
</TABLE>          




                                     iii
<PAGE>   5
                  
EXHIBITS          
                  
A-1               Form of OSI Note
A-2               Form of CFM Note
B                 Form of Warrant Agreement
C                 Form of Registration Rights Agreement
D                 Form of Joint Venture Agreement
E                 Form of Opinion
                  
SCHEDULES         
                  
A                 Existing Indebtedness
B                 Existing Liens
C                 Investments
5.7               Contractual Obligations
5.8               Title to Properties
5.9               Taxes
5.14              Subsidiaries, Jurisdiction of Incorporation
                    and Ownership by the Company
5.15(b)           Outstanding Stock Options
5.19              Trademarks
5.20              Trade Relations
8.11              Dividends
9.5               Restricted Payments
9.6               Payment Restrictions




                                      iv
<PAGE>   6
                                  SENIOR NOTE
                               PURCHASE AGREEMENT

        AGREEMENT, dated as of January 19, 1996, among GLOBAL TELESYSTEMS GROUP,
INC., a Delaware corporation (the "Company"), THE OPEN SOCIETY INSTITUTE
("OSI"), and CHATTERJEE FUND MANAGEMENT, L.P. ("CFM") (OSI and CFM, 
collectively, the "Purchasers").

        WHEREAS, on December 8, 1995, OSI lent $5,000,000 to the Company and 
the Company issued to OSI a Senior Promissory Note dated December 8, 1995 in
the principal amount of $5,000,000 (the "December 8 Note"), and on December 20,
1995, OSI lent to the Company an additional $5,000,000 and the Company issued
to OSI a Senior Promissory Note dated December 20, 1995 in the principal amount
of $5,000,000 (the "December 20 Note" and, together with the December 8 Note,
the "Prior Notes"), in each case subject to the terms and conditions of a Note
Purchase Agreement dated as of December 8, 1995 between the Company and OSI
(the "Prior Note Purchase Agreement");

        WHEREAS, in connection with the issuance of the December 8 Note, the
Company and OSI executed a warrant agreement (the "December 8 Warrant
Agreement"), pursuant to which the Company issued to OSI warrants (the
"December 8 Warrants") to purchase 185,185 shares of the Company's Common
Stock, and a registration rights agreement (the "December 8 Registration Rights
Agreement") pursuant to which the Company granted to OSI certain registration
rights and rights of first refusal with respect to such Common Stock and
warrants;

        WHEREAS, simultaneously with the execution of the December 20 Note, the
Company and OSI executed a warrant agreement dated December 20, 1995 (the
"December 20 Warrant Agreement," and, together with the December 8 Warrant
Agreement, the "Prior Warrant Agreements"), pursuant to which the Company
issued to OSI warrants (the "December 20 Warrants" and, together with the
December 8 Warrants, the "Prior Warrants") to purchase an additional 185,185
shares of the Company's Common Stock, and a registration rights agreement (the
"December 20 Registration Rights Agreement" and, together with the December 8
Registration Rights Agreement, the "Prior Registration Rights Agreements"),
pursuant to which the Company granted to OSI certain registration rights and
rights of first refusal with respect to such Common Stock and warrants;

        WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, the Company proposes to issue and sell to the Purchasers the Senior
Promissory Notes (the "Notes") in the aggregate principal amount of Thirty
Million
<PAGE>   7
Dollars ($30,000,000), payable, respectively, to the order of OSI (the "OSI
Note") in the principal amount of Twenty-Five Million Dollars ($25,000,000) and
to the order of CFM (the "CFM Note") in the principal amount of Five Million
Dollars ($5,000,000), the proceeds of which sale shall be used first to prepay
all amounts outstanding under the Prior Notes and the Prior Note Purchase
Agreement;

        WHEREAS, simultaneously with the execution of this Agreement, the
parties have executed the Warrant Agreement, pursuant to which the Company will
issue to OSI warrants to purchase 1,851,852 shares of the Company's Common
Stock (the "OSI Warrants") and the Company will issue to CFM warrants to
purchase 370,370 shares of the Company's Common Stock (the "CFM Warrants" and,
together with the OSI Warrants, the "Warrants"), and, following the issuance of
the Warrants, the Prior Warrants will be canceled;

        WHEREAS, simultaneously with the execution of this Agreement, the
parties have executed the Registration Rights Agreement, pursuant to which the
Company will grant to the Purchasers certain rights of first refusal in
connection with the Warrants and certain registration rights with respect to
the shares of the Company's Common Stock underlying the Warrants; and

        WHEREAS, simultaneously with the execution of this Agreement, the
parties have executed the Joint Venture Letter Agreement, affirming the
intention of the parties to enter into a joint venture for the purposes of
reviewing and providing financing for business opportunities in the Territory
(as defined in the Joint Venture Letter Agreement).

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:

                                   ARTICLE 1

                                  DEFINITIONS

        1.1 Definitions.  As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:

        "Affiliate" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act and, with
respect to the



                                       2
<PAGE>   8
Purchasers and The Chatterjee Group, shall also mean any entity for which
George Soros d/b/a Soros Fund Management or Chatterjee Fund Management Co. LP, a
Delaware limited partnership, is acting as investment manager or investment
adviser, in each case with investment discretion (provided that such entity
shall not be a Person engaged in a business which is the same or substantially
similar to the business of the Company).

        "Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.

        "Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or required by
law or executive order to close.

        "Capital Expenditures" means, for any period, the aggregate of all
expenditures by the Company and any of its Subsidiaries during such period
that, in accordance with GAAP, are required to be included in the property,
plant or equipment or similar fixed capital or asset accounts reflected in the
consolidated balance sheet of the Company and its Subsidiaries.

        "Capital Lease Obligations" of any Person shall mean the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are or should be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP consistently applied.

        "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) that have maturities of not
more than six months from the date of acquisition, (ii) U.S. dollar denominated
time deposits, certificates of deposit and bankers acceptances of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500,000,000 that have maturities of not more than six months from the date of
acquisition, (iii) commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent



                                       3
<PAGE>   9
thereof by Standard & Poors Corporation (or its successor, "S&P") or at least
P-1 or the equivalent thereof by Moody's Investors Service, Inc. (or its
successor, "Moody's"), and in each case maturing not more than six months after
the date of acquisition, or (iv) tax-exempt commercial paper of the United
States, municipal, state or local governments rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
and maturing within six months after the date of acquisition.

        "CFM Note" has the meaning assigned to that term in the fourth recital
of this Agreement.

        "CFM Warrants" has the meaning assigned to that term in the fifth 
recital of this Agreement.

        "Closing"  has the meaning assigned to that term in Section 2.3.

        "Closing Date" means the date specified in Section 2.3.

        "Code" means the Internal Revenue Code of 1986, as amended, or any 
successor statute thereto.

        "Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.

        "Common Stock" means the Common Stock, par value $0.0001 per share, of
the Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.

        "Condition of the Company" means the assets, properties, financial
condition or results of operations of the Company and its Subsidiaries, taken
as a whole.

        "Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire
such primary obligations or any property constituting direct or indirect
security therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or



                                       4
<PAGE>   10
financial condition of the primary obligor so as to enable the primary obligor
to pay such primary obligation, or (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation, or (d) otherwise to guarantee payment to or assure or hold
harmless the owner of any such primary obligation against loss or failure or
inability to perform in respect thereof. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof.

        "Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is
a party or by which it or any of its property is bound.

        "Current Ratio" means, with respect to the Company and its Subsidiaries
on a consolidated basis as of the end of any fiscal quarter, the ratio
determined by dividing (a) the sum of the current assets of the Company and its
Subsidiaries computed in accordance with GAAP, by (b) the sum of the current
liabilities of the Company and its Subsidiaries determined in accordance with
GAAP.

        "December 8 Note" has the meaning assigned to that term in the first
recital of this Agreement.

        "December 20 Note" has the meaning assigned to that term in the first
recital of this Agreement.

        "December 8 Registration Rights Agreement" has the meaning assigned to
that term in the second recital of this Agreement.

        "December 20 Registration Rights Agreement" has the meaning assigned to
that term in the third recital of this Agreement.

        "December 8 Warrant Agreement" has the meaning assigned to that term in
the second recital of this Agreement.

        "December 8 Warrants" has the meaning assigned to that term in the
second recital of this Agreement.



                                       5
<PAGE>   11
       "December 20 Warrant Agreement" has the meaning assigned to that term in
the third recital of this Agreement.

       "December 20 Warrants" has the meaning assigned to that term in the
third recital of this Agreement.

       "Defined Benefit Plan" means a defined benefit plan within the meaning
of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded or
unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).

       "EBITDA" means, with respect to the Company and its Subsidiaries on a
consolidated basis for any period, the sum of (a) Net Income for such period,
(b) Interest Expense for such period, (c) Federal, state and local income and
franchise taxes deducted from revenue in determining such Net Income, (d)
depreciation and amortization deducted from revenue in determining such Net
Income.

       "Environmental Laws" means any federal, state, territorial, provincial
or local law, common law doctrine, rule, order, decree, judgment, injunction,
license, permit or regulation relating to environmental matters, including
those pertaining to land use, air, soil, surface water, ground water (including
the protection, cleanup, removal, remediation or damage thereof), public or
employee health or safety or any other environmental matter, together with any
other laws (federal, state, territorial, provincial or local) relating to
emissions, discharges, releases or threatened releases of any pollutant or
contaminant including, without limitation, medical, chemical, biological, bio-
hazardous or radioactive waste and materials, into ambient air, land, surface
water, groundwater, personal property or structures, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, discharge or handling of any contaminant, as such laws have
been, or are, amended, modified or supplemented heretofore or from time to time
hereafter and any analogous future federal, or present or future state or local
laws, statutes and regulations promulgated thereunder.

       "Equity Offering" means (i) an equity offering completed by the Company
subsequent to the Closing Date netting the Company cash proceeds of at least
sixty million dollars ($60,000,000), or (ii) a series of equity offerings
completed by the Company within a nine-month period following the Closing Date
and netting the Company proceeds of at least sixty million dollars
($60,000,000).




                                      6


<PAGE>   12
              "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

              "ERISA Affiliate" means any Person that is treated as a single
employer with the Company or any of its Subsidiaries under Section 414(b), (c),
(m) or (o) of the Code.

              "Event of Default" has the meaning assigned to such term in the
Notes.

              "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.

              "GAAP" has the meaning assigned to that term in Section 1.2.

              "Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.

              "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder.

              "Hazardous Materials" means those substances which are regulated
by or form the basis of liability under any Environmental Laws.

              "Indebtedness" means as to any Person (without duplication) (a)
all obligations of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable and accrued
commercial or trade liabilities arising in the ordinary course of such Person's
business, (d) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations of such Person,


                                       7
<PAGE>   13
(f) all indebtedness secured by any Lien (other than Liens in favor of lessors
under leases) on any property or asset owned or held by that Person regardless
of whether the indebtedness secured thereby shall have been assumed by that
Person or is non-recourse to the credit of that Person, and (g) any Contingent
Obligation of such Person.

              "Interest Expense" means, for any period, the total interest
expense of the Company and its Subsidiaries on a consolidated basis for such
period, determined in accordance with GAAP consistently applied.

              "Joint Venture Letter Agreement" means that certain Joint Venture
Letter Agreement, dated the date hereof, entered into by the Company and the
Purchasers, substantially in the form attached hereto as Exhibit D, as such
agreement may be amended, supplemented or otherwise modified from time to time.

              "Joint Venture Agreement" means the joint venture agreement to be
executed and delivered pursuant to the Joint Venture Letter Agreement, as such
joint venture agreement may be amended, supplemented or otherwise modified from
time to time.

              "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest,
including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement or the interest of a
lessor under a Capital Lease Obligation.

              "Net Income" means, with respect to the Company and its
Subsidiaries on a consolidated basis for any period, (a) net revenues and other
income for such period, minus (b) the aggregate for such period of, without
duplication, (i) cost of goods sold, (ii) Interest Expense, (iii) operating
expenses, (iv) selling, general and administrative expenses, (v) taxes, (vi)
depreciation and amortization, (vii) limited partnership retention, and (viii)
any other items that are treated as expenses under GAAP, but excluding from the
definition of Net Income any extraordinary or nonrecurring charges, expenses,
gains or losses, any gains or losses not in the ordinary course of business,
and any income resulting from any write-up of an asset, all computed on a
consolidated basis in accordance with GAAP consistently applied.

              "Net Worth" means at any date the stockholders' equity of the
Company and its Subsidiaries on a consolidated basis.




                                      8
<PAGE>   14
              "Non-U.S. Subsidiary" means any Subsidiary of the Company other
than a U.S. Subsidiary. Unless otherwise qualified, all references to a "Non-
U.S. Subsidiary" or to "Non-U.S. Subsidiaries" in this Agreement shall refer to
a Subsidiary or Subsidiaries of the Company.

              "Notes" has the meaning assigned to that term in the fourth
recital of this Agreement.

              "OSI Note" has the meaning assigned to that term in the fourth
recital of this Agreement.

              "OSI Warrants" has the meaning assigned to that term in the fifth
recital of this Agreement.

              "Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

              "Prior Note Purchase Agreement" has the meaning assigned that
term in the first recital of this Agreement.

              "Prior Notes" has the meaning assigned that term in the first
recital of this Agreement.

              "Prior Registration Rights Agreements" has the meaning assigned
to that term in the third recital of this Agreement.

              "Prior Warrant Agreements" has the meaning assigned to that term
in the third recital of this Agreement.

              "Prior Warrants" has the meaning assigned to that term in the
third recital of this Agreement.

              "Registration Rights Agreement" means the Registration Rights
Letter Agreement substantially in the form attached hereto as Exhibit C, as
such agreement may be amended, supplemented or otherwise modified from time to
time.

              "Regulation S-X" means the rules and regulations promulgated and
codified under 17 C.F.R. Part 210.

              "Requirements of Law" means as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of
such Person, and any law, treaty, rule, regulation, right, privilege,
qualification,

                                       9
<PAGE>   15
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.

              "Restricted Payment" means (a) any dividend or other distribution
on any share of the Company's capital stock (except dividends payable solely in
shares of its capital stock) or (b) any payment by the Company or any
Subsidiary on account of the direct or indirect purchase, redemption,
retirement or other acquisition of (i) any shares of the Company's capital
stock (except shares acquired upon the conversion thereof into other shares of
its capital stock), (ii) any shares of any Subsidiary's capital stock from any
Person other than the Company or its Subsidiaries (except such payments as are
set forth on Schedule 9.5) to the extent such payment exceeds $1 million in any
single occurrence or $5 million in the aggregate in any twelve-month period,
(iii) any option, warrant or other right to acquire shares of the Company's or
any Subsidiary's capital stock from any Person other than the Company or its
Subsidiaries, or (c) any optional prepayment, repurchase, redemption,
defeasance or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness of the Company.

              "Securities" means, collectively, the Notes and the Warrants.

              "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.

              "Shareholder Financing" means financing provided to the Company
by or through Capital Research International, a shareholder of the Company not
a party to this Agreement, which financing (i) is pari passu in rank to the
Indebtedness of the Company represented by the Notes; (ii) is in an aggregate
principal amount not greater than $30 million; (iii) provides, for each $1
million principal amount of Shareholder Financing provided by such shareholder,
for the issuance of 74,074 warrants to such shareholder and, for each principal
amount of Shareholder Financing less than $1 million provided by such
shareholder, for the issuance of that number of warrants equal to the product
of (a) 74,074 and (b) a fraction (x) the numerator of which is such principal
amount and (y) the denominator of which is $1 million; (iv) such shareholder
agrees to provide


                                       10
<PAGE>   16
pursuant to a written commitment received by the company on or before the fifth
Business Day following the Closing Date; (v) is disbursed to the Company on or
before the tenth Business Day following the Closing Date; (vi) is provided
solely in increments of $1 million to the extent such financing exceeds $10
million; and (vii) is otherwise on terms identical to the terms of the
Indebtedness of the Company represented by the Notes, but excluding the
provisions of Section 3.9 (and all other provisions or references herein
pertaining to the Joint Venture Letter Agreement), Article 11 and Article 12 of
this Agreement.

              "Subsidiary" means, with respect to any Person, a corporation or
other entity (i) of which 50% or more of the outstanding securities or other
ownership interests is owned, directly or indirectly, by such Person or (ii)
with respect to which such Person, directly or indirectly, is entitled to vote
(in the absence of contingencies), for the election of 50% or more of the Board
of Directors (or group performing similar functions) of such corporation or
entity. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.

              "Transaction Documents" means, collectively, this Agreement, the
Notes, the Warrants, the Warrant Agreement, the Registration Rights Agreement,
the Joint Venture Letter Agreement and, when executed and delivered, the Joint
Venture Agreement.

              "U.S. Subsidiary" means any Subsidiary which is incorporated or
registered under the laws of any jurisdiction of the United States of America
including the District of Columbia and any state, territory, or any political
subdivision thereof. Unless otherwise qualified, all references to a "U.S.
Subsidiary" or to "U.S. Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.

              "Warrants" has the meaning assigned to that term in the fifth
recital of this Agreement.

              "Warrant Agreement" means that certain Warrant Agreement, dated
the date hereof, entered into by the Company and the Purchasers, substantially
in the form attached hereto as Exhibit B, as such agreement may be amended,
supplemented or otherwise modified from time to time.

              "Working Capital" shall mean, with respect to the Company and its
Subsidiaries on a consolidated basis for any


                                       11
<PAGE>   17
period, the excess of current assets over current liabilities (including
accrued liabilities for restructuring and other charges) determined in
accordance with GAAP consistently applied.

       1.2    Accounting Terms; Financial Statements.

              (a) All accounting terms used herein and not expressly defined in
this Agreement shall have the respective meanings given to them in accordance
with generally accepted accounting principles as in effect from time to time in
the United States ("GAAP"). If any changes in accounting principles are
hereafter occasioned by promulgation of rules, regulations, pronouncements or
opinions of or are otherwise required by, the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial covenants, standards or terms found
herein, then the parties hereto agree to enter into and diligently pursue
negotiations in order to amend such financial covenants, standards or terms so
as to reflect fairly and equitably such changes, with the desired result that
the criteria for evaluating the Company's financial condition and results of
operations shall be the same after such changes as if such changes had not been
made.

              (b)    In accordance with GAAP, the Company accounts for several
of its Subsidiaries and investments using the equity method. However,
notwithstanding anything herein to the contrary (and irrespective of the use of
the word "consolidated" in any provision of the Transaction Documents),
compliance with the financial covenants contained in Section 9.9 will be
determined, and any evaluation in connection with this Agreement of the
Company's financial condition and results of operations and cash flows will be
made, on the basis of the combined financial statements referred to in Section
8.1 (which, in all material respects, shall be consistent with Rule 3-09 of
Regulation S-X).


                                   ARTICLE 2

                          PURCHASE AND SALE OF THE NOTES

       2.1 Purchase and Sale of The Notes.




                                       12
<PAGE>   18
              (a) Subject to the terms and conditions herein set forth, the
Company agrees that it will issue to OSI, and OSI agrees that it will purchase
from the Company, on the Closing Date, the OSI Note, substantially in the form
attached hereto as Exhibit A-1, appropriately completed in conformity herewith.
The purchase price of the OSI Note shall be $25,000,000, from which price may
be deducted or offset by OSI any amounts owed by the Company to OSI under the
Prior Notes and the Prior Note Purchase Agreement. Simultaneously with the
purchase and sale of the OSI Note, the Company shall deliver the OSI Warrants
to OSI. Upon, and substantially concurrent with, the delivery of the OSI Note
and the OSI Warrants, OSI shall cancel the Prior Notes and Prior Warrants and
shall deliver the cancelled Prior Notes and Prior Warrants to the Company.

              (b) Subject to the terms and conditions herein set forth, the
Company agrees that it will issue to CFM, and CFM agrees that it will purchase
from the Company, the CFM Note, substantially in the form attached hereto as
Exhibit A-2, appropriately completed in conformity herewith. The purchase price
of the CFM Note shall be $5,000,000. Simultaneously with the purchase and sale
of the CFM Note, the Company shall deliver the CFM Warrants to CFM.

              2.2 Transaction Fees. Concurrently with the execution hereof, the
Company shall pay to The Chatterjee Group ("TCG") a transaction fee of $600,000
(minus the amount of the transaction fees paid by the Company and received by
TCG in connection with the sale of the Prior Notes), and shall reimburse all of
the Purchasers' and TCG's out-of-pocket expenses (including reasonable lawyers'
fees, charges and disbursements and consultants' fees and expenses) incurred in
connection with the acquisition of the Notes and the Prior Notes and the
transactions contemplated by this Agreement and the Prior Note Purchase
Agreement (including the preparation and delivery of the Joint Venture
Agreement), which payments may be made by way of deductions from the purchase
price of the Notes purchased by the Purchasers as provided for in Section 2.1.

              2.3 Closing. The purchase and issuance of the Notes shall take
place at the closing (the "Closing") to be held at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison at 2:00 p.m., Eastern Standard Time, on January 19,
1996, or at such other time and place as the Company and the Purchasers may
agree in writing (the "Closing Date"). At the Closing, (a) the Company shall
deliver to each Purchaser (i) its respective Note against delivery to the
Company by such Purchaser of the purchase price therefor by wire transfer of
immediately available funds and (ii) its

                                       13
<PAGE>   19
Warrants as provided in the Warrant Agreement and (b) OSI shall deliver the
cancelled Prior Notes and Prior Warrants to the Company.

                                   ARTICLE 3

                          CONDITIONS TO THE OBLIGATION
                           OF EACH PURCHASER TO CLOSE

              The obligation of OSI to purchase the OSI Note and the obligation
of CFM to purchase the CFM Note, the obligations of OSI to pay the purchase
price for the OSI Note and the obligation of CFM to pay the purchase price for
the CFM Note and the obligations of OSI and CFM to perform any of their other
respective obligations hereunder shall be subject to the satisfaction as
determined by, or waiver by, each of OSI and CFM of the following conditions on
or before the Closing Date. OSI shall not be obligated to purchase the OSI Note
unless the delivery of the OSI Warrants occurs simultaneously therewith; CFM
shall not be obligated to purchase the CFM Note unless the delivery of the CFM
Warrants occurs simultaneously therewith.

              3.1 Representations and Warranties. The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of such date (except that representations and warranties made at and as
of a prior date shall be true and correct at and as of such prior date), and
the Purchasers shall have received a certificate from the Company, dated the
Closing Date and signed by the Secretary of the Company, to that effect.

              3.2 No Event of Default. No event has occurred and is continuing
that constitutes, or that, with the giving of notice or lapse of time or both,
would constitute, an Event of Default, and the Purchasers shall have received a
certificate from the Company, dated the Closing Date and signed by the
Secretary of the Company, to that effect.

              3.3 Secretary's Certificate. The Purchasers shall have received a
certificate from the Company, dated the Closing Date and signed by the
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation and By-laws of the Company, and resolutions of the
Board of Directors of the Company or a duly authorized committee of the Board
of Directors of the Company approving this Agreement and the transactions
contemplated hereby, are all true, complete and correct and remain

                                       14
<PAGE>   20
unamended and in full force and effect, and (b) as to the incumbency and
specimen signature of each officer of the Company executing any Transaction
Document or any other document delivered in connection herewith on behalf of
the Company.

              3.4 Documents. The Purchasers shall have received true, complete
and correct copies of such documents as they may request in connection with or
relating to the sale of the Notes and the transactions contemplated hereby, and
all such documents to be delivered in connection with the Closing shall be in
form and substance satisfactory to the Purchasers.

              3.5 Purchase Permitted by Applicable Laws. The acquisition of and
payment for the Notes issued or to be issued to the Purchasers hereunder and
the consummation of the transactions contemplated hereby (including, without
limitation, the issuance of the Warrants) shall not be prohibited by any
Requirement of Law binding on the Company and the Purchasers shall have
received such certificates or other evidence as they may reasonably request to
establish compliance with this condition.

              3.6 Consents and Approvals. Other than the requirements of the
Hart-Scott-Rodino Act with respect to the issuance of the Common Stock upon
exercise of the Warrants): (i) all consents, exemptions, authorizations, or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law binding on the Company and
with respect to those Contractual Obligations of the Company necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the payment of interest on the Notes and the issuance of
Common Stock upon exercise of the Warrants) by the Company or enforcement
against the Company of the Transaction Documents shall have been obtained and
be in full force and effect and, except as provided in the phrase preceding
clause (i) above, the Purchasers shall have bee been furnished with appropriate
evidence thereof, and (ii) all waiting periods shall have lapsed without
extension or the imposition of any conditions or restrictions.

              3.7 Registration Rights Agreement. The Company shall have duly
executed and delivered the Registration Rights Agreement.

              3.8 Warrant Agreement. The Company shall have duly executed and
delivered the Warrant Agreement and the Warrants.


                                       15
<PAGE>   21
              3.9 Joint Venture Letter Agreement. The Company shall have duly
executed and delivered the Joint Venture Letter Agreement.

              3.10 Certificate of Incorporation and By-laws. True and correct
copies of the Certificate of Incorporation and By-laws of the Company shall
have been delivered to the Purchasers.

              3.11 Opinion of Counsel. The Purchasers shall have received an
opinion of the Company's General Counsel, dated the Closing Date, relating to
the transactions contemplated by or referred to herein, in the form attached
hereto as Exhibit E.

              3.12 No Material Adverse Change. Since December 20, 1995, there
shall have been no material adverse change, nor shall any such change be
threatened or reasonably likely to occur, in the Condition of the Company,
taken as a whole.

              3.13 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority which would prohibit the purchase of the
Notes hereunder or the issuance of the Notes or the issuance of the Warrants
pursuant to the Warrant Agreement or which would nullify or modify the issuance
of the Notes or the issuance of the Warrants or subject either Purchaser to any
penalty under or pursuant to any Requirement of Law binding on the Company in
connection with the acquisition of the Notes or the issuance of the Warrants.

                                   ARTICLE 4

                          CONDITIONS TO THE OBLIGATION
                            OF THE COMPANY TO CLOSE

              The obligations of the Company to sell the Notes shall be subject
to the satisfaction as determined by, or waiver by, the Company of the
following conditions on or before the Closing Date:

              4.1 Representations and Warranties True. The representations and
warranties of each Purchaser contained in Article 6 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of such date.


                                       16
<PAGE>   22
         4.2     Compliance with this Agreement. The Purchasers shall have
performed and complied with all of their agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.

         4.3     Issuance Permitted by Applicable Laws. The issuance of the
Notes and the consummation of the transactions contemplated hereby shall not be
prohibited by any Requirement of Law.

         4.4     Consents and Approvals. Other than the requirements of the
Hart-Scott-Rodino Act with respect to the issuance of the Common Stock upon
exercise of the Warrants by the Purchasers: (i) all consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of
Law necessary or required in connection with the execution, delivery or
performance by the Purchasers or enforcement against the Purchasers of this
Agreement and the other Transaction Documents executed by the Purchasers shall
have been obtained and be in full force and effect and (ii) all waiting periods
shall have lapsed without extension or the imposition of any conditions or
restrictions.

         4.5     No Material Judgment of Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority which would prohibit the sale of the Notes
hereunder or the issuance of the Warrants pursuant to the Warrant Agreement or
subject the Company to any material penalty under or pursuant to any
Requirement of Law binding on the Purchaser in connection with the acquisition
of the Notes or the issuance of the Warrants.

                                   ARTICLE 5

                              REPRESENTATIONS AND
                           WARRANTIES OF THE COMPANY

         The Company hereby represents and warrants to each Purchaser, before
and after giving effect to the transactions contemplated by this Agreement, as
follows:

         5.1     Corporate Existence and Power.  The Company and each U.S.
Subsidiary: (a) in a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power and authority to own and operate





                                       17
<PAGE>   23
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged; and
(c) is duly qualified as a foreign corporation, licensed and in good standing
under the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification, except to
the extent that the failure to do so would not have a material adverse effect
on the Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents. Each Non-U.S. Subsidiary: (a) has
filed all required documents for incorporation under the laws of its
jurisdiction of incorporation and has been registered or is exercising
commercially reasonable efforts to be registered in such jurisdiction; and (b)
has all requisite corporate power and authority to own and operate its
property, to lease the property it operates as a lessee and to conduct the
business in which it is currently or is currently proposed to be engaged,
except to the extent that the failure to do so would not have a material
adverse effect on the Condition of the Company or an the ability of the Company
to perform its obligations under the Transaction Documents. The Company has the
corporate power and authority to execute, deliver and perform its obligations
under each Transaction Document to which it is or will be a party and to borrow
hereunder.

         5.2     Corporate Authorization; No Contravention. The execution,
delivery and performance by the Company of each Transaction Document and the
transactions contemplated thereby, including without limitation the issuance
and sale of the Securities: (a) have been duly authorized by all necessary
corporate and, if required, stockholder action; (b) do not contravene the terms
of the Company's Certificate of Incorporation or By-Laws, or any amendment of
either thereof; and (c) will not violate, conflict with or result in any breach
or contravention of or the creation of any Lien under, any Contractual
Obligation of the Company or any of its Subsidiaries (other than as set forth
in Schedule 9.6), or any law, treaty, rule or regulation, right, privilege,
qualification, license or franchise or any determination of an arbitrator or a
court, or other Governmental Authority applicable to the Company or any of its
Subsidiaries, except to the extent that such violation, conflict, breach or
contravention would not have a material adverse effect on the Condition of the
Company or on the ability of the Company to perform its obligations under the
Transaction Documents.

         5.3     Governmental Authorization; Third Party Consents. In
connection with the execution, delivery or





                                       18
<PAGE>   24
performance (including, without limitation, the payment of interest on the Notes
and the issuance of Common Stock upon the exercise of the Warrants) by the
Company or enforcement against the Company of the Transaction Documents or the
transactions contemplated hereby or thereby, other than with respect to the
Hart-Scott-Rodino Act in connection with the exercise of the Warrants, (i) no
approval, consent, compliance, exceptions, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law, and (ii) no lapse of a waiting period under a
Requirement of Law, are necessary or required other than such approvals,
consents, compliances, exemptions, authorizations, actions, notices, filings or
waiting periods which, if not obtained, would not have a material adverse effect
on the Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents.

         5.4     Binding Effect. Each of the Transaction Documents (other than
the Joint Venture Agreement) has been duly executed and delivered by the
Company and each such Transaction Document constitutes the legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.

         5.5     Litigation. Except as set forth in Schedules 5.7 and 5.20,
there are no legal actions, suits, proceedings, claims or disputes pending, or
to the knowledge of the Company or its Subsidiaries, threatened in writing, at
law, in equity, in arbitration or before any Governmental Authority against the
Company or any of its Subsidiaries (a) with respect to the Transaction
Documents, or any of the transactions contemplated hereby or thereby, or (b)
which would, if adversely determined, have a material adverse effect on the
Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents. No injunction, writ, temporary
restraining order, decree or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of the Transaction Documents.

         5.6     Compliance with Laws. The Company and each of its U.S.
Subsidiaries are in compliance with all laws, rules or regulations binding on
them, except to the extent that the failure to comply therewith would not have
a material adverse effect on the Condition of the Company or





                                       19
<PAGE>   25
on the ability of the Company to perform its obligations under the Transaction
Documents. To the best knowledge of the Company, each of its Non-U.S.
Subsidiaries is in compliance with all laws, rules or regulations binding on
it, except to the extent that the failure to comply therewith would not have a
material adverse effect on the Condition of the Company or on the ability of
the Company to perform its obligations under the Transaction Documents.

         5.7     No Default or Breach. No event has occurred and is continuing
or would result from the incurring of obligations by the Company under the
Transaction Documents which constitutes or, with the giving of notice or lapse
of time or both, would constitute an Event of Default. Except as set forth in
Schedule 5.7, neither the Company nor any of its U.S. Subsidiaries (or, to the
best knowledge of the Company, any of its Non-U.S. Subsidiaries) is in default
under or with respect to any Contractual Obligation in any respect which,
individually or together with all such defaults, could have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Documents.

         5.8     Title to Properties. The Company and each of its Subsidiaries
have no interests in any real property other than as lessees under leases in
full force and effect.

         5.9     Taxes. The Company and each of its U.S. Subsidiaries have
filed or caused to be filed (and each of the Company's Non-U.S. Subsidiaries
has exerted commercially reasonable efforts to file or cause to be filed), or
have properly filed extensions for, all tax returns which are required to be
filed and have paid or caused to be paid (and each of the Company's Non-U.S.
Subsidiaries has exerted commercially reasonable efforts to pay or cause to be
paid) all taxes required to be paid by them and all assessments received by
then to the extent that such taxes have become due, except taxes the validity
or amount of which is being contested in good faith by appropriate proceedings
and with respect to which adequate reserves have been act aside. Except as
provided in Schedule 5.9, the Company and each of its U.S. Subsidiaries have
paid or caused to be paid (and each of the Company's Non-U.S. Subsidiaries has
exerted commercially reasonable efforts to pay or cause to be paid), or the
Company and its Subsidiaries have established reserves that the Company
reasonably believes to be adequate in all material respects, for all tax
liabilities applicable to the Company and its Subsidiaries for all fiscal years
which have not been examined and reported on by the taxing authorities (or
closed by applicable statutes).





                                       20
<PAGE>   26
         5.10    Financial Condition. The Company has furnished the Purchasers
with (i) true and complete copies of the audited consolidated balance sheets of
the Company and its Subsidiaries as of December 31, 1994 and December 31, 1993
and the related consolidated statements of operations and cash flows, together
with the notes thereto, of the Company and its Subsidiaries for the years ended
December 31, 1994 and December 31, 1993 (the "Audited Financial Statements"),
and (ii) the unaudited condensed consolidated balance sheets of the Company and
its Subsidiaries as of June 30, 1995 and the related condensed consolidated
statements of operations and cash flows, together with the notes thereto, of
the Company and its Subsidiaries for the three and six month periods ending
June 30, 1995, certified by an officer of the Company (item (ii) of this
Section 5.10, the "Unaudited Financial Statements"). The Audited Financial
Statements fairly present the consolidated financial position of the Company
and its Subsidiaries as of the respective dates thereof, and the results of
operations and cash flows of the Company and its Subsidiaries as of the
respective dates or for the respective periods set forth therein, all in
conformity with GAAP consistently applied during the periods involved. The
Unaudited Financial Statements fairly present the consolidated financial
position of the Company and its Subsidiaries as of the respective dates thereof
and the results of operations and cash flows of the Company and its
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved, subject to normal year-end audit adjustments.

         5.11    Disclosure.

                 (a)      Except as otherwise disclosed (either by a
responsible member of the management of the Company or its Subsidiaries or in
writing) on or prior to the Closing Date to TCG or its representatives, the
Company and its Subsidiaries have not in writing or through any responsible
member of the management of the Company or its Subsidiaries, in connection with
each Purchaser's purchase of the Securities (except the Audited Financial
Statements and any financial projections of the Company and its Subsidiaries),
made any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements made therein, in light of the
circumstances under which such statements were made, not misleading.

                 (b)      All financial projections of the Company or its
Subsidiaries prepared by or an behalf of the Company and delivered by or on
behalf of the Company to the





                                       21
<PAGE>   27
Purchasers, TCG or their representatives are based on the assumptions set forth
therein, which assumptions were reasonable at the time indicated in such
projections to have been made (it being understood that such projections and
any future events assumed therein are not to be viewed as facts, that actual
results may differ from projected or estimated results, and that none of the
Company, its Subsidiaries, or their officers, directors, advisors or employees
shall be liable for the accuracy of such projections or future events).

         5.12    Environmental Matters.

         The property, assets and operations at any time owned or leased by the
Company and its U.S. Subsidiaries, and, to the best knowledge of the Company,
the property, assets and operations at any time owned or leased by any of the
Company's Non-U.S. Subsidiaries, are and have been in compliance with all
applicable Environmental Laws and no condition exists with respect to such
property, assets and operations of the Company and its U.S. Subsidiaries and,
to the best knowledge of the Company, with respect to such property, assets and
operations of the Company's Non-U.S. Subsidiaries, which could reasonably be
expected to have a material adverse effect on the Condition of the Company or
an adverse effect on the Company's ability to perform its obligations under the
Transaction Documents.

         5.13    Investment Company/Government Regulations. The Company is not
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Company is not a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company", as such terms are defined
in the Public Utility Holding Company Act of 1935, as amended. The Company is
not a "public utility", as such term is defined in the Federal Power Act, as
amended.

          5.14.  Subsidiaries. Schedule 5.14 sets forth a complete and accurate
list of all of the Subsidiaries of the Company and each joint venture in which
it or any Subsidiary has an interest on the date hereof, together with their
respective jurisdictions of incorporation or organization and the Company's
percentage ownership in each. All of the outstanding shares of capital stock of
the Company's U.S. Subsidiaries that are corporations are validly issued, fully
paid and nonassessable; all of the outstanding shares of capital stock of the
Company's Non-U.S. Subsidiaries that are corporations have been validly issued,
or will be issued as required by applicable Requirements of Law.





                                       22
<PAGE>   28
         5.15    Capitalization.

                 (a) As of the Closing Date, the authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock and 10,000,000 shares
of preferred stock. As of the Closing Date, (i) 17,465,079 shares of Common
Stock are issued and outstanding, (ii) 2,222,222 shares of Common Stock are
reserved for issuance upon exercise of the Warrants, (iii) 2,544,266 shares of
Common Stock are reserved for issuance upon the exercise of outstanding stock
options, (iv) 50,000 shares of treasury stock are issued but not outstanding,
(v) 449,760 shares of Common Stock are reserved for issuance in connection with
the purchase of the shares of stock of GTS-Vox Limited and (vi) 20,000 shares
of Common Stock are otherwise restricted. All outstanding shares of capital
stock of the Company have been duly authorized. All outstanding shares of
capital stock of the Company are, and the shares of Common Stock issuable upon
exercise of the Warrants when issued will be, validly issued, fully paid,
nonassessable and free and clear of any Lien.

                 (b) On the Closing Date, except for the Warrants, the stock
options referred to in Section 5.15(a)(iii) above, with respect to the shares
of Common Stock referred to in Section 5.15 (a)(v) above and as set forth in
Schedule 5.15(b), there will be no outstanding securities convertible into or
exchangeable for capital stock of the Company or options, warrants or other
rights to purchase or subscribe to capital stock of the Company or contracts,
commitments, agreements, understandings or arrangements of any kind to which
the Company is a party relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights.

         5.16    Broker's, Finder's or Similar Fees. Except for the fees paid by
the Company to Salomon Brothers Inc in connection herewith there are no
brokerage commissions, finder's fees or similar fees or commissions payable in
connection with the transactions contemplated hereby.

         5.17     Labor Relations. There is no strike, labor dispute, slowdown
or stoppage pending or threatened against the Company or any of its
Subsidiaries.

         5.18     Employee Benefit Plans. Each employee benefit plan which is
maintained or contributed to by the Company or its affiliates (each a "Company
Plan") has been operated in compliance with its terms and is in compliance in
all material respects with all applicable Requirements of





                                       23
<PAGE>   29
Law, including, without limitation, ERISA and the Code. The Company is not a
"party in interest" (as defined in Section 3(14) of ERISA), or "disqualified
person" (as defined in Section 4975(e) of the Code) with respect to any
employee benefit plan or plan, other than a Company Plan. No Company Plan is
subject to Title IV of ERISA or Section 412 of the Code and neither the Company
nor any of its ERISA Affiliates has maintained or contributed to any employee
benefit plan subject to Title IV of ERISA or Section 412 of the Code within the
last five years. The Company does not maintain, nor is a party to, any plan,
agreement or arrangement which provides for post-retirement welfare benefits.
Other than provisions for the accelerated vesting of certain stock options, the
Company does not maintain, nor is a party to any plan, agreement or arrangement
which provides for the payment of "parachute payments" (within the meaning of
Section 280G of the Code).

         5.19    Patents, Trademarks, Etc. The Company and its Subsidiaries own
or are in the process of filing or registering or are licensed or otherwise
have the right to use all trademarks, service marks, trade names, copyrights,
licenses, franchises and all governmental or other regulatory permits,
licenses, approvals, consents or waivers and other rights (collectively,
"Rights") that are used or useful in the operation of their businesses as
presently conducted and proposed to be conducted. Neither the Company nor any
of its Subsidiaries owns or has registered or filed any patents. Except as set
forth in Schedule 5.19, no Right currently employed by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries contemplates
employing, infringes (or has been asserted to infringe) upon the trademarks,
service marks, copyrights or licenses that are owned by others so as to have a
material adverse effect on the Condition of the Company or on the ability of
the Company to perform its obligations under the Transaction Documents. There
is no governmental action pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries to revoke, modify or
amend any Right, which revocation, modification or amendment would have a
material adverse effect an the Condition of the Company or on the ability of
the Company to perform its obligations under the Transaction Documents.

         5.20    Trade Relations. To the knowledge of the Company, except as
set forth in Schedule 5.20, there exists no actual or threatened termination,
cancellation or limitation of, or any adverse modification or change in, the
businesses relationship of the Company, its Subsidiaries or their business with
any customer or any group of customers or with any material supplier, licensor,
lessor or provider





                                       24
<PAGE>   30
of goods, services or capacity, except, for the purposes of this Section 5.20,
such as would not have a material adverse effect on the Condition of the
Company or on the ability of the Company to perform its obligations under the
Transaction Documents.

                                   ARTICLE 6

                              REPRESENTATIONS AND
                          WARRANTIES OF THE PURCHASER

         Each Purchaser, with respect to itself, hereby represents and warrants
as follows:

         6.1     Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and each other Transaction
Document executed by such Purchaser: (a) are within such Purchaser's power and
authority and will be duly authorized by all necessary action; (b) do not
contravene the terms of such Purchaser's organizational documents or any
amendment thereof; and (c) will not materially violate, conflict with or result
in any breach or contravention of any material Contractual Obligation of such
Purchaser, or any Requirement of Law directly relating to such Purchaser.

         6.2     Binding Effect. This Agreement and each other Transaction
Document to which such Purchaser is a party (other than the Joint Venture
Agreement) have been duly executed and delivered by such Purchaser, and this
Agreement constitutes the legal, valid and binding obligation of such Purchaser
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
the enforcement of creditors' rights generally or by equitable principles
relating to enforceability.

         6.3     Purchase for Own Account. The applicable Note, the Warrants
and the shares of Common Stock to be issued upon exercise of the Warrants to be
acquired by such Purchaser pursuant to this Agreement are being or will be
acquired for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the applicable provisions of this Agreement or the Warrant
Agreement or the provisions of the securities laws of the United States of
America, or any state, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of its
Note, its Warrants or its shares of Common Stock under an





                                       25
<PAGE>   31
effective registration statement under the Securities Act, or under an
exemption from such registration available under the Securities Act, and
subject, nevertheless, to the disposition of such Purchaser's property being at
all times within its control. If either Purchaser should in the future decide
to dispose of any of its Note, its Warrants or its shares of Common Stock, such
Purchaser understands and agrees that it may do so only in compliance with the
Securities Act and applicable state securities laws, as then in effect.

         6.4     Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement
or understanding with such Purchaser or any action taken by such Purchaser.

         6.5     Governmental Authorization; Third Party Consent. (i) No
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law and (ii) no lapse of a waiting period under a
Requirement of Law, are necessary or required in connection with the execution,
delivery or performance by such Purchaser or enforcement against such Purchaser
of this Agreement or the other Transaction Documents executed by the Purchaser
(other than with respect to the requirements of the Hart-Scott-Rodino Act in
connection with the exercise of the Warrants).

         6.6     Investment Company/Government Regulations. Such Purchaser is
not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
Such Purchaser is not a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended. Such
Purchaser is not a "public utility", as such term is defined in the Federal
Power Act, as amended.

         6.7     TCG as Representative. For purposes of the Transaction
Documents, TCG has acted as a representative of such Purchaser, and any
document delivered, presentation made, or any information of any kind conveyed
in any other manner, to TCG or its representatives shall be deemed to have been
delivered, made or conveyed to such Purchaser.





                                       26
<PAGE>   32
                                   ARTICLE 7

                                INDEMNIFICATION

         7.1     Indemnification. In addition to all other sums due hereunder
or provided for in this Agreement, the Company agrees to indemnify and hold
harmless each Purchaser and its Affiliates and TCG and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners and
controlling persons (each, an "Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel) or
other liabilities (collectively, "Liabilities") resulting from or arising out
of any legal, administrative or other actions (including any actions brought by
any equity holders of the Company or derivative actions brought by any Person
claiming through or in the Company's name), proceedings or investigations
(whether formal or informal), or written threats thereof, based upon, relating
to or arising out of the Transaction Documents, the transactions contemplated
thereby, or any Indemnified Party's role therein or in the transactions
contemplated thereby; provided, however, that the Company shall not be liable
under this Section 7.1 to an Indemnified Party: (a) for any amount paid in
settlement of claims without the Company's consent (which consent shall not be
unreasonably withheld), (b) to the extent that such Liabilities resulted from
the willful misconduct, bad faith or gross negligence of such Indemnified
Party, (c) to the extent that such Liabilities resulted from the breach by such
Indemnified Party of any representation, warranty or covenant of such
Indemnified Party contained in this Agreement or (d) to the extent that such
Liabilities resulted from actions, proceedings or investigations by or on
behalf of one or more Indemnified Parties against other Indemnified Parties or
against the Company or its officers, directors, advisors or employees. The
Company further agrees to reimburse each Indemnified Party for any loss, claim,
damage or expense referred to in the preceding sentence as and when such loss,
claim, damage or expense is incurred by such Indemnified Party and notice
thereof has been given to the Company by such Indemnified Party; provided,
however, that such Indemnified Party shall repay to the Company the amount so
reimbursed to such Indemnified Party for such loss, claim, damage or expense,
to the extent directed or ordered by any court.

         7.2     Notification. Each Indemnified Party under this Article 7
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or





                                       27
<PAGE>   33
other proceeding, or receipt of a written threat thereof, against such
Indemnified Party in respect of which indemnity may be sought from the Company
under this Article 7, notify the Company in writing of the commencement
thereof, provided that the omission of any Indemnified Party so to notify the
Company of any such action shall not relieve the Company from any liability
which it may have to such Indemnified Party (a) other than pursuant to this
Article 7 or (b) under this Article 7 unless, and only to the extent that, such
omission results in the Company's forfeiture of substantive rights or defenses.
In case any such action, claim or other proceeding shall be brought against any
Indemnified Party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to assume the defense thereof at its own expense,
with counsel satisfactory to such Indemnified Party in its reasonable judgment;
provided, however, that any Indemnified Party may, at its own expense, retain
separate counsel to participate in such defense.  Notwithstanding the
foregoing, in any action, claim or proceeding in which both the Company, on the
one hand, and an Indemnified Party, on the other hand, are, or are reasonably
likely to become, parties, such Indemnified Party shall have the right to
employ one firm of separate counsel at the Company's expense and to control its
own defense of such action, claim or proceeding if, in the opinion of counsel
to such Indemnified Party, a conflict or potential conflict exists between the
Company, on the one hand, and such Indemnified Party, on the other hand, that
would make such separate representation advisable.  The Company agrees that it
will not, without the prior written consent of each Purchaser, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated hereby unless
such settlement, compromise or consent includes an unconditional release of
each Purchaser and each other Indemnified Party from all liability arising or
that may arise out of such claim, action or proceeding.  Each Purchaser agrees
that, in connection with any settlement, compromise or consent to the entry of
any judgment in any pending or threatened claim, action or proceeding relating
to the matters contemplated hereby, it will use its best efforts to include in
such settlement, compromise or consent an unconditional release of the Company
from all liability arising or that may arise out of such claim, action or
proceeding, unless to do so would adversely affect the terms of such
settlement, compromise or consent with respect to either Purchaser or would
otherwise impose additional costs on either Purchaser for which the Purchasers
are not indemnified by the Company hereunder.  The rights accorded to
Indemnified Parties hereunder shall be in addition to any



                                       28
<PAGE>   34
rights that any Indemnified Party may have at common law, by separate agreement
or otherwise.

                                   ARTICLE 8

                             AFFIRMATIVE COVENANTS

          Until the payment by the Company of all principal of and interest on
the Notes and all other amounts due at the time of payment of such principal
and interest to each Purchaser under this Agreement, including, without
limitation, all fees, expenses and amounts due at such time in respect of
indemnity obligations under Article 7, the Company hereby covenants and agrees
with each Purchaser as follows:

          8.1 Financial Statements and Other Information.  The Company shall
deliver to each Purchaser, in form and substance satisfactory to each
Purchaser:

              (a) as soon as available, but not later than (i) prior to the
Equity Offering, one hundred fifty (150) days after the end of each fiscal year
of the Company and (ii) following the Equity Offering, ninety (90) days after
the end of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such year
and the related consolidated statements of operations and cash flows for such
fiscal year, together with additional financial information consisting of
combined financial statements, setting forth in each case in comparative form
the figures for the previous year, all in reasonable detail and accompanied by
(x) a management summary and analysis of the operations of the Company and its
Subsidiaries for such fiscal year and (y) by the opinion of the Company's
independent certified public accountants which report shall state without
qualification (or with such exceptions as noted therein) that (A) such
consolidated financial statements present fairly the consolidated financial
condition as of such date and consolidated results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent
basis, (B) such combined financial statements are fairly stated in all material
respects in relation to such consolidated financial statements taken as a whole
and (C) such combined financial statements are in a form that, in all material
respects, is consistent with Rule 3-09 of Regulation S-X; and

              (b)   commencing with the fiscal period ending on December 31,
1995, as soon as available, but in any event


                                       29
<PAGE>   35
not later than (i) prior to the Equity Offering, seventy-five (75) days after
the end of each fiscal quarter of each year and (ii) following the Equity
Offering, forty-five (45) days after the end of each fiscal quarter of each
year, the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of the end of the such quarter, and the related consolidated
statements of operations and cash flows for such quarter and for the period
commencing on the first day of the fiscal year and ending on the last day of
such quarter, together with additional financial information consisting of
combined financial statements, all certified by an appropriate officer of the
Company (A) in the case of such consolidated financial statements, as
presenting fairly the consolidated financial condition as of such date and
consolidated results of operations and cash flows for the periods indicated in
conformity with GAAP applied on a consistent basis, subject to normal year-end
audit adjustments and the absence of footnotes required by GAAP, and (B) in
the case of such combined financial statements, (i) as fairly stated in all
material respects in relation to such consolidated financial statements taken
as a whole and (ii) as being in a form that, in all material respects, is
consistent with Rule 3-09 of Regulation S-X.

          8.2 Certificates. The Company shall deliver to each Purchaser
concurrently with the delivery of the financial statements referred to in
Section 8.1(a) and (b), (i) a certificate of the Company's Chief Financial
Officer stating that to his or her knowledge no Event of Default and no event
that, after notice or lapse of time or both, would become an Event of Default,
shall have occurred during the period covered thereby and shall be continuing
on the date of such delivery, except as specified in such certificate; and (ii)
a certificate of an officer of the Company including calculations set forth in
reasonable detail showing the Company's compliance with the financial covenants
contained herein (such compliance being determined in accordance with Section
1.2(b)).

          8.3 Preservation of Corporate Existence.  The Company shall:

              (a)   preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its jurisdiction of
incorporation or organization; and

              (b)   preserve and maintain in full force and effect all rights,
privileges, qualifications, licenses, permits, authorizations, copyrights,
trademarks, trade name and franchises necessary in the conduct of its business;


                                       30
<PAGE>   36
provided, however, that the Company shall not be required to preserve and
maintain any right, privilege, qualification, license, permit, authorization,
copyright, trademark, trade name or franchise if (i) the preservation or
maintenance thereof is no longer necessary in the conduct of the business of
the Company and (ii) the failure to preserve or maintain the same would not
have a material adverse effect on the Condition of the Company or on the
ability of the Company to perform its obligations under the Transaction
Documents.

          The Company shall cause each of its U.S. Subsidiaries, and shall use
commercially reasonable efforts to cause its Non-U.S. Subsidiaries, to comply
with the covenants set forth in Section 8.3(a) and (b) above, except to the
extent that a failure of a Subsidiary to comply with such provisions would not
have a material adverse effect on the Condition of the Company or on the
ability of the Company to perform its obligations under the Transaction
Documents.

          8.4  Payment of Obligations.  The Company shall, and shall cause its
U.S. Subsidiaries to, and shall exercise, commercially reasonable efforts to
cause its Non-U.S. Subsidiaries to, pay and discharge the following as the same
shall become due and payable:

               (a)    all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;

               (b)   all lawful claims which the Company and each of its
Subsidiaries is obligated to pay, which are due and which, if unpaid, would by
law become a Lien upon its property, unless the same are being contested in
good faith by appropriate proceedings and adequate reserves in accordance with
GAAP are being maintained by the Company or such Subsidiary; and

               (c)   all payments of principal, interest and other amounts when
due on Indebtedness;

          in each case under this Section 8.4, unless the nonpayment thereof
would not have a material adverse effect on the Condition of the Company or on
the ability of the Company to perform its obligations under the Transaction
Documents.



                                       31
<PAGE>   37
          8.5 Compliance with Laws.  The Company shall comply, shall cause each
of its U.S. Subsidiaries to comply, and shall exercise commercially reasonable
efforts to cause each of its Non-U.S. Subsidiaries to comply, with all
Requirements of Law binding on each such Person and with the directions of any
Governmental Authority having jurisdiction over it or its business or property,
except to the extent that the failure to comply therewith would not have a
material adverse effect on the Condition of the Company or on the ability of
the Company to perform its obligations under the Transaction Documents.

          8.6 Hazardous Materials.  The Company shall not release, nor shall it
permit any of its U.S. Subsidiaries to release and shall use commercially
reasonable efforts to prevent any of its Non-U.S. Subsidiaries from releasing,
any Hazardous Materials at, on, under or in connection with any property,
assets or operations of (or used by) the Company or any of its Subsidiaries,
except to the extent that such release would not have a material adverse effect
on the Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents.  The Company shall promptly
investigate, or, as applicable, shall cause its U.S. Subsidiaries or shall use
commercially reasonable efforts to cause its Non-U.S. Subsidiaries to
investigate any such non-excluded release, suspected release or discovery of
Hazardous Material or any other environmental condition on, under or from any
of the property, assets or operation of (or used by) the Company or its
Subsidiaries.

          8.7  Notices.  Promptly upon the Company obtaining knowledge of the
events described below, the Company shall give written notice to each
Purchaser:

               (a)   of the occurrence of any Event of Default or any event
that, after notice or lapse of time or both, would become an Event of Default;

               (b)   of any (i) default or event of default under any material
Contractual Obligation of the Company or any of its Subsidiaries but only to
the extent such default or event of default would have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Document, or (ii) material
dispute, litigation, investigation, proceeding or suspension which may exist or
which may be threatened in writing at any time between the Company or any of
its Subsidiaries and any Person but only to the extent such dispute,
litigation, investigation, proceeding or suspension or threat would, if
adversely


                                       32
<PAGE>   38
determined, have a material adverse effect on the Condition of the Company or
on the ability of the Company to perform its obligations under the Transaction
Documents;

               (c)   any other matter that has resulted in or could reasonably
be expected to result in a material adverse change in the Condition of the
Company.

          Each notice pursuant to this Section 8.7 shall be accompanied by a 
statement by the Chief Executive Officer, President, Chief Financial Officer
or General Counsel of the Company setting forth details of the occurrence
referred to therein and stating what action the Company proposes to take with
respect thereto.

          8.8  Reservation of Shares.   The Company shall at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issuance or delivery upon exercise of the Warrants as provided in the
Warrant Agreement the maximum number of shares of Common Stock that may be
issuable or deliverable upon such exercise.  Such shares of Common Stock shall,
when issued or delivered in accordance with the Warrants, be duly and validly
issued and fully paid and non-assessable.  The Company shall issue such Common
Stock in accordance with the provisions of the Warrants and the Warrant
Agreement and shall otherwise comply with the terms thereof.

          8.9 Payment of Notes.  The Company shall pay the principal of,
interest on and fees, expenses and other amounts due in respect of, the Notes
on the dates and in the manner provided in each of the OSI Note and the CFM
Note.

          8.10 Seniority of Notes.  The Company shall cause its obligations
under this Agreement and the Notes at all times to be senior in right of
payment to all other Indebtedness of the Company, other than the Indebtedness
identified on Schedule A, any Indebtedness incurred pursuant to the Shareholder
Financing and Indebtedness incurred pursuant to Section 9.3(c) (whether secured
or unsecured); provided that Indebtedness of the Company permitted under
Section 9.3(c) and consisting of guarantees of Indebtedness of its Subsidiaries
may be equal in right of payment to the Company's obligations under this
Agreement and the Notes to the extent such Indebtedness of the Company
outstanding at any time does not exceed $1,500,000 in aggregate principal
amount.

          8.11  Dividends. The Company shall permit its subsidiaries to pay
dividends.  The Company shall, except as set forth on Schedule 8.11 and only to
the extent not


                                       33
<PAGE>   39
prohibited by applicable law, apply the amount of any such dividends (net of
any taxes or other governmental charges applicable thereto), as and when
received by it, to the payment of any principal of, interest on and fees and
expenses and other amounts owing, but only to the extent then due and payable, 
hereunder.

          8.12  Insurance. The Company shall, and the Company shall cause each
of its U.S. Subsidiaries to, and shall use commercially reasonable efforts to
cause each of its Non-U.S. Subsidiaries to, maintain insurance with financially
sound and reputable insurance companies or associations in such amounts and
covering such risks as are usually and customarily carried with respect to
similar businesses according to their respective locations.

          8.13  Books and Records.  The Company shall, and shall cause each of
its U.S. Subsidiaries to, and shall use commercially reasonable efforts to
cause each of its Non-U.S. Subsidiaries to, keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company and each of its
Subsidiaries in accordance with (a) GAAP consistently applied to the Company
and its U.S. Subsidiaries and (b) accounting principles generally accepted in
the jurisdiction of incorporation of the Company's Non-U.S. Subsidiaries,
provided that all financial reports and statements provided to the Purchaser
hereunder shall be prepared in accordance with GAAP.

          8.14 Use of Proceeds.  The Company shall use the proceeds of the sale
of the Notes only for the following purposes and in the following priority: (a)
first; for the payment of fees and expenses due to each Purchaser and TCG in
connection with the transactions contemplated by the Transaction Documents; (b)
second for the prepayment in full of all amounts outstanding under the Prior
Notes and the payment in full of all amounts outstanding under the Prior Note
Purchase Agreement, and (c) third for general corporate purposes.


                                   ARTICLE 9

                               NEGATIVE COVENANTS

          Until the payment by the Company of all principal of and interest on
the Notes and all other amounts due at the time of payment of such principal
and interest to each Purchaser under this Agreement, including, without
limitation, all fees, expenses and amounts due at such time in


                                       34
<PAGE>   40
respect of indemnity obligations under Article 7, the Company hereby covenants
and agrees with each Purchaser as follows:

          9.1 Consolidations and Mergers.  The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its assets (whenever acquired), and the Company shall not
allow any of its U.S. Subsidiaries to, and shall use commercially reasonable
efforts not to allow its Non-U.S. Subsidiaries to, merge or consolidate with or
into any other Person except the Company or another Subsidiary of the Company.

          9.2  Transactions with Affiliates. The Company shall not enter, shall
not permit any of its U.S. Subsidiaries to enter, and shall use commercially
reasonable efforts to prevent its Non-U.S. Subsidiaries from entering, into any
transaction with any Affiliate of the Company or such Subsidiary or any
stockholder (or any Affiliate of such stockholder) of the Company or such
Subsidiary, except either (x) transactions pursuant to the reasonable
requirements of the business of the Company or such Subsidiary or (y)
transactions on terms substantially no less favorable to the Company or such
Subsidiary than those that the Company or such Subsidiary would obtain in a
comparable arm's-length transaction with a Person not an Affiliate or
stockholder (or Affiliate of a stockholder) of the Company or such Subsidiary;
provided that the foregoing limitation shall not limit or apply to: (i) the
execution, delivery and performance of the Transaction Documents or the
consummation of any transaction required or permitted pursuant to the terms of
the Transaction Documents and (ii) any transaction contemplated in connection
with the Shareholder Financing.

          9.3 Limitation on Indebtedness.  Prior to the Equity Offering, the
Company shall not, and shall not cause, suffer or permit any of its U.S.
Subsidiaries to, and shall use commercially reasonable efforts to not cause,
suffer or permit its Non-U.S. Subsidiaries to, directly or indirectly, issue,
assume or otherwise incur any Indebtedness without the prior written consent of
each Purchaser (which shall not be unreasonably withheld); provided that the
foregoing restriction shall not prevent the Company or its Subsidiaries from
incurring: (a) Indebtedness under this Agreement and the Notes (or other
financing hereafter provided to the Company by the Purchasers, TCG, or any
Affiliates of the Purchasers or TCG); (b) Indebtedness identified in Schedule
A; (c) Indebtedness of the Company or any


                                       35
<PAGE>   41
of its Subsidiaries (including Capital Lease Obligations and Other Indebtedness
for the financing of Capital Expenditures) incurred solely for the purpose of
financing, or guaranteeing the financing of, the acquisition of equipment or
other property by the Company or any Subsidiary, provided that the principal
amount of such Indebtedness does not exceed, in the aggregate, the lesser of
(i) the fair market value of such equipment or other property at the time of
such incurrence or (ii) the purchase price of such equipment or other property
(including in the determination of such fair market value or purchase price,
all related products and services purchased concurrently from the vendor or a
third party in connection with the purchase of such equipment or property); (d)
additional Indebtedness of the Company or any Subsidiary to any other
Subsidiary, or Indebtedness of any Subsidiary to the Company, provided that the
aggregate outstanding principal amount of Indebtedness permitted pursuant to
this clause (d) shall not at any time exceed five million dollars ($5,000,000)
and (e) Indebtedness incurred pursuant to the Shareholder Financing.  Following
the Equity Offering, the Company may incur Indebtedness without the prior
written consent of either Purchaser, provided that the incurrence of such
Indebtedness shall not cause the Company or any of its Subsidiaries to breach
any other provision of Article 8 or Article 9 of this Agreement.

          9.4 Limitation on Liens.  The Company shall not, and shall not
permit, cause or suffer any of its U.S. Subsidiaries to, and shall use
commercially reasonable efforts not to permit, cause or suffer any of its Non-
U.S. Subsidiaries to, create, incur, assume or suffer to exist any Lien on any
asset now owned or hereafter acquired by it, other than: (a) Liens existing on
the date of this Agreement and disclosed on Schedule B; (b) Liens for taxes,
statutory Liens of landlords and Liens of carriers, warehouseman, mechanics and
materialmen, in each case only to the extent the obligations thereto are not
yet due or are being contested in good faith by appropriate proceedings
diligently pursued; (c) Liens to secure performance of tenders, bids, statutory
obligations or government contracts, and similar Liens not securing
Indebtedness and arising in the ordinary course of business; and (d) any Lien
on equipment and properties securing, and financed by, Indebtedness permitted
under Section 9.3(c); provided that each such Lien securing any such
Indebtedness and permitted under this clause (d) shall extend only to the
equipment or other properties financed by such Indebtedness (including related
products and services as referred to in Section 9.3(c)).




                                       36
<PAGE>   42
          9.5 Limitations on Restricted Payments. Except an set forth in
Schedule 9.5, the Company shall not, and shall not permit any of its U.S.
Subsidiaries to, and shall use commercially reasonable efforts not to permit
any of its Non-U.S. Subsidiaries to, declare or make any Restricted Payment.
This provision shall not be deemed to prohibit the Company's ability to perform
its obligations under Section 8.10 or in connection with the Warrant Agreement
or Shareholder Financing.

          9.6 Limitation on Payment Restrictions. The Company shall use 
commercially reasonable efforts to prevent it or any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any such Subsidiary to (a) pay dividends or make any other distribution on
its capital stock, (b) pay any Indebtedness owed to the Company, (c) make loans
or advances to the Company, or (d) transfer any of its property or assets to
the Company, except those limitations as may be required by the agreements
entered into with respect to the Indebtedness identified in Schedule and those
limitations set forth in Schedule 9.6.

          9.7 Dispositions of Assets.  Except for the transactions permitted by
Section 8.3 or 9.1, the Company shall not, and shall not permit any of its U.S.
Subsidiaries to, and shall use commercially reasonable efforts not to permit
any of its Non-U.S. Subsidiaries to, sell, transfer, lease or otherwise dispose
of (in one transaction or in a series of transactions) all or any part of the
assets or properties of the Company or any of its Subsidiaries or any of the
capital stock of any of its Subsidiaries, other than (a) inventory sold in the
ordinary course of business for not less than the fair market value thereof;
(b) assets or properties sold, transferred or leased from one wholly-owned
Subsidiary of the Company to the Company or to another wholly-owned Subsidiary
of the Company; (c) assets or properties no longer useful in the conduct of the
Company's or such Subsidiary's business sold, leased, transferred or disposed
of in a manner consistent with the Company's or such Subsidiary's practice on
the date hereof or (d) assets or properties exchanged for (or net proceeds from
the disposition of or which are used for the acquisition of) other assets or
properties that either enhance, upgrade or improve, or have a function or use
substantially equivalent to, the assets or properties so exchanged or disposed.

          9.8 Capital Expenditures.  So long as the Equity Offering has not
been consummated, and except to the extent permitted under Section 9.7, the
Company shall not, and



                                       37
<PAGE>   43
shall not permit any of its U.S. Subsidiaries to, and shall use commercially
reasonable efforts not to permit any of its Non-U.S. Subsidiaries to, make any
Capital Expenditures in respect of any period in excess of one hundred and five
(105) percent of the amounts contained in the Company's annual budget and plan
approved by the Company's Board of Directors in respect of such period.

          9.9 Financial Covenants.

              (a)  Debt/Equity Ratio.  The Company shall not permit the ratio
of (i) consolidated Indebtedness of the Company and its Subsidiaries (excluding
Indebtedness incurred by Hermes Europe Railtel B.V. ("Hermes") identified on
Schedule A ("Hermes Debt")) to (ii) consolidated shareholders' equity of the
Company and its Subsidiaries, (including Hermes equity and minority interests
determined in accordance with GAAP) computed in accordance with GAAP (except as
provided herein), at any time to be greater than the ratio set forth with
respect to any quarter in the table below:


<TABLE>
<CAPTION>
                                Quarter Ending
                                --------------
Fiscal Year   March 31      June 30        Sept. 30      Dec. 31
- -----------   --------      -------        --------      -------
<S>          <C>           <C>            <C>           <C>
1995          --            --             --            --
1996          65%           65%            65%           65%
1997  and     60%           60%            60%           60%
Subsequent    60%           60%            60%           60%
Years
</TABLE>

              (b) Leverage  Ratio.  As  of the end of any fiscal quarter, the
Company shall not permit the ratio of (i) Consolidated Indebtedness of the
Company and its Subsidiaries (excluding Hermes Debt) to (ii) EBITDA as of the
end of such fiscal quarter and the three immediately preceding fiscal quarters
(treated as a single accounting period), to be greater than the amount set
forth with respect to such quarter in the table below:





                                       38
<PAGE>   44
<TABLE>
<CAPTION>
                                Quarter Ending
                                --------------
<S>           <C>           <C>            <C>           <C>
Fiscal Year   March 31      June 30        Sept. 30      Dec. 31
- -----------   --------      -------        --------      -------
1995          --            --             --            --
1996          N/A           N/A            N/A           N/A
1997          8             8              8             8
1998          6             6              6             6
1999 and      5             5              5             5
subsequent
years
</TABLE>

              (c) Net Worth.  Net Worth will be determined as of the end of
each Fiscal Year.  The Net Worth (including Hermes equity and minority
interests determined in accordance with GAAP), as of the end of each Fiscal
Year set forth below, shall not be less than the amount set forth next to such
year:

<TABLE>
<CAPTION>
                                         Net Worth
                     Fiscal Year       (in millions)
                     -----------       ------------
                     <S>                   <C>
                     1995                  N/A
                     1996 and              $125
                     Subsequent Years
</TABLE>

              (d) Current Ratio.  Prior to the Equity Offering, the Company
shall not permit the Current Ratio as of the and of any quarter to be less than
1.1. Following the Equity Offering, the Company shall not permit the Current
Ratio as of the and of any quarter to be less than the ratio set forth with
respect to such quarter in the table below:

<TABLE>
<CAPTION>
                                   Quarter Ending
                                   --------------
Fiscal Year   March 31      June 30        Sept. 30      Dec. 31
- -----------   --------      -------        --------      -------
<S>           <C>           <C>            <C>           <C>
1995          1.1           1.1            1.1           1.1
1996          1.5           1.5            1.5           1.5
1997          1.8           1.8            1.8           1.8
1998 and      2.0           2.0            2.0           2.0
Subsequent
Years
</TABLE>

              (e) Application of Ratios.  Notwithstanding the foregoing, prior
to the Equity Offering, the Company shall not be required to comply with the
provisions of Sections 9.9(a), (b) and (c).



                                       39
<PAGE>   45
          9.10 Employment Benefit Plans.  The Company shall not, and shall not
permit any of its Subsidiaries or any ERISA Affiliate, without the prior
approval of the Purchaser, (a) to establish or contribute to any employee
benefit plan (within the meaning of Section 3(3) of ERISA) or other employee
benefit arrangement which (i) is subject to Title IV of ERISA or is otherwise a
Defined Benefit Plan, or is a multiple employer plan (within the meaning of
Section 413(c) of the Code); or (ii) provides post-retirement welfare benefits
or, other than with respect to the stock options referenced in the last
sentence of Section 5.18, "parachute payments" (within the meaning of Section
280G(b) of the Code); or (b) to amend any Plan if the effect of such amendment
would cause such Plan to be a plan or arrangement described in clause (a)(i)
hereof or to provide any of the benefits described in clause (a)(ii) hereof.

          9.11 Limitation on Investments.  The Company shall not, and shall not
permit any of its U.S. Subsidiaries to, and shall use commercially reasonable
efforts not to permit any of its Non-U.S. Subsidiaries to, lend money or extend
credit or make advances to any Person or purchase or acquire for value any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any Person (such lending of money, extending of
credit, making of advances, purchases or acquisitions (or commitments to
acquire) or making of capital contributions being collectively referred to as
"Investments") other than: (a) cash and Cash Equivalents; (b) Investments (i)
existing on the date hereof or required as of the date hereof to be made in the
future, (ii) identified in Schedule C and (iii) made by the Company or any of
its Subsidiaries either (A) in any of their respective Subsidiaries or (B) in
partnerships or joint ventures with other Persons which are not Subsidiaries of
the Company; (c) Investments in such partnerships or joint ventures made after
the date hereof and approved by the Company's Board of Directors; (d)
Investments consisting of Indebtedness (or equity Investments, the proceeds of
which are used in the same manner as such Indebtedness) permitted under Section
9.3 or consisting of Capital Expenditures (including, without limitation,
equity Investments, the proceeds of which are used for Capital Expenditures)
permitted under Sections 9.7 and 9.8 and (e) Investments in such partnerships
or joint ventures not approved by the Company's Board of Directors if such
Investments are less than $1 million.





                                       40
<PAGE>   46
                                   ARTICLE 10

                                   PREPAYMENT

          10.1 Optional Prepayment.  Upon written notice by the Company given
to the Purchasers not less than two (2) nor more than ten (10) Business Days
prior to the date fixed in such notice for such prepayment the Company, at its
option, may prepay, without premium or penalty, the outstanding principal
amount of the Notes, together with accrued interest to the date of such
prepayment on the principal amount prepaid, on any Business Day.

          10.2 Mandatory Prepayment.  In the event the Company obtains any
Shareholder Financing (whether in a single transaction or in a series of
transactions) which, in the aggregate, exceeds $10 million, the Company shall,
unless otherwise instructed in writing by either Purchaser, make a mandatory
prepayment of the Notes in an amount equal to the lesser of (i) $10 million and
(ii) the amount by which the aggregate principal amount of such Shareholder
Financing exceeds $10 million. On and following such time as the aggregate
principal amount of the Shareholder Financing exceeds $10 million, the Company
shall make such a mandatory prepayment in connection with each transaction
pursuant to which the Company obtains any Shareholder Financing.  Substantially
concurrently with such mandatory prepayment, the Purchasers shall relinquish
Warrants to the Company for cancellation in accordance with the provisions of
Section 9(b) of the Warrant Agreement.

          10.3 Application of Prepayments.

          (a) All prepayments under Sections 10.1 and 10.2 above shall be made,
together with accrued interest on the principal amount so prepaid, and shall be
applied first to payment of default interest, if any, then to payment of
accrued interest, then to payment of principal.

          (b) All prepayments will be applied in or towards reducing the
remaining repayment installments of the Notes in inverse order of maturity.
Any funds used in the prepayment of the Notes pursuant to Section 10.1 or 10.2
shall be applied pro rata to the prepayment of the OSI Note and the CFM Note,
based on the proportion (expressed as a percentage) that the total principal
amount outstanding under each such Note bears to the total aggregate principal
amount outstanding under both of the Notes.





                                       41
<PAGE>   47

                                   Article 11

                         MONITORING FEE; TAX ALLOCATION

                 11.1     Monitoring Fee. From and after the Closing through
and including the fifth anniversary of the Closing Date, the Company shall pay
to TCG a monthly monitoring fee (the "Monitoring Fee") in the amount of $40,000
per month, payable in arrears on the last Business Day of each month, with the
first payment of such fee to be made on January 31, 1996. Notwithstanding the
foregoing, the Monitoring Fee shall be reduced to $25,000 per month following
the later of (i) the day following the last Business Day of the calendar month
in which the Equity Offering occurs or (ii) payment of the Monitoring Fee due
on January 29, 1999. A late payment charge calculated at the rate of one
percent (1%) per month shall accrue daily on any unpaid amounts of the
Monitoring Fee and shall be payable on demand.

                 11.2     Allocation of Purchase Price. The Company shall
allocate the consideration paid by the Purchasers in connection with the
purchase of the Notes and the issuance of the Warrants in the manner and in the
amounts reasonably requested by the Purchasers and reasonably acceptable to the
Company. The parties agree to follow this allocation for all financial
reporting and tax purposes.

                                   ARTICLE 12

                               BOARD OF DIRECTORS

                 Immediately following the Closing, the Company shall nominate
for election to its Board of Directors and to the Executive Committee of its
Board of Directors (the "Executive Committee") one representative (the
"Purchasers' Representative") of the Purchasers (selected by the Purchasers in
their sole discretion) and the Company shall exercise its best efforts to cause
the election of the Purchasers' Representative to the Company's Board of
Directors and to the Executive Committee for the duration of the applicable
Board Term (as defined below). Following the Closing, the Company shall not
cause and shall not permit its Board of Directors to consist of more than ten
members without obtaining the prior written consent of each Purchaser (which
consent the Purchasers will provide upon receipt of evidence satisfactory to
them that an increase in the number of directors is in the Company's best
interest). Following any restructuring of the Company or any of its
Subsidiaries that, in the reasonable opinion of the Purchasers, results in any
entity or Person or any

                                       42
<PAGE>   48
Subsidiary of the Company (a "New Entity") obtaining possession or ownership
of, or control (financial, managerial or otherwise) over, all or substantially
all of the assets and properties of the Company, the Company shall use its best
efforts to cause a representative of the Purchasers (selected by the Purchasers
in their sole discretion) to be elected to the board of directors and to the
executive committee of the board of directors of such New Entity for the
duration of the applicable Board Term; provided, however that such election
shall be subject to the resignation of any representative of the Purchasers
from any position it then holds on the Board of Directors of the Company or the
Executive Committee. As used herein, the term "Board Term" shall mean, with
respect to the Board of Directors of the Company or any New Entity, a time
period of five years from the date the first Purchasers' Representative is
appointed to the Company's Board of Directors and, with respect to the
Executive Committee or the executive committee of a New Entity, a time period
commencing on the date the first Purchasers' Representative is elected to any
such committee and ending on the date on which all principal and interest owed
hereunder and under the Notes have been paid in full by the Company. In the
event the Purchasers' Representative resigns or otherwise is unable to serve on
the Company's Board of Directors and the Executive Committee or on the board of
directors and executive committee of any New Entity, the Purchasers shall
designate an individual (the "Replacement Representative") to replace such
representative and the Company shall nominate such Replacement Representative
and shall exercise its best efforts to cause the vacancy to be filled by such
Replacement Representative. The Replacement Representative shall serve on the
Company's Board of Directors and Executive Committee (and on the board of
directors and executive committee of any New Entity) for the remaining time
period of the Board Term. The Company shall cause its Certificate of
Incorporation and By-Laws to be amended to the extent necessary to comply with
the provisions of this Article 12.

                                   ARTICLE 13

                                 MISCELLANEOUS

                 13.1     Survival of Representations and Warranties. All of
the representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
acceptance of the Securities and payment therefor, exercise of the Warrant or
termination of this Agreement; provided that each


                                       43
<PAGE>   49
Purchaser may bring any action for remedies with respect to the representations
and warranties, which action such Purchaser shall have initiated and shall have
given notice thereof to the Company on or prior to the second anniversary of
the date hereof (or with respect to the representations and warranties set
forth in Sections 5.2, 5.4 and 5.9 hereof, the fifth anniversary of the date
hereof); provided, further, that no such representation or warranty shall in
any event be deemed to have bean made at or as of any date other than the date
hereof or the Closing Date (or, to the extent so stated in Section 3.1, an
earlier date).

                 13.2     Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:

                          (a)     if to OSI:

                                  The Open Society Institute
                                  888 Seventh Avenue
                                  Suite 3100
                                  New York, NY 10106
                                  Attention:   Kenneth Anderson, Esq.,
                                               Peter Hurwitz, Esq.

                          (b)     if to CFM:

                                  Chatterjee Fund Management, L.P.
                                  888 Seventh Avenue
                                  Suite 3000
                                  New York, New York 10106
                                  Attention:   Peter Hurwitz, Esq.

                 Provided that notices to OSI or CFM shall be deemed to be
delivered to OSI and CFM if sent to TCG in accordance with the provisions of
this Section 13.2 at

                                  888 Seventh Avenue
                                  Suite 3000
                                  New York, New York 10106
                                  Attention:   Peter Hurwitz, Esq.

                          in each case of delivery or deemed delivery to OSI 
         or CFM with a copy to:

                                  Soros Fund Management
                                  888 Seventh Avenue
                                  Suite 3300
                                  New York, New York 10106

                                       44
<PAGE>   50
                                  Attention: Michael Neus, Esq.

                          (c)     if to the Company:

                                  Global TeleSystems Group, Inc.
                                  1751 Pinnacle Drive
                                  North Tower 12th Floor
                                  McLean, Virginia 22102
                                  Attention:   General Counsel

                 All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial overnight courier service;
when received, if mailed; and when receipt is acknowledged, if telecopied.

                 13.3     Successors and Assigns.

                          (a)     This Agreement and the Notes shall inure to
the benefit of and be binding upon the successors and permitted assigns of the
parties hereto. The Company may not assign any of its rights under this
Agreement without the prior written consent of both Purchasers. Except as
provided in Article 7, no Person other than the parties hereto and TCG and
their successors and permitted assigns is intended to be a beneficiary of any
of the Transaction Documents.

                          (b)     Subject to applicable securities laws, each
Purchaser may assign any of its rights under this Agreement and the Notes only
to any of its Affiliates or to TCG or any of its Affiliates; provided that any
assignment to any such assignee shall be subject to the delivery by such
assignee of a certificate, dated the effective date of such assignment and
signed by a Secretary or Assistant Secretary of such assignee, containing
representations and warranties with respect to such assignee substantially the
same as those contained in Article 6 hereof with respect to each of the
Purchasers and stating that such representations and warranties are true and
correct on and as of the effective date of such assignment. In the event an
assignee ceases to be an Affiliate of a Purchaser or TCG, it shall promptly
assign such rights to an Affiliate of a Purchaser or TCG. Assignments of the
Warrants shall be governed by the terms of the Warrant Agreement. Each
Purchaser and its Affiliates and TCG and its Affiliates may pledge the Notes
and this Agreement without any restriction.

                                       45
<PAGE>   51
                 13.4     Amendment and Waiver.

                          (a)     No failure or delay on the part of the
Company or either Purchaser in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or either Purchaser at law, in equity or otherwise.

                          (b)     Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and each Purchaser, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.

                 13.5     Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.

                 13.6     Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                 13.7     Governing Law. This Agreement shall be governed by
the laws of the State of New York excluding (to the greatest extent a New York
court would permit) any rule of law that would cause application of the laws of
any jurisdiction other than the State of New York.

                 13.8     Jurisdiction. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated
hereby may be brought in the courts of the State of New York or, to the extent
permitted by applicable law, of the United States of America for the Southern
District of New York and hereby

                                       46
<PAGE>   52
expressly submits to the personal jurisdiction and venue of such courts for the
purposes thereof and, to the extent permitted by applicable law, expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the a service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 13.2.

                 13.9     Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions hereof.

                 13.10    Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections
refer to sections or subsections of this Agreement.

                 13.11    Entire Agreement. This Agreement, together with the
exhibits and schedules hereto and the other Transaction Documents, is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits hereto, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.

                 13.12    Certain Expenses. The Company will pay all expenses
of each Purchaser and TCG (including reasonable fees, charges and disbursements
of counsel but excluding fees, charges and disbursements incurred after the
Closing by any accountants, other consultants or other non-legal advisors
retained by such Purchaser or TCG) in connection with any amendment, supplement
modification or waiver of or to any provision of this Agreement, the Notes or
any other Transaction Document, or any consent to any departure by the Company
from the terms of any provision of this Agreement, the Notes or any other
Transaction Document. The Company further agrees to pay all expenses of each
Purchaser, if any (including reasonable fees, charges and disbursements of

                                       47
<PAGE>   53
counsel), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of the Transaction Documents.

                 13.13    Publicity. Except as may be required by applicable
law (and for disclosure by the Company to its shareholders at the annual
meeting of the shareholders and in quarterly financial and other similar
reports required to be delivered to the Company's shareholders), none of the
parties hereto shall issue a publicity release or announcement concerning this
Agreement or the transactions contemplated hereby, without prior approval by
the other parties hereto. If any announcement is required by law to be made by
any party hereto, prior to making such announcement such party will deliver a
draft of such announcement to the other parties and shall give the other
parties an opportunity to comment thereon.

                 13.14    Further Assurances. Each of the parties shall execute
such documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority
or any other Person) as may be reasonably required or desirable with respect to
the Hart-Scott-Rodino Act to carry out or to perform the provisions of this
Agreement.

                                       48
<PAGE>   54
                 IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.

                                        GLOBAL TELESYSTEMS GROUP INC.


                                        By  /s/ N.S. Molberger
                                          -------------------------------
                                          Name: N.S. Molberger

                                        THE OPEN SOCIETY INCENTIVE


                                        By  /s/ ARYEL NEIER
                                          -------------------------------
                                          Name: Aryel Neier


                                        CHATTERJEE FUND MANAGEMENT, L.P.


                                        By  /s/ Purendur Chatterjee
                                          -------------------------------
                                          Name: Purendur Chatterjee

<PAGE>   55
       THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
       AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT
       TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) PURSUANT TO
       AN EXEMPTION FROM REGISTRATION UNDER THE ACT.


                             SENIOR PROMISSORY NOTE

$25,000,000                                     New York, New York

                                                January 19, 1996


        FOR VALUE RECEIVED, the undersigned, GLOBAL TELESYSTEMS GROUP, INC., a
Delaware corporation (the "Company"), unconditionally promises to pay to the
order of THE OPEN SOCIETY INSTITUTE (the "Lender"), the principal amount of
Twenty-Five Million Dollars ($25,000,000) (the "Original Principal Amount"; the
Original Principal Amount, as it may be increased pursuant to the provisions of
paragraph 2(a), being the "Principal Amount") on or before the Maturity Date
(as defined below) as hereinafter provided in Section 2(b), together with
interest thereon as hereinafter provided.

        1.      Note Purchase Agreement. This Senior Promissory Note (this
"Note") is issued pursuant to, and subject to the terms and conditions of, the
Senior Note Purchase Agreement, dated as of the date hereof, as it may be
amended, supplemented or otherwise modified from time to time (as so amended,
supplemented or modified, the "Agreement"), between the Company, the Lender and
Chatterjee Fund Management, L.P. ("CFM"). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Agreement.

        2.      Amounts Due.

                (a) Interest. Interest on this Note shall accrue at the rate of
ten percent (10%) per annum on any unpaid Principal Amount from the date hereof
until repayment in full of the Principal Amount, payable in arrears quarterly
on the last Business Day of each calendar quarter and on the Maturity Date
(each such date, an "Interest Payment Date"); provided that interest on any
overdue Principal Amount shall accrue at the rate set forth in Section 2(c);
provided, further that upon written notice by the Company to the Lender not
less than ten (10) nor more than fifteen (15) Business Days prior to any
Interest Payment Date occurring on or before the second anniversary
<PAGE>   56
hereof, the Company may defer to the Maturity Date payment of any accrued
interest otherwise payable on such Interest Payment Date, in which case the
Principal Amount shall be increased by an amount equal to such payment.
Interest shall be computed on a daily basis based on a 360 day year of twelve,
30-day, months.

        (b)     Principal. The Original Principal Amount shall be payable in 
twelve equal consecutive quarterly installments on the last Business Day of each
calendar quarter, commencing on April 1, 1998 with the final payment of
principal made in full on the Maturity Date. The remainder of the Principal
Amount shall be paid on the Maturity Date.

        (c)     Default Interest. Subject to applicable law, any overdue
Principal Amount and any overdue interest (except for interest deferred in
accordance with the provisions of paragraph 2(a)) on this Note together with any
other amounts not paid when due (after giving effect to any applicable grace
periods) under this Note or the Agreement shall bear interest, payable on demand
in immediately available funds, for each day from the date payment thereof was
due to the date of actual payment, at the rate of 13% per annum.

        3.      Maturity Date. The Maturity Date of this Note shall be January
19, 2001.

        4.      Manner of Payment. All payments by the Company of the principal
of or interest on this Note and all payments of any other amounts due under this
Note or the Agreement shall be made without offset or deduction of any kind by
wire transfer in United States dollars in immediately available funds to such
bank or other place as may be designated by the Lender. If any payment of
principal, interest and/or any other amount owed by the Company under this Note
or the Agreement shall become due and payable on any day other than a Business
Day, such payment shall be made on the next succeeding Business Day, but
interest shall not be payable for such extended period.

        5.      Prepayment. Any prepayment of this Note shall be made in
accordance with the provisions of Article 10 of the Agreement.

        6.      Application of Prepayments. All prepayments of this Note shall
be applied in accordance with the provisions of Article 10 of the Agreement.

        7.      Defaults. Each of the following conditions, acts or events
shall constitute an "Even of Default" hereunder:
<PAGE>   57
                (i)     if the Company defaults in the payment of any Principal
Amount of this Note or the CFM Note when due;

                (ii)    if the Company defaults in the payment of any interest
on this Note or any other amounts payable hereunder or under the Agreement
(other than the Principal Amount on this Note or the CFM Note) and such default
continues unremedied for a period of five Business Days;

                (iii)   if the Company or any of its Subsidiaries defaults in
the due observance or performance of any other covenant or agreement contained
in this Note or the Agreement and such default continues unremedied for a
period of 20 days after written notice thereof shall have been given by the
Lender and CFM to the Company;

                (iv)    if any representation, warranty, certification or
statement made by the Company or any of its Subsidiaries in this Note or the
Agreement or in any other document delivered pursuant hereto or thereto or in
connection herewith or therewith proves to have been incorrect in any material
respect when made;

                (v)     if the Company or any of its Subsidiaries defaults in
the payment of principal of or interest on any Indebtedness (whether now
existing or hereafter incurred) of the Company or any of its Subsidiaries
(other than any Indebtedness outstanding hereunder or incurred and outstanding
pursuant to the Agreement or under the CFM Note) that is outstanding in a
principal amount of at least $1,000,000 in the aggregate or the performance or
observance of the terms and conditions of any agreement relating to such
Indebtedness, and the effect of such default is to accelerate the final
maturity of such Indebtedness and which is likely to have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Documents; provided that a
payment default or acceleration under the Company's indebtedness to AT&T
Network Systems Netherlands N.V. ("AT&T") evidenced by promissory notes in an
aggregate principal amount not exceeding $4.5 million due on December 15, 1995
shall not be an Event of Default hereunder until such time as AT&T takes action
to collect on the indebtedness evidenced by such notes;

                (vi)    if an involuntary case or other proceeding is commenced
against the Company or any of its Subsidiaries seeking (A) liquidation,
reorganization or other relief with respect to the Company or indebtedness of
the Company under any bankruptcy, insolvency, receivership or similar law now
or hereinafter in effect or (B) the appointment of a receiver, trustee,
custodian, liquidator or
<PAGE>   58
similar official for the Company, or for a substantial part of its property or
assets, and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of 60 days; or an order of relief shall be entered
against the Company or any of its Subsidiaries under the federal bankruptcy
laws as now or hereafter in effect;

                (vii)   if the Company or any of its Subsidiaries (A) commences
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its indebtedness under any bankruptcy,
insolvency, receivership or similar law now or hereinafter in effect or the
appointment of a receiver, trustee, custodian, liquidator or similar official
for the Company, or for a substantial part of its property or assets; (B) shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it;
(C) shall make a general assignment for the benefit of creditors; (D) shall
admit in writing its inability, or fail generally, to pay its debts as they
become due or (E) shall take any action for the purpose of effecting any of the
foregoing;

                (viii)  if one or more final judgments for the payment of money
in an aggregate amount in excess of $1,000,000 is rendered against the Company
or any of its Subsidiaries, and, within thirty (30) days of the entry thereof, 
the same shall remain undischarged and execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to levy upon
assets or properties of the Company or any of its Subsidiaries to enforce any
such judgment; or

                (ix)    if the Company asserts for any reason that the Warrant
Agreement or the Warrants is not a legal, valid and binding obligation of any
party thereto.

        8.      Remedies;  Acceleration. Upon the occurrence of and during the
continuation of an Event of Default, the Purchaser holding a majority of the
Principal Amount of the Notes, may by notice to the Company, declare the
outstanding Principal Amount of the Note to be immediately due and payable,
whereupon the Principal Amount of the Note, all accrued and unpaid interest
thereon and all other amounts payable under this Note or the Agreement shall
become and be forthwith due and payable by the Company, without  presentment,
demand, protest or notice of any kind, all of which are expressly waived by the
Company; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to the Company under the Federal Bankruptcy
Code, the Note, all such interest and all such amounts shall automatically
become and be due and                 
<PAGE>   59
payable by the Company, without presentment, demand, protest or any notice of
any kind, all of which are expressly waived by the Company.

        The remedy provided herein shall not be deemed exclusive but shall be
cumulative and shall be in addition to all other remedies available to the
Lender, whether existing at law or in equity or otherwise.

        9.      Delay or Omission not Waiver. No delay or omission of the
Lender to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or in acquiescence therein. Every right and remedy given under this
Note or by law or at equity to the Lender may be exercised from time to time,
and as often as may deemed expedient, by the Lender.

        10.     Unconditional Obligations; Fees. The obligations to make the
payments provided for in this Note and the Agreement are absolute and
unconditional and not subject to any defense, set-off, counterclaim,
rescission, recoupment or adjustment whatsoever.

        12.     GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT A NEW YORK COURT WOULD
PERMIT) ANY RULE OF LAW THAT WOULD CAUSE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>   60


        13.     Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.


                                        GLOBAL TELESYSTEMS GROUP, INC.



                                        By: /s/ [ILLEGIBLE]
                                            ----------------------------
                                            Name:  [ILLEGIBLE]
                                            Title: Vice President
                                                   General Counsel     
<PAGE>   61
        THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
        AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT
        TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) PURSUANT TO
        AN EXEMPTION FROM REGISTRATION UNDER THE ACT.

                             SENIOR PROMISSORY NOTE

$ 5,000,000                                                New York, New York

                                                           January 19, 1996

        FOR VALUE RECEIVED, the undersigned, GLOBAL TELESYSTEMS GROUP, INC., a
Delaware corporation (the "Company"), unconditionally promises to pay to the
order of CHATTERJEE FUND MANAGEMENT, L.P. (the "Lender"), the principal amount
of Five Million Dollars ($5,000,000) (the "Original Principal Amount"; the
Original Principal Amount, as it may be increased pursuant to the provisions of
paragraph 2(a), being the "Principal Amount") on or before the Maturity Date
(as defined below) as hereinafter provided in Section 2(b), together with
interest thereon as hereinafter provided.

        1.      Note Purchase Agreement. This Senior Promissory Note (this
"Note") is issued pursuant to, and subject to the terms and conditions of, the
Senior Note Purchase Agreement, dated as of the date hereof, as it may be
amended, supplemented or otherwise modified from time to time (as so amended,
supplemented or modified, the "Agreement"), between the Company, the Lender and
The Open Society Institute ("OSI"). Capitalized terms used but not defined
herein shall have the meanings given to such terms in the Agreement.

        2.      Amounts Due.

                (a)     Interest. Interest on this Note shall accrue at the
rate of ten percent (10%) per annum on any unpaid Principal Amount from the
date hereof until repayment in full of the Principal Amount, payable in arrears
quarterly on the last Business Day of each calendar quarter and on the Maturity
Date (each such date, an "Interest Payment Date"); provided that interest on any
overdue Principal Amount shall accrue at the rate set forth in Section 2(c);
provided, further that upon written notice by the Company to the Lender not
less than ten (10) nor more than fifteen (15) Business Days prior to any
Interest Payment Date occurring on or before the second anniversary
<PAGE>   62
hereof, the Company may defer to the Maturity Date payment of any accrued
interest otherwise payable on such Interest Payment Date, in which case the
Principal Amount shall be increased by an amount equal to such payment.
Interest shall be computed on a daily basis based on a 360 day year of twelve,
30-day, months.

                (b)     Principal. The Original Principal Amount shall be
payable in twelve equal consecutive quarterly installments on the last Business
Day of each calendar quarter, commencing on April 1, 1998, with the final
payment of principal made in full on the Maturity Date. The remainder of the
Principal Amount shall be paid on the Maturity Date.

                (c)     Default Interest. Subject to applicable law, any
overdue Principal Amount and any overdue interest (except for interest deferred
in accordance with the provisions of paragraph 2(a)) on this Note together with
any other amounts not paid when due (after giving effect to any applicable
grace periods) under this Note or the Agreement shall bear interest, payable on
demand in immediately available funds, for each day from the date payment
thereof was due to the date of actual payment, at the rate of 13% per annum.

        3.      Maturity Date. The Maturity Date of this Note shall be January
19, 2001.

        4.      Manner of Payment. All payments by the Company of the principal
of or interest on this Note and all payments of any other amounts due under
this Note or the Agreement shall be made without offset or deduction of any
kind by wire transfer in United States dollars in immediately available funds
to such bank or other place as may be designated by the Lender.  If any payment
or principal, interest and/or any other amount owed by the Company under this
Note or the Agreement shall become due and payable on any day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
but interest shall not be payable for such extended period.

        5.      Prepayment. Any prepayment of this Note shall be made in
accordance with the provisions of Article 10 of the Agreement.

        6.      Application of Prepayments. All prepayments of this Note shall
be applied in accordance with the provisions of Article 10 of the Agreement.

        7.      Defaults. Each of the following conditions, acts or events
shall constitute an "Event of Default" hereunder:
<PAGE>   63
                (i)     if the Company defaults in the payment of any Principal
Amount on this Note or the OSI Note when due;

                (ii)    if the Company defaults in the payment of any interest
on this Note or any other amounts payable hereunder or under the Agreement
(other than the Principal Amount on this Note or the OSI Note) and such default
continues unremedied for a period of five Business Days;

                (iii)   if the Company or any of its Subsidiaries defaults in
the due observance or performance of any other convenant or agrement contained
in this Note or the Agreement and such default continues unremedied for a
period of 20 days after written notice thereof shall have been given by the
Lender and OSI to the Company;

                (iv)    if any representation, warranty, certification or
statement made by the Company or any of its Subsidiaries in this Note or the
Agreement or in any other document delivered pursuant hereto or thereto or in
connection herewith or therewith proves to have been incorrect in any material
respect when made;

                (v)     if the Company or any of its Subsidiaries defaults in
the payment of principal of or interest on any Indebtedness (whether now
existing or hereafter incurred) of the Company or any of its Subsidiaries
(other than any Indebtedness outstanding hereunder or incurred and outstanding
pursuant to the Agreement or under the OSI Note) that is outstanding in a
principal amount of at least $1,000,000 in the aggregate or the performance or
observance of the terms and conditions of any agreement relating to such
Indebtedness, and the effect of such default is to accelerate the final
maturity of such Indebtedness and which is likely to have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Documents; provided that a
payment default or acceleration under the Company's indebtedness to AT&T
Network Systems Netherlands N.V. ("AT&T") evidenced by promissory notes in an
aggregate principal amount not exceeding $4.5 million due on December 15, 1995
shall not be an Event of Default hereunder until such time as AT&T takes action
to collect on the indebtedness evidenced by such notes;

                (vi)    if an involuntary case or other proceeding is commenced
against the Company or any of its Subsidiaries seeking (A) liquidation,
reorganization or other relief with respect to the Company or indebtedness of
the Company under any bankruptcy, insolvency, receivership or similar law now
or hereinafter in effect or (B) the appointment of a receiver, trustee,
custodian, liquidator or 
<PAGE>   64
similar official for the Company, or for a substantial part of its property or
assets, and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of 60 days; or an order of relief shall be entered
against the Company or any of its Subsidiaries under the federal bankruptcy
laws as now or hereafter in effect;

                (vii)   if the Company or any of its Subsidiaries (A) commences
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its indebtedness under any bankruptcy,
insolvency, receivership or similar law now or hereinafter in effect or the
appointment of a receiver, trustee, custodian, liquidator or similar official
for the Company, or for a substantial part of its property or assets; (B) shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it;
(C) shall make a general assignment for the benefit of creditors; (D) shall
admit in writing its inability, or fail generally, to pay its debts as they
become due or (E) shall take any action for the purpose of effecting any of the
foregoing;

                (viii)  if one or more final judgments for the payment of money
in an aggregate amount in excess of $1,000,000 is rendered against the Company
or any of its subsidiaries, and, within thirty (30) days of the entry thereof, 
the same shall remain undischarged and execution shall not be effectively 
stayed, or any action shall be legally taken by a judgment creditor to levy 
upon assets or properties of the Company or any of its Subsidiaries to enforce 
any such judgment; or

                (ix)    if the Company asserts for any reason that the Warrant
Agreement or the Warrants is not a legal, valid and binding obligation of any
party thereto.

        8.      Remedies; Acceleration. Upon the occurrence of and during the
continuation of an Event of Default, the Purchaser holding a majority of the
Principal Amount of the Notes, may by notice to the Company, declare the
outstanding Principal Amount of the Note to be immediately due and payable,
whereupon the Principal Amount of the Note, all accrue and unpaid interest
thereon and all other amounts payable under this Note or the Agreement shall
become and be forthwith due and payable by the Company, without presentment,
demand, protest or notice of any kind, all of which are expressly waived by the
Company; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to the Company under the Federal Bankruptcy
Code, the Note, all such interest and all such amounts shall automatically
become and be due and                 

<PAGE>   65
payable by the Company, without presentment, demand, protest or any notice of
any kind, all of which are expressly waived by the Company.

        The remedy provided herein shall not be deemed exclusive but shall be
cumulative and shall be in addition to all other remedies available to the
Lender, whether existing at law or in equity or otherwise.

        9.      Delay or Omission not Waiver. No delay or omission of the
Lender to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or in acquiescence therein. Every right and remedy given under this
Note or by law or at equity to the Lender may be exercised from time to time,
and as often as may deemed expedient, by the Lender.

        10.     Unconditional Obligations; Fees. The obligations to make the
payments provided for in this Note and the Agreement are absolute and
unconditional and not subject to any defense, set-off, counterclaim, rescission,
recoupment or adjustment whatsoever.

        12.     GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT A NEW YORK COURT WOULD
PERMIT) ANY RULE OF LAW THAT WOULD CAUSE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>   66


        13.     Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.


                                        GLOBAL TELESYSTEMS GROUP, INC.



                                        By: /s/ [ILLEGIBLE]
                                            ----------------------------
                                            Name:  [ILLEGIBLE]
                                            Title: Vice President
                                                   General Counsel     
<PAGE>   67


                                      
                                  EXHIBIT B


               See Exhibit No. 10.3 of Registration Statement.
                                      
                                      
<PAGE>   68


                                      
                                  EXHIBIT C


               See Exhibit No. 10.2 of Registration Statement.
                                      
                                      
<PAGE>   69


                                      
                                  EXHIBIT D


               See Exhibit No. 10.4 of Registration Statement.
                                      
                                      

<PAGE>   1
                                                                 EXHIBIT 10.1(a)

                                  June 6, 1996


Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102

                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

     We refer to (a) the Senior Note Purchase Agreement, dated as of 
January 19, 1996 (the "Initial Chatterjee Agreement"), between Global 
TeleSystems Group, Inc. (the "Company") and The Open Society Institute 
("OSI") and Chatterjee Fund Management, L.P., as purchasers (the "Initial
Chatterjee Purchasers"); and (b) the Senior Note Purchase Agreement, dated as
of June 6, 1996 (the "Additional Chatterjee Agreement"), between the Company
and OSI, Winston Partners II LDC and Winston Partners II LLC., as purchasers
(the "Additional Chatterjee Purchasers"). Terms defined or referenced in the
Initial Chatterjee Agreement and not otherwise defined or referenced herein are
used herein as therein defined or referenced.

     The Company and the Initial Chatterjee Purchasers hereby agree as follows:

     1.   (a) Articles 5, 8 and 9 of the Initial Chatterjee Agreement
(including, without limitation, the defined terms used, and the Schedules
referred to and incorporated, therein, but excluding, in any event, Sections
5.3, 5.7, 5.10, 5.15, 8.8, 8.11, 8.14 and 9.9 thereof, and further excluding the
definitions of "Transaction Documents," "Warrant Agreement" and "Event of
Default") are amended and restated, on and as of January 19, 1996, to read in
full mutatis mutandis as Articles 5, 8 and 9, respectively, of the Additional
Chatterjee Agreement (including, without limitation, the corresponding defined
terms used, and Schedules referred to and incorporated, therein, but excluding,
in any event, Sections 5.3, 5.7, 5.10, 5.15, 8.8, 8.11, 8.14 and 9.9 thereof
and further excluding the definitions of "Transaction Documents", Warrant
Agreement" and "Event of Default"), except that, for purposes of such
amendment, (i) unless clause (ii) below or the context      
<PAGE>   2
Global TeleSystems Group, Inc.          2                           June 6, 1996



otherwise requires, references to (A) the Initial Chatterjee Agreement, (B) the
Notes (as defined in the Initial Chatterjee Agreement) and (C) the Initial
Chatterjee Purchasers (or, in each case, words of similar import) shall be
substituted, respectively, for all references, in the foregoing provisions of
the Additional Chatterjee Agreement, to (A) the Additional Chatterjee
Agreement, (B) the Initial Notes, the Additional Notes or the Notes (including
the OSI Note, the WPLDC Note and the WPLLC Note) (as such terms are defined in
the Additional Chatterjee Agreement) and (C) the Additional Chatterjee
Purchasers (or, in each case, words of similar import); and (ii) all provisions
in the Initial Chatterjee Agreement permitting the execution, delivery and
performance of, or the consummation of transactions contemplated or permitted
by, one or more of either (x) the Transaction Documents (as defined in the
Initial Chatterjee Agreement) or (y) the Transaction Documents (as defined in
the Additional Chatterjee Agreement) shall be modified to permit the execution,
delivery, and performance of, and the consummation of transactions contemplated
or permitted by, all Transaction Documents referred to in clauses (x) and (y)
above.

     (b)  Article 10 of the Initial Chatterjee Agreement is amended by
substituting the second sentence of Section 10.2(b) of the Additional
Chatterjee Agreement (including, without limitation, the defined terms used
therein) for the second sentence of Section 10.3(b) of the Initial Chatterjee
Agreement (including, without limitation, the defined terms used therein).

     (c)  The Initial Chatterjee Agreement as amended hereby shall remain in
full force and effect.

     2.  THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK. 
<PAGE>   3
     This letter agreement may be executed in any number of counterparts and by
the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same letter agreement. Delivery of an
executed counterpart of a signature page of this letter agreement by telecopier
shall be effective as delivery of a manually executed counterpart of this
letter agreement.

     Please indicate your agreement to the foregoing by executing a counterpart
of this letter agreement in the appropriate space provided below.

                                        Very truly yours,

                                        THE OPEN SOCIETY INSTITUTE

                                        By     /s/ [Illegible]
                                          ----------------------------
                                            Name:
                                            Title:  Trustee


                                        CHATTERJEE FUND MANAGEMENT, L.P.

                                        By     /s/ [Illegible]
                                          ----------------------------
                                            Its General Partner

                                        By     /s/  PETER HOROWITZ
                                          ----------------------------
                                            Name:  Peter Horowitz
                                            Title: Attorney-in-fact


Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.

By           /s/  N. S. Molberger
  ---------------------------------------
    Name:  N. S. Molberger
    Title: Vice President-General Counsel

<PAGE>   1
                                                                 EXHIBIT 10.1(b)

                                  June 6, 1996

Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102

                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

        We refer to (a) the Senior Note Purchase Agreement, dated as of 
January 19, 1996 (the "Initial Chatterjee Agreement"), between Global
TeleSystems Group, Inc. (the "Company") and The Open Society Institute ("OSI")
and Chatterjee Fund Management, L.P., as purchasers (the "Initial Chatterjee
Purchasers"); and (b) the following agreements (collectively, the "Cap
Re Agreements"): (i) the Senior Note Purchase Agreement, dated as of February 2,
1996, between the Company and Emerging Markets Growth Fund, Inc. and (ii) the
Senior Note Purchase Agreement, dated as of February 2, 1996, between the
Company and Capital International Emerging Markets Fund. Terms defined or
referenced in the Initial Chatterjee Agreement and not otherwise defined or
referenced herein are used herein as therein defined or referenced.

        The Company and the Initial Chatterjee Purchasers hereby agree as
follows: 

        1.      The Company agrees that it will not, without the prior written
consent of the Initial Chatterjee Purchasers, amend, or consent to the
amendment of, 

                (a)     Section 8.10 or 8.11 of either of the Cap Re
        Agreements, to the extent that such amendment would contravene Sections
        8.10 and 8.11 of the Initial Chatterjee Agreement (as amended pursuant
        to paragraph 1 above) or of the Additional Chatterjee Agreement; or 

                (b)     (i) Section 2(b) or Section 3 of any senior promissory
        note issued pursuant to either of the Cap Re Agreements or (ii) the
        definition of "Interest Payment Date" or "Maturity Date" contained in
        any such senior promissory note. 

        2.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.


<PAGE>   2
        This letter agreement may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same letter agreement. Delivery of an
executed counterpart of a signature page of this letter agreement by telecopier
shall be effective as delivery of a manually executed counterpart of this
letter agreement.

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.

                                                Very truly yours,

                                                THE OPEN SOCIETY INSTITUTE


                                                By /s/ [ILLEGIBLE]
                                                   ---------------------------
                                                   Name:
                                                   Title: Trustee


                                                CHATTERJEE FUND MANAGEMENT, L.P.


                                                By /s/ [ILLEGIBLE]
                                                   -----------------------------
                                                   Its General Partner

                                                By /s/ [ILLEGIBLE]
                                                   -----------------------------
                                                   Name: [Illegible]
                                                   Title: Attorney-in-fact


Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.


By /s/ N. S. Molberger
   --------------------------------------
   Name: N. S. Molberger
   Title: Vice President - General Counsel

<PAGE>   1
                                                        EXHIBIT 10.1(c)


                                 July 23, 1996


Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102


                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of 
January 19, 1996, as amended by letter agreement, dated June 6, 1996 (as so
amended and as it may be further amended, supplemented or otherwise modified
from time to time, the "Initial Chatterjee Agreement"), between Global
TeleSystems Group, Inc. (the "Company") and The Open Society Institute ("OSI")
and Chatterjee Fund Management, L.P., as purchasers (the "Initial Chatterjee
Purchasers"); and (ii) the Senior Note Purchase Agreement, dated as of June 6,
1996 (as such agreement may be amended, supplemented or otherwise modified from
time to time, the "Additional Chatterjee Agreement"; the Initial Chatterjee
Agreement and the Additional Chatterjee Agreement being, collectively the
"Chatterjee Agreements"), between the Company  and OSI, Winston Partners II LDC
and Winston Partners II LLC, as purchasers  (the "Additional Chatterjee
Purchasers"; the Initial Chatterjee Purchasers and  the Additional Chatterjee
Purchasers being, collectively, the "Chatterjee  Purchasers"). Terms defined or
referenced in the Additional Chatterjee  Agreement and not otherwise defined or
referenced herein are used herein as  therein defined or referenced.

        The Company and the Chatterjee Purchasers hereby agree as follows:

        1.      Each Chatterjee Agreement is hereby amended as set forth below 
(the "Amendments"):

        (a)     The definition of "Equity Offering" contained in Section 1.1 of
    such Chatterjee Agreement is amended by substituting for the period at the
    end thereof the phrase "; provided, however, that the private placement of 
    the Company's common stock (expected, as of the date hereof, to become 
    effective in July 1996) shall not, with respect to proceeds thereof 
    received from July 1 to October 31, 1996, constitute an Equity Offering."

        (b)(i)  Clause (i) of Section 8.1(a) of such Chatterjee Agreement is
    amended by substituting the phrase "each fiscal year of the Company (but, in
    the case of fiscal year 1995, no later than August 23, 1996)" for the phrase
    "each fiscal year of the Company" contained therein.

        (ii)    Clause (i) of Section 8.1(b) of such Chatterjee Agreement is
    amended by substituting the phrase "each fiscal quarter of each year (but, 
    in the case of the fiscal quarter 
<PAGE>   2
Global TeleSystems Group, Inc.          2                          July 23, 1996


     ending March 31, 1996, no later than September 16, 1996)" for the phrase
     "each fiscal quarter of each year" contained therein.

          (c) Section 9.9(d) of such Chatterjee Agreement is amended (i) by
     substituting the phrase "any fiscal quarter ending after June 30, 1997" for
     the phrase "any quarter" contained in the first sentence thereof; and by
     substituting "N/A" for each ratio in the chart therein corresponding to any
     of fiscal years 1995 and 1996 and the fiscal quarters ending March 31 and
     June 30, 1997.

          (d)(i) Section 9.11 of such Chatterjee Agreement is amended (A) by
     redesignating clause (e) thereof as clause "(g)"; and (B) by inserting,
     immediately after clause (d) thereof, the following:

          "; (e) additional Investments in the Company's Subsidiaries, made on
          or before December 31, 1996, reflected on Schedule 9.11 (under the
          heading "Projected Intercompany Balance YE 1996" and not under the
          heading "3/31/96 Balance") and consisting of Indebtedness the proceeds
          of which are or will be used, directly or indirectly, for working
          capital purposes of the Company's Subsidiaries, in each case in the
          ordinary course of the business of such Subsidiaries; provided,
          however, that the Company shall cause each of its U.S. Subsidiaries,
          and shall use commercially reasonable efforts to cause each of its
          Non-U.S. Subsidiaries, to repay (in each case, without duplication)
          the Indebtedness incurred by it in accordance with this clause (e),
          but only to the extent of net proceeds of the OPIC and the EBRD
          financings (referred to in Schedule A under "Pending Financings") as
          and when received by such Subsidiary and available to such Subsidiary
          (under applicable laws and regulations and pursuant to the terms of
          such financings) for application to such repayment (or reduction); (f)
          additional Investments by the Company in its Subsidiaries, the
          proceeds of which are used for payroll to employees of the Company and
          its Subsidiaries;".

     (ii) Section 9.3 of such Chatterjee Agreement is amended (A) in the case of
     the Initial Chatterjee Agreement, by redesignating clause (e) thereof as
     clause "(f)"; and (B) in the case of each Chatterjee Agreement, (1) by
     redesignating clause (d) thereof as clause "(e)" and by substituting the
     phrase "this clause (e)" for the phrase "this clause (d)" contained
     therein, and (2) by inserting, immediately following clause (c) thereof,
     the phrase: "(d) additional Indebtedness constituting Investments permitted
     by clause (e) or (f) of Section 9.11;".

     (iii) Such Chatterjee Agreement is amended by adding at the end thereof (in
     appropriate numerical order of its Schedules) a new Schedule 9.11 in the
     form of Schedule 9.11 hereto.

          2. The Chatterjee Purchasers waive any and all Events of Default (as
defined in the Initial Transaction Documents and the Transaction Documents to
which they are respective parties) and any and all events ("Potential Defaults")
that, with the giving of notice or lapse of time or both, would constitute
Events of Default, to the extent that such Events of Default and Potential
Defaults (i) arose on or before the date hereof and before giving effect to the
Amendments and (ii) resulted from events, transactions, facts and circumstances
that, immediately after giving effect to the Amendments, would not constitute
Events of Default or Potential Defaults.
<PAGE>   3
Global TeleSystems Group, Inc.         3                           July   , 1996


        3.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        4.      This letter agreement becomes effective as of January 19, 1996,
on the date on which the Company and each Chatterjee Purchaser shall have
exercised and delivered a counterpart hereof. Upon the effectiveness of this
letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Chatterjee Agreement or any term or provision
thereof shall mean such Chatterjee Agreement, such term or such provision,
respectively, as amended hereby. Except as otherwise provided herein, the
Initial Transaction Documents and the Transaction Documents shall remain in
full force and effect and are hereby in all respects ratified and confirmed. 

        5.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement. 

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below. 

                                      Very truly yours,



THE OPEN SOCIETY INSTITUTE            WINSTON PARTNERS II LDC



By                                 By /s/ [ILLEGIBLE]
   ------------------------------        --------------------------------------
   Name:                                 Name: Curacao Corporation Company N.V.
   Title:                                Title: Sole Director
                                         MJA

CHATTERJEE FUND MANAGEMENT, L.P.      WINSTON PARTNERS II LLC



By                                    By Chatterjee Advisors L.L.C.
   ------------------------------        Its Sole Manager
   Its General Partner                    



By                                    By 
   ------------------------------        --------------------------------------
   Name:                                 Name:
   Title:                                Title:
<PAGE>   4
                                       3

Global TeleSystems Group, Inc.                                    July 23 1996

        3.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        4.      This letter agreement becomes effective as of January 19, 1996,
on the date on which the Company and each Chatterjee Purchaser shall have
exercised and delivered a counterpart hereof. Upon the effectiveness of this
letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Chatterjee Agreement or any term or provision
thereof shall mean such Chatterjee Agreement, such term or such provision,
respectively, as amended hereby. Except as otherwise provided herein, the
Initial Transaction Documents and the Transaction Documents shall remain in
full force and effect and are hereby in all respects ratified and confirmed. 

        5.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement. 

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below. 

                                           Very truly yours,



THE OPEN SOCIETY INSTITUTE                 WINSTON PARTNERS II LDC



By /s/ Gary Gladstone                     By 
   --------------------------------           --------------------------------
   Name:                                      Name:
   Title:                                     Title:


CHATTERJEE FUND MANAGEMENT, L.P.          WINSTON PARTNERS II LLC



By /s/ [ILLEGIBLE]                        By Chatterjee Advisors L.L.C.
   --------------------------------           Its Sole Manager
   Its General Partner



By /s/ [ILLEGIBLE]                        By  /s/ [ILLEGIBLE]
   --------------------------------           --------------------------------
   Name:                                      Name: [Illegible]
   Title: Attorney-in-fact                    Title: Manager
<PAGE>   5
Global TeleSystems Group, Inc.            4                        July 23 1996


                              Accepted and Agreed:

                              GLOBAL TELESYSTEMS GROUP, INC.


                                 
                              By /s/ [ILLEGIBLE]
                                 -------------------------------------------
                                     Name:  NS Molberger 
                                     Title: Vice President - General Counsel





<PAGE>   6

                     
                                Schedule 9.11

                             Additional Investments
                          for Working Capital Purposes


                 SCHEDULE OF INTERCOMPANY BALANCES (1)(2)(4)(9)

                          1996 FORECAST - ($ In 000's)

<TABLE>
<CAPTION>
                                                        Projected   Ye 96 Variance to             Break Out of Variance
                                        3/31/96      Intercompany             3/31/96    ----------------------------------------  
Activity Related to:                    Balance   Balance Ye 1996             Balance      W/C      GUP Ex    Other(8)   Re-class
- --------------------                    -------   ---------------             -------    ------     ------    --------   --------
<S>                                    <C>                <C>       <C>                  <C>       <C>        <C>         <C>
GTS Hermes(3)                           $16,003           $17,075             ($1,072)   $ 1,072   $     -    $      -    $    -
GTS Europe South                          4,438             5,226                (788)       788         -           -         -
GTS Hungaro                              10,913            16,257              (5,344)     2,714     2,630           -         -  
GTS Czech                                 2,374             3,285                (911)       911         -           -         -
GTS Bulgaria                                 59                59                   0          -         -           -         -
Moscoregoff                               1,501             3,209              (1,708)     1,708         -           -         -
GTS Cellular                              6,192            12,485              (6,293)     4,963     1,330           -         -
SFMT Rusnet                              19,429            33,923             (14,494)     5,099     8,706         689         -  
Vostok Mobile                                 -             1,614              (1,614)     1,614         -           -         -
Sovintel                                      -             5,791              (5,791)       231         -       5,560         0
SFMT Sovintel 1                           7,338                 -               7,338          -         -      (7,338)        0  
Sovam                                     6,102                 -               6,102          -         -      (6,102)        0 
SFMT Datacom                                  -             9,376              (9,376)     1,654     1,620       6,102         - 
SFMT China(V-Tech)(6)                     7,062            10,795              (3,733)     3,640        93           -         -  
GTS India                                   652             1,308                (656)       656         -           -         -
GTS Vox                                       -               195                (195)       195         -           -         -  
TCM                                         125                 -                 125       (125)        -           -         -
SFIT                                          -              (689)                689          0         -        (689)        0
ACIC(CITS)(7)                                 -                10                 (10)        10         -           -         - 
Transpacific Ventures China Cellular          -                54                 (54)        54         -           -         -
San Francisco/Moscow Teleport                 -             1,778              (1,778)         -         -       1,778         -
Telecom Consulting & Advisory(5)              -             4,381              (4,381)     4,381         -           -         -
Kiev                                          -             4,800              (4,800)     1,988     2,862           -         -
                                        -------          --------           ---------     -------   -------   --------   -------  
TOTAL                                   $82,188          $130,932            ($48,744)   $31,553   $17,241    $      -   $     -  
</TABLE>

Notes:
 (1) These amounts do not reflect the final adjustments associated with the 
     closing of the Fiscal Year 1995 and 1st and 2nd Quarters 1996 results.
 (2) Excludes GTS Holding Company's equity investment in operating companies.
 (3) Hermes includes shareholders note of $12M which will be converted to 
     equity before year end 1996.
 (4) These amounts do not include payroll paid by GTS Group, Inc. on behalf of 
     GTS Inc. This entity is only set up for payment of U.S. payroll but does 
     create an intercompany account in order to facilitate the payment. YTD 
     May 1996 was approximately $2.5M and full year 1996 is estimated at $6.0M
 (5) Payroll company for CIS operations (Expats).
 (6) W/C includes investment in VSAT inventory for resale.
 (7) Cash requirements for CITS are considered equity investment but may result 
     in an intercompany account.
 (8) Represents a reclass between entities
 (9) The amounts indicated opposite each subsidiary listed below reflect either 
     or both of the following: (a) direct or indirect (back-to-back) loans to
     such Subsidiary by the Company or other Subsidiaries and (b) direct or
     indirect (back-to-back) loans from such Subsidiary to any other Subsidiary.
     The aggregate amount of these intercompany loans (determined, without
     duplication, after giving effect to the loans described in the preceding
     sentence) does not exceed the respective amounts indicated opposite
     "TOTAL" below.


<PAGE>   1
                                [GTS LETTERHEAD]

                                                                 EXHIBIT 10.1(d)


                                                              September 16, 1996



By fax: + 212 4896357


Mr. W. James Peet
The Chatterjee Group
Suite 3000
888 Seventh Avenue
New York, New York 10106

Dear Mr. Peet:

Reference is made to (a) the following agreements, each as heretofore amended,
supplemented or otherwise modified (collectively, the "Chatterjee Agreements")
among the purchasers referred to below (collectively the "Chatterjee
Purchasers") and Global TeleSystems Group, Inc. (the "Company" or "GTS"): (i)
the Senior Note Purchase Agreement, dated as of January 19, 1996, between the
Company, The Open Society Institute ("OSI") and Chatterjee Fund Management,
L.P. as purchasers; and (ii) the Senior Note Purchase Agreement, dated as of
June 6, 1996, between the Company and OSI, Winston Partners II LDC and Winston
Partners II LLC, as purchasers; and (b) the requested consent concerning
additional investment in Hermes as set forth below.

     Because it has taken longer than anticipated to finalize railway,
customer and other agreements, Hermes needs additional investment from the
Company of ECU 4 million (approximately US$ 5 million under current exchange
rates) to be applied to capital expenditures. The Company's co-venturer,
HitRail B.V. ("Hitrail"), will be required to make a contemporaneous equal
investment in Hermes. In the event, however, that Hitrail determines not to make
its ECU 4 million investment, the Company would make Hitrail's investment. The
Company therefore seeks the Chatterjee Purchasers' consent to a total
additional investment by the Company up to ECU 8 million, which the Company
contemplates would be applied to additional capital expenditures.

     


 
<PAGE>   2
Mr. W. James Peet
The Chatterjee Group
September 16, 1996
Page 2


Please evidence your consent by signing and returning to me a copy of the
enclosed amendment letter.


                                        Sincerely,


                                        /s/  [ILLEGIBLE]


Enclosure

<PAGE>   3
                                
                               [GTS LETTERHEAD]

                                        September 16, 1996



Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, Virginia 22102 USA


Ladies and Gentlemen:

        Reference is made to the following agreements, each as amended by the
letter agreement dated as of July 23, 1996 (as amended, collectively, the
"Chatterjee Agreements") among the purchasers referred to below (collectively,
the "Chatterjee Purchasers") and Global TeleSystems Group, Inc. (the
"Company"): (i) the Senior Note Purchase Agreement, dated as of January 19,
1996, between the Company and The Open Society Institute ("OSI") and Chatterjee
Fund Management, L.P., as purchasers; and (ii) the Senior Note Purchase
Agreement, dated as of June 6, 1996, between the Company, OSI, Winston Partners
II LDC and Winston Partners II LLC, as purchasers.

        The Company and the Chatterjee Purchasers hereby agree as follows:

        1.      Each Chatterjee Agreement is hereby amended as set forth below:

                (a)     Schedule 9.11 of the amendments dated July 23, 1996 to
the Chatterjee Agreements is hereby amended by substituting: (A) "$22,075" for
"$17,075" opposite "GTS Hermes" under the column heading "Projected
Intercompany Balance YE 1996", (B) "$135,932" for "$130,932" for the total at
the bottom of such heading, (C) "($6,072)" for "($1,072)" opposite GTS Hermes
under the column heading "YE variance to 3/31/96 Balance", (D) "($53,744)" for
"($43,744)" for the total at the bottom of such heading, (E) "$5,000" for "$-"
under the column heading "Break out of Variance" and the subheading "CapEx",
(F) "$22,241" for "$17,241" for the total at the bottom of such subheading, and
(G) "17M" for "$12M" in footnote 3. If the Company determines, however, to
make such additional total investment of ECU 8 million, the figures in the
preceding sentence would be amended by substituting the figures, as follows:
(A) "$27,075" for "$22,075", (B) "$140,932" for "$135,932", (C) "($11,072)" for
"($6,072)", (D) "($58,744)" for "($53,744)", (E) "$10,000" for "$5,000", (F)
"$27,241" for "$22,241" and (G) "22M" for "17M."

<PAGE>   4
Global TeleSystems Group, Inc.
Page Two
September 16, 1996


        2.   THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        3.   This letter agreement becomes effective as of the date first above
written, on the date on which the Company and each of the Chatterjee Purchasers
shall have executed and delivered a counterpart hereof. Upon the effectiveness
of this letter agreement, each reference in any Transaction Document (as
defined in each Chatterjee Agreement) to either Chatterjee Agreements or any
term or provision thereof shall mean such Chatterjee Agreements, such term or
such provision, respectively, as amended hereby. Except as otherwise provided
herein, the Transaction Documents shall remain in full force and effect and are
hereby in all respects ratified and confirmed.

        4.   This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.

                                                Very truly yours,

                                                THE OPEN SOCIETY INSTITUTE


                                                By /s/ GARY GLADSTEIN 
                                                   ----------------------------
                                                   Name:  George Soros
                                                   Title: Gary Gladstein, 
                                                          Attorney-in-fact

                                                CHATTERJEE FUND MANAGEMENT, L.P.
                                                

                                                By /s/ [ILLEGIBLE]
                                                   -----------------------------
                                                   Name:   [ILLEGIBLE]
                                                   Title:  Attorney-in-fact
<PAGE>   5
Global TeleSystems Group, Inc.
Page Three
September 16, 1996


                                   WINSTON PARTNERS II LDC


                                   By __________________________________
                                      Name:
                                      Title:

                                   WINSTON PARTNERS II LLC, by Chatterjee
                                     Advisors LLC, its manager


                                   By /s/ [ILLEGIBLE]
                                      __________________________________
                                      Name: [ILLEGIBLE]
                                      Title: Manager

Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.

By: /s/ [ILLEGIBLE]
    ------------------------------
    Name: N. S. Molberger
    Title: Vice President-General
           Counsel & Secretary


<PAGE>   1
                                                                 Exhibit 10.1(e)




                                 July 11, 1997




Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102

                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

     We refer to (i) the Senior Note Purchase Agreement, dated as of January
19, 1996, as heretofore amended (and as so amended, the "Initial Chatterjee
Agreement"), among Global TeleSystems Group, Inc. (the "Company") and The Open
Society Institute ("OSI") and Chatterjee Fund Management, L.P., as purchasers
(the "Initial Chatterjee Purchasers"), and (ii) the Senior Note Purchase
Agreement, dated as of June 6, 1996, as heretofore amended (as so amended, the
"Additional Chatterjee Agreement"; the Initial Chatterjee Agreement and the
Additional Chatterjee Agreement being collectively, the "Chatterjee
Agreements"), among the Company, and OSI, Winston Partners II LDC and Winston
Partners II LLC, as purchasers (the "Additional Chatterjee Purchasers"; the
Initial Chatterjee Purchasers and the Additional Chatterjee Purchasers being,
collectively, the "Chatterjee Purchasers"). Terms defined or referenced in the
Additional Chatterjee Agreement and not otherwise defined or referenced herein
are used herein as therein defined or referenced.

     The Company and the Chatterjee Purchasers hereby agree as follows:

     1.  Subsection (g) of Section 9.3 of each Chatterjee Agreement is amended
by substituting the words "$135 million of bonds convertible into Common Stock,
plus the issuance of up to an additional $20.250 million of bonds convertible
into Common Stock, pursuant to the exercise of the over-allotment option to the
extent such over-allotment option
<PAGE>   2
                                       2

exercised by UBS Securities LLC, on behalf of itself and the other placement
agents," for the words "$115 million of bonds convertible into Common Stock."

        2.      Section 9.3 of each Chatterjee Agreement is amended by deleting
the word "and" immediately preceding subsection 9.3(g) and by adding the
following text immediately following subsection 9.3(g):

                and (h) Indebtedness incurred in connection with the issuance
        of up to $175 million of notes of Hermes Europe Railtel B.V. on
        substantially the terms set forth in Schedule A; provided, however, that
        such indebtedness is incurred on or before September 30, 1997.

        3.      Schedule A of each Chatterjee Agreement, under the caption
"Pending Financings," is amended by adding the text set forth in Appendix A
hereto. 

        4.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        5.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Chatterjee Purchaser
shall have executed and delivered a counterpart hereof. Upon the effectiveness
of this letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Chatterjee Agreement or any term or provision
thereof shall mean such Chatterjee Agreement, such term or such provision,
respectively, as amended hereby. Except as otherwise provided herein, the
Transaction Documents shall remain in full force and effect and are hereby in
all respects ratified and confirmed. 

        6.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.

<PAGE>   3
                                       3

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below. 

                                       Very truly yours,



THE OPEN SOCIETY INSTITUTE             WINSTON PARTNERS II LDC



By: /s/ [ILLEGIBLE]                    By: /s/ [ILLEGIBLE]
   ------------------------------         --------------------------------------
   Name:                                  Name: [Illegible]
   Title:                                 Title: Attorney-in-fact


CHATTERJEE FUND MANAGEMENT, L.P.       WINSTON PARTNERS II LLC by its
                                          Manager Chatterjee Advisors LLC



By: /s/ [ILLEGIBLE]                    By: /s/ [ILLEGIBLE]
   ------------------------------         --------------------------------------
   Name: [Illegible]                      Name: [Illegible]
   Title: Attorney-in-fact                Title: Manager


                      Accepted and Agreed:

                      GLOBAL TELESYSTEMS GROUP, INC.



                      By: /s/ [ILLEGIBLE]
                          ----------------------------
                          Name: [Illegible]
                          Title: Treasurer

<PAGE>   4
                                   APPENDIX A


                             HERMES EUROPE RAILTEL

                       $175 MILLION SENIOR NOTE FINANCING

Issuer:                Hermes Europe Railtel, B.V.

Issue:                 Senior Notes

Gross Proceeds:        $175 million

Maturity:              10 years

Interest Rates:        12.0% - 13.0%

Pre-funded Interest:   2 years

Optional Redemption:   5 * year non-call       

Ranking:               Senior (Subordinated to all accrued/unsecured
                       liabilities of subsidiaries)

Use of Proceeds:       To fund the build-out of the Hermes network through
                       Phase I

Marketing:             144A

Gross Spread:          3.5%

Underwriters:          DLJ (lead), UBS, Lehman

Equity Clawback:       Prior to the first 3 years, 33 1/3% of each of the
                       Senior Notes may be redeemed with (i) the proceeds of a
                       public equity offering of $75 million or more or (ii) the
                       proceeds from the sale of the Company's common stock to
                       one or more Strategic Equity Investors for the aggregate
                       purchase price of $75 million or more.

Change of Control:     Company must offer to redeem the Senior Notes at 101% of
                       principal amount thereof, plus accrued and unpaid
                       interest.

Covenants:            Standard covenants for a High Yield offering, including
                      * Limitation on Incurrence of indebtedness;
                      * Limitation on Restricted Payments;
                      * Limitation on Dividend and Other Payment Restrictions
                        Affecting Subsidiaries;
                      * Limitation on the Issuance and Sale of Capital Stock of
                        Restricted Subsidiaries;
                      * Limitation on Issuance of Guarantees by Restricted
                        Subsidiaries;  
                      * Limitation on Asset Sales;
                      * Limitation on Liens;
                      * Limitation on Consolidation or Merger;
                      * Limitation on Transaction with Affiliates;


<PAGE>   1
                                                                EXHIBIT 10.1(f)

                                 July 29, 1997

Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, VA 22102

Ladies and Gentlemen:

     We refer to (i) the Senior Note Purchase Agreement dated as of January 19,
1996, as heretofore amended (as so amended, the "Initial Chatterjee
Agreement"), among Global TeleSystems Group, Inc. (the "Company") and The Open
Society Institute ("OSI") and Chatterjee Fund Management, L.P., as purchasers
(the "Initial Chatterjee Purchasers"); and (ii) the Senior Note Purchase
Agreement dated as of June 6, 1996, as heretofore amended (as so amended, the
"Additional Chatterjee Agreement"; the Initial Chatterjee Agreement and the
Additional Chatterjee Agreement being, collectively, the "Chatterjee
Agreements"), among the Company, and OSI, Winston Partners II LDC and Winston
Partners II LLC, as purchasers (the "Additional Chatterjee Purchasers"; the
Initial Chatterjee Purchasers and the Additional Chatterjee Purchasers being,
collectively, the "Chatterjee Purchasers"). Terms defined or referenced in the
Additional Chatterjee Agreement and not otherwise defined or referenced herein
are used herein as therein defined or referenced.

     The Company and the Chatterjee Purchasers hereby agree as follows:

     1. (a) Section 9.11(e) of each Chatterjee Agreement is amended (the
"Amendment") by substituting the following for the portion thereof immediately
preceding the proviso contained therein:

          (e) additional Investments in the Company's Subsidiaries which (i)
     either (A) are made on or before December 31, 1996 and are reflected in the
     1996 Forecast contained in Schedule 9.11 (under the heading "Projected
     Intercompany Balance YE 1996" and not under the heading "3/31/96 Balance"),
     or (B) are made on an aggregate basis after December 31, 1996 and on or
     before December 31, 1997 and are reflected in Schedule 9.11 (under the line
     item "Total" of the schedule "Projected Additional Intercompany
     Indebtedness as of December 31, 1997"), and (ii) consist of Indebtedness
     the proceeds of which are or will be used, directly or indirectly, for
     working capital, including Capital Expenditure, purposes of the Company's
     Subsidiaries, in each case in the ordinary course of business of such
     Subsidiaries;

     (b) Schedule 9.11 is amended by adding at the end thereof the Schedule,
including accompanying notes, contained in Exhibit A hereto.
<PAGE>   2


        2. The Chatterjee Purchasers waive any and all Events of Default (as
defined in the Initial Transaction Documents and the Transaction Documents to
which they are respective parties) and any and all events ("Potential
Defaults") that, with the giving of notice of lapse of time or both, would
constitute Events of Default, to the extent that such Events of Default and
Potential Defaults (i) arose on or before the date hereof and before giving
effect to the Amendment and (ii) resulted from events, transactions, facts and
circumstances that, immediately after giving effect to the Amendment, would not
constitute Events of Default or Potential Defaults.

        3. THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        4. This letter agreement becomes effective as of the date first above
written, on the date on which the Company and each Chatterjee Purchaser shall
have executed and delivered a counterpart hereof. Upon the effectiveness of
this letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Chatterjee Agreement or any term or provision
thereof shall mean such Chatterjee Agreement, such term or such provision,
respectively, as amended hereby. Except as otherwise provided herein, the
Initial Transaction Documents and the Transaction Documents shall remain in full
force and effect and are hereby in all respects ratified and confirmed.

        5. This letter agreement may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which taken together shall constitute but one and the same letter agreement.
Delivery of an executed counterpart of a signature page of this letter
agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this letter agreement.



<PAGE>   3
        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below. 

                                       Very truly yours,



THE OPEN SOCIETY INSTITUTE             WINSTON PARTNERS II LDC



By: /s/ GARY S. GLADSTEIN              By: /s/ PETER A. HURWITZ
    ------------------------------         -------------------------------------
    Name: George Soros and Susan           Name: Peter A. Hurwitz 
          Weber Soros                      Title: Attorney-in-Fact 
    Title: Trustees                                                
    By: Gary S. Gladstein
        Attorney-in-Fact


CHATTERJEE FUND MANAGEMENT, L.P.       WINSTON PARTNERS II LLC



By: /s/ [ILLEGIBLE]                    By: Chatterjee Advisors L.L.C.
    ------------------------------         Its Sole Manager
    Its General Manager


By: /s/ PETER A. HURWITZ               By: /s/ PETER A. HURWITZ
    ------------------------------         -------------------------------------
    Name:                                  Name: Peter A. Hurwitz
    Title:                                 Title: Manager


                      Accepted and Agreed:

                      GLOBAL TELESYSTEMS GROUP, INC.



                      By: /s/ Vimal Agarwal
                          -------------------------------
                          Name: Vimal Agarwal
                          Title: Treasurer

<PAGE>   4
                                   Exhibit A

                         Global TeleSytems Group, Inc.

     Projected Additional Intercompany Indebtedness as of December 31, 1997

                                 $ in Thousands

                                                                    Amount
                                                                    ------
EDN Sovintel                                                           (900)
Hermes(4)                                                            62,000*
Monaco                                                                  300
Hungaro/Hungary/Eurohivo                                              4,200
Czech                                                                   500
TeleSystems Services                                                  5,300
Cellular(3)                                                          16,400**
Vostok Mobile                                                         5,300
Rusnet/TeleRoss/SFIT, Ltd.                                            8,800
Datacom/Sovam                                                         1,800
Ukranian TeleSystems Bancomsvyaz                                      8,400
China/V-Tech/Global Tongda                                            2,900
India/CDI                                                             1,800
China Investments/ACIC/Tianmu                                         6,000
Transpacific/GIT/China Rep                                            9,500
GTS Group (UK) LTD                                                    1,601
                                                                    -------
     Total                                                          133,900
                                                                    =======

 * Represents advance payment of equity. Intercompany loans will be converted
   to equity by September 30, 1997.

** Includes $15.0M paid to Lucent pending closure of $30M Chase loan.

See attached notes. 
<PAGE>   5
                           1997 Projected Additional
                           Intercompany Indebtedness
                                 as of 12-31-97


Notes:

1.   Includes actuals through end of June, 1997.

2.   Excludes GTS holding companies' equity investment in operating companies.

3.   Cellular includes $15.0M paid to Lucent pending closure of $30M Chase loan.

4.   Hermes includes promissory notes which are expected to be converted to
     equity by September 30, 1997.

5.   The amounts indicated opposite each Subsidiary reflect either or both of
     the following: a) direct or indirect (back-to-back) loans to such 
     Subsidiary, or its Subsidiaries, by the Company or other Subsidiaries and 
     b) direct or indirect (back-to-back) loans from such Subsidiary, or its 
     Subsidiaries, to any other Subsidiary. The aggregate additional amount of 
     these intercompany loans (determined, without duplication, after giving 
     effect to the loans described in the preceding sentence) does not exceed 
     the respective amounts indicated opposite "TOTAL".

<PAGE>   1
                                                                EXHIBIT 10.1(g)
                                                             
                                                               [GTS LETTERHEAD]

                                                             September 29, 1997


By Fax: +212 489 6357

Mr. W. James Peet,
The Chatterjee Group
Suite 3000
888 Seventh Avenue
New York, New York 10106

Dear Mr. Peet:

        Reference is made to (a) the following agreements, each as heretofore
amended, supplemented or otherwise modified (collectively, the "Chatterjee
Agreements"); (i) the Senior Note Purchase Agreement, dated as of January 19,
1996, between Global TeleSystems Group, Inc. (the "Company") The Open Society
Institute ("OSI") and Chatterjee Fund Management, L.P., as purchasers; and
(ii) the Senior Note Purchase Agreement, dated as of June 6, 1996, between the
Company and OSI, Winston Partners II LDC and Winston Partners II LLC, as
purchasers (collectively, the "Purchasers"); and (b) the transactions,
contracts and actions listed below and on the attached Schedule A,
collectively, the "Transactions."

        The Company, or one or more affiliates of the Company, propose to enter
into the Transactions, for which your consent is required under the terms of
the Chatterjee Agreements. The Transactions are described more fully on
Schedule A.

        GTS believes that the Transactions are in the best interest of the
Company, and we hereby solicit the Purchasers' consent, under (and for all
purposes of) the Chatterjee Agreements, to the Transactions.

<PAGE>   2

        Please evidence your consent by signing and returning to me a copy of
this letter. Thank you for your cooperation and support.

                                Sincerely,

                                /s/ VIMAL AGARWAL

                                Vimal Agarwal
                                Treasurer

Accepted and acknowledged this 3rd day of October, 1997:

THE OPEN SOCIETY INSTITUTE

/s/ GARY GLADSTEIN
- ----------------------------
By: Gary Gladstein
Its: Attorney-in-fact for George & Susan Soros

Accepted and acknowledged this 3rd day of October, 1997:

CHATTERJEE FUND MANAGEMENT, L.P.

/s/ PETER HURWITZ
- ----------------------------
By: Peter Hurwitz
Its: Attorney-in-fact 

Accepted and acknowledged this 3rd day of October, 1997:

WINSTON PARTNERS II LDC        

/s/ PETER HURWITZ
- ----------------------------
By: Peter Hurwitz
Its: Attorney-in-fact 

Accepted and acknowledged this 3rd day of October, 1997:

WINSTON PARTNERS II LLC        

By Chatterjee Advisors LLC

/s/ PETER HURWITZ
- ----------------------------
By: Peter Hurwitz
Its: Manager 

<PAGE>   3
                                   Schedule A

        Global TeleSystems Group, Inc. (the "Company") is in the process of
purchasing the remaining minority interest in Vostok Mobile B.V. ("VM") that
the Company does not currently own.  VM is the western partner in eleven
Russian cellular companies.

        De Nationale Investeringsbank ("NIB"), a Dutch bank, made loans in
December 1995 of one million guilders to each of five of such Russian cellular
companies (the "Borrowers").  (The Borrowers have commenced scheduled repayment
of the loans and a total of 4 million guilders (or, approximately U.S.
$2 million under current exchange rates) in loans remains outstanding.) The
Dutch government and VM guaranteed these loans.  The loans contain a covenant
that the ownership of VM would not change. Following the purchase of the
minority interest, there will no longer be any Dutch beneficial ownership of VM
and it is likely that the Dutch government will terminate its guarantee thereby
triggering an event of default under the loans.  Because the loans, and the
related Russian Central Bank licenses, do not provide for optional prepayment,
it is in the interest of the Company and the Borrowers that the loans remain
outstanding until June 30, 2001, which is their scheduled final maturity.

        In order to keep the loans outstanding, the NIB has requested that the
Company provide security in the amount of a cash deposit of the remaining
principal amount, plus the next scheduled interest payment, and a Company
guarantee of the amounts that may be due under the loans, which are not covered
by such deposit.  The Company's Board of Directors has approved the purchase of
the remaining minority interest in Vostok Mobile and the mechanism to keep the
loans in place.  The Company guarantee and the deposit would result in
additional indebtedness and a lien which would be prohibited by the Senior
Note Purchase Agreements.  The Company respectfully requests your waiver of the
provisions of the Senior Note Purchase Agreements which would otherwise
prohibit these actions.

<PAGE>   1
                                                                Exhibit 10.8



          ____________________________________________________________





                                  $26,250,000



                                  SENIOR NOTE
                               PURCHASE AGREEMENT


                                    between


                         GLOBAL TELESYSTEMS GROUP, INC.


                                      and


                       EMERGING MARKETS GROWTH FUND, INC.




                          ____________________________

                          Dated as of February 2, 1996





          ____________________________________________________________






<PAGE>   2






                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
<S>                <C>                                                                                                 <C>
ARTICLE 1          DEFINITIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
                   1.1  Definitions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1
                   1.2  Accounting Terms; Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

ARTICLE 2          PURCHASE AND SALE OF THE INITIAL NOTE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
                   2.1  Purchase and Sale of The Initial Note   . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
                   2.2  Transaction Fees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
                   2.3  Closing   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

ARTICLE 3          CONDITIONS TO THE OBLIGATION
                   OF THE INITIAL PURCHASER TO CLOSE    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
                   3.1  Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                   3.2  No Event of Default   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                   3.3  Secretary's Certificate   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                   3.4  Documents   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                   3.5  Purchase Permitted by Applicable Laws   . . . . . . . . . . . . . . . . . . . . . . . . . . .  12
                   3.6  Consents and Approvals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                   3.7  Registration Rights Agreement   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                   3.8  Warrant Agreement   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                   3.9  Certificate of Incorporation and By-laws  . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                   3.10  Opinion of Counsel   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                   3.11  No Material Adverse Change   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
                   3.12  No Material Judgment or Order  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

ARTICLE 4          CONDITIONS TO THE OBLIGATION
                   OF THE COMPANY TO CLOSE      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
                   4.1  Representations and Warranties True   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
                   4.2  Compliance with this Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
                   4.3  Issuance Permitted by Applicable Laws   . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
                   4.4  Consents and Approvals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
                   4.5  No Material Judgment or Order   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14




</TABLE>

                                       i
<PAGE>   3




                                                                            Page

<TABLE>
<S>                <C>                                                                                                 <C>
ARTICLE 5          REPRESENTATIONS AND
                   WARRANTIES OF THE COMPANY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
                   5.1  Corporate Existence and Power   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
                   5.2  Corporate Authorization; No Contravention   . . . . . . . . . . . . . . . . . . . . . . . . .  15
                   5.3  Governmental Authorization; Third Party Consents  . . . . . . . . . . . . . . . . . . . . . .  16
                   5.4  Binding Effect  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
                   5.5  Litigation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
                   5.6  Compliance with Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
                   5.7  No Default or Breach  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                   5.8  Title to Properties   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                   5.9  Taxes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                   5.10  Financial Condition  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
                   5.11  Disclosure   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
                   5.12  Environmental Matters  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
                   5.13  Investment Company/Government Regulations  . . . . . . . . . . . . . . . . . . . . . . . . .  19
                   5.14  Subsidiaries   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
                   5.15  Capitalization   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
                   5.16  Broker's, Finder's or Similar Fees   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
                   5.17  Labor Relations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
                   5.18  Employee Benefit Plans   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
                   5.19  Patents, Trademarks, Etc.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
                   5.20  Trade Relations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

ARTICLE 6          REPRESENTATIONS AND
                   WARRANTIES OF THE INITIAL PURCHASER  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
                   6.1  Authorization; No Contravention   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
                   6.2  Binding Effect  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
                   6.3  Purchase for Own Account  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
                   6.4  Broker's, Finder's or Similar Fees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
                   6.5  Governmental Authorization; Third Party Consent   . . . . . . . . . . . . . . . . . . . . . .  22
                   6.6  Investment Company/Government Regulations   . . . . . . . . . . . . . . . . . . . . . . . . .  22
                   6.7  Due Diligence   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22

ARTICLE 7          INDEMNIFICATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
                   7.1  Indemnification   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
                   7.2  Notification  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24





</TABLE>
                                       ii
<PAGE>   4




                                                                            Page


<TABLE>
<S>                <C>                                                                                                 <C>
ARTICLE 8          AFFIRMATIVE COVENANTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
                   8.1  Financial Statements and Other Information  . . . . . . . . . . . . . . . . . . . . . . . . .  25
                   8.2  Certificates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
                   8.3  Preservation of Corporate Existence   . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
                   8.4  Payment of Obligations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
                   8.5  Compliance with Laws  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
                   8.6  Hazardous Materials   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
                   8.7  Notices   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
                   8.8  Reservation of Shares   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
                   8.9  Payment of Notes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
                   8.10  Seniority of Notes   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
                   8.11  Dividends  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
                   8.12  Insurance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
                   8.13  Books and Records  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
                   8.14  Use of Proceeds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30

ARTICLE 9          NEGATIVE COVENANTS   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
                   9.1  Consolidations and Mergers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
                   9.2  Transactions with Affiliates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
                   9.3  Limitation on Indebtedness  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
                   9.4  Limitation on Liens   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
                   9.5  Limitations on Restricted Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
                   9.6  Limitation on Payment Restrictions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
                   9.7  Dispositions of Assets  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
                   9.8  Capital Expenditures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
                   9.9  Financial Covenants   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
                   9.10  Employee Benefit Plans   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
                   9.11  Limitation on Investments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

ARTICLE 10         PREPAYMENT   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
                   10.1  Optional Prepayment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
                   10.2  Application of Prepayments   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36

ARTICLE 11         MISCELLANEOUS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
                   11.1  Survival of Representations and Warranties   . . . . . . . . . . . . . . . . . . . . . . . .  36
                   11.2  Notices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  37





</TABLE>
                                      iii
<PAGE>   5




                                                                            Page

<TABLE>
                   <S>  <C>                                                                                            <C>
                   11.3  Successors and Assigns   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
                   11.4  Amendment and Waiver   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
                   11.5  Counterparts   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
                   11.6  Headings   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
                   11.7  Governing Law  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
                   11.8  Jurisdiction   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
                   11.9  Severability   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
                   11.10  Rules of Construction   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
                   11.11  Entire Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
                   11.12  Certain Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
                   11.13  Publicity   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
                   11.14  Further Assurances  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40





</TABLE>
                                       iv
<PAGE>   6





EXHIBITS

A                Form of Note
B                Form of Warrant Agreement
C                Form of Registration Rights Agreement
D                Form of Opinion

SCHEDULES

A                Existing Indebtedness
B                Existing Liens
C                Investments
5.7              Default on Contractual Obligations
5.9              Taxes
5.14             Subsidiaries, Jurisdiction of Incorporation and Ownership
                 by the Company
5.15(b)          Outstanding Stock Options
5.19             Trademarks
5.20             Trade Relations
8.11             Dividends
9.5              Restricted Payments
9.6              Payment Restrictions





<PAGE>   7









                                  SENIOR NOTE
                               PURCHASE AGREEMENT


                 AGREEMENT, dated as of February 2, 1996, between GLOBAL
TELESYSTEMS GROUP, INC., a Delaware corporation (the "Company"), and EMERGING
MARKETS GROWTH FUND, INC. a Maryland corporation (the "Initial Purchaser" and,
together with all permitted assignees from time to time, the "Purchasers").

                 WHEREAS, pursuant to the terms and subject to the conditions
of this Agreement, the Company proposes to issue and sell to the Initial
Purchaser its Senior Promissory Note, substantially in the form of Exhibit A
hereto (the "Initial Note" and, together with any substitute Senior Promissory
Notes, substantially in the form of Exhibit A hereto, issued by the Company to
any other Purchasers, the "Notes") in the aggregate principal amount of
$26,250,000; and

                 WHEREAS, simultaneously with the execution of this Agreement,
the parties have executed the Warrant Agreement, pursuant to which the Company
will issue to the Initial Purchaser warrants to purchase 1,944,444 shares of
the Company's Common Stock (the "Warrants"), and the Registration Rights
Agreement, pursuant to which the Company will grant to the Initial Purchaser
certain rights of first refusal in connection with the Warrants and certain
registration rights with respect to the shares of the Company's Common Stock
underlying the Warrants.

                 NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:


                                   ARTICLE 1

                                  DEFINITIONS

                 1.1  Definitions.  As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:

                 "Additional TCG Financing" means the additional financing in
an aggregate principal amount up to $10,000,000, to be provided to the Company
by any one or more of


<PAGE>   8

                                      2

TCG, OSI, CFM and their Affiliates upon exercise by any such Persons of the
option granted to such Persons under, and in accordance with, the Additional
TCG Financing Option Letter.

                 "Additional TCG Financing Option Letter" means the option
letter agreement, dated January 19, 1996, among the Company, OSI and CFM, as
such letter agreement may be amended, modified or otherwise supplemented from
time to time.

                 "Additional TCG Warrants" means the additional warrants to
purchase shares of Common Stock to be issued to any one or more of TCG, OSI,
CFM and their Affiliates simultaneously with the provision of the Additional
TCG Financing, as provided in the Additional TCG Financing Option Letter.

                 "Affiliate" means, with respect to any Person, any "affiliate"
of such Person, as defined in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act and, with respect to each Purchaser, shall also mean any
fund managed by CGC or any Affiliate of CGC and, with respect to OSI, CFM and
TCG, shall also mean any entity for which George Soros d/b/a Soros Fund
Management or Chatterjee Fund Management Co. LP, a Delaware limited
partnership, is acting as investment manager or investment adviser, in each
case with investment discretion (provided that such entity shall not be a
Person engaged in a business which is the same or substantially similar to the
business of the Company).

                 "Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.

                 "Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.

                 "Capital Expenditures" means, for any period, the aggregate of
all expenditures by the Company and any of its Subsidiaries during such period
that, in accordance with GAAP, are required to be included in the property,
plant or equipment or similar fixed capital or asset accounts reflected in the
consolidated balance sheet of the Company and its Subsidiaries.

                 "Capital International" means Capital International Emerging
Markets Fund.

                 "Capital International Note Purchase Agreement" means the
Senior Note Purchase Agreement, dated as of the date hereof, between the
Company and Capital International.
<PAGE>   9
                                       3

                 "Capital International Notes" means the Senior Promissory Note
to be issued by the Company to Capital International pursuant to, and subject
to the terms and conditions of, the Capital International Note Purchase
Agreement, together with any other Senior Promissory Notes to be issued by the
Company thereunder.

                 "Capital International Registration Rights Agreement" means
the Registration Rights Agreement, dated the date hereof, between the Company
and Capital International.

                 "Capital International Transaction Documents" means the
Capital International Notes, the Capital International Note Purchase Agreement,
the Capital International Warrant Agreement, the Capital International Warrants
and Capital International Registration Rights Agreement.

                 "Capital International Warrant Agreement" means the Warrant
Agreement, dated as of the date hereof, between the Company and Capital
International.

                 "Capital International Warrants" mean the warrants to purchase
in the aggregate 277,778 shares of Common Stock, issued by the Company to
Capital International pursuant to, and subject to the terms and conditions of,
the Capital International Warrant Agreement.

                 "Capital Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are or should be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP consistently applied.

                 "Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) that have maturities of not
more than six months from the date of acquisition, (ii) U.S. dollar denominated
time deposits, certificates of deposit and bankers acceptances of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500,000,000 that have maturities of not more than six months from the date of
acquisition, (iii) commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by Standard & Poors Corporation (or its successor,
"S&P") or at least P-1 or the equivalent thereof by Moody's Investors Service,
Inc.  (or its successor, "Moody's"), and in each case maturing not more than
six months after the date of acquisition, or (iv) tax-exempt commercial paper
of

<PAGE>   10
                                       4

the United States, municipal, state or local governments rated at least A-1 or
the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's and maturing within six months after the date of acquisition.

                 "CFM" means Chatterjee Fund Management, L.P.

                 "CGC" means Capital Group Companies, Inc.

                 "Closing" has the meaning assigned to that term in Section
2.3.

                 "Closing Date" means the date specified in Section 2.3.

                 "Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.

                 "Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.

                 "Common Stock" means the Common Stock, par value $0.0001 per
share, of the Company, or any other capital stock of the Company into which
such stock is reclassified or reconstituted.

                 "Condition of the Company" means the assets, properties,
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.

                 "Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire
such primary obligations or any property constituting direct or indirect
security therefor, or (b) to advance or provide funds (i) for the payment or
discharge of any such primary obligation, or (ii) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or financial condition
of the primary obligor so as to enable the primary obligor to pay such primary
obligation, or (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d)
otherwise to guarantee payment to or assure or hold harmless the owner of any
such primary obligation against loss or failure or inability to perform in
respect thereof.  The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determinable amount of the primary obligation
in respect of which such Contingent





<PAGE>   11
                                       5

Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof.

                 "Contractual Obligations" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument
to which such Person is a party or by which it or any of its property is bound.

                 "Current Ratio" means, with respect to the Company and its
Subsidiaries on a consolidated basis as of the end of any fiscal quarter, the
ratio determined by dividing (a) the sum of the current assets of the Company
and its Subsidiaries computed in accordance with GAAP, by (b) the sum of the
current liabilities of the Company and its Subsidiaries determined in
accordance with GAAP.

                 "Defined Benefit Plan" means a defined benefit plan within the
meaning of Section 3(35) of ERISA or Section 414(j) of the Code, whether funded
or unfunded, qualified or nonqualified (whether or not subject to ERISA or the
Code).

                 "EBITDA" means, with respect to the Company and its
Subsidiaries on a consolidated basis for any period, the sum of (a) Net Income
for such period, (b) Interest Expense for such period, (c) Federal, state and
local income and franchise taxes deducted from revenue in determining such Net
Income, (d) depreciation and amortization deducted from revenue in determining
such Net Income.

                 "Environmental Laws" means any federal, state, territorial,
provincial or local law, common law doctrine, rule, order, decree, judgment,
injunction, license, permit or regulation relating to environmental matters,
including those pertaining to land use, air, soil, surface water, ground water
(including the protection, cleanup, removal, remediation or damage thereof),
public or employee health or safety or any other environmental matter, together
with any other laws (federal, state, territorial, provincial or local) relating
to emissions, discharges, releases or threatened releases of any pollutant or
contaminant including, without limitation, medical, chemical, biological,
biohazardous or radioactive waste and materials, into ambient air, land,
surface water, groundwater, personal property or structures, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transportation, discharge or handling of any contaminant, as such
laws have been, or are, amended, modified or supplemented heretofore or from
time to time hereafter and any analogous future federal, or present or future
state or local laws, statutes and regulations promulgated thereunder.

                 "Equity Offering" means (i) an equity offering completed by
the Company subsequent to the Closing Date netting the Company cash proceeds of
at least sixty million





<PAGE>   12
                                       6

dollars ($60,000,000), or (ii) a series of equity offerings completed by the
Company within a nine-month period following the Closing Date and netting the
Company proceeds of at least sixty million dollars ($60,000,000).

                 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

                 "ERISA Affiliate" means any Person that is treated as a single
employer with the Company or any of its Subsidiaries under Section 414(b), (c),
(m) or (o) of the Code.

                 "Event of Default" has the meaning assigned to such term in
the Notes.

                 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.

                 "GAAP" has the meaning assigned to that term in Section 1.2.

                 "Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.

                 "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder.

                 "Hazardous Materials" means those substances which are
regulated by or form the basis of liability under any Environmental Laws.

                 "Indebtedness" means as to any Person (without duplication)
(a) all obligations of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not matured), (b)
all obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable and accrued
commercial or trade liabilities arising in the ordinary course of such Person's
business, (d) all indebtedness created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations of such Person, (f) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases) on





<PAGE>   13
                                       7

any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (g) any Contingent Obligation of
such Person.

                 "Initial Note" has the meaning assigned to that term in the
first recital of this Agreement.

                 "Interest Expense" means, for any period, the total interest
expense of the Company and its Subsidiaries on a consolidated basis for such
period, determined in accordance with GAAP consistently applied.

                 "Investment Company Act" shall mean the Investment Company Act
of 1940, as amended.

                 "January 19 Note Purchase Agreement" means the Senior Note
Purchase Agreement, dated as of January 19, 1996, among the Company, OSI and
CFM, as such agreement may be amended, supplemented or otherwise modified from
time to time.

                 "January 19 Notes" means the Senior Promissory Notes, dated
January 19, 1996, issued by the Company to OSI and CFM pursuant to, and subject
to the terms and conditions of, the January 19 Note Purchase Agreement.

                 "January 19 Transaction Documents" means the January 19 Note
Purchase Agreement, the January 19 Notes, the January 19 Warrants, the January
19 Warrant Agreement, the Joint Venture Letter Agreement, dated January 19,
1996, among the Company, OSI and CFM (as such letter agreement may be amended,
supplemented or otherwise modified from time to time), and the Joint Venture
Agreement, to be executed and delivered pursuant to the Joint Venture Letter
Agreement (as such joint venture agreement may be amended, supplemented or
otherwise modified from time to time).

                 "January 19 Warrant Agreement" means the Warrant Agreement,
dated as of January 19, 1996, among the Company, OSI and CFM, as such agreement
may be amended, supplemented or otherwise modified from time to time.

                 "January 19 Warrants" means the warrants to purchase in the
aggregate 2,222,222 shares of Common Stock, issued by the Company to OSI and
CFM pursuant to, and subject to the terms and conditions of, the January 19
Warrant Agreement.

                 "Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or other
security interest, including, without limitation,





<PAGE>   14
                                       8

those created by, arising under or evidenced by any conditional sale or other
title retention agreement or the interest of a lessor under a Capital Lease
Obligation.

                 "Net Income" means, with respect to the Company and its
Subsidiaries on a consolidated basis for any period, (a) net revenues and other
income for such period, minus (b) the aggregate for such period of, without
duplication, (i) cost of goods sold, (ii) Interest Expense, (iii) operating
expenses, (iv) selling, general and administrative expenses, (v) taxes, (vi)
depreciation and amortization, (vii) limited partnership retention, and (viii)
any other items that are treated as expenses under GAAP, but excluding from the
definition of Net Income any extraordinary or non-recurring charges, expenses,
gains or losses, any gains or losses not in the ordinary course of business,
and any income resulting from any write-up of an asset, all computed on a
consolidated basis in accordance with GAAP consistently applied.

                 "Net Worth" means at any date the stockholders' equity of the
Company and its Subsidiaries on a consolidated basis.

                 "Non-U.S. Subsidiary" means any Subsidiary of the Company
other than a U.S. Subsidiary.  Unless otherwise qualified, all references to a
"Non-U.S. Subsidiary" or to "Non-U.S. Subsidiaries" in this Agreement shall
refer to a Subsidiary or Subsidiaries of the Company.

                 "Notes" has the meaning assigned to that term in the first
recital of this Agreement.

                 "OSI" means The Open Society Institute.

                 "Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Authority or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.

                 "Registration Rights Agreement" means the Registration Rights
Letter Agreement, dated the date hereof, entered into by the Company and the
Initial Purchaser, substantially in the form attached hereto as Exhibit C, as
such agreement may be amended, supplemented or otherwise modified from time to
time.

                 "Regulation S-X" means the rules and regulations promulgated
and codified under 17 C.F.R. Part 210.

                 "Requirements of Law" means as to any Person, the Certificate
of Incorporation and By-laws or other organizational or governing documents of
such Person,





<PAGE>   15
                                       9

and any law, treaty, rule, regulation, right, privilege, qualification, license
or franchise or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable or binding upon such Person or any of its
property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to
herein.

                 "Restricted Payment" means (a) any dividend or other
distribution on any share of the Company's capital stock (except dividends
payable solely in shares of its capital stock) or (b) any payment by the
Company or any Subsidiary on account of the direct or indirect purchase,
redemption, retirement or other acquisition of (i) any shares of the Company's
capital stock (except shares acquired upon the conversion thereof into other
shares of its capital stock), (ii) any shares of any Subsidiary's capital stock
from any Person other than the Company or its Subsidiaries (except such
payments as are set forth on Schedule 9.5) to the extent such payment exceeds
$1 million in any single occurrence or $5 million in the aggregate in any
twelve-month period, (iii) any option, warrant or other right to acquire shares
of the Company's or any Subsidiary's capital stock from any Person other than
the Company or its Subsidiaries, or (c) any optional prepayment, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness of the Company.

                 "Securities" means, collectively, the Notes and the Warrants.

                 "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.

                 "Subsidiary" means, with respect to any Person, a corporation
or other entity (i) of which 50% or more of the outstanding securities or other
ownership interests is owned, directly or indirectly, by such Person or (ii)
with respect to which such Person, directly or indirectly, is entitled to vote
(in the absence of contingencies), for the election of 50% or more of the Board
of Directors (or group performing similar functions) of such corporation or
entity.  Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.

                 "TCG" means The Chatterjee Group.

                 "Transaction Documents" means collectively, this Agreement,
the Notes, the Warrants, the Warrant Agreement and the Registration Rights
Agreement.

                 "U.S. Subsidiary" means any Subsidiary which is incorporated
or registered under the laws of any jurisdiction of the United States of
America including the District of





<PAGE>   16
                                       10

Columbia and any state, territory, or any political subdivision thereof.
Unless otherwise qualified, all references to a "U.S. Subsidiary" or to "U.S.
Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.

                 "Warrants" has the meaning assigned to that term in the second
recital of this Agreement.

                 "Warrant Agreement" means that certain Warrant Agreement,
dated the date hereof, entered into by the Company and the Initial Purchaser,
substantially in the form attached hereto as Exhibit B, as such agreement may
be amended, supplemented or otherwise modified from time to time.

                 "Working Capital" shall mean, with respect to the Company and
its Subsidiaries on a consolidated basis for any period, the excess of current
assets over current liabilities (including accrued liabilities for
restructuring and other charges) determined in accordance with GAAP
consistently applied.

                 1.2  Accounting Terms; Financial Statements.

                          (a)     All accounting terms used herein and not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with generally accepted accounting principles as in effect
from time to time in the United States ("GAAP").  If any changes in accounting
principles are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions of or are otherwise required by, the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), and any
of such changes results in a change in the method of calculation of, or affects
the results of such calculation of, any of the financial covenants, standards
or terms found herein, then the parties hereto agree to enter into and
diligently pursue negotiations in order to amend such financial covenants,
standards or terms so as to reflect fairly and equitably such changes, with the
desired result that the criteria for evaluating the Company's financial
condition and results of operations shall be the same after such changes as if
such changes had not been made.

                          (b)     In accordance with GAAP, the Company accounts
for several of its Subsidiaries and investments using the equity method.
However, notwithstanding anything herein to the contrary (and irrespective of
the use of the word "consolidated" in any provision of the Transaction
Documents), compliance with the financial covenants contained in Section 9.9
will be determined, and any evaluation in connection with this Agreement of the
Company's financial condition and results of operations and cash flows will be
made, on





<PAGE>   17
                                       11

the basis of the combined financial statements referred to in Section 8.1
(which, in all material respects, shall be consistent with Rule 3-09 of
Regulation S-X).


                                   ARTICLE 2

                     PURCHASE AND SALE OF THE INITIAL NOTE

                 2.1  Purchase and Sale of The Initial Note.  Subject to the
terms and conditions herein set forth, the Company agrees that it will issue to
the Initial Purchaser, and the Initial Purchaser agrees that it will purchase
from the Company, on the Closing Date, the Initial Note, substantially in the
form attached hereto as Exhibit A, appropriately completed in conformity
herewith.  The purchase price of the Initial Note shall be $26,250,000.
Simultaneously with the purchase and sale of the Initial Note, the Company
shall deliver the Warrants to the Initial Purchaser.

                 2.2  Transaction Fees.  Concurrently with the execution
hereof, the Company shall pay to the Initial Purchaser a transaction fee of
$525,000, and shall reimburse all of the Initial Purchaser's out-of-pocket
expenses (including reasonable lawyers' fees, charges and disbursements and
consultants' fees and expenses) incurred in connection with the acquisition of
the Initial Note and the transactions contemplated by this Agreement, which
payments may be made by way of deductions from the purchase price of the
Initial Note purchased by the Initial Purchaser as provided for in Section 2.1.

                 2.3  Closing.  The purchase and issuance of the Initial Note
shall take place at the closing (the "Closing") to be held at the offices of
Shearman & Sterling at 2:00 p.m., Eastern Standard Time, on February 2, 1996,
or at such other time and place as the Company and the Initial Purchaser may
agree in writing (the "Closing Date").  At the Closing, the Company shall
deliver to the Initial Purchaser (i) the Initial Note against delivery to the
Company by the Initial Purchaser of the purchase price therefor by wire
transfer of immediately available funds and (ii) its Warrants as provided in
the Warrant Agreement.


                                   ARTICLE 3

                          CONDITIONS TO THE OBLIGATION
                       OF THE INITIAL PURCHASER TO CLOSE 

                 The obligation of the Initial Purchaser to purchase the
Initial Note, to pay the purchase price for the Initial Note and to perform any
of its other obligations hereunder shall





<PAGE>   18
                                       12

be subject to the satisfaction as determined by, or waiver by, the Initial
Purchaser of the following conditions on or before the Closing Date.  The
Initial Purchaser shall not be obligated to purchase the Initial Note unless
the delivery of the Warrants occurs simultaneously therewith.

                 3.1  Representations and Warranties.  The representations and
warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of such date (except that representations and warranties made at and as
of a prior date shall be true and correct at and as of such prior date), and
the Initial Purchaser shall have received a certificate from the Company, dated
the Closing Date and signed by the Secretary of the Company, to that effect.

                 3.2  No Event of Default.  No event shall have occurred and be
continuing that constitutes, or that, with the giving of notice or lapse of
time or both, would constitute, an Event of Default, and the Initial Purchaser
shall have received a certificate from the Company, dated the Closing Date and
signed by the Secretary of the Company, to that effect.

                 3.3  Secretary's Certificate.  The Initial Purchaser shall
have received a certificate from the Company, dated the Closing Date and signed
by the Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation and By-laws of the Company, and resolutions of the
Board of Directors of the Company or a duly authorized committee of the Board
of Directors of the Company approving this Agreement and the transactions
contemplated hereby, are all true, complete and correct and remain unamended
and in full force and effect, and (b) as to the incumbency and specimen
signature of each officer of the Company executing any Transaction Document or
any other document delivered in connection herewith on behalf of the Company.

                 3.4  Documents.  The Initial Purchaser shall have received
true, complete and correct copies of such documents as it may request in
connection with or relating to the sale of the Initial Note and the
transactions contemplated hereby, and all such documents to be delivered in
connection with the Closing shall be in form and substance satisfactory to the
Initial Purchaser.

                 3.5  Purchase Permitted by Applicable Laws.  The acquisition
of and payment for the Initial Note issued or to be issued to the Initial
Purchaser hereunder and the consummation of the transactions contemplated
hereby (including, without limitation, the issuance of the Warrants) shall not
be prohibited by any Requirement of Law binding on the Company and the Initial
Purchaser shall have received such certificates or other evidence as it may
reasonably request to establish compliance with this condition.





<PAGE>   19
                                       13

                 3.6  Consents and Approvals.  Other than the requirements of
the Hart-Scott-Rodino Act with respect to the issuance of the Common Stock upon
exercise of the Warrants:  (i) all consents, exemptions, authorizations, or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law binding on the Company and
with respect to those Contractual Obligations of the Company necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the payment of interest on the Notes and the issuance of
Common Stock upon exercise of the Warrants) by the Company or enforcement
against the Company of the Transaction Documents shall have been obtained and
be in full force and effect and, except as provided in the phrase preceding
clause (i) above, the Initial Purchaser shall have been furnished with
appropriate evidence thereof, and (ii) all waiting periods shall have lapsed
without extension or the imposition of any conditions or restrictions.

                 3.7  Registration Rights Agreement.  The Company shall have
duly executed and delivered the Registration Rights Agreement.

                 3.8  Warrant Agreement.  The Company shall have duly executed
and delivered the Warrant Agreement and the Warrants.

                 3.9  Certificate of Incorporation and By-laws.  True and
correct copies of the Certificate of Incorporation and By-laws of the Company
shall have been delivered to the Initial Purchaser.

                 3.10  Opinion of Counsel.  The Initial Purchaser shall have
received an opinion of the Company's General Counsel, dated the Closing Date,
relating to the transactions contemplated by or referred to herein, in the form
attached hereto as Exhibit D.

                 3.11  No Material Adverse Change.  Since December 20, 1995,
there shall have been no material adverse change, nor shall any such change be
threatened or reasonably likely to occur, in the Condition of the Company,
taken as a whole.

                 3.12  No Material Judgment or Order.  There shall not be on
the Closing Date any judgment or order of a court of competent jurisdiction or
any ruling of any Governmental Authority which would prohibit the purchase of
the Initial Note hereunder or the issuance of the Initial Note or the issuance
of the Warrants pursuant to the Warrant Agreement or which would nullify or
modify the issuance of the Initial Note or the issuance of the Warrants or
subject the Initial Purchaser to any penalty under or pursuant to any
Requirement of Law binding on the Company in connection with the acquisition of
the Initial Note or the issuance of the Warrants.





<PAGE>   20
                                       14

                                   ARTICLE 4

                          CONDITIONS TO THE OBLIGATION
                            OF THE COMPANY TO CLOSE   

                 The obligations of the Company to sell the Initial Note shall
be subject to the satisfaction as determined by, or waiver by, the Company of
the following conditions on or before the Closing Date:

                 4.1  Representations and Warranties True.  The representations
and warranties of the Initial Purchaser contained in Article 6 hereof shall be
true and correct in all material respects at and as of the Closing Date as if
made at and as of such date.

                 4.2  Compliance with this Agreement.  The Initial Purchaser
shall have performed and complied with all of its agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by the Initial Purchaser on or before the Closing Date.

                 4.3  Issuance Permitted by Applicable Laws.  The issuance of
the Initial Note and the consummation of the transactions contemplated hereby
shall not be prohibited by any Requirement of Law.

                 4.4  Consents and Approvals.  Other than the requirements of
the Hart-Scott-Rodino Act with respect to the issuance of the Common Stock upon
exercise of the Warrants by the Initial Purchaser:  (i) all consents,
exemptions, authorizations, or other actions by, or notices to, or filings
with, Governmental Authorities and other Persons in respect of all Requirements
of Law necessary or required in connection with the execution, delivery or
performance by the Initial Purchaser or enforcement against the Initial
Purchaser of this Agreement and the other Transaction Documents executed by the
Initial Purchaser shall have been obtained and be in full force and effect and
(ii) all waiting periods shall have lapsed without extension or the imposition
of any conditions or restrictions.

                 4.5  No Material Judgment or Order.  There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority which would prohibit the sale of the
Initial Note hereunder or the issuance of the Warrants pursuant to the Warrant
Agreement or subject the Company to any material penalty under or pursuant to
any Requirement of Law binding on the Initial Purchaser in connection with the
acquisition of the Initial Note or the issuance of the Warrants.





<PAGE>   21
                                       15

                                   ARTICLE 5

                              REPRESENTATIONS AND
                           WARRANTIES OF THE COMPANY

                 The Company hereby represents and warrants to the Initial
Purchaser, before and after giving effect to the transactions contemplated by
this Agreement, as follows:

                 5.1  Corporate Existence and Power.  The Company and each U.S.
Subsidiary:  (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power and authority to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which
it is currently, or is currently proposed to be, engaged; and (c) is duly
qualified as a foreign corporation, licensed and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property
or the conduct of its business requires such qualification, except to the
extent that the failure to do so would not have a material adverse effect on
the Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents.  Each Non-U.S. Subsidiary: (a) has
filed all required documents for incorporation under the laws of its
jurisdiction of incorporation and has been registered or is exercising
commercially reasonable efforts to be registered in such jurisdiction; and (b)
has all requisite corporate power and authority to own and operate its
property, to lease the property it operates as a lessee and to conduct the
business in which it is currently or is currently proposed to be engaged,
except to the extent that the failure to do so would not have a material
adverse effect on the Condition of the Company or on the ability of the Company
to perform its obligations under the Transaction Documents.  The Company has
the corporate power and authority to execute, deliver and perform its
obligations under each Transaction Document to which it is or will be a party
and to borrow hereunder.

                 5.2  Corporate Authorization; No Contravention.   The
execution, delivery and performance by the Company of each Transaction Document
and the transactions contemplated thereby, including without limitation the
issuance and sale of the Securities:  (a) have been duly authorized by all
necessary corporate and, if required, stockholder action; (b) do not contravene
the terms of the Company's Certificate of Incorporation or By-Laws, or any
amendment of either thereof; and (c) will not violate, conflict with or result
in any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of the Company or any of its Subsidiaries (other than as
set forth in Schedule 9.6), or any law, treaty, rule or regulation, right,
privilege, qualification, license or franchise or any determination of an
arbitrator or a court or other Governmental Authority applicable to the Company
or any of its Subsidiaries, except to the extent that such violation, conflict,
breach or contravention would not have a material adverse effect on the
Condition of the Company





<PAGE>   22
                                       16

or on the ability of the Company to perform its obligations under the
Transaction Documents.

                 5.3  Governmental Authorization; Third Party Consents.  In
connection with the execution, delivery or performance (including, without
limitation, the payment of interest on the Notes and the issuance of Common
Stock upon the exercise of the Warrants) by the Company or enforcement against
the Company of the Transaction Documents or the transactions contemplated
hereby or thereby, other than with respect to the Hart-Scott-Rodino Act in
connection with the exercise of the Warrants, (i) no approval, consent,
compliance, exemption, authorization, or other action by, or notice to, or
filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, and (ii) no lapse of a waiting period under a Requirement
of Law, are necessary or required other than such approvals, consents,
compliances, exemptions, authorizations, actions, notices, filings or waiting
periods which, if not obtained, would not have a material adverse effect on the
Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents.

                 5.4  Binding Effect.  Each of the Transaction Documents has
been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
relating to enforceability.

                 5.5  Litigation.  Except as set forth in Schedules 5.7 and
5.20, there are no legal actions, suits, proceedings, claims or disputes
pending, or to the knowledge of the Company or its Subsidiaries, threatened in
writing, at law, in equity, in arbitration or before any Governmental Authority
against the Company or any of its Subsidiaries (a) with respect to the
Transaction Documents, or any of the transactions contemplated hereby or
thereby, or (b) which would, if adversely determined, have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Documents.  No injunction, writ,
temporary restraining order, decree or any order of any nature has been issued
by any court or other Governmental Authority purporting to enjoin or restrain
the execution, delivery or performance of the Transaction Documents.

                 5.6  Compliance with Laws.  The Company and each of its U.S.
Subsidiaries are in compliance with all laws, rules or regulations binding on
them, except to the extent that the failure to comply therewith would not have
a material adverse effect on the Condition of the Company or on the ability of
the Company to perform its obligations under the Transaction Documents.  To the
best knowledge of the Company, each of its Non-U.S. Subsidiaries is in
compliance with all laws, rules or regulations binding on it, except to the





<PAGE>   23
                                       17

extent that the failure to comply therewith would not have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Documents.

                 5.7  No Default or Breach.  No event has occurred and is
continuing or would result from the incurring of obligations by the Company
under the Transaction Documents which constitutes or, with the giving of notice
or lapse of time or both, would constitute an Event of Default.  Except as set
forth in Schedule 5.7, neither the Company nor any of its U.S. Subsidiaries
(or, to the best knowledge of the Company, any of its Non-U.S. Subsidiaries) is
in default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could have a material
adverse effect on the Condition of the Company or on the ability of the Company
to perform its obligations under the Transaction Documents.

                 5.8  Title to Properties.  The Company and each of its
Subsidiaries have no interests in any real property other than as lessees under
leases in full force and effect.

                 5.9  Taxes.  The Company and each of its U.S. Subsidiaries
have filed or caused to be filed (and each of the Company's Non-U.S.
Subsidiaries has exerted commercially reasonable efforts to file or cause to be
filed), or have properly filed extensions for, all tax returns which are
required to be filed and have paid or caused to be paid (and each of the
Company's Non-U.S. Subsidiaries has exerted commercially reasonable efforts to
pay or cause to be paid) all taxes required to be paid by them and all
assessments received by them to the extent that such taxes have become due,
except taxes the validity or amount of which is being contested in good faith
by appropriate proceedings and with respect to which adequate reserves have
been set aside.  Except as provided in Schedule 5.9, the Company and each of
its U.S. Subsidiaries have paid or caused to be paid (and each of the Company's
Non-U.S. Subsidiaries has exerted commercially reasonable efforts to pay or
cause to be paid), or the Company and its Subsidiaries have established
reserves that the Company reasonably believes to be adequate in all material
respects, for all tax liabilities applicable to the Company and its
Subsidiaries for all fiscal years which have not been examined and reported on
by the taxing authorities (or closed by applicable statutes).

                 5.10  Financial Condition.  The Company has furnished the
Initial Purchaser with (i) true and complete copies of the audited consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1994 and
December 31, 1993 and the related consolidated statements of operations and
cash flows, together with the notes thereto, of the Company and its
Subsidiaries for the years ended December 31, 1994 and December 31, 1993 (the
"Audited Financial Statements"), and (ii) the unaudited condensed consolidated
balance sheets of the Company and its Subsidiaries as of June 30, 1995 and the
related condensed consolidated statements of operations and cash flows,
together with the notes





<PAGE>   24
                                       18

thereto, of the Company and its Subsidiaries for the three and six month
periods ending June 30, 1995, certified by an officer of the Company (item (ii)
of this Section 5.10, the "Unaudited Financial Statements").  The Audited
Financial Statements fairly present the consolidated financial position of the
Company and its Subsidiaries as of the respective dates thereof, and the
results of operations and cash flows of the Company and its Subsidiaries as of
the respective dates or for the respective periods set forth therein, all in
conformity with GAAP consistently applied during the periods involved.  The
Unaudited Financial Statements fairly present the consolidated financial
position of the Company and its Subsidiaries as of the respective dates thereof
and the results of operations and cash flows of the Company and its
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved, subject to normal year-end audit adjustments.

                 5.11      Disclosure.

                           (a)  Except as otherwise disclosed (either by a
responsible member of the management of the Company or its Subsidiaries or in
writing) on or prior to the Closing Date to the Initial Purchaser or its
representatives, the Company and its Subsidiaries have not in writing or
through any responsible member of the management of the Company or its
Subsidiaries, in connection with the Initial Purchaser's purchase of the
Securities (except the Audited Financial Statements and any financial
projections of the Company and its Subsidiaries), made any untrue statement of
a material fact or omitted to state a material fact necessary to make the
statements made therein, in light of the circumstances under which such
statements were made, not misleading.

                           (b)  All financial projections of the Company or
its Subsidiaries prepared by or on behalf of the Company and delivered by or on
behalf of the Company to the Initial Purchaser or its representatives are based
on the assumptions set forth therein, which assumptions were reasonable at the
time indicated in such projections to have been made (it being understood that
such projections and any future events assumed therein are not to be viewed as
facts, that actual results may differ from projected or estimated results, and
that none of the Company, its Subsidiaries, or their officers, directors,
advisors or employees shall be liable for the accuracy of such projections or
future events).

                 5.12      Environmental Matters.  The property, assets and
operations at any time owned or leased by the Company and its U.S.
Subsidiaries, and, to the best knowledge of the Company, the property, assets
and operations at any time owned or leased by any of the Company's Non-U.S.
Subsidiaries, are and have been in compliance with all applicable Environmental
Laws and no condition exists with respect to such property, assets and
operations of the Company and its U.S. Subsidiaries and, to the best knowledge
of the Company, with respect to such property, assets and operations of the
Company's Non-U.S.





<PAGE>   25
                                       19

Subsidiaries, which could reasonably be expected to have a material adverse
effect on the Condition of the Company or an adverse effect on the Company's
ability to perform its obligations under the Transaction Documents.

                 5.13  Investment Company/Government Regulations.  The Company
is not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act.  The Company is not
a "holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended.  The Company is not a "public
utility", as such term is defined in the Federal Power Act, as amended.

                 5.14  Subsidiaries.  Schedule 5.14 sets forth a complete and
accurate list of all of the Subsidiaries of the Company and each joint venture
in which it or any Subsidiary has an interest on the date hereof, together with
their respective jurisdictions of incorporation or organization and the
Company's percentage ownership in each.  All of the outstanding shares of
capital stock of the Company's U.S. Subsidiaries that are corporations are
validly issued, fully paid and nonassessable; all of the outstanding shares of
capital stock of the Company's Non-U.S. Subsidiaries that are corporations have
been validly issued, or will be issued as required by applicable Requirements
of Law.

                 5.15  Capitalization.

                          (a)     As of the Closing Date, the authorized
capital stock of the Company consists of 40,000,000 shares of Common Stock and
10,000,000 shares of preferred stock.  As of the Closing Date, (i) 17,465,079
shares of Common Stock are issued and outstanding, (ii) 1,944,444 shares of
Common Stock are reserved for issuance upon exercise of the Warrants, (iii)
2,544,266 shares of Common Stock are reserved for issuance upon the exercise of
outstanding stock options, (iv) 50,000 shares of treasury stock are issued but
not outstanding, (v) 449,760 shares of Common Stock are reserved for issuance
in connection with the purchase of the shares of stock of GTS-Vox Limited, (vi)
2,222,222 shares of Common Stock are reserved for issuance upon the exercise of
the January 19 Warrants, (vii) 277,778 shares of Common Stock are reserved for
issuance upon the exercise of the Capital International Warrants and (viii)
20,000 shares of Common Stock are otherwise restricted.  All outstanding shares
of capital stock of the Company have been duly authorized.  All outstanding
shares of capital stock of the Company are, and the shares of Common Stock
issuable upon exercise of the Warrants when issued will be, validly issued,
fully paid, nonassessable and free and clear of any Lien.

                          (b)     On the Closing Date, except for (i) the
Warrants, (ii) the January 19 Warrants, (iii) the Capital International
Warrants, (iv) the stock options referred





<PAGE>   26
                                       20

to in Section 5.15(a)(iii) above, (v) with respect to the shares of Common
Stock referred to in Section 5.15(a)(v) above, and (vi) as set forth in
Schedule 5.15(b), there will be no outstanding securities convertible into or
exchangeable for capital stock of the Company or options, warrants or other
rights to purchase or subscribe to capital stock of the Company or contracts,
commitments, agreements, understandings or arrangements of any kind to which
the Company is a party relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights.

                 5.16  Broker's, Finder's or Similar Fees.  There are no
brokerage commissions, finder's fees or similar fees or commissions payable in
connection with the transactions contemplated hereby.

                 5.17      Labor Relations.  There is no strike, labor dispute,
slowdown or stoppage pending or threatened against the Company or any of its
Subsidiaries.

                 5.18      Employee Benefit Plans.  Each employee benefit plan
which is maintained or contributed to by the Company or its Affiliates (each a
"Company Plan") has been operated in compliance with its terms and is in
compliance in all material respects with all applicable Requirements of Law,
including, without limitation, ERISA and the Code.  The Company is not a "party
in interest" (as defined in Section 3(14) of ERISA), or "disqualified person"
(as defined in Section 4975(e) of the Code) with respect to any employee
benefit plan or plan, other than a Company Plan.  No Company Plan is subject to
Title IV of ERISA or Section 412 of the Code and neither the Company nor any of
its ERISA Affiliates has maintained or contributed to any employee benefit plan
subject to Title IV of ERISA or Section 412 of the Code within the last five
years.  The Company does not maintain, nor is a party to, any plan, agreement
or arrangement which provides for post-retirement welfare benefits.  Other than
provisions for the accelerated vesting of certain stock options, the Company
does not maintain, nor is a party to any plan, agreement or arrangement which
provides for the payment of "parachute payments" (within the meaning of Section
280G of the Code).

                 5.19      Patents, Trademarks, Etc.  The Company and its
Subsidiaries own or are in the process of filing or registering or are licensed
or otherwise have the right to use all trademarks, service marks, trade names,
copyrights, licenses, franchises and all governmental or other regulatory
permits, licenses, approvals, consents or waivers and other rights
(collectively, "Rights") that are used or useful in the operation of their
businesses as presently conducted and proposed to be conducted.  Neither the
Company nor any of its Subsidiaries owns or has registered or filed any
patents.  Except as set forth in Schedule 5.19, no Right currently employed by
the Company or any of its Subsidiaries or which the Company or any of its
Subsidiaries contemplates employing, infringes (or has been asserted to
infringe) upon the trademarks, service marks, copyrights or licenses that are





<PAGE>   27
                                       21

owned by others so as to have a material adverse effect on the Condition of the
Company or on the ability of the Company to perform its obligations under the
Transaction Documents.  There is no governmental action pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries to revoke, modify or amend any Right, which revocation,
modification or amendment would have a material adverse effect on the Condition
of the Company or on the ability of the Company to perform its obligations
under the Transaction Documents.

                 5.20 Trade Relations.  To the knowledge of the Company,
except as set forth in Schedule 5.20, there exists no actual or threatened
termination, cancellation or limitation of, or any adverse modification or
change in, the businesses relationship of the Company, its Subsidiaries or
their business with any customer or any group of customers or with any material
supplier, licensor, lessor or provider of goods, services or capacity, except,
for the purposes of this Section 5.20, such as would not have a material
adverse effect on the Condition of the Company or on the ability of the Company
to perform its obligations under the Transaction Documents.


                                   ARTICLE 6

                              REPRESENTATIONS AND
                      WARRANTIES OF THE INITIAL PURCHASER

        The Initial Purchaser hereby represents and warrants as follows:

                 6.1  Authorization; No Contravention.  The execution, delivery
and performance by the Initial Purchaser of this Agreement and each other
Transaction Document executed by the Initial Purchaser:  (a) are within the
Initial Purchaser's power and authority and will be duly authorized by all
necessary action; (b) do not contravene the terms of the Initial Purchaser's
organizational documents or any amendment thereof; and (c) will not materially
violate, conflict with or result in any breach or contravention of any material
Contractual Obligation of the Initial Purchaser, or any Requirement of Law
directly relating to the Initial Purchaser.

                 6.2  Binding Effect.  This Agreement and each other
Transaction Document to which the Initial Purchaser is a party have been duly
executed and delivered by the Initial Purchaser, and this Agreement constitutes
the legal, valid and binding obligation of the Initial Purchaser enforceable
against it in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles relating
to enforceability.





<PAGE>   28
                                       22

                 6.3  Purchase for Own Account.  The Initial Note, the Warrants
and the shares of Common Stock to be issued upon exercise of the Warrants to be
acquired by the Initial Purchaser pursuant to this Agreement and the Warrant
Agreement are being or will be acquired for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the applicable provisions of this
Agreement or the Warrant Agreement or the provisions of the securities laws of
the United States of America, or any state, without prejudice, however, to the
rights of the Initial Purchaser at all times to sell or otherwise dispose of
all or any part of the Initial Note, its Warrants or its shares of Common Stock
under an effective registration statement under the Securities Act, or under an
exemption from such registration available under the Securities Act, and
subject, nevertheless, to the disposition of the Initial Purchaser's property
being at all times within its control.  If the Initial Purchaser should in the
future decide to dispose of any of the Initial Note, its Warrants or its shares
of Common Stock, the Initial Purchaser understands and agrees that it may do so
only in compliance with the Securities Act and applicable state securities
laws, as then in effect.

                 6.4  Broker's, Finder's or Similar Fees.  There are no
brokerage commissions, finder's fees or similar fees or commissions payable in
connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Initial Purchaser or any action taken by
the Initial Purchaser.

                 6.5  Governmental Authorization; Third Party Consent.  (i) No
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law and (ii) no lapse of a waiting period under a
Requirement of Law, are necessary or required in connection with the execution,
delivery or performance by the Initial Purchaser or enforcement against the
Initial Purchaser of this Agreement or the other Transaction Documents executed
by the Initial Purchaser (other than with respect to the requirements of the
Hart-Scott-Rodino Act in connection with the exercise of the Warrants).

                 6.6  Investment Company/Government Regulations.  The
execution, delivery and performance of the Transaction Documents by the Initial
Purchaser, and the consummation of the transactions contemplated thereunder,
will not violate the Investment Company Act, including, without limitation,
Section 17 thereof.  The Initial Purchaser is not a "public utility", as such
term is defined in the Federal Power Act, as amended.

                 6.7  Due Diligence.  On or before the date hereof, the Initial
Purchaser and/or its representatives have had the opportunity to carry out
extensive due diligence with respect to the Company and its business and
operations, including the opportunity (i) to have visited principal facilities
of the Company; (ii) to have had access to the headquarters of the Company in
McLean, Virginia and all of the Company's files located at such headquarters;





<PAGE>   29
                                       23

(iii) to have asked questions of senior management and other personnel of the
Company with respect to such files and the business, affairs, condition and
operations of the Company; and (iv) to have requested and reviewed additional
documents relating to the foregoing, including the business plans and financial
reports of the Company, and the Initial Purchaser and/or its representatives
have completed such due diligence as the Initial Purchaser has deemed necessary
in connection with the transactions contemplated hereunder, with results
satisfactory to the Initial Purchaser.

                 6.8  CGC and its Affiliates as Representatives.  For purposes
of the Transaction Documents, CGC and its Affiliates have acted as
representatives of the Initial Purchaser, and any document delivered,
presentation made, or any information of any kind conveyed in any other manner,
or any opportunity provided to obtain any of the foregoing, to CGC, its
Affiliates or their representatives shall be deemed to have been delivered,
made, conveyed or provided to the Initial Purchaser.


                                   ARTICLE 7

                                INDEMNIFICATION

                 7.1  Indemnification.  In addition to all other sums due
hereunder or provided for in this Agreement, the Company agrees to indemnify
and hold harmless each Purchaser and its Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners and controlling
persons (each, an "Indemnified Party") to the fullest extent permitted by law
from and against any and all losses, claims, damages, expenses (including
reasonable fees, disbursements and other charges of counsel) or other
liabilities (collectively, "Liabilities") resulting from or arising out of any
legal, administrative or other actions (including any actions brought by any
equity holders of the Company or derivative actions brought by any Person
claiming through or in the Company's name), proceedings or investigations
(whether formal or informal), or written threats thereof, based upon, relating
to or arising out of the Transaction Documents, the transactions contemplated
thereby, or any Indemnified Party's role therein or in the transactions
contemplated thereby; provided, however, that the Company shall not be liable
under this Section 7.1 to an Indemnified Party:  (a) for any amount paid in
settlement of claims without the Company's consent (which consent shall not be
unreasonably withheld), (b) to the extent that such Liabilities resulted from
the willful misconduct, bad faith or gross negligence of such Indemnified
Party, (c) to the extent that such Liabilities resulted from the breach by such
Indemnified Party of any representation, warranty or covenant of such
Indemnified Party contained in this Agreement or (d) to the extent that such
Liabilities resulted from actions, proceedings or investigations by or on
behalf of one or more Indemnified Parties against other Indemnified Parties or
against the Company or its officers, directors, advisors or employees.  The
Company further agrees to





<PAGE>   30
                                       24

reimburse each Indemnified Party for any loss, claim, damage or expense
referred to in the preceding sentence as and when such loss, claim, damage or
expense is incurred by such Indemnified Party and notice thereof has been given
to the Company by such Indemnified Party; provided, however, that such
Indemnified Party shall repay to the Company the amount so reimbursed to such
Indemnified Party for such loss, claim, damage or expense, to the extent
directed or ordered by any court.

                 7.2  Notification.  Each Indemnified Party under this Article
7 will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding, or receipt of a written threat
thereof, against such Indemnified Party in respect of which indemnity may be
sought from the Company under this Article 7, notify the Company in writing of
the commencement thereof, provided that the omission of any Indemnified Party
so to notify the Company of any such action shall not relieve the Company from
any liability which it may have to such Indemnified Party (a) other than
pursuant to this Article 7 or (b) under this Article 7 unless, and only to the
extent that, such omission results in the Company's forfeiture of substantive
rights or defenses.  In case any such action, claim or other proceeding shall
be brought against any Indemnified Party and it shall notify the Company of the
commencement thereof, the Company shall be entitled to assume the defense
thereof at its own expense, with counsel satisfactory to such Indemnified Party
in its reasonable judgment; provided, however, that any Indemnified Party may,
at its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action, claim or proceeding in which both
the Company, on the one hand, and an Indemnified Party, on the other hand, are,
or are reasonably likely to become, parties, such Indemnified Party shall have
the right to employ one firm of separate counsel at the Company's expense and
to control its own defense of such action, claim or proceeding if, in the
opinion of counsel to such Indemnified Party, a conflict or potential conflict
exists between the Company, on the one hand, and such Indemnified Party, on the
other hand, that would make such separate representation advisable.  The
Company agrees that it will not, without the prior written consent of each
Purchaser, settle, compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding relating to the matters
contemplated hereby unless such settlement, compromise or consent includes an
unconditional release of each Purchaser and each other Indemnified Party from
all liability arising or that may arise out of such claim, action or
proceeding.  Each Purchaser agrees that, in connection with any settlement,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated hereby, it
will use its best efforts to include in such settlement, compromise or consent
an unconditional release of the Company from all liability arising or that may
arise out of such claim, action or proceeding, unless to do so would adversely
affect the terms of such settlement, compromise or consent with respect to such
Purchaser or would otherwise impose additional costs on such Purchaser for
which such Purchaser is not indemnified by the Company hereunder.  The rights
accorded to Indemnified Parties hereunder shall be in





<PAGE>   31
                                       25

addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.


                                   ARTICLE 8

                             AFFIRMATIVE COVENANTS

                 Until the payment by the Company of all principal of and
interest on the Notes and all other amounts due at the time of payment of such
principal and interest to each Purchaser under this Agreement, including,
without limitation, all fees, expenses and amounts due at such time in respect
of indemnity obligations under Article 7, the Company hereby covenants and
agrees with each Purchaser as follows:

                 8.1  Financial Statements and Other Information.  The Company
shall deliver to each Purchaser, in form and substance satisfactory to each
Purchaser:

                          (a)     as soon as available, but not later than (i)
prior to the Equity Offering, one hundred fifty (150) days after the end of
each fiscal year of the Company and (ii) following the Equity Offering, ninety
(90) days after the end of each fiscal year of the Company, a copy of the
audited consolidated balance sheet of the Company and its Subsidiaries as of
the end of such year and the related consolidated statements of operations and
cash flows for such fiscal year, together with additional financial information
consisting of combined financial statements, setting forth in each case in
comparative form the figures for the previous year, all in reasonable detail
and accompanied by (x) a management summary and analysis of the operations of
the Company and its Subsidiaries for such fiscal year and (y) by the opinion of
the Company's independent certified public accountants which report shall state
without qualification (or with such exceptions as noted therein) that (A) such
consolidated financial statements present fairly the consolidated financial
condition as of such date and consolidated results of operations and cash flows
for the periods indicated in conformity with GAAP applied on a consistent
basis, (B) such combined financial statements are fairly stated in all material
respects in relation to such consolidated financial statements taken as a whole
and (C) such combined financial statements are in a form that, in all material
respects, is consistent with Rule 3-09 of Regulation S-X; and

                          (b)     commencing with the fiscal period ending on
December 31, 1995, as soon as available, but in any event not later than (i)
prior to the Equity Offering, seventy-five (75) days after the end of each
fiscal quarter of each year and (ii) following the Equity Offering, forty-five
(45) days after the end of each fiscal quarter of each year, the unaudited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
the such quarter, and the related consolidated statements of operations and
cash flows for such





<PAGE>   32
                                       26

quarter and for the period commencing on the first day of the fiscal year and
ending on the last day of such quarter, together with additional financial
information consisting of combined financial statements, all certified by an
appropriate officer of the Company (A) in the case of such consolidated
financial statements, as presenting fairly the consolidated financial condition
as of such date and consolidated results of operations and cash flows for the
periods indicated in conformity with GAAP applied on a consistent basis,
subject to normal year-end audit adjustments and the absence of footnotes
required by GAAP, and (B) in the case of such combined financial statements,
(i) as fairly stated in all material respects in relation to such consolidated
financial statements taken as a whole and (ii) as being in a form that, in all
material respects, is consistent with Rule 3-09 of Regulation S-X.

                 8.2  Certificates.  The Company shall deliver to each
Purchaser concurrently with the delivery of the financial statements referred
to in Section 8.1(a) and (b), (i) a certificate of the Company's Chief
Financial Officer stating that to his or her knowledge no Event of Default and
no event that, after notice or lapse of time or both, would become an Event of
Default, shall have occurred during the period covered thereby and shall be
continuing on the date of such delivery, except as specified in such
certificate; and (ii) a certificate of an officer of the Company including
calculations set forth in reasonable detail showing the Company's compliance
with the financial covenants contained herein (such compliance being determined
in accordance with Section 1.2(b)).

                 8.3  Preservation of Corporate Existence.  The Company shall:

                          (a)     preserve and maintain in full force and
effect its corporate existence and good standing under the laws of its
jurisdiction of incorporation or organization; and

                          (b)     preserve and maintain in full force and
effect all rights, privileges, qualifications, licenses, permits,
authorizations, copyrights, trademarks, trade name and franchises necessary in
the conduct of its business; provided, however, that the Company shall not be
required to preserve and maintain any right, privilege, qualification, license,
permit, authorization, copyright, trademark, trade name or franchise if (i) the
preservation or maintenance thereof is no longer necessary in the conduct of
the business of the Company and (ii) the failure to preserve or maintain the
same would not have a material adverse effect on the Condition of the Company
or on the ability of the Company to perform its obligations under the
Transaction Documents.

                 The Company shall cause each of its U.S. Subsidiaries, and
shall use commercially reasonable efforts to cause its Non-U.S. Subsidiaries,
to comply with the covenants set forth in Section 8.3(a) and (b) above, except
to the extent that a failure of a Subsidiary to comply with such provisions
would not have a material adverse effect on the





<PAGE>   33
                                       27

Condition of the Company or on the ability of the Company to perform its
obligations under the Transaction Documents.

                 8.4  Payment of Obligations.  The Company shall, and shall
cause its U.S. Subsidiaries to, and shall exercise commercially reasonable
efforts to cause its Non-U.S. Subsidiaries to, pay and discharge the following
as the same shall become due and payable:

                          (a)     all tax liabilities, assessments and
governmental charges or levies upon it or its properties or assets, unless the
same are being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company or such
Subsidiary;

                          (b)     all lawful claims which the Company and each
of its Subsidiaries is obligated to pay, which are due and which, if unpaid,
would by law become a Lien upon its property, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
and

                          (c)     all payments of principal, interest and other
amounts when due on Indebtedness;
                                                      

                 in each case under this Section 8.4, unless the nonpayment
thereof would not have a material adverse effect on the Condition of the
Company or on the ability of the Company to perform its obligations under the
Transaction Documents.

                 8.5  Compliance with Laws.  The Company shall comply, shall
cause each of its U.S. Subsidiaries to comply, and shall exercise commercially
reasonable efforts to cause each of its Non-U.S. Subsidiaries to comply, with
all Requirements of Law binding on each such Person and with the directions of
any Governmental Authority having jurisdiction over it or its business or
property, except to the extent that the failure to comply therewith would not
have a material adverse effect on the Condition of the Company or on the
ability of the Company to perform its obligations under the Transaction
Documents.

                 8.6  Hazardous Materials.  The Company shall not release,
nor shall it permit any of its U.S.  Subsidiaries to release and shall use
commercially reasonable efforts to prevent any of its Non-U.S. Subsidiaries
from releasing, any Hazardous Materials at, on, under or in connection with any
property, assets or operations of (or used by) the Company or any of its
Subsidiaries, except to the extent that such release would not have a material
adverse effect on the Condition of the Company or on the ability of the Company
to perform its obligations under the Transaction Documents.  The Company shall
promptly investigate, or, as applicable, shall cause its U.S. Subsidiaries or
shall use commercially reasonable





<PAGE>   34
                                       28

efforts to cause its Non-U.S. Subsidiaries to investigate any such non-excluded
release, suspected release or discovery of Hazardous Material or any other
environmental condition on, under or from any of the property, assets or
operation of (or used by) the Company or its Subsidiaries.

                 8.7  Notices.  Promptly upon the Company obtaining knowledge
of the events described below, the Company shall give written notice to each
Purchaser:

                          (a)   of the occurrence of any Event of Default or
any event that, after notice or lapse of time or both, would become an Event of
Default;

                          (b)   of any (i) default or event of default under
any material Contractual Obligation of the Company or any of its Subsidiaries
but only to the extent such default or event of default would have a material
adverse effect on the Condition of the Company or on the ability of the Company
to perform its obligations under the Transaction Document, or (ii) material
dispute, litigation, investigation, proceeding or suspension which may exist or
which may be threatened in writing at any time between the Company or any of
its Subsidiaries and any Person but only to the extent such dispute,
litigation, investigation, proceeding or suspension or threat would, if
adversely determined, have a material adverse effect on the Condition of the
Company or on the ability of the Company to perform its obligations under the
Transaction Documents;

                          (c)   any other matter that has resulted in or
could reasonably be expected to result in a material adverse change in the
Condition of the Company.

                 Each notice pursuant to this Section 8.7 shall be accompanied
by a statement by the Chief Executive Officer, President, Chief Financial
Officer or General Counsel of the Company setting forth details of the
occurrence referred to therein and stating what action the Company proposes to
take with respect thereto.

                 8.8  Reservation of Shares.  The Company shall at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance or delivery upon exercise of the Warrants as provided in
the Warrant Agreement the maximum number of shares of Common Stock that may be
issuable or deliverable upon such exercise.  Such shares of Common Stock shall,
when issued or delivered in accordance with the Warrants, be duly and validly
issued and fully paid and non-assessable.  The Company shall issue such Common
Stock in accordance with the provisions of the Warrants and the Warrant
Agreement and shall otherwise comply with the terms thereof.





<PAGE>   35
                                       29

                 8.9   Payment of Notes. The Company shall pay the principal
of, interest on and fees, expenses and other amounts due in respect of, the
Notes on the dates and in the manner provided therein.

                 8.10  Seniority of Notes.  The Company shall cause its
obligations under this Agreement and the Notes at all times to be senior in
right of payment to all other Indebtedness of the Company other than the
Indebtedness of the Company identified on Schedule A, any Indebtedness incurred
by the Company pursuant to the Additional TCG Financing and Indebtedness
incurred by the Company pursuant to Section 9.3(c) (whether secured or
unsecured) (collectively, the "Excluded Indebtedness"); provided that the
Company's obligations under this Agreement and the Notes shall be at least
equal in right of payment to the Excluded Indebtedness; provided, further, that
Indebtedness of the Company permitted under Section 9.3(c) and consisting of
guarantees of Indebtedness of its Subsidiaries may only be equal in right of
payment to the Company's obligations under this Agreement and the Notes to the
extent such Indebtedness of the Company outstanding at any time does not exceed
$1,500,000 in aggregate principal amount.

                 8.11  Dividends.  The Company shall permit its Subsidiaries to
pay dividends.  The Company shall, except as set forth on Schedule 8.11 and
only to the extent not prohibited by applicable law, apply the amount of any
such dividends (net of any taxes or other governmental charges applicable
thereto or mandatory payments pursuant to contractual obligations incurred
prior to the date hereof), as and when received by it, to the payment of any
principal, interest and fees and expenses and other amounts owing, but only to
the extent then due and payable, hereunder; provided, however, that to the
extent that any principal, interest and fees and expenses and other amounts are
then also due and payable under the Capital International Note Purchase
Agreement, such dividends shall be applied to the amounts owing under this
Agreement and under the Capital International Note Purchase Agreement based on
the proportion (expressed as a percentage) that the total principal amount
outstanding under each such agreement bears to the total aggregate principal
amount outstanding under such agreements.

                 8.12  Insurance.  The Company shall, and the Company shall
cause each of its U.S. Subsidiaries to, and shall use commercially reasonable
efforts to cause each of its Non-U.S. Subsidiaries to, maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts and covering such risks as are usually and customarily carried with
respect to similar businesses according to their respective locations.

                 8.13  Books and Records.  The Company shall, and shall cause
each of its U.S. Subsidiaries to, and shall use commercially reasonable efforts
to cause each of its Non-U.S. Subsidiaries to, keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company





<PAGE>   36
                                       30

and each of its Subsidiaries in accordance with (a) GAAP consistently applied
to the Company and its U.S. Subsidiaries and (b) accounting principles
generally accepted in the jurisdiction of incorporation of the Company's
Non-U.S. Subsidiaries, provided that all financial reports and statements
provided to the Purchasers hereunder shall be prepared in accordance with GAAP.

                 8.14  Use of Proceeds.  The Company shall use the proceeds of
the sale of the Notes only for the following purposes and in the following
priority:  (a) first, for the payment of fees and expenses due to each
Purchaser in connection with the transactions contemplated by the Transaction
Documents; (b) second, to the extent required under the January 19 Note
Purchase Agreement, for the mandatory prepayment of the January 19 Notes; and
(c) third, for general corporate purposes.


                                   ARTICLE 9

                               NEGATIVE COVENANTS

                 Until the payment by the Company of all principal of and
interest on the Notes and all other amounts due at the time of payment of such
principal and interest to each Purchaser under this Agreement, including,
without limitation, all fees, expenses and amounts due at such time in respect
of indemnity obligations under Article 7, the Company hereby covenants and
agrees with each Purchaser as follows:

                 9.1  Consolidations and Mergers.  The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its assets (whenever acquired), and the Company shall not
allow any of its U.S. Subsidiaries to, and shall use commercially reasonable
efforts not to allow its Non-U.S. Subsidiaries to, merge or consolidate with or
into any other Person except the Company or another Subsidiary of the Company.

                 9.2  Transactions with Affiliates.  The Company shall not
enter, shall not permit any of its U.S. Subsidiaries to enter, and shall use
commercially reasonable efforts to prevent its Non-U.S. Subsidiaries from
entering, into any transaction with any Affiliate of the Company or such
Subsidiary or any stockholder (or any Affiliate of such stockholder) of the
Company or such Subsidiary, except either (x) transactions pursuant to the
reasonable requirements of the business of the Company or such Subsidiary or
(y) transactions on terms substantially no less favorable to the Company or
such Subsidiary than those that the Company or such Subsidiary would obtain in
a comparable arm's-length transaction with a Person not an Affiliate or
stockholder (or Affiliate of a stockholder) of the Company or such Subsidiary;
provided that the foregoing limitation shall not limit or apply to:  (i) the





<PAGE>   37
                                       31

execution, delivery and performance of the Transaction Documents or the
consummation of any transaction required or permitted pursuant to the terms of
the Transaction Documents, (ii) the execution, delivery and performance of the
Capital International Transaction Documents or the consummation of any
transaction required or permitted pursuant to the terms of the Capital
International Transaction Documents, (iii) any transaction required or
permitted pursuant to the terms of the January 19 Transaction Documents and
(iv) any transaction contemplated in connection with the Additional TCG
Financing.

                 9.3  Limitation on Indebtedness.  Prior to the Equity
Offering, the Company shall not, and shall not cause, suffer or permit any of
its U.S. Subsidiaries to, and shall use commercially reasonable efforts to not
cause, suffer or permit its Non-U.S. Subsidiaries to, directly or indirectly,
issue, assume or otherwise incur any Indebtedness without the prior written
consent of each Purchaser (which shall not be unreasonably withheld); provided
that the foregoing restriction shall not prevent the Company or its
Subsidiaries from incurring: (a) Indebtedness under this Agreement and the
Notes (or other financing hereafter provided by the Initial Purchaser or any
Affiliates of the Initial Purchaser); (b) Indebtedness identified in Schedule
A; (c) Indebtedness of the Company or any of its Subsidiaries (including
Capital Lease Obligations and other Indebtedness for the financing of Capital
Expenditures) incurred solely for the purpose of financing, or guaranteeing the
financing of, the acquisition of equipment or other property by the Company or
any Subsidiary, provided that the principal amount of such Indebtedness does
not exceed, in the aggregate, the lesser of (i) the fair market value of such
equipment or other property at the time of such incurrence or (ii) the purchase
price of such equipment or other property (including in the determination of
such fair market value or purchase price, all related products and services
purchased concurrently from the vendor or a third party in connection with the
purchase of such equipment or property); (d) additional Indebtedness of the
Company or any Subsidiary to any other Subsidiary, or Indebtedness of any
Subsidiary to the Company, provided that the aggregate outstanding principal
amount of Indebtedness permitted pursuant to this clause (d) shall not at any
time exceed five million dollars ($5,000,000); (e) Indebtedness incurred
pursuant to the Additional TCG Financing; and (f) Indebtedness incurred in
connection with any other financing hereafter provided to the Company by OSI,
CFM, TCG or their respective Affiliates.  Following the Equity Offering, the
Company may incur Indebtedness without the prior written consent of any
Purchaser, provided that the incurrence of such Indebtedness shall not cause
the Company or any of its Subsidiaries to breach any other provision of Article
8 or Article 9 of this Agreement.

                 9.4  Limitation on Liens.  The Company shall not, and shall
not permit, cause or suffer any of its U.S.  Subsidiaries to, and shall use
commercially reasonable efforts not to permit, cause or suffer any of its
Non-U.S. Subsidiaries to, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, other than:  (a) Liens
existing on the date of this Agreement and disclosed on Schedule B; (b) Liens
for taxes,





<PAGE>   38
                                       32

statutory Liens of landlords and Liens of carriers, warehousemen, mechanics and
materialmen, in each case only to the extent the obligations thereto are not
yet due or are being contested in good faith by appropriate proceedings
diligently pursued; (c) Liens to secure performance of tenders, bids, statutory
obligations or government contracts, and similar Liens not securing
Indebtedness and arising in the ordinary course of business; and (d) any Lien
on equipment and properties securing, and financed by, Indebtedness permitted
under Section 9.3(c); provided that each such Lien securing any such
Indebtedness and permitted under this clause (d) shall extend only to the
equipment or other properties financed by such Indebtedness (including related
products and services as referred to in Section 9.3(c)).

                 9.5  Limitations on Restricted Payments.  Except as set forth
in Schedule 9.5, the Company shall not, and shall not permit any of its U.S.
Subsidiaries to, and shall use commercially reasonable efforts not to permit
any of its Non-U.S. Subsidiaries to, declare or make any Restricted Payment.
This provision shall not be deemed to prohibit the Company's ability to perform
its obligations under Section 8.11 or in connection with the Warrant Agreement,
the January 19 Transaction Documents, the Capital International Transaction
Documents or the Additional TCG Financing.

                 9.6      Limitation on Payment Restrictions.  The Company
shall use commercially reasonable efforts to prevent it or any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any such Subsidiary to (a) pay dividends or make any other
distribution on its capital stock, (b) pay any Indebtedness owed to the
Company, (c) make loans or advances to the Company, or (d) transfer any of its
property or assets to the Company, except those limitations as may be required
by the agreements entered into with respect to the Indebtedness identified in
Schedule A and those limitations set forth in Schedule 9.6.

                 9.7  Dispositions of Assets.  Except for the transactions
permitted by Section 8.3 or 9.1, the Company shall not, and shall not permit
any of its U.S. Subsidiaries to, and shall use commercially reasonable efforts
not to permit any of its Non-U.S. Subsidiaries to, sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
any part of the assets or properties of the Company or any of its Subsidiaries
or any of the capital stock of any of its Subsidiaries, other than (a)
inventory sold in the ordinary course of business for not less than the fair
market value thereof; (b) assets or properties sold, transferred or leased from
one wholly-owned Subsidiary of the Company to the Company or to another
wholly-owned Subsidiary of the Company; (c) assets or properties no longer
useful in the conduct of the Company's or such Subsidiary's business sold,
leased, transferred or disposed of in a manner consistent with the Company's or
such Subsidiary's practice on the date hereof or (d) assets or properties
exchanged for (or net proceeds from





<PAGE>   39
                                       33

the disposition of or which are used for the acquisition of) other assets or
properties that either enhance, upgrade or improve, or have a function or use
substantially equivalent to, the assets or properties so exchanged or disposed.

                 9.8      Capital Expenditures.  So long as the Equity Offering
has not been consummated, and except to the extent permitted under Section 9.7,
the Company shall not, and shall not permit any of its U.S. Subsidiaries to,
and shall use commercially reasonable efforts not to permit any of its Non-U.S.
Subsidiaries to, make any Capital Expenditures in respect of any period in
excess of one hundred and five (105) percent of the amounts contained in the
Company's annual budget and plan approved by the Company's Board of Directors
in respect of such period.

                 9.9  Financial Covenants.

                          (a)  Debt/Equity Ratio.  The Company shall not permit
the ratio of (i) consolidated Indebtedness of the Company and its Subsidiaries
(excluding Indebtedness incurred by Hermes Europe Railtel B.V.  ("Hermes")
identified on Schedule A ("Hermes Debt")) to (ii) consolidated shareholders'
equity of the Company and its Subsidiaries, (including Hermes equity and
minority interests determined in accordance with GAAP) computed in accordance
with GAAP (except as provided herein), at any time to be greater than the ratio
set forth with respect to any quarter in the table below:


                                 Quarter Ending

<TABLE>
 <S>                        <C>                 <C>                 <C>                  <C>
 Fiscal Year                March 31            June 30             Sept. 30             Dec. 31
 -----------                --------            -------             --------             -------
 1995                          --                 --                   --                  --
 1996                          65%               65%                  65%                  65%
 1997 and Subsequent           60%               60%                  60%                  60%
 Years                         60%               60%                  60%                  60%


</TABLE>
                          (b)     Leverage Ratio.  As of the end of any fiscal
quarter, the Company shall not permit the ratio of (i) Consolidated
Indebtedness of the Company and its Subsidiaries (excluding Hermes Debt) to
(ii) EBITDA as of the end of such fiscal quarter and the three immediately
preceding fiscal quarters (treated as a single accounting period), to be
greater than the amount set forth with respect to such quarter in the table
below:





<PAGE>   40
                                       34


                                 Quarter Ending

      
<TABLE>
 <S>                       <C>               <C>          <C>            <C>
                                                                  
Fiscal Year             March 31         June 30     Sept. 30       Dec. 31
- -----------             --------         -------     --------       -------
 1995                     --               --           --             --
 1996                    N/A              N/A          N/A            N/A
 1997                     8                8            8              8 
 1998                     6                6            6              6
 1999 and subsequent        
 years                    5                5            5              5     

</TABLE>
                          (c)     Net Worth.  Net Worth will be determined as
of the end of each Fiscal Year.  The Net Worth (including Hermes equity and
minority interests determined in accordance with GAAP), as of the end of each
Fiscal Year set forth below, shall not be less than the amount set forth next
to such year:

<TABLE>
                 <S>                                        <C>
                                                              Net Worth
                 Fiscal Year                                (in millions)
                 -----------                                -------------

                 1995                                               N/A
                 1996 and                                           $125
                 Subsequent Years

</TABLE>
                          (d)     Current Ratio.  Prior to the Equity Offering,
the Company shall not permit the Current Ratio as of the end of any quarter to
be less than 1.1.  Following the Equity Offering, the Company shall not permit
the Current Ratio as of the end of any quarter to be less than the ratio set
forth with respect to such quarter in the table below:


                                 Quarter Ending

<TABLE>
 <S>                        <C>           <C>       <C>             <C>
                            
Fiscal Year                 March 31    June 30    Sept. 30       Dec. 31      
- -----------                 --------    -------    --------       ---------
 1995                          1.1       1.1         1.1            1.1
 1996                          1.5       1.5         1.5            1.5
 1997                          1.8       1.8         1.8            1.8
 1998 and Subsequent           2.0       2.0         2.0            2.0
 Years




</TABLE>

<PAGE>   41
                                       35

                       (e)  Application of Ratios.  Notwithstanding the
foregoing, prior to the Equity Offering, the Company shall not be required to
comply with the provisions of Sections 9.9(a), (b) and (c).

                 9.10  Employee Benefit Plans.  The Company shall not, and
shall not permit any of its Subsidiaries or any ERISA Affiliate, without the
prior approval of any Purchaser, (a) to establish or contribute to any employee
benefit plan (within the meaning of Section 3(3) of ERISA) or other employee
benefit arrangement which (i) is subject to Title IV of ERISA or is otherwise a
Defined Benefit Plan, or is a multiple employer plan (within the meaning of
Section 413(c) of the Code); or (ii) provides post-retirement welfare benefits
or, other than with respect to the stock options referenced in the last
sentence of Section 5.18, "parachute payments" (within the meaning of Section
280G(b) of the Code); or (b) to amend any Plan if the effect of such amendment
would cause such Plan to be a plan or arrangement described in clause (a)(i)
hereof or to provide any of the benefits described in clause (a)(ii) hereof.

                 9.11  Limitation on Investments.  The Company shall not, and
shall not permit any of its U.S. Subsidiaries to, and shall use commercially
reasonable efforts not to permit any of its Non-U.S. Subsidiaries to, lend
money or extend credit or make advances to any Person or purchase or acquire
for value any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, any Person (such lending of money, extending
of credit, making of advances, purchases or acquisitions (or commitments to
acquire) or making of capital contributions being collectively referred to as
"Investments") other than:  (a) cash and Cash Equivalents; (b) Investments (i)
existing on the date hereof or required as of the date hereof to be made in the
future, (ii) identified in Schedule C and (iii) made by the Company or any of
its Subsidiaries either (A) in any of their respective Subsidiaries or (B) in
partnerships or joint ventures with other Persons which are not Subsidiaries of
the Company; (c) Investments in such partnerships or joint ventures made after
the date hereof and approved by the Company's Board of Directors; (d)
Investments consisting of Indebtedness (or equity Investments, the proceeds of
which are used in the same manner as such Indebtedness) permitted under Section
9.3 or consisting of Capital Expenditures (including, without limitation,
equity Investments, the proceeds of which are used for Capital Expenditures)
permitted under Sections 9.7 and 9.8 and (e) Investments in such partnerships
or joint ventures not approved by the Company's Board of Directors if such
Investments are less than $1 million.





<PAGE>   42
                                       36

                                   ARTICLE 10

                                   PREPAYMENT

                 10.1  Optional Prepayment.  Upon written notice by the Company
given to the Purchasers not less than two (2) nor more than ten (10) Business
Days prior to the date fixed in such notice for such prepayment the Company, at
its option, may prepay, without premium or penalty, the outstanding principal
amount of the Notes, together with accrued interest to the date of such
prepayment on the principal amount prepaid, on any Business Day.

                 10.2  Application of Prepayments.

                          (a)  All prepayments under Section 10.1 above shall
be made, together with accrued interest on the principal amount so prepaid, and
shall be applied first to payment of default interest, if any, then to payment
of accrued interest, then to payment of principal.

                          (b)  All prepayments will be applied in or towards
reducing the remaining repayment installments of the Notes in inverse order of
maturity.  Any funds used in the prepayment of the Notes pursuant to Section
10.1 shall be applied pro rata to the prepayment of the Notes, based on the
proportion (expressed as a percentage) that the total principal amount
outstanding under each Note bears to the total aggregate principal amount
outstanding under all of the Notes.

                                   ARTICLE 11

                                 MISCELLANEOUS

                 11.1  Survival of Representations and Warranties.  All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of any Purchaser,
acceptance of the Securities and payment therefor, exercise of the Warrants or
termination of this Agreement; provided that each Purchaser may bring any
action for remedies with respect to the representations and warranties, which
action such Purchaser shall have initiated and shall have given notice thereof
to the Company on or prior to the second anniversary of the date hereof (or
with respect to the representations and warranties set forth in Sections 5.2,
5.4 and 5.9 hereof, the fifth anniversary of the date hereof); provided,
further, that no such representation or warranty shall in any event be deemed
to have been made at or as of any date other than the date hereof or the
Closing Date (or, to the extent so stated in Section 3.1, an earlier date).





<PAGE>   43
                                       37

                 11.2  Notices.  All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:

                 (a) if to the Company, at:

                         Global TeleSystems Group, Inc.
                         1751 Pinnacle Drive
                         North Tower 12th Floor
                         McLean, Virginia 22102
                         Attention:  General Counsel;


                 (b) if to the Initial Purchaser, at:

                      Emerging Markets Growth Fund, Inc.
                      333 South Hope Street
                      Los Angeles, California  90071; and


                 (c) if to any other Purchaser, at the address
                     specified by such Purchaser in a notice
                     delivered to the Company on or prior to
                     the effective date of the assignment pursuant
                     to which it became a Purchaser hereunder;


                 provided, that all such notices and communications to
                 the Initial Purchaser or any other Purchaser shall be
                 deemed to have been delivered to such Purchaser if
                 delivered in accordance with the provisions of this
                 Section 11.2 at:


                     Capital Group Companies, Inc.
                     333 South Hope Street
                     Los Angeles, California  90071

All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; when received, if mailed;
and when receipt is acknowledged, if telecopied.





<PAGE>   44
                                       38

                 11.3  Successors and Assigns.

                          (a)  This Agreement and the Notes shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto.  The Company may not assign any of its rights under this
Agreement without the prior written consent of each Purchaser.  Except as
provided in Article 7, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of any of the
Transaction Documents.

                          (b)  Subject to applicable securities laws, no
Purchaser may assign any of its rights under this Agreement or the Notes to any
other Person other than to any of its Affiliates; provided that any assignment
to any such permitted assignee shall be subject to the delivery by such
assignee of a certificate, dated the effective date of such assignment and
signed by a Secretary or Assistant Secretary of such assignee: (i) containing
representations and warranties with respect to such assignee substantially the
same as those contained in Article 6 hereof with respect to the Initial
Purchaser, provided, however, that if such assignee is not an "investment
company", or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act, such certificate shall contain a
representation and warranty by such assignee to that effect rather than a
representation and warranty similar to the Investment Company Act
representation and warranty made with respect to the Initial Purchaser pursuant
to Section 6.6; and (ii) stating that such representations and warranties are
true and correct on and as of the effective date of such assignment; provided,
further, that, in the event such assignee ceases to be an Affiliate of the
assigning Purchaser, it shall promptly assign such rights to such Purchaser or
an Affiliate of such Purchaser.  Assignments of the Warrants shall be governed
by the terms of the Warrant Agreement.  Each Purchaser may pledge the Notes and
this Agreement without any restriction.

                 11.4  Amendment and Waiver.

                          (a)  No failure or delay on the part of the Company
or either Purchaser in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy.  The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or any Purchaser at law, in equity or otherwise.

                          (b)  Any amendment, supplement or modification of or
to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and each





<PAGE>   45
                                       39

Purchaser, and (ii) only in the specific instance and for the specific purpose
for which made or given.  Except where notice is specifically required by this
Agreement, no notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.

                 11.5  Counterparts.  This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.  Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.

                 11.6  Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

                 11.7  Governing Law.  This Agreement shall be governed by the
laws of the State of New York excluding (to the greatest extent a New York
court would permit) any rule of law that would cause application of the laws of
any jurisdiction other than the State of New York.

                 11.8  Jurisdiction.  Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or any agreements or transactions contemplated
hereby may be brought in the courts of the State of New York or, to the extent
permitted by applicable law, of the United States of America for the Southern
District of New York and hereby expressly submits to the personal jurisdiction
and venue of such courts for the purposes thereof and, to the extent permitted
by applicable law, expressly waives any claim of improper venue and any claim
that such courts are an inconvenient forum.  Each party hereby irrevocably
consents to the service of process of any of the aforementioned courts in any
such suit, action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to the address set forth in Section 13.2.

                 11.9  Severability.  If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair
the benefits of the remaining provisions hereof.





<PAGE>   46
                                       40

                 11.10  Rules of Construction.  Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections
refer to sections or subsections of this Agreement.

                 11.11  Entire Agreement.  This Agreement, together with the
exhibits and schedules hereto and the other Transaction Documents, is intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein or therein.  This Agreement, together
with the exhibits hereto, and the other Transaction Documents supersede all
prior agreements and understandings between the parties with respect to such
subject matter.

                 11.12  Certain Expenses.  The Company will pay all expenses of
each Purchaser (including reasonable fees, charges and disbursements of counsel
but excluding fees, charges and disbursements incurred after the Closing by any
accountants, other consultants or other non-legal advisors retained by such
Purchaser) in connection with any amendment, supplement, modification or waiver
of or to any provision of this Agreement, the Notes or any other Transaction
Document, or any consent to any departure by the Company from the terms of any
provision of this Agreement, the Notes or any other Transaction Document.  The
Company further agrees to pay all expenses of each Purchaser, if any (including
reasonable fees, charges and disbursements of counsel), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
the Transaction Documents.

                 11.13  Publicity.  Except as may be required by applicable law
(and for disclosure by the Company to its shareholders at the annual meeting of
the shareholders and in quarterly financial and other similar reports required
to be delivered to the Company's shareholders), none of the parties hereto
shall issue a publicity release or announcement concerning this Agreement or
the transactions contemplated hereby, without prior approval by the other
parties hereto.  If any announcement is required by law to be made by any party
hereto, prior to making such announcement such party will deliver a draft of
such announcement to the other parties and shall give the other parties an
opportunity to comment thereon.

                 11.14  Further Assurances.  Each of the parties shall execute
such documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority
or any other Person) as may be reasonably required or desirable with respect to
the Hart-Scott-Rodino Act to carry out or to perform the provisions of this
Agreement.





<PAGE>   47
                                       41





                    [THIS PAGE IS INTENTIONALLY LEFT BLANK]





<PAGE>   48
                                       42

                 IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.

                                 GLOBAL TELESYSTEMS GROUP, INC.


                                 By /s/ N.S. Molberger
                                 _________________________________
                                   Name: N.S. Molberger


                                 EMERGING MARKETS GROWTH FUND, INC.


                                  By /s/ Pierre-Marie Bouvet de Maisonneuve
                                  _________________________________________
                                  Name: Pierre-Marie Bouvet de Maisonneuve
                                        Authorized Representative






<PAGE>   49
                                                    EXHIBIT A TO THE SENIOR
                                                    NOTE PURCHASE AGREEMENT - 
                                                    FORM OF NOTE

       THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
       AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT
       TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) PURSUANT TO
       AN EXEMPTION FROM REGISTRATION UNDER THE ACT.


                             SENIOR PROMISSORY NOTE

$26,250,000                                                  New York, New York
      
                                                               February 2, 1996


        FOR VALUE RECEIVED, the undersigned, GLOBAL TELESYSTEMS GROUP, INC., a
Delaware corporation (the "Company"), unconditionally promises to pay to the
order of EMERGING MARKETS GROWTH FUND, INC. (the "Lender"), the principal
amount of $26,250,000 (the "Original Principal Amount"; the Original Principal
Amount, as it may be increased pursuant to the provisions of paragraph 2(a),
being the "Principal Amount") on or before the Maturity Date (as defined below)
as hereinafter provided in Section 2(b), together with interest thereon as
hereinafter provided.

        1.      Note Purchase Agreement. This Senior Promissory Note (this
"Note") is issued pursuant to, and subject to the terms and conditions of, the
Senior Note Purchase Agreement, dated as of the date hereof, as it may be
amended, supplemented or otherwise modified from time to time (as so amended,
supplemented or modified, the "Agreement"), between the Company and the Lender.
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Agreement.

        2.      Amounts Due.

                (a) Interest. Interest on this Note shall accrue at the rate of
ten percent (10%) per annum on any unpaid Principal Amount from the date hereof
until repayment in full of the Principal Amount, payable in arrears quarterly
on the last Business Day of each calendar quarter and on the Maturity Date
(each such date, an "Interest Payment 

<PAGE>   50
Date"); provided that interest on any overdue Principal Amount shall accrue at
the rate set forth in Section 2(c); provided, further that upon written notice
by the Company to the Lender not less than ten (10) nor more than fifteen (15)
Business Days prior to any Interest Payment Date occurring on or before the
second anniversary hereof, the Company may defer to the Maturity Date payment
of any accrued interest otherwise payable on such Interest Payment Date, in
which case the Principal Amount shall be increased by an amount equal to such
payment. Interest shall be computed on a daily basis based on a 360 day year of
twelve, 30-day, months.

        (b)     Principal. The Original Principal Amount shall be payable in
twelve equal consecutive quarterly installments on the last Business Day of
each calendar quarter, commencing on April 1, 1998, with the final payment of 
principal made in full on the Maturity Date. The remainder of the Principal
Amount shall be paid on the Maturity Date.

        (c)     Default Interest. Subject to applicable law, any overdue
Principal Amount and any overdue interest (except for interest deferred in
accordance with the provisions of paragraph 2(a)) on this Note together with any
other amounts not paid when due (after giving effect to any applicable grace
periods) under this Note or the Agreement shall bear interest, payable on demand
in immediately available funds, for each day from the date payment thereof was
due to the date of actual payment, at the rate of 13% per annum.

        3.      Maturity Date. The Maturity Date of this Note shall be February
2, 2001.

        4.      Manner of Payment. All payments by the Company of the principal
of or interest on this Note and all payments of any other amounts due under this
Note or the Agreement shall be made without offset or deduction of any kind by
wire transfer in United States dollars in immediately available funds to such
bank or other place as may be designated by the Lender. If any payment of
principal, interest and/or any other amount owed by the Company under this Note
or the Agreement shall become due and payable on any day other than a Business
Day, such payment shall be made on the next succeeding Business Day, but
interest shall not be payable for such extended period.

        5.      Prepayment. Any prepayment of this Note shall be made in
accordance with the provisions of Article 10 of the Agreement.

        6.      Application of Prepayments. All prepayments of the Note shall be
applied in accordance with the provisions of Article 10 of the Agreement.

        7.      Defaults. Each of the following conditions, acts or events
shall constitute an "Even of Default" hereunder:
<PAGE>   51
                                      3


                (i)     if the Company defaults in the payment of any Principal
Amount on any Note when due;

                (ii)    if the Company defaults in the payment of any interest
on this Note or any other amounts payable hereunder or under the Agreement
(other than the Principal Amount on any Note) and such default continues
unremedied for a period of five Business Days;

                (iii)   if the Company or any of its Subsidiaries defaults in
the due observance or performance of any other covenant or agreement contained
in this Note or the Agreement and such default continues unremedied for a
period of 20 days after written notice thereof shall have been given by the
Lender and each other Purchaser to the Company;

                (iv)    if any representation, warranty, certification or
statement made by the Company or any of its Subsidiaries in this Note or the
Agreement or in any other document delivered pursuant hereto or thereto or in
connection herewith or therewith proves to have been incorrect in any material
respect when made;

                (v)     if the Company or any of its Subsidiaries defaults in
the payment of principal of or interest on any Indebtedness (whether now
existing or hereafter incurred) of the Company or any of its Subsidiaries
(other than any Indebtedness outstanding hereunder or incurred and outstanding
pursuant to the Agreement or under any other Notes) that is outstanding in a
principal amount of at least $1,000,000 in the aggregate or the performance or
observance of the terms and conditions of any agreement relating to such
Indebtedness, and the effect of such default is to accelerate the final
maturity of such Indebtedness and which is likely to have a material adverse
effect on the Condition of the Company or on the ability of the Company to
perform its obligations under the Transaction Documents; provided that a
payment default or acceleration under the Company's indebtedness to AT&T
Network Systems Netherlands N.V. ("AT&T") evidenced by promissory notes in an
aggregate principal amount not exceeding $4.5 million due on December 15, 1995
shall not be an Event of Default hereunder until such time as AT&T takes action
to collect on the indebtedness evidenced by such notes;

                (vi)    if an involuntary case or other proceeding is commenced
against the Company or any of its Subsidiaries seeking (A) liquidation,
reorganization or other relief with respect to the Company or indebtedness of
the Company under any bankruptcy, insolvency, receivership or similar law now
or hereinafter in effect or (B) the appointment of a receiver, trustee,
custodian, liquidator or similar official for the Company, or for a substantial
part of its property or assets, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order of 
<PAGE>   52
                                      4



relief shall be entered against the Company or any of its Subsidiaries under
the federal bankruptcy laws as now or hereafter in effect;

                (vii)   if the Company or any of its Subsidiaries (A) commences
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its indebtedness under any bankruptcy,
insolvency, receivership or similar law now or hereinafter in effect or the
appointment of a receiver, trustee, custodian, liquidator or similar official
for the Company, or for a substantial part of its property or assets; (B) shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it;
(C) shall make a general assignment for the benefit of creditors; (D) shall
admit in writing its inability, or fail generally, to pay its debts as they
become due or (E) shall take any action for the purpose of effecting any of the
foregoing;

                (viii)  if one or more final judgments for the payment of money
in an aggregate amount in excess of $1,000,000 is rendered against the Company
or any of its Subsidiaries, and, within thirty (30) days of the entry thereof, 
the same shall remain undischarged and execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to levy upon
assets or properties of the Company or any of its Subsidiaries to enforce any
such judgment; or

                (ix)    if the Company asserts for any reason that the Warrant
Agreement or the Warrants is not a legal, valid and binding obligation of any
party thereto.

        8.      Remedies;  Acceleration. Upon the occurrence of and during the
continuation of an Event of Default, the Lender may by notice to the Company,
declare the outstanding Principal Amount of the Note to be immediately due and
payable, whereupon the Principal Amount of the Note, all accrued and unpaid
interest thereon and all other amounts payable under this Note or the Agreement
shall become and be forthwith due and payable by the Company, without 
presentment, demand, protest or notice of any kind, all of which are expressly
waived by the Company; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Company under the
Federal Bankruptcy Code, the Note, all such interest and all such amounts shall
automatically become and be due and payable by the Company, without
presentment, demand, protest or any notice of any kind, all of which are
expressly waived by the Company.

        The remedy provided herein shall not be deemed exclusive but shall be
cumulative and shall be in addition to all other remedies available to the
Lender, whether existing at law or in equity or otherwise.                 
<PAGE>   53
                                      5



        9.      Delay or Omission not Waiver. No delay or omission of the
Lender to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or in acquiescence therein. Every right and remedy given under this
Note or by law or at equity to the Lender may be exercised from time to time,
and as often as may deemed expedient, by the Lender.

        10.     Unconditional Obligations; Fees. The obligations to make the
payments provided for in this Note and the Agreement are absolute and
unconditional and not subject to any defense, set-off, counterclaim,
rescission, recoupment or adjustment whatsoever.

        12.     GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT A NEW YORK COURT WOULD
PERMIT) ANY RULE OF LAW THAT WOULD CAUSE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>   54
                                      6



        13.     Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.


                                        GLOBAL TELESYSTEMS GROUP, INC.



                                        By: 
                                            ----------------------------
                                            Name: 
                                            Title:
                                                  
<PAGE>   55
                                  EXHIBIT B

               See Exhibit No. 10.10 of Registration Statement

<PAGE>   56
                                  EXHIBIT C

               See Exhibit no. 10.9 of Registration Statement.



<PAGE>   1
                                                                EXHIBIT 10.8(b)

                                  June 6, 1996

Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102

                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

          We refer to (a) the following agreements (collectively, the "Cap Re
Agreements"): (i) the Senior Note Purchase Agreement, dated as of February 2,
1996, between Global TeleSystems Group, Inc. (the "Company") and Emerging
Markets Growth Fund, Inc., as purchaser; and (ii) the Senior Note Purchase
Agreement, dated as of February 2, 1996, between the Company and Capital
International Emerging Markets Fund, as purchaser (such purchasers being,
collectively, the "Cap Re Purchasers"); and (b) the items listed on the
attached Schedule (together with the items disclosed in the Schedules to the
Cap Re Agreements, the "Scheduled Items"). Terms defined or referenced in the
Cap Re Agreements and not otherwise defined or referenced herein are used
herein as therein defined or referenced.

          The Company and the Cap Re Purchasers hereby agree as follows:

          1.   Articles 5, 8 and 9 of the Cap Re Agreements (including, without
limitation, the defined terms used, and the Schedules referred to, therein) are
amended and restated, on and as of February 2, 1996, to the maximum extent
necessary such that:

          (a)  the occurrence and continuance of each and every Scheduled Item
     shall be permitted for any and all purposes of the Transaction Documents
     referred to in the Cap Re Agreements (collectively, the "Cap Re Transaction
     Documents"); and

          (b)  (i) no representation, warranty, certification or statement made
     by the Company in any Cap Re Transaction Document or in any other document
     delivered pursuant thereto or in connection therewith shall at any time be
     deemed incorrect in any respect, (ii) neither the Company nor any of its
     Subsidiaries shall at any time be deemed to have defaulted in its due
     observance or performance of any covenant or
<PAGE>   2
     agreement contained in any Cap Re Transaction Document and (iii) no Event
     of Default (or event (a "Potential Default") that, with the giving of
     notice or lapse of time or both, would constitute an Event of Default)
     shall at any time be deemed to have occurred and be continuing under the
     Cap Re Documents, in each case under clauses (b)(i), (b)(ii) and (b)(iii)
     above, as a result of any one or more failures, defaults, violations, acts,
     omissions, events, transactions, facts and circumstances described in the
     Scheduled Items. The Cap Re Agreements as amended hereby shall remain in
     full force and effect.

          2.   THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

          This letter agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same letter agreement. Delivery of an
executed counterpart of a signature page of this letter agreement by telecopier
shall be effective as delivery of a manually executed counterpart of this
letter agreement.
<PAGE>   3
                          SCHEDULE TO LETTER WAIVER
                                      


1.   ADDITIONAL EXISTING, PENDING OR OTHER POSSIBLE INDEBTEDNESS OF THE COMPANY
     OR ITS SUBSIDIARIES NOT DISCLOSED ON SCHEDULE A TO THE CAP RE AGREEMENTS

 
o    ADDITIONAL CWAG LEASES

          The Company has agreed to guarantee the payments of GTS Hungaro, Inc.
          under a finance lease with CWAG for up to $2.5 million in microwave
          and VSAT equipment for a term of approximately 48 months.

o    NOKIA

          Vendor contracts between Telecommunications of Moscow and Nokia for
          switch permits deferred payments and phased extensions.    

o    INTERCOMPANY INDEBTEDNESS

                                    NET AFFILIATE SCHEDULE
                                        (in thousands)
          COMPANY                       3/31/96(1)(2)
          -------
          
          GTS Hermes, Inc(3)                 $16,003
          GTS Europe South                     4,438
          GTS Hungaro                            
10,913    
          GTS Czech, Inc.                      2,374
          GTS Bulgaria, Inc.                      59
          Moscoregoff, Inc.                    1,501
          GTS Cellular, Inc.                   6,192
          SFMT Rusnet , Inc.                  19,429
          SFMT Sovintel 1, Inc.
 7,338
          Sovam Teleport                       6,102
          TCM                                    125
          SFMT China, Inc.                     7,062
          GTS India, Inc.                        652
          Hungary                                  0
          Eurohivo                                 0
          C-Datacom Int'l                          0
                                             -------
               Total                         $82,188
          
- ----------------
1    These amounts do not reflect the final adjustments that will be made prior
     to the closing of the 1st quarter FY '96 results.
2    Excludes GTS holding companies investments in operating co.'s.
3    The Company and HitRail B.V. each made temporary loans of
     approximately ECU 11 Million to Hermes Europe Railtel B.V. in February
     1996. It is contemplated that these loans will be "converted" to equity
     when the structure of Hermes is completed.      
<PAGE>   4

2.      ADDITIONAL EVENTS AND DEVELOPMENTS NOT DISCLOSED ON SCHEDULES TO THE
        CAP RE AGREEMENTS

o       In connection with certain capital equipment purchasing practices,
        SFMT-Rusnet, Inc. ("Rusnet"), a wholly owned Delaware Subsidiary of the
        Company, purchased equipment and installation services in connection
        with the TeleRoss business in the CIS. Such equipment and services were
        sold by Rusnet to SFIT, Ltd., Co. and TeleRoss at prices below those
        paid to the vendors involved. Approximately $7.5 million in such assets
        and services are currently improperly recorded in the accounts of
        Rusnet. In performing these practices, Rusnet may have exposed itself to
        the risk of having a permanent establishment in Russia. Rusnet has also
        participated in the compensatory arrangements described above. In
        addition, Rusnet has incurred salary, travel and entertainment expenses
        and other administrative related expenses totaling approximately $4.1
        million on behalf of TeleRoss and SFIT. In transferring the $7.5 million
        in assets and services to Russian Subsidiaries, and in billing the $4.1
        million in costs to TeleRoss and SFIT, Rusnet potentially exposes itself
        to liabilities and penalties associated with income tax withholding, VAT
        and customs duties withholding and hard currency payments approval. If
        such taxes and duties are determinable and collected by the Russian tax
        authorities, such liabilities could have a material adverse effect on
        the assets, properties, financial condition or results of operations of
        the Company and its Subsidiaries, taken as a whole, or on the ability of
        the Company to perform its obligations under the Cap Re Agreements.

o       EDN Sovintel is not technically in compliance with its
        telecommunications license #1202 issued by the Ministry of
        Communications ("MOC") of the Russian Federation in two respects. First,
        Sovintel has organized a point of presence in St. Petersburg and started
        commercial activities there. Sovintel's current license contemplates
        operations only in Moscow and the Moscow region. Second, Sovintel offers
        point-to-point services, whereas its license authorizes operating
        international telephony services. Such license provides that it will be
        annulled if any of its terms are not observed and that the license will
        be terminated 30 days after notification from the MOC. Sovintel is in
        the process of requesting an amendment to such license to authorize
        operations in St. Petersburg. Sovintel's inquiries to the MOC has
        indicated that a separate new license may be required in the case of
        authority to offer point-to-point services. Such inquiries have also
        indicated that an application for such a new license will not be
        processed before the Russian elections are completed.

o       Under Section 8.1 of each of the Cap Re Agreements, the Company is
        obligated to deliver its audited financial statements within 150 days
        after the end of each fiscal year. The Company has not provided its 1995
        audited financial statements to the Purchasers within such time frame.


<PAGE>   5
     Please indicate your agreement to the foregoing by executing a counterpart
of this letter agreement in the appropriate space provided below.


                                   Very truly yours,

                                   EMERGING MARKETS GROWTH FUND, INC.


By /s/ [ILLEGIBLE]
   ----------------------------
                                   Name:  Pierre-Marie Bouvet de Maisonneuve 
                                   Title: Authorized Representative 


                                   CAPITAL INTERNATIONAL EMERGING MARKETS FUND



By /s/ DAVID WALLACE               /s/ DAVID BEEVERS
   ----------------------------    ----------------------------
       David Wallace               Name:  David Beevers
       Director                    Title: Director



Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.



By
   ----------------------------
   Name:
   Title:

      


<PAGE>   1
                                                             EXHIBIT 10.8(c)
                                                             (Cap Re Amendment)


                                July 25, 1996


Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia  22102

                        Global TeleSystems Group, Inc.

Ladies and Gentlemen:

        We refer to the following agreements, as amended by the letter
agreement, dated as of June 6, 1996, among the purchasers referred to below 
(collectively, the "Cap Re Purchasers") and Global TeleSystems Group, Inc. (the
"Company") (as so amended and as they may be further amended, supplemented or
otherwise modified from time to time): (i) the Senior Note Purchase Agreement,
dated as of February 2, 1996, between the Company and Emerging Markets Growth 
Fund, Inc., as purchaser; and (ii) the Senior Note Purchase Agreement, dated as
of February 2, 1996, between the Company and Capital International Emerging 
Markets Fund, as purchaser.

        The Company and the Cap Re Purchasers hereby agree as follows:

        1.      Each Cap Re Agreement is hereby amended as forth below (the 
"Amendments"):

        (a)     The definition of "Equity Offering" contained in Section 1.1 of
    such Cap Re Agreement is amended by substituting for the period at the end
    thereof the phrase "; provided, however, that the private placement of the
    Company's common stock (expected, as of the date hereof, to become effective
    in July 1996) shall not, with respect to proceeds thereof received from 
    July 1 to October 30, 1996, constitute an Equity Offering."

        (b)(i)  Clause (i) of Section 8.1(a) of such Cap Re Agreement is
    amended by substituting the phrase "each fiscal year of the Company (but,
    in the case of fiscal year 1995, no later than August 23, 1996)" for the
    phrase "each fiscal year of the Company" contained therein.

          (ii)  Clause (i) of Section 8.1(b) of such Cap Re Agreement is 
    amended by substituting the phrase "each fiscal quarter of each year (but,
    in the case of the fiscal quarter ending March 31, 1996, no later than
    September 16, 1996)" for the phrase "each fiscal quarter of each year"
    contained therein.

        (c)     Section 9.9(d) of such Cap Re Agreement is amended (i) by
    substituting the phrase "any fiscal quarter ending after June 30, 1997" for
    the phrase "any quarter" contained in the first sentence thereof; and (ii)
    by substituting "N/A" for each ratio in the chart therein 
<PAGE>   2
Global TeleSystems Group, Inc.         2                     July 25, 1996


    corresponding to any of fiscal years 1995 and 1996 and the fiscal quarters 
    ending March 31 and June 30, 1997.
        
        (d)(i)  Section 9.11 of such Cap Re Agreement is amended (A) by 
    redesignating clause (e) thereof as clause "(g)"; and (B) by inserting,
    immediately after clause (d) thereof, the following:

           "; (e) additional Investments in the Company's Subsidiaries, made
        on or before December 31, 1996, reflected on Schedule 9.11 (under the 
        heading "Projected Intercompany Balance YE 1996" and not under the
        heading "3/31/96 Balance") and consisting of Indebtedness the proceeds
        of which are or will be used, directly or indirectly, for working
        capital purposes of the Company's Subsidiaries, in each case in the
        ordinary course of the business of such Subsidiaries; provided,
        however, that the Company shall cause each of its U.S. Subsidiaries,
        and shall use commercially reasonable efforts to cause each of its
        Non-U.S. Subsidiaries, to repay the Indebtedness incurred (in each case
        without duplication) by it in accordance with this clause (e), but only
        to the extent of net proceeds of the OPIC and EBRD financings (referred
        to in Schedule A under "Pending Financings") as and when received by
        such Subsidiary and available to such Subsidiary (under applicable laws
        and regulations and pursuant to the terms of such financings) for
        application to such repayment (or reduction); (f) additional
        Investments by the Company in its Subsidiaries, the proceeds of which
        are used for payroll to employees of the Company and its
        Subsidiaries;".

    (ii)    Section 9.3 of such Cap Re Agreement is amended (A) by redesignating
    clause (f) thereof as clause "(g)"; and (B) by inserting, immediately 
    following clause (e) thereof, the phrase:  "(f) additional Indebtedness 
    constituting Investments permitted by clause (e) or (f) of Section 9.11;".

    (iii)   Such Cap Re Agreement is amended by adding at the end thereof (in 
    appropriate numerical order of its Schedules) a new Schedule 9.11 in the
    form of Schedule 9.11 hereto.

            2.      The Cap Re Purchasers waive any and all Events of Default 
(as defined in the Transaction Documents referred to in the Cap Re Agreements 
to which they are respective parties) and any and all events ("Potential 
Defaults") that, with the giving of notice or lapse of time or both would 
constitute Events of Default, to the extent that such Events of Default and 
Potential Defaults (i) arose on or before the date hereof and before giving 
effect to the Amendments and (ii) resulted from events, transactions, facts and
circumstances that, immediately after giving effect to the Amendments, would not
constitute Events of Default or Potential Defaults.

            3.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

            4.      This letter agreement becomes effective as of February 2, 
1996, on the date on which the Company and each of the Cap Re Purchasers shall
have executed and delivered a counterpart hereof.  Upon the effectiveness of 
this letter agreement, each reference in any Transaction Document to either Cap
Re Agreements or any term or provision thereof shall mean such Cap Re 
Agreements, such term or such provision, respectively, as amended hereby.  
Except as
<PAGE>   3
Global TeleSystems Group, Inc.         3                          July 25, 1996



otherwise provided herein, the Transaction Documents shall remain in full force
and effect and are hereby in all respects ratified and confirmed.

        5.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.



                                        Very truly yours,


                                        EMERGING MARKETS GROWTH FUND, INC.

                                        By /s/   [ILLEGIBLE]
                                          ---------------------------------
                                          Name:  [ILLEGIBLE]
                                          Title: Authorized Representative


                                        CAPITAL INTERNATIONAL EMERGING
                                        MARKETS FUND         


                                        By /s/ DAVID WALLACE
                                          --------------------------------- 
                                          Name:  David Wallace
                                          Title: Director

                                          /s/ DAVID BEEVERS
                                          ---------------------------------
                                          David Beevers
                                          Director



Accepted and Agreed:


GLOBAL TELESYSTEMS GROUP, INC.


By /s/   [ILLEGIBLE]
  ---------------------------------------
  Name:  [ILLEGIBLE]
  Title: Vice President - General Counsel

<PAGE>   1
                                                                 Exhibit 10.8(d)


                                                              September 10, 1996



Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North tower, 12th Floor
McLean, Virginia 22102 USA

Ladies and Gentlemen:

     Reference is made to the following agreements, each as amended by the
letter agreement dated as of June 6, 1996 and July 23, 1996 (as amended,
collectively, the "Cap Re Agreements") among the purchasers referred to below
(collectively, the "Cap Re Purchasers") and Global TeleSystems Group, Inc. (the
"Company"): (i) the Senior Note Purchase Agreement, dated as of February 2,
1996, between the Company and Emerging Markets Growth Fund, Inc., as purchaser;
and (ii) the Senior Note Purchase Agreement, dated as of February 2, 1996,
between the Company and Capital International Emerging Markets Fund, as
purchaser.

     The Company and the Cap Re Purchasers hereby agree as follows:

     1.  Each Cap Re Agreement is hereby amended as set forth below:

         (a)  Clause (i) of Section 8.1(b) of such Cap Re Agreement is amended
by substituting the phrase "each fiscal quarter of each year (but, in the case
of the fiscal year quarters ending March 31, 1996 and June 30, 1996, no later
than November 15, 1996)" for the phrase "each fiscal quarter of each year (but,
in the case of the fiscal quarter ending March 31, 1996, no later than
September 16, 1996)" contained therein.

     2.  THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK.

     3.  This letter agreement becomes effective as of the date first above
written, on the date on which the Company and each of the Cap Re Purchasers
shall have executed and delivered a counterpart hereof. Upon the effectiveness
of this letter agreement, each reference in any Transaction Document (as
defined in each Cap Re Agreement") to either Cap Re Agreements or any term or
provision thereof shall mean such Cap Re Agreements,  
<PAGE>   2
Global TeleSystems Group, Inc.
Page Two
September 10, 1996

such term or such provision, respectively, as amended hereby. Except as
otherwise provided herein, the Transaction Documents shall remain in full force
and effect and are hereby in all respects ratified and confirmed.

        4.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement. 

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below. 


                                 Very truly yours,

                                 EMERGING MARKETS GROWTH FUND, INC.
                                 By: Capital International, Inc.


                                 By /s/ PETER C. KELLY
                                    --------------------------------
                                    Name: Peter C. Kelly
                                    Title: Vice President




                                 CAPITAL INTERNATIONAL EMERGING
                                 MARKETS FUND



                                 By /s/ D. H. BEEVERS
                                    --------------------------------
                                    Name: David Beevers
                                    Title: Director



                                 By /s/ DAVID WALLACE
                                    --------------------------------
                                    Name: David Wallace
                                    Title: Director




Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.



By: 
    --------------------------
    Name:
    Title:

<PAGE>   3
                                                              September 10, 1996



Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, Virginia 22102 USA


Ladies and Gentlemen:

        Reference is made to the following agreements, each as amended by the
letter agreement dated as of July 23, 1996 (as amended, collectively, the
"Chatterjee Agreement") among the purchasers referred to below (collectively,
the "Chatterjee Purchasers") and Global TeleSystems Group, Inc. (the
"Company"): (i) the Senior Note Purchase Agreement, dated as of January 19,
1996, between the Company and The Open Society Institute ("OSI") and Chatterjee
Fund Management, L.P., as purchasers; and (ii) the Senior Note Purchase
Agreement, dated as of June 6, 1996, between the Company, OSI, Winston Partners
II LDC and Winston Partners II LLC, as purchasers.

        The Company and the Chatterjee Purchasers hereby agree as follows: 

        1.      Each Chatterjee Agreement is hereby amended as set forth below: 

                (a)     Clause (i) of Section 8.1(b) of such Chatterjee
Agreement is amended by substituting the phrase "each fiscal quarter of each
year (but, in the case of the fiscal year quarters ending March 31, 1996 and
June 30, 1996, no later than November 15, 1996)" for the phrase "each fiscal
quarter of each year (but, in the case of the fiscal quarter ending March 31,
1996, no later than September 16, 1996)" contained therein. 

        2.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        3.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each of the Chatterjee
Purchasers shall have executed and delivered a counterpart hereof. Upon the
effectiveness of this letter agreement, each reference in any Transaction
Document (as defined in each Chatterjee Agreement) to either Chatterjee
Agreements or any term or provision thereof shall mean such Chatterjee
Agreements, such term or such provision, respectively, as amended hereby.
Except as otherwise provided herein, the Transaction Documents shall remain in
full force and effect and are hereby in all respects ratified and confirmed. 

        4.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute 
<PAGE>   4
Global TeleSystems Group, Inc.
Page Two
September 10, 1996

but one and the same letter agreement. Delivery of an executed counterpart of a
signature page of this letter agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this letter agreement. 

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below. 


                                 Very truly yours,

                                 THE OPEN SOCIETY INSTITUTE



                                 By /s/ GARY GLADSTEIN
                                    --------------------------------
                                    Name: George Soros
                                    Title: Gary Gladstein, Attorney-in-Fact


                                 CHATTERJEE FUND MANAGEMENT, L.P.



                                 By /s/ PETER HURWITZ
                                    --------------------------------
                                    Name: Peter Hurwitz
                                    Title: Attorney-in-fact



                                 WINSTON PARTNERS II LLC



                                 By /s/ [ILLEGIBLE]
                                    --------------------------------
                                    Name:  Curacao Corporation Company N.V.
                                    Title: Sole Director



                                 WINSTON PARTNERS II LLC
                                 By: Chatterjee Advisors LLC



                                 By /s/ PETER HURWITZ
                                    --------------------------------      
                                    Name: Peter Hurwitz
                                    Title: Manager



Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.



By: /s/ [ILLEGIBLE]
    ------------------------------
    Name: [ILLEGIBLE]
    Title: Vice President, General
           Counsel & Secretary

<PAGE>   1
                                                                 Exhibit 10.8(e)

                                                                [GTS LETTERHEAD]

                               September 16, 1996

By fax: +3109966402

Mr. Laurentius Harrer,
Vice President
Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071

Copy to: +4122 7411722

Mr. Pierre-Marie Bouvet
Capital Research International, S.A.
3, Place des Bergues
1201 Geneva, Switzerland

Dear Messrs. Harrer and Bouvet:

     Reference is made to (a) the following agreements, each as heretofore
amended, supplemented or otherwise modified (collectively, the "Cap Re
Agreements") among the purchasers referred to below (collectively the "Cap Re
Purchasers") and Global TeleSystems Group, Inc. (the "Company" or "GTS"): (i)
the Senior Note Purchase Agreement, dated as of February 2, 1996, between the
Company and Emerging Markets Growth Fund, Inc., as purchaser, and (ii) the
Senior Note Purchase Agreement, dated as of February 2, 1996, between the
Company and Capital International Emerging Markets Fund, as purchaser; and (b)
the requested consent concerning additional investment in Hermes as set forth
below.

     Because it has taken longer than anticipated to finalize railway, customer
and other agreements, Hermes needs additional investment from the Company of ECU
4 million (approximately US$ 5 million under current exchange rates) to be
applied to capital expenditures. The Company's co-venturer, HitRail B.V.
("Hitrail"), will be required to make a contemporaneous equal investment in
Hermes. In the event, however, that Hitrail determines not to make its ECU 4
million investment, the Company would make Hitrail's investment. The Company
therefore seeks the Cap Re Purchasers'


<PAGE>   2
Messrs. Harrer and Bouvet
September 16, 1996
Page 2

consent to a total additional investment by the Company up to ECU 8 million,
which the Company contemplates would be applied to additional capital
expenditures.

Please evidence your consent by signing and returning to me a copy of the
enclosed amendment letter.


                                   Sincerely,

                                   /s/ N.S. Molberger


Enclosure
<PAGE>   3
                                                                [GTS LETTERHEAD]
                                
                                        September 16, 1996


Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower, 12th Floor
McLean, Virginia 22102 USA


Ladies and Gentlemen:

        Reference is made to the following agreements, each as amended by the
letter agreement dated as of June 6, 1996 and July 23, 1996 (as amended,
collectively, the "Cap Re Agreements") among the purchasers referred to below
(collectively, the "Cap Re Purchasers") and Global TeleSystems Group, Inc. (the
"Company"): (i) the Senior Note Purchase Agreement, dated as of February 2,
1996, between the Company and Emerging Markets Growth Fund, Inc., as purchaser;
and (ii) the Senior Note Purchase Agreement dated as of February 2, 1996,
between the Company and Capital International Emerging Markets Fund, as 
purchaser.

        The Company and the Cap Re Purchasers hereby agree as follows:

        1.      Each Cap Re Agreement is hereby amended as set forth below:

                (a)     Schedule 9.11 of the amendments dated July 23, 1996 to
the Cap Re Agreements is hereby amended by substituting: (A) "$22,075" for
"$17,075" opposite "GTS Hermes" under the column heading "Projected
Intercompany Balance YE 1996", (B) "$135,932" for "$130,932" for the total at
the bottom of such heading, (C) "($6,072)" for "($1,072)" opposite GTS Hermes
under the column heading "YE variance to 3/31/96 Balance", (D) "($53,744)" for
"($48,744)" for the total at the bottom of such heading, (E) "$5,000" for "$-"
under the column heading "Break out of Variance" and the subheading "CapEx",
(F) "$22,241" for "$17,241" for the total at the bottom of such subheading, and
(G) "17M" for "$12M" in footnote 3. If the Company determines, however, to make
such additional total investment of ECU 8 million, the figures in the preceding
sentence would be amended by substituting the figures, as follows: (A)
"$27,075" for "$22,075", (B) "$140,932" for "$135,932", (C) "($11,072)" for
"($6,072)", (D) "($58,744)" for "($53,744), (E) "$10,000" for "$5,000", (F)
"$27,241" for "$22,241" and (G) "22M" for "17M."



<PAGE>   4
Global TeleSystems Group, Inc.
Page Two
September 16, 1996


     2.  THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK.

     3.  This letter agreement becomes effective as of the date first above
written, on the date on which the Company and each of the Cap Re Purchasers
shall have executed and delivered a counterpart hereof. Upon the effectiveness
of this letter agreement, each reference in any Transaction Document (as
defined in each Cap Re Agreement) to either Cap Re Agreements or any term or
provision thereof shall mean such Cap Re Agreements, such term or such
provision, respectively, as amended hereby. Except as otherwise provided
herein, the Transaction Documents shall remain in full force and effect and are
hereby in all respects ratified and confirmed.

     4.  This letter agreement may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which taken together shall constitute but one and the same letter agreement.
Delivery of an executed counterpart of a signature page of this letter
agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this letter agreement.

     Please indicate your agreement to the foregoing by executing a counterpart
of this letter agreement in the appropriate space provided below.

                               Very truly yours,

                               EMERGING MARKETS GROWTH FUND, INC.



                                                        
                               By   /s/ PETER C. KELLY  
                                 -------------------------------
                                 Name:  Peter C. Kelly
                                 Title: Vice President


                               CAPITAL INTERNATIONAL EMERGING MARKETS FUND 



                                      
                               By /s/ DAVID WALLACE
                                 -------------------------------
                                 Name: David Wallace
                                 Title: Director


                               By /s/ DAVID BEEVERS
                                 -------------------------------
                                 Name: David Beevers
                                 Title: Director


 
<PAGE>   5
Global TeleSystems
Page Three
September 16, 1996



Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.


    
By /s/ N.S. MOLBERGER 
  ---------------------------- 
  Name: N.S. Molberger
  Title: Vice President - General Counsel & Secretary

<PAGE>   1
                                                                EXHIBIT 10.8(f)


                               December 30, 1996




Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102


                         Global TeleSystems Group, Inc.



Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of
February 2, 1996, as heretofore amended, between Global TeleSystems Group, Inc.
(the "Company") and Emerging Markets Growth Fund, Inc., as purchaser, and (ii)
the Senior Note Purchase Agreement, dated as of February 2, 1996, as heretofore
amended, between the Company and Capital International Emerging Markets Fund,
as purchaser (each such Senior Note Purchase Agreement being a "Cap Re
Agreement"; and Emerging Markets Growth Fund, Inc. and Capital International
Emerging Markets Fund being, collectively, the "Cap Re Purchasers"). Terms
defined or referenced in either of the Cap Re Agreements and not otherwise
defined or referenced herein are used herein as therein defined or referenced.

        The Company and the Cap Re Purchasers hereby agree as follows:

        1.      (a)     Section 9.11(e) of each Cap Re Agreement is amended
(the "Amendment") by substituting the following for the portion thereof
immediately preceding the proviso contained therein:

                        (e)     additional Investments in the Company's
        Subsidiaries which (i) either (A) are made on or before December 31, 
        1996 and are reflected in the 1996 Forecast contained in Schedule 9.11 
        (under the heading "Projected Intercompany Balance YE 1996" and not 
        under the heading "3/31/96 Balance") or (B) are made after December 31, 
        1996 and on or before December 31, 1997 and are reflected in the 1997 
        Forecast contained in Schedule 9.11 (under the heading "1997 Projected 
        Additional Intercompany Indebtedness") and (ii) consist of Indebtedness 
        the proceeds of which are or will be used, directly or indirectly, for
        working capital, including Capital Expenditure, purposes of

<PAGE>   2
Global TeleSystems Group, Inc.                                December 30, 1996


        the Company's Subsidiaries in the ordinary course of business of such
        Subsidiaries;

                (b)     Schedule 9.11 is amended by adding at the end thereof
the 1997 Forecast contained in Exhibit A hereto.

        2.      The Cap Re Purchasers waive any and all Events of Default (as
defined in the Transaction Documents referred to in the Cap Re Agreement to
which they are respective parties) and any and all events ("Potential
Defaults") that, with the giving of notice or lapse of time or both, would
constitute Events of Default, to the extent that such Events of Default and
Potential Defaults (i) arose on or before the date hereof and before giving
effect to the Amendment and (ii) resulted from events, transactions, facts and
circumstances that, immediately after giving effect to the Amendment, would not
constitute Events of Default or Potential Defaults.

        3.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        4.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Cap Re Purchaser shall
have executed and delivered a counterpart hereof. Upon the effectiveness of
this letter agreement, each reference in any Transaction Document to either Cap
Re Agreement or any term or provision thereof shall mean such Cap Re Agreement,
such term or such provision, respectively, as amended hereby.  Except as
otherwise provided herein, the Transaction Documents shall remain in full force
and effect and are hereby in all respects ratified and confirmed.

        5.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement.  Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.


                                        Very truly yours,
                
<PAGE>   3
Global TeleSystems Group, Inc.                                 December 30, 1996


EMERGING MARKETS GROWTH                           CAPITAL INTERNATIONAL EMERGING
FUND, INC.                                        MARKETS FUND


By: /s/ PETER C. KELLY                            By: /s/ DAVID BEEVERS
   ---------------------------                       ---------------------------
   Name: Peter C. Kelly                              Name: David Beevers
   Title: Vice President                             Title: Chairman

                                                  By: /s/ DAVID WALLACE
                                                     ---------------------------
                                                     Name: David Wallace
                                                     Title: Director


Accepted and Agreed:

GLOBAL TELESYSTEMS GROUP, INC.


By: 
   ---------------------------
   Name: 
   Title: 
<PAGE>   4
                                   EXHIBIT A

                         Global TeleSystems Group, Inc.

                                 1997 Forecast

        1997 Projected Additional Intercompany Indebtedness (1)(2)(4)(6)

<TABLE>
<CAPTION>
                                                          $ in 000's
                                                         -----------
<S>                                                      <C>       
SFIT, Inc.                                               $        5
SFMT/EDN Sovintel(5)                                          7,514
Telecom Consulting & Advisory Svs                                 0
Hermes(3)                                                     9,535
Monaco                                                        1,553
Hungaro/Hungary/Eurohivo                                      2,933
Czech                                                         1,320
Poland                                                            9
Bulgaria                                                          9
TeleSystems Services                                          4,032
Cellular                                                      2,010
Vostok Mobile                                                   725
SFMT-CIS                                                          9
Rusnet/TeleRoss/SFIT, Ltd.                                    9,136
Sovinet(5)                                                  (5,922)
Datacom/Sovam                                                 2,646
Vox/TCM                                                          46
Ukranian TeleSystems/Bancomsvyaz                              8,981
China/V-Tech/Global Tongda                                    6,652
India/CDI                                                     2,107
China Investments/ACIC/Tianmu                                 7,409
Transpacific/GIT/China Rep                                    4,525
                                                         ----------

                   Total                                 $   65,234
                                                         ==========
</TABLE>




Notes:  See attached notes.
<PAGE>   5
                           1997 Projected Additional
                           Intercompany Indebtedness
                                        
 

NOTES:       

1.      These amounts do not reflect the final adjustments associated with the
        closing of Fiscal Year 1996.
2.      Excludes GTS holding companies' equity investment in operating
        companies.
3.      Hermes includes promissory notes of $8.5M, which are expected to be
        converted to equity before year-end 1997.
4.      These amounts do not include payroll paid by GTS Group, Inc. This
        entity is currently set up for payment of US expatriate payroll, but
        does create an intercompany account in order to facilitate the payment.
5.      Represents a reclass between entities.
6.      The amounts indicated opposite each Subsidiary reflect either or both
        of the following: a) direct or indirect (back-to-back) loans to such
        Subsidiary, or its Subsidiaries, by the Company or other Subsidiaries
        and b) direct or indirect (back-to-back) loans from such Subsidiary, or
        its Subsidiaries, to any other Subsidiary.  The aggregate additional
        amount of these intercompany loans (determined, without duplication,
        after giving effect to the loans described in the preceding sentence)
        does not exceed the respective amounts indicated opposite "TOTAL".

<PAGE>   1
                                                                EXHIBIT 10.8(g)

                                                               [GTS LETTERHEAD]

                                  May 13, 1997


By fax: + 310 996 6402

Mr. Laurentius Harrer,
Vice President
Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071

Copy to: + 41 22 741 1722

Mr. Pierre-Marie Bouvet
Capital Research International, S.A.
3, Place de Bergues
1201 Geneva, Switzerland

Dear Messrs. Harrer and Bouvet:

Reference is made to (a) the following agreements, each as heretofore amended,
supplemented or otherwise modified (collectively, the "Cap Re Agreements"): (i)
the Senior Note Purchase Agreement, dated as of February 2, 1996, between
Global TeleSystems Group, Inc. (the "Company") and Emerging Markets Growth
Fund, Inc., as purchaser; and (ii) the Senior Note Purchase Agreement, dated as
of February 2, 1996, between the Company and Capital International Emerging
Markets Fund, as purchaser (collectively, the "Purchasers"); and (b) the
transactions, contracts and actions as listed below and on the attached
Schedule A, collectively, the "Transactions."

The Company or one or more affiliates of the Company, propose to enter into the
Transactions, for which your consent may be required under the terms of the Cap
Re Agreements. The Executive Committee of the Board of Directors has approved
the Transactions, which are described more fully on Schedule A:

        1.      Barings $4.1 million Bancomsvyaz Financing, to fund capital
                expenditures and working capital requirements

        2.      Monaco Access $4.2 million bank facility, including parent 
                guarantee

<PAGE>   2
Messrs. Harrer and Bouvet
May 13, 1997
Page 2



GTS believes that the Transactions are in the best interest of the Company, and
we hereby solicit the Purchasers' consent, under (and for all purposes of ) the
Cap Re Agreements, to the Transactions.

Please evidence your consent by signing and returning to me a copy of this
letter. Thank you for your cooperation and support.

                                                Sincerely,

                                                /s/ VIMAL AGARWAL
                                                --------------------------------
                                                Vimal Agarwal
                                                Treasurer




Accepted and acknowledged this 14 day of May, 1997:

EMERGING MARKETS GROWTH FUND

By: /s/ PETER C. KELLY
- -------------------------
By:     Peter C. Kelly
Its:    Vice President


Accepted and acknowledged this ____ day of May, 1997:

CAPITAL INTERNATIONAL EMERGING MARKETS FUND


- -------------------------
By:
Its:

<PAGE>   1
                                                                EXHIBIT 10.8(h)

                                                                [GTS LETTERHEAD]


                                June 20, 1997


Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102


                        Global TeleSystems Group, Inc.

Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of
February 2, 1996, as heretofore amended, between Global TeleSystems Group, Inc.
(the "Company") and Emerging Markets Growth Fund, Inc., as purchaser, and (ii)
the Senior Note Purchase Agreement, dated as of February 2, 1996, as heretofore
amended, between the Company and Capital International Emerging Markets Funds,
as purchaser (each such Senior Note Purchase Agreement being a "Cap Re
Agreement"; and Emerging markets Growth Fund, Inc. and Capital International
Emerging Markets Fund being, collectively, the "Cap Re Purchasers").  Terms
defined or referenced in either of the Cap Re Agreements and not otherwise
defined or referenced herein are used herein as therein defined or referenced.

        The Company and the Cap Re Purchasers hereby agree as follows:

        1.      The definition of "Equity Offering" contained in Section 1.1 of
each Cap Re Agreement is amended by substituting for the period at the end
thereof the following:

                ; and provided further that the private placement of up to $50
        million of Common Stock (expected, as of the date hereof, to become 
        effective during July of


<PAGE>   2
                                        2

        1997) and the private placement of up to $115 million of bonds
        convertible into Common Stock on substantially the terms set forth 
        in Schedule 9.3, individually and in the aggregate, shall not, with 
        respect to proceeds thereof received from July 1, 1997 to October 31, 
        1997, constitute an Equity Offering.

        2.      Section 9.3 of each Cap Re Agreement is amended by striking the
word "and" immediately proceeding subsection 9.3(f) and by adding the following
text immediately following subsection 9.3(f):

                and (g) Indebtedness incurred in connection with the issuance
        of up to $115 million of bonds convertible into Common Stock on 
        substantially the terms set forth in Schedule 9.3.

        3.      Schedule 9.3 is hereby added to each Cap Re Agreement in the
form and containing the text set forth in the "Description of Bonds," as
provided Appendix A hereto.

        4.      The Cap Re Purchasers waive any and all Events of Default (as
defined in the Transaction Documents to which they are respective parties) and
any and all events ("Potential Defaults") that, with the giving of notice or
lapse of time or both, would constitute Events of Default, to the extent that
such Events of Default and Potential Defaults (i) arose on or before the date
hereof and before giving effect to the amendments described in paragraphs 1
through 3 above (the "Amendments") and (ii) resulted from events, transactions,
facts and circumstances that, immediately after giving effect to the Amendments,
would not constitute Events of Default or Potential Defaults.

        5.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        6.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Cap Re Purchaser shall
have executed and delivered a counterpart hereof.  Upon the effectiveness of
this letter agreement, each reference in any Transaction Document to either Cap
Re Agreement or any term or provision thereof shall mean such Cap Re Agreement,
such term or such provision, respectively, as amended hereby.  Except as
otherwise provided herein, the Transaction Documents shall remain in full force
and effect and are hereby in all respects ratified and confirmed.

        7.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement.  Delivery of an executed counterpart of a signature page of this
<PAGE>   3
                                      3




letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.
<PAGE>   4
                                       4

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.

                                                Very truly yours,

EMERGING MARKETS GROWTH                         CAPITAL INTERNATIONAL
FUND, INC.                                      EMERGING MARKETS FUND



By: /s/ PETER C. KELLY                          By: /s/ DAVID BEEVERS        
    -------------------------                       -------------------------
    Name:  Peter C. Kelly                           Name:  David Beevers     
    Title: Vice President                           Title: Director          

                                                    /s/ DAVID WALLACE        
                                                    -------------------------
                                                        David Wallace     
                                                        Director
          
                                      Accepted and Agreed:

                                GLOBAL TELESYSTEMS GROUP, INC.

                                By: /s/ VIMAL AGARWAL
                                    -------------------------
                                    Name:  Vimal Agarwal
                                    Title: Corporate Treasurer
<PAGE>   5
                                       5                        APPENDIX A
                                        


                             [DESCRIPTION OF BONDS]
<PAGE>   6
                                [GTS LETTERHEAD]

                                  June 20, 1997

Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102

                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of January
19, 1996, as heretofore amended (and as so amended, the "Initial Chatterjee
Agreement"), among Global TeleSystems Group, Inc. (the "Company") and The Open
Society Institute ("OSI") and Chatterjee Fund Management, L.P., as purchasers,
(the "Initial Chatterjee Purchasers"), and (ii) the Senior Note Purchase
Agreement, dated as of June 6, 1996, as heretofore amended (as so amended, the
"Additional Chatterjee Agreement"; the Initial Chatterjee Agreement and the
Additional Chatterjee Agreement being, collectively, the "Chatterjee
Agreements"), among the Company, and OSI, Winston Partners II LDC and Winston
Partners II LLC, as purchasers (the "Additional Chatterjee Purchasers"; the
Initial Chatterjee Purchasers and the Additional Chatterjee Purchasers being,
collectively, the "Chatterjee Purchasers"). Terms defined or referenced in the
Additional Chatterjee Agreement and not otherwise defined or referenced herein
are used herein as therein defined or referenced.

        The Company and the Chatterjee Purchasers hereby agree as follows:

        1.      The definition of "Equity Offering" contained in Section 1.1
of each Chatterjee Agreement is amended by substituting for the period at the
end thereof the following:
<PAGE>   7
                                       2

                ;and provided further that the private placement of up to $50
        million of Common Stock at a price not less than $23.50 per share 
        (expected, as of the date hereof, to commence during July of 1997) and
        Indebtedness referred to in section 9.3(g), individually and in the 
        aggregate, shall not, with respect to proceeds thereof received from 
        July 1, 1997 to October 31, 1997, constitute an Equity Offering.

        2.      Section 9.3 of each Chatterjee Agreement is amended by striking
the word "and" immediately preceding subsection 9.3(f) and by adding the
following text immediately following subsection 9.3(f):

                and (g) Indebtedness issued on or before September 30, 1997
        represented by up to $115 million of bonds convertible into Common Stock
        on substantially the terms set forth in Schedule 9.3.

        3.      Schedule 9.3 is hereby added to each Chatterjee Agreement in
the form and containing the text set forth in the "Description of Bonds," as
provided in Appendix A hereto.

        4.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

        5.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Chatterjee Purchaser
shall have executed and delivered a counterpart hereof. Upon the effectiveness
of this letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Chatterjee Agreement or any term or provision
thereof shall mean such Chatterjee Agreement, such term or such provision,
respectively, as amended hereby.  Except as otherwise provided herein, the
Transaction Documents shall remain in full force and effect and are hereby in
all respects ratified and confirmed.

        6.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement.  Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.


<PAGE>   8

                                       3

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.


                                                Very truly yours,


THE OPEN SOCIETY INSTITUTE                      WINSTON PARTNERS II LDC


By: /s/ GARY GLADSTEIN                          By: /s/ P. C. CHATTERJEE
   ------------------------------                   ------------------------
   Name: Gary Gladstein                         Name: P. C. Chatterjee
   Title: Attorney-in-fact                      Title: Attorney-in-fact 
          for George Soros, 
          Trustee


CHATTERJEE FUND MANAGEMENT, L.P.                WINSTON PARTNERS II LLC
                                                By: Chatterjee Advisors L.L.C.


By: /s/ P. C. CHATTERJEE                        By: /s/ P. C. CHATTERJEE
   -------------------------------                 --------------------------
   Name:  P. C. Chatterjee                         Name: P. C. Chatterjee
   Title:                                          Title:



                         Accepted and Agreed:

                         GLOBAL TELESYSTEMS GROUP, INC.



                         By: /s/ VIMAL AGARWAL
                            -------------------------------
                            Name:  Vimal Agarwal
                            Title: Corporate Treasurer
<PAGE>   9

                                       4                          APPENDIX A


                             [DESCRIPTION OF BONDS]

<PAGE>   1
                                                               EXHIBIT 10.8(i)


                                 July 11, 1997


Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor 
McLean, Virginia 22102


                            Global TeleSystems Group, Inc

Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of
February 2, 1996, as heretofore amended, between Global TeleSystems Group, Inc.
(the "Company") and Emerging Markets Growth Fund, Inc., as purchaser, and (ii)
the Senior Note Purchase Agreement, dated as of February 2, 1996, as heretofore
amended, between the Company and Capital International Emerging Markets Funds,
as purchaser (each such Senior Note Purchase Agreement being a "Cap Re
Agreement"; and Emerging Markets Growth Fund, Inc. and Capital International
Emerging Markets Fund being, collectively, the "Cap Re Purchasers"). Terms
defined or referenced in either of the Cap Re Agreements and not otherwise
defined or referenced herein are used herein as therein defined or referenced.

        The Company and the Cap Re Purchasers hereby agree as follows:

        1.   Subsection (g) of Section 9.3 of each Cap Re Agreement is amended
by substituting the words "$156 million" for the words "$115 million."

        2.   Schedule A of each Cap Re Agreement, under the caption "Existing
Financings," is amended by adding the text set forth in Appendix A hereto.

        3.   THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
<PAGE>   2
                                       2

        4.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Cap Re Purchaser shall
have executed and delivered a counterpart hereof. Upon the effectiveness of
this letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Cap Re Agreement or any term or provision
thereof shall mean such Cap Re Agreement, such term or such provision,
respectively, as amended hereby. Except as otherwise provided herein, the
Transaction Documents shall remain in full force and effect and are hereby in
all respect ratified and confirmed.

        5.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.
<PAGE>   3
                                       3

     Please indicate your agreement in the foregoing by executing a counterpart
of this letter agreement in the appropriate space provided below.

                                        Very truly yours,

EMERGING MARKETS GROWTH                 CAPITAL INTERNATIONAL
FUND, INC.                              EMERGING MARKETS FUND




By: /s/ ROBERTA A CONROY                By: /s/ D. H. BEEVERS
    ----------------------------            -------------------------------
    Name: Roberta A. Conroy                 Name: D. H. Beevers
    Title: Senior Vice President            Title: Director
           and Secretary        
                                        By: /s/ DAVID WALLACE 
                                           --------------------------------
                                            Name: David Wallace
                                            Title: Director

                                        
                                             
                                
                                            
                                


                         Accepted and Agreed:                               
                                                                            
                    GLOBAL TELESYSTEMS GROUP, INC.                          
                                                                            
                    By: /s/ VIMAL AGARWAL                                   
                        -------------------- 
                        Name: Vimal Agarwal                 
                        Title: Treasurer                    
                                                            
                                                            
<PAGE>   4
                                   APPENDIX A


                             HERMES EUROPE RAILTEL

                       $175 MILLION SENIOR NOTE FINANCING

ISSUER:                Hermes Europe Railtel, B.V.

ISSUE:                 Senior Notes

GROSS PROCEEDS:        $175 million

MATURITY:              10 years

INTEREST RATE:         12.0% - 13.0%

PRE-FUNDED INTEREST:   2 years

OPTIONAL REDEMPTION:   5-year non-call

RANKING:               Senior (Subordinated to all secured/unsecured
                       liabilities of subsidiaries) 

USE OF PROCEEDS:       To fund the build-out of the Hermes network through
                       Phase I 

MARKETING:             144A

GROSS SPREAD:          3.5%

UNDERWRITERS:          DLJ (lead), UBS, Lehman

EQUITY CLAWBACK:       Prior to the first 3 years, 33 1/3% of each of the Senior
                       Notes may be redeemed with (i) the proceeds of a public
                       equity offering of $75 million or more or (ii) the
                       proceeds from the sale of the Company's common stock to
                       one or more Strategic Equity Investors for the aggregate
                       purchase price of $75 million or more.

CHANGE OF CONTROL:     Company must offer to redeem the Senior Notes at 101%
                       of principal amount thereof, plus accrued and unpaid
                       interest.

COVENANTS:             Standard convenants for a High Yield offering, including
                       o  Limitation on Incurrence of Indebtedness;
                       o  Limitation on Restricted Payments;
                       o  Limitation on Dividend and Other Payment Restrictions
                          Affecting Subsidiaries;
                       o  Limitation on the Issuance and Sale of Capital Stock
                          of Restricted Subsidiaries; 
                       o  Limitation on Issuance of Guarantees by Restricted
                          Subsidiaries; 
                       o  Limitation on Asset Sales;
                       o  Limitation on Liens;
                       o  Limitation on Consolidation or Merger;
                       o  Limitation on Transaction with Affiliates;

<PAGE>   1
                                                                EXHIBIT 10.8(j)


                                                               [GTS LETTERHEAD]

                                 July 21, 1997

Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102


                         Global TeleSystems Group, Inc.

Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of
February 2, 1996, as heretofore amended, between Global TeleSystems Group, Inc.
(the "Company") and Emerging Markets Growth Fund, Inc., as purchaser, and (ii)
the Senior Note Purchase Agreement, dated as of February 2, 1996, as heretofore
amended, between the Company and Capital International Emerging Markets Funds,
as purchaser (each such Senior Note Purchase Agreement being a "Cap Re
Agreement"; and Emerging Markets Growth Fund, Inc. and Capital International
Emerging Markets Fund being, collectively, the "Cap Re Purchasers"). Terms
defined or referenced in either of the Cap Re Agreements and not otherwise
defined or referenced herein are used herein as therein defined or referenced.

        The Company and the Cap Re Purchasers hereby agree as follows:

        1.   Subsection (g) of Section 9.3 of each Cap Re Agreement is amended
by substituting the words "$156 million" for the words "$115 million."

        2.   Schedule A of each Cap Re Agreement, under the caption "Existing
Financings," is amended by adding the text set forth in Appendix A hereto.

        3.   THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.


<PAGE>   2
                                       2


          4.   This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Cap Re Purchaser shall
have executed and delivered a counterpart hereof. Upon the effectiveness of
this letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Cap Re Agreement or any term or provision
thereof shall mean such Cap Re Agreement, such term or such provision,
respectively, as amended hereby. Except as otherwise provided herein, the
Transaction Documents shall remain in full force and effect and are hereby in
all respects ratified and confirmed.

          5.   This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement. Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.
<PAGE>   3
                                     3

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.

                                         Very truly yours,



EMERGING MARKETS GROWTH                         CAPITAL INTERNATIONAL
FUND, INC.                                      EMERGING MARKETS FUND



By: /s/ ROBERTA A. CONROY                       By: /s/ D.H. BEEVERS
    -----------------------------                   ----------------------------
    Name: Roberta A. Conroy                         Name: D.H. Beevers
    Title: Senior Vice President                    Title: Director
           and Secretary
                                                    /s/ DAVID WALLACE  
                                                    ----------------------------
                                                    Name: David Wallace
                                                    Title: Director    



                             Accepted and Agreed:

                        GLOBAL TELESYSTEMS GROUP, INC.


                        By: /s/ VIMAL AGARWAL
                           ---------------------------
                           Name: Vimal Agarwal
                           Title: Treasurer
<PAGE>   4
                                                                     Appendix A



                       TERMS AND CONDITIONS OF THE BONDS

         The following terms and conditions (subject to amendment and except
for the sentences in italics) will be endorsed on the Certificates issued in
respect of the Bonds.

GENERAL

         The Senior Subordinated Convertible Bonds due 2000 (the "Bonds") of
Global TeleSystems Group, Inc. (the "Issuer") are issued under an indenture
dated as of July   , 1997 (the "Indenture") between the Issuer, The Bank of New
York, as trustee (the "Trustee"), registrar (the "Registrar") and paying,
conversion and transfer agent (the "Principal Paying Agent"). The issue of the
Bonds was authorized by a resolution of the Board of Directors of the Issuer on
June 18, 1997. Certain statements herein are summaries of, and are subject to,
the detailed provisions of the Indenture, which contains the forms of Bonds.
Copies of the Indenture are available for inspection at the registered office
of the Trustee, being at the date hereof at One Wall Street, New York, New York
10286 and at the specified offices of each of the Paying Agents. The
Bondholders are entitled to the benefit of, are bound by, and are deemed to
have notice of all the provisions of the Indenture. The Bonds are limited in
aggregate original principal amount to U.S.$115,000,000 and mature on June 30,
2000.

STATUS, FORM, DENOMINATION AND TITLE

  (A) Status

         The Bonds are direct, unsecured, senior subordinated obligations of
the Issuer and will rank pari passu with each other and with all other present
and future unsecured, senior subordinated indebtedness of the Issuer.

  (B) Form and Denomination

         The Bonds are issued in registered form in the minimum denomination of
U.S.$10,000 and integral multiples of $1,000 in excess thereof.

         Bonds which are offered and sold in reliance on Regulation S
("Regulation S Bonds") initially will be represented by beneficial interests in
one or more temporary global certificates in definitive, fully registered form
without interest coupons (each a "Temporary Regulation S Global Certificate")
and will be deposited with a custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel. Prior to the 366th day
following the later of the commencement of the offering of the Bonds, the
Closing Date, and the closing date with respect to the Optional Bonds (if any),
beneficial interests in the Temporary Regulation S Global Certificate may be
held only through Euroclear or Cedel and any resale or other transfer of such
interests to "U.S. persons" (as defined in Regulation S) shall not be permitted
during such "Restricted Period" unless made pursuant to an exemption from
registration under the Securities Act and in accordance with the certification
requirements described below. The Temporary Regulation S Global Certificate
will be exchangeable for one or more permanent global certificates (together
with the Temporary Regulation S Global Certificate, the "Regulation S Global
Certificate") after the Restricted Period, upon certification that the
beneficial interests in such Regulation S Global Certificate are owned by
non-U.S. persons in accordance with Regulation S or U.S. persons pursuant to an
exemption from or in a transaction not subject to the Securities Act. The
Issuer has applied to DTC for acceptance of the Bonds which are offered and
resold in reliance on Rule 144A under the Securities Act ("Restricted Bonds")
in DTC's book-entry system. If such application is accepted, such Bonds will be
represented by beneficial interests in one or more permanent global
certificates (the "Restricted Global Certificates" and, together with the
Regulation S Global Certificate, the "Global Certificates") each of which will
be deposited on or about the Closing Date with a custodian for, and registered
in the name of Cede & Co., as nominee for DTC. Beneficial interests in the
Restricted Global Certificates are subject to certain restrictions on transfer.
Bonds offered and sold to Accredited Investors pursuant to the Preemptive
Rights Offering will be delivered in certificated fully registered form only
("Definitive Bonds"). Definitive Bonds will also be Restricted Bonds and are
subject to certain restrictions on transfer. Beneficial interests in the Global
Certificates will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants, which include
Euroclear and Cedel. Except in respect of Bonds originally issued to Accredited
Investors pursuant to the limited preemptive rights offering and in the limited
circumstances described in the Indenture, physical certificates for Bonds will
not be issued in exchange for beneficial interests in the Global Certificates.
The transfer of an interest in a Definitive Bond may only be made in respect of
an interest in a Global Certificate (unless all the Global Certificates have
previously been exchanged for Definitive Bonds). The Bonds are not issuable in
bearer form.

         Restricted Bonds will bear the Securities Act Legend unless the Issuer
determines otherwise in accordance with applicable law.

  (C) Title

         Title to the Bonds passes only by registration in the register of
Bondholders (the "Register") maintained by the Registrar. The registered holder
of any Bond will (except as otherwise required by law) be treated as its
absolute owner for all purposes (whether or not it is overdue and regardless of
any notice of ownership, trust or



                                     31
<PAGE>   5
any interest in it or any writing on, or the theft or loss of, the certificate
issued in respect of it) and no person will be liable for so treating the
holder. As used herein, "Bondholder" and (in relation to a Bond) "holder", mean
the person in whose name a Bond is registered.

INTEREST

         The Bonds bear interest payable at the rate of   per cent. per annum
from and including the date of their issuance to but excluding June 30, 1998,
which rate will increase to    per cent. per annum from and including June 30,
1998 to but excluding June 30, 1999 and which rate will increase to    per cent.
per annum from and including June 30, 1999 until Maturity. However, in the
event of a Complying Public Equity Offering, the interest rate will remain at
the interest rate prevailing on the day immediately preceding such Complying
Public Equity Offering until Maturity of the Bonds. Interest on each Bond will
cease to accrue from the due date for redemption or conversion thereof unless,
upon due presentation of such Bond, payment of principal is improperly withheld
or refused or conversion is not consummated, as the case may be. In such event,
interest will continue to accrue on such Bond up to and including (a) the date
on which payment in full of the principal thereof (plus accrued interest) is
made or (if earlier) the date on which the funds for the payment in full of the
principal thereof (plus accrued interest) have been received in New York City
by the Trustee or (b) the Bonds are converted to GTS Shares. Interest shall be
computed on the basis of a 360 day year consisting of twelve (12) months of 30
days each and, in the case of an incomplete month, the number of days elapsed.

         Interest is payable semiannually in arrears on June 30 and December 31
of each year commencing December 31, 1997 (each, an "Interest Payment Date"),
to the person in whose name a Bond (or any predecessor Bond) is registered at
the close of business on the preceding June 15 or December 15, as the case may
be. Each Bond will carry a right to interest in respect of all periods from the
date of issue thereof, or the date from which interest has been paid to,
whichever is later, up to but excluding the relevant Conversion Date.

TRANSFERS OF BONDS; ISSUE OF CERTIFICATES

  (A) Transfers

         A Bond may be transferred by depositing the certificate issued in
respect of that Bond, with the form of transfer on the back duly completed and
signed, at the specified office of the Registrar or any of the Transfer Agents.

         Except as set forth below, the Global Certificates may be transferred
in whole, but not in part, solely to another nominee of the depositary or to a
successor of the depositary or its nominee.

         Upon the transfer, exchange or replacement of a Restricted Bond, a
Transfer Agent will only deliver certificates that bear The Securities Act
Legend referred to under "Transfer Restrictions", unless there is delivered to
such Transfer Agent such satisfactory evidence, which may include an opinion of
legal counsel, as may be reasonably required by the Transfer Agent, that
neither the Securities Act Legend nor the restrictions on transfer set forth
therein are required to ensure compliance with the provisions of the Securities
Act.

         An interest in Bonds represented by the Regulation S Global
Certificate may be transferred to a person who takes delivery in the form of an
interest in Bonds represented by a Restricted Global Certificate only if a
written certificate of the transferor (in the form provided in the Indenture)
is delivered to the Trustee to the effect that such transfer is being made to a
person whom the transferor reasonably believes is a "qualified institutional
buyer" within the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A and in accordance with any applicable securities laws
of any State of the United States or any other jurisdiction. Interests in
Restricted Bonds may be transferred to a person who takes delivery in the form
of an interest in Bonds represented by the Regulation S Global Certificate only
if a written certificate from the transferor (in the form provided in the
Indenture) is delivered to the Trustee to the effect that such transfer is
being made in accordance with Regulation S and that, if such transfer occurs
during the Restricted Period, such interest in such Bonds represented by the
Regulation S Global Certificate will be held immediately thereafter through
Euroclear and Cedel. Interests in Bonds represented by a Global Certificate may
not be exchanged for Definitive Bonds except as provided in the limited
circumstances described in (B).

         Transfers of Bonds and interests therein are also subject to the
restrictions described under "Subscription and Sale" and "Transfer
Restrictions" below.

         Any beneficial interest in one of the Global Certificates that is
exchanged for, or transferred to a person who takes delivery in the form of, an
interest in the other Global Certificate will, upon transfer, cease to be an
interest in such Global Certificate and become an interest in the other Global
Certificate and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Certificate for as long as it remains such an interest.

         Upon the issuance of the Regulation S Global Certificate and the
Restricted Global Certificate, DTC, or its custodian will credit, on its
internal book-entry system, the respective principal amounts of the individual
beneficial interests





                                       32
<PAGE>   6
represented by such Global Certificates to the accounts of persons who have
accounts with DTC. Such accounts initially will be designated by or on behalf
of the Managers. Ownership of beneficial interests in such Global Certificates
will be limited to persons who have accounts with DTC ("DTC Participants") or
persons who hold interests through DTC Participants, including depositaries of
Euroclear and Cedel. Ownership of beneficial interests in Global Certificates
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
DTC Participants) and the records of DTC Participants (with respect to
interests of persons other than DTC Participants).

         So long as DTC or its nominee is the registered owner or holder of a
Global Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Bonds represented by such certificate for all
purposes under the Indenture and the Bonds. Unless the circumstances described
below under "Definitive Bonds" have occurred, owners of beneficial interests in
a Global Certificate will not be entitled to have any portion of such Global
Certificate registered in their names, will not receive or be entitled to
receive physical delivery of Bonds in definitive form and will not be 
considered to be owners or holders of any Bonds under the Indenture. In 
addition, no beneficial owner of an interest in a Global Certificate will be
able to transfer that interest except in accordance with DTC's applicable
procedures (in addition to those under the Indenture referred to herein and, if
applicable, those of Euroclear and Cedel).

         Interests in the Regulation S Global Certificate may be held directly
through Euroclear or Cedel by participants in such systems, or indirectly
through organizations that are participants in such systems. After the
expiration of the Restricted Period (but not earlier), interests in the
Regulation S Global Certificate may also he held directly through DTC by DTC
Participants, or indirectly through organizations other than Euroclear or Cedel
or participants in such systems that are DTC Participants. Euroclear and Cedel
will hold interests in the Regulation S Global Certificate on behalf of their
participants through their respective depositaries, which in turn will hold
such interests in the Regulation S Global Certificate in customers' securities
accounts in the depositaries' names on the books of DTC.

         Payments of the principal, interest and Additional Amounts (as defined
below), if any, in respect of Global Certificates will be made to DTC or its
nominee, as the registered owner thereof.  Neither the Issuer, the Trustee, nor
any Paying Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Certificates or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.

         The Issuer expects that DTC or its nominee, upon receipt of any
payment of principal, interest or Additional Amounts, if any, in respect of a
Global Certificate representing any Bonds held by it or its nominee, will
immediately credit DTC Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Certificate as shown on the records of DTC or its nominee. The
Issuer also expects that payments by DTC Participants to owners of beneficial
interests in such Global Certificate held through such DTC Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
DTC Participants.

         Transfers between DTC Participants will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds. The
laws of some jurisdictions require that certain persons take physical delivery
of securities in definitive form. Consequently, the ability to transfer
beneficial interests in a Global Certificate to such persons is limited.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of indirect participants and certain banks, the ability of a person
having a beneficial interest in a Global Certificate to pledge such interests
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interest, may be affected by lack of a physical
certificate representing such interest. Transfers between participants in
Euroclear and Cedel will be effected in accordance with their respective rules
and operating procedures.

         Subject to compliance with the transfer restrictions applicable to the
Bonds described herein, cross market transfers between DTC, on the one hand,
and directly or indirectly through Euroclear or Cedel participants, on the
other, will be effected through DTC in accordance with DTC rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterpart in such system in
accordance with its rules and procedures and within its established deadlines,
Euroclear or Cedel, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the Regulation S Global Certificate in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositaries for Euroclear or Cedel.

         Because of time zone differences, the securities account of a
Euroclear or Cedel participant purchasing an interest in a Global Certificate
from a DTC Participant will be credited during the securities settlement
processing day (which must be a business day for Euroclear or Cedel, as the
case may be) immediately following the DTC settlement date, and such credit of
any transactions in interests in a Global Certificate settled during such
processing day will be reported to the relevant Euroclear or Cedel participant
on such day. Cash received in Euroclear or Cedel as a result of sales of
interests in a Global Certificate by or through a Euroclear or Cedel
participant to a DTC Participant will be received for value on the DTC





                                       33
<PAGE>   7
settlement date, but will be available in the relevant Euroclear or Cedel cash
account only on the business day following settlement in DTC.

         The Issuer expects that DTC will take any action permitted to be taken
by a holder of Bonds (including the presentation of Bonds for exchange as
described below) only at the direction of one or more Participants to whose
account with DTC interests in the Global Certificates are credited, and only in
respect of such portion of the aggregate principal amount of the Bonds as to
which such Participant or Participants has or have given such direction.
However, under the circumstances described below under "Definitive Bonds," DTC
will exchange the Bonds represented by Global Certificates for Definitive
Bonds, which it will distribute to its Participants and which, if representing
interests in the Restricted Global Certificate, will bear the Securities Act
Legend as set forth under "Transfer Restrictions."

         The Issuer understands as follows: DTC is a limited purpose trust
company organized under the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities for its
Participants and facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and agents, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, agents
and trust companies that clear through or maintain a custodial relationship
with a DTC Participant, either directly or indirectly ("Indirect
Participants").

         Although DTC, Euroclear and Cedel have agreed to the foregoing
procedures in order to facilitate transfers of interests in the Restricted
Global Certificate and in the Regulation S Global Certificate among
participants of DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer nor DTC, Euroclear or Cedel or
their respective participants or indirect participants will have any
responsibility for the performance or non-performance of their respective
obligations under the rules and procedures governing their operations.

  (B) Definitive Bonds

         Bonds represented by interests in Global Certificates are exchangeable
for certificated physical Bonds in registered form only if (i) DTC is at any
time unwilling or unable to continue as a depositary and a successor depositary
is not appointed by the Issuer within 90 days of notice of such fact, or (ii)
the Trustee has instituted or been directed to institute any Judicial
proceeding in a court to enforce the rights of the Bondholders under the Bonds
and has been advised by counsel that it is necessary or appropriate to obtain
possession of certificated physical Bonds.

         In the case of certificates for Bonds issued in exchange for
Restricted Bonds, such certificates will bear and be subject to the Securities
Act Legend.  The holder of a Definitive Bond may transfer such Bond by
surrendering it at the office or agency maintained by the Issuer for such
purpose, which initially will be the office of the Trustee, or at the
office of any Paying Agent.  Upon the transfer, exchange or replacement of
Definitive Bonds bearing the Securities Act Legend, or upon specific request
for removal of the Securities Act Legend on a Definitive Bond, the Issuer will
deliver only Definitive Bonds that bear such Securities Act Legend, or will
refuse to remove such Securities Act Legend, as the case may be, unless there
is delivered to the Issuer and the Trustee or relevant Paying Agent such
satisfactory evidence, which may include an opinion of counsel, as may
reasonably be required by the Issuer and the Trustee or relevant Paying Agent
that neither the Securities Act Legend nor the restrictions on transfer set
forth therein are required to ensure compliance with the provisions of the
Securities Act.

  (C) Replacement of Bonds

         In case any certificate representing a Bond shall become mutilated,
defaced, destroyed, lost or stolen, the Issuer will execute and, upon the
Issuer's request, the Trustee will authenticate and deliver a new certificate
of like tenor (including the same date of issuance) and equal principal amount,
registered in the same manner, dated the date of its authentication and bearing
interest from the date to which interest has been paid on such Bond, in
exchange and substitution for such Bond (upon surrender and cancellation
thereof in the case of mutilated or defaced Bonds) or in lieu of and
substitution for such Bond. In case such Bond is destroyed, lost or stolen, the
applicant for a substitute Bond shall furnish to the Issuer satisfactory
evidence of the destruction, loss or theft of such Bond and of the ownership
thereof Upon the issuance of any substituted Bond, the Issuer may require the
payment by the registered holder thereof of a sum sufficient to cover fees and
expenses connected therewith.

  (D) Formalities free of charge

         Registration of transfer of Bonds will be effected without charge but
only upon payment (or the giving of such indemnity as the Issuer, the Trustee
or any of the Paying Agents may require) in respect of any tax or other
governmental charges which may be imposed in relation to it.



                                       34
<PAGE>   8
  (E) Closed periods

         No Bondholder may require the transfer of a Bond to be registered
during the period of 15 days ending on the due date for any payment of
principal of or interest on or Additional Amounts, if any, on that Bond or
after a Conversion Notice has been delivered with respect thereto.

  (F) Regulations

         All transfers of Bonds and entries on the Register will be made
subject to the detailed regulations concerning transfer of Bonds set forth in
the Indenture. The regulations may be changed by the Issuer, with the prior
written approval of the Trustee. A copy of the current regulations will be
mailed (at the Issuer's expense) by the Trustee to any Bondholder who asks for
one.

  (G) Payments

         The principal of, and premium, if any, on the Bonds will be paid
against surrender thereof at the main office of the Principal Paying Agent
(currently, the Trustee in New York City) or, subject to applicable laws and
regulations, at the offices of the paying agent in Luxembourg by U.S. dollar
check drawn on a bank in the City of New York, or by a wire transfer to a U.S.
dollar account maintained by the payee with a bank in the City of New York. The
Issuer will at all times maintain a Principal Paying Agent and Conversion Agent
in New York City, and, so long as the Bonds are listed on the Luxembourg Stock
Exchange and the Luxembourg Stock Exchange so requires, a Paying Agent,
Conversion Agent and Transfer Agent in Luxembourg.

         Payment in respect of interest on any Interest Payment Date with
respect to any Bond will be made to the person in whose name such Bond is
registered at the close of business on the June 15 or December 15, as the case
may be, preceding such Interest Payment Date by U.S. dollar check drawn on a
bank in the City of New York mailed to such person at the address specified in
the Register on such day or, under certain circumstances, by wire transfer to a
U.S. dollar account maintained by the payee with a bank in the City of New
York, provided that a written request from such holder to such effect
designating such account is received by the relevant Paying Agent no later than
fifteen days before the relevant Interest Payment Date. Unless such designation
is revoked, any such designation made by such person with respect to such Bond
will remain in effect with respect to any future payments with respect to such
Bond payable to such person.

         If any payment on a Bond is due on a day that is, at any place of
payment, a day on which banking institutions are authorized or obligated by law
or executive order to close, then, at each place of payment, such payment need
not be made on such day but may be made on the next succeeding day that is not,
at such place of payment, a day on which banking institutions are authorized or
obligated by law or executive order to close (a "Business Day"), with the same
force and effect as if made on the originally scheduled date of such payment,
and no interest will accrue for the period from and after such date.

ADDITIONAL AMOUNTS

         All payments of principal, premium, if any, and interest with respect
to the Bonds will be made without withholding or deduction at source for, or on
account of, any present or future taxes, fees, duties, assessments or
governmental charges of whatever nature imposed or levied by the United States
or any political subdivision or taxing authority thereof or therein, unless
such withholding or deduction is required by (i) the laws (or any regulations
or rulings promulgated thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (ii) an official position
regarding the application, administration, interpretation or enforcement of any
such laws, regulations or rulings (including, without limitation, a holding by
a court of competent jurisdiction or by a taxing authority in the United States
or any political subdivision thereof). If a withholding or deduction at source
is required, the Issuer will, subject to certain limitations and exceptions
(set forth below), pay to a holder of Bonds who is a United States Alien (as
defined herein) such additional amounts ("Additional Amounts") as may be
necessary so that every net payment of principal, premium, if any, or interest
with respect to such Bonds after such withholding or deduction, will not be
less than the amount provided for the Bonds. However, the Issuer shall not be
required to make any payment of Additional Amounts for or on account of:

                 (a) any tax, fee, duty, assessment or other governmental
         charge which would not have been imposed but for (i) the existence of
         any present or former connection between such Bondholder (or between a
         fiduciary, settlor, beneficiary, member or shareholder of, or
         possessor of a power over, such Bondholder, if such Bondholder is an
         estate, trust, partnership or corporation) and the United States,
         including without limitation, such Bondholder (or such fiduciary,
         settlor, beneficiary, member, shareholder or possessor) being or
         having been a citizen or resident thereof or being or having been
         present or engaged in trade or business therein or having or having
         had a permanent establishment therein, or (ii) the presentation of a
         Bond for payment on a date more than 15 days after the date on which
         such payment 





                                       35
<PAGE>   9
         became due and payable or the date on which payment thereof is duly
         provided for, whichever occurs later;

                 (b) any estate, inheritance, gift, sales, transfer, personal
         property or similar tax, assessment or other governmental charge;

                 (c) any tax, fee, duty, or future assessment or other
         governmental charge imposed by reason of such Bondholder's past or
         present status as a personal holding company, foreign personal holding
         company, passive foreign investment company or controlled foreign
         corporation with respect to the United States or as a corporation
         which accumulates earnings to avoid United States federal income tax;

                 (d) any tax, fee, duty, assessment or other governmental
         charge which is payable otherwise than by withholding from payments of
         principal or interest with respect to the Bonds;

                 (e) any tax, fee, duty, assessment or other governmental
         charge imposed on any interest received (x) by a holder or beneficial
         owner of Bonds that for U.S. federal income tax purposes is treated as
         actually or constructively owning 10% or more of the voting power of
         the Company's stock, (y) on an extension of credit made pursuant to a
         loan agreement entered into in the ordinary course of business by a
         holder or beneficial owner of Bonds that is a bank and (z) by a holder
         or beneficial owner of Bonds that is a controlled foreign corporation
         and with respect to which the Company is a related person;

                 (f) any tax, fee, duty, assessment or other governmental
         charge required to be withheld by any paying agent from any payment of
         principal, premium, if any, or interest with respect to any Bond, if
         such payment can be made without such withholding by any other paying
         agent with respect to the Bonds;

                 (g) any tax, fee, duty, assessment or other governmental
         charge which would not have been imposed but for the failure to comply
         with certification, identification, documentation, information or
         other reporting requirements concerning the nationality, residence,
         identity or connection with the United States of the Bondholder or of
         the beneficial owner of such Bond, if such compliance is required by a
         present or future statute, treaty, regulation, ruling or
         administrative practice as a precondition to a reduction of or relief
         or exemption from such tax, assessment or other governmental charge;
         or

                 (h) any combination of items (a), (b), (c), (d), (e), (f) and
         (g);

nor shall Additional Amounts be paid to any holder of a Bond who is a fiduciary
or partnership or other than the sole beneficial owner of the Bond to the
extent a beneficiary or settlor with respect to such fiduciary or a member of
such partnership or a beneficial owner of the Bond would not have been entitled
to payment of the Additional Amounts had such beneficiary, settlor, member or
beneficial owner been the holder of the Bond.

         The term "Non-U.S. Holder" means any corporation, individual,
fiduciary or partnership that for United States federal income tax purposes is
a foreign corporation, nonresident alien individual, nonresident alien
fiduciary of a foreign estate or trust, or foreign partnership one or more
members of which is a foreign corporation, nonresident alien individual or
nonresident alien fiduciary of a foreign estate or trust.

REDEMPTION FOR TAX REASONS

         The Issuer may redeem any Bond in whole but not in part at any time at
a redemption price equal to the principal amount thereof together, if
appropriate, with accrued interest to but excluding the date fixed for
redemption, if the Issuer shall determine, based upon a written opinion of
independent counsel selected by the Issuer, that as a result of any change in
or amendment to the laws (or any regulations or rulings promulgated thereunder)
of (i) the United States or any political subdivision or taxing authority
thereof affecting taxation or (ii) the relevant taxing jurisdiction or any
political subdivision or taxing authority thereof or therein affecting
taxation, or any change in application or official interpretation of such laws,
regulations or rulings, which amendment or change is effective on or after the
original Issue Date of such Bond, the Issuer would be required to pay
Additional Amounts on the occasion of the next payment due with respect to such
Bond.

         Notice of intention to redeem Bonds will be given at least once as
described herein not less than 30 days nor more than 60 days prior to the date
fixed for redemption, provided that no such notice of redemption shall be given
earlier than 90 days prior to the effective date of such change or amendment
and that at the time notice of such redemption is given, such obligation to pay
such Additional Amounts remains in effect and cannot be avoided by the Issuer's
taking reasonable measures available to it. From and after any redemption date,
if monies for the redemption of Bonds shall have been made available for
redemption on such redemption date, such Bonds shall cease to bear interest, if
applicable, and the only right of the holders of such Bonds appertaining
thereto shall be to receive payment of the principal amount thereof, premium if
any, and, if appropriate, all unpaid interest accrued to such redemption date.





                                       36
<PAGE>   10
SUBORDINATION

     The indebtedness evidenced by the Bonds will, to the extent set forth in
the Indenture, be subordinated in right of payment to the prior payment in full
in cash or Cash Equivalents of all existing and future Senior Indebtedness. In
the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relating to the Issuer or its assets, or any
liquidation, dissolution or other winding-up of the Issuer, whether voluntary
or involuntary, or any assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Issuer, all Senior Indebtedness
will be entitled to be paid in full before any payment or distribution is made
on account of the principal of (including upon redemption), premium, if any, or
interest on the Bonds or Additional Amounts. Notwithstanding the foregoing,
Bondholders may receive shares of stock and any debt securities that are
subordinated at least to the same extent as the Bonds to Senior Indebtedness
and any securities issued in exchange for Senior Indebtedness.

     During the continuance of any default in the payment of principal,
premium, if any, or interest on any Designated Senior Indebtedness, when the
same becomes due and such default is continuing beyond any applicable grace
periods, and after receipt by the Trustee and the Issuer from the
representative of holders of such Designated Senior Indebtedness of written
notice of such default, no direct or indirect payment by or on behalf of the
Issuer of any kind or character may be made on account of the principal of
(including redemption amount), premium, if any, or interest on, or the
purchase, redemption or other acquisition of, the Bonds unless and until such
default has been cured or waived or has ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full.

     In addition, upon the occurrence and during the continuance of any other
default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated as a result of such default (a
"Non-payment Default") and upon receipt by the Trustee and the Issuer from the
representative of holders of such Designated Senior Indebtedness of written
notice of such Non-payment Default, no payment of any kind or character may be
made by the Issuer on account of the principal of, premium, if any, or interest
on, or the purchase, redemption or other acquisition of, the Bonds for the
period specified below (the "Payment Blockage Period").

     The Payment Blockage Period shall commence upon receipt of written notice
of a Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness and shall end on the earliest to occur of the
following events: (i) 179 days has elapsed since the receipt of such notice
(provided such Designated Senior Indebtedness shall not theretofore have been
accelerated), (ii) such default is cured or waived or ceases to exist or such
Designated Senior Indebtedness is discharged or paid in full, or (iii) such
Payment Blockage Period shall have been terminated by written notice to the
Issuer or the Trustee from the representative of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period, after which the Issuer
shall promptly resume making any and all required payments in respect of the
Bonds, including any missed payments. Only one Payment Blockage Period with
respect to the Bonds may be commenced within any 365 consecutive day period. No
Non-payment Default that existed or was continuing on the date of the
commencement of any Payment Blockage Period will be, or can be, made the basis
for the commencement of a second Payment Blockage Period, whether or not within
a period of 365 consecutive days, unless such default has been cured or waived
for a period of not less than 90 consecutive days. In no event will a Payment
Blockage Period extend beyond 179 days from the receipt by the Trustee of the
notice initiating such Payment Blockage Period and there must be a 186
consecutive day period in any 365 day period during which no Payment Blockage
Period is in effect.  Notwithstanding the foregoing, no further notice may be
given in respect of any Non-payment Default or in respect of any acceleration
unless and until all scheduled payments of principal, premium, if any, and
interest not paid on the Bonds during any such Payment Blockage Period as a
result of any notice or acceleration shall have been paid in full in cash.

     If the Issuer fails to make any payment on the Bonds when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Bonds to accelerate the
maturity thereof. The Issuer will promptly notify holders of Senior
Indebtedness if payment of the Bonds is accelerated because of an Event of
Default. See "- Events of Default."

     By reason of such subordination, in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or similar case or proceeding of the Issuer, creditors of the Issuer who are
holders of Senior Indebtedness may recover more, ratably, than the holders of
the Bonds and funds which would be otherwise payable to the holders of the
Bonds will be paid to the holders of the Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full, and the Issuer may be unable
to meet its obligations fully with respect to the Bonds.

     At March 31, 1997 the Issuer had $76.2 million of Senior Indebtedness
outstanding. The Indenture limits, but does not prohibit, the incurrence by the
Issuer of additional Indebtedness (including Indebtedness which is senior to
the Bonds).


                                     37
<PAGE>   11

UNDERTAKINGS

     Subject to market conditions, it is the intention of GTS to effect a
Complying Public Equity Offering of its Common Stock before June 30, 2000. The
Issuer has agreed with the Managers that, if a Complying Public Equity Offering
has not occurred on or before June 30, 2000, the Issuer will not effect any
public equity offering for a period of six months thereafter.

CONVERSION

     (A) Conversion

(i)       Complying Public Equity Offering

          If a Complying Public Equity Offering occurs prior to the Maturity of
the Bonds, then the Issuer shall, no earlier than twenty Business Days and no
later than fifteen Business Days prior to the anticipated completion of such
offering, cause notice to be given to the Trustee, the Bondholders and the
Luxembourg Stock Exchange to the effect that a Complying Public Equity Offering
is expected to occur on a specified date (the "Conversion Date") and that on
and after the Conversion Date the Bondholders may from time to time until
Maturity of the Bonds by delivery of a notice pursuant to paragraph (B) below,
elect to exercise their Conversion Right, in whole or in part. Following the
completion of such Complying Public Equity Offering, the Issuer shall promptly
cause notice to be given to the Trustee, the Bondholders and the Luxembourg
Stock Exchange stating that the Complying Public Equity Offering has been
completed and confirming the Conversion Date. The Issuer shall also provide in
such notice all information concerning the Complying Public Equity Offering and
all prior offerings since the Issue Date that may be relevant to a Conversion
Price determination or requested by the Trustee in relation thereto (the
"Notice of Offering").

(ii)      Non-Complying Equity Offering

          If any Non-Complying Equity Offering occurs prior to the Maturity of
the Bonds, then the Issuer shall no later than ten Business Days after the
completion of such offering cause a Notice of Offering to be given to the
Trustee, the Bondholders and the Luxembourg Stock Exchange of such fact and
that at any time and from time to time, in whole or in part (but no earlier
than the 60th day prior to the Maturity of the Bonds) the Bondholders may by
delivery of notice pursuant to paragraph (B) below elect to exercise their
Conversion Right. The Issuer shall also provide in the Notice of Offering all
information concerning all offerings since the Issue Date that may be relevant
to a Conversion Price determination or requested by the Trustee in relation
thereto.

(iii)     Delayed Closing Date

          If a Complying Public Equity Offering or a Non-Complying Equity
Offering occurs within the 60 day period prior to and ending at the original
Maturity of the Bonds, then for purposes of exercise of the Conversion Right by
Bondholders, the Maturity for all Bonds shall be postponed to the 60th day
following the date of the Notice of Offering and the Bonds will continue to
accrue interest to the date the Bonds are converted, provided that, in no event
will interest accrue for a period longer than 60 days from the original
Maturity of the Bonds.

(iv)      Conversion Right Termination

          The Conversion Right of any Bondholder in respect of a Bond becoming
redeemable pursuant to the Indenture and in respect of which the conditions
required for conversion have not been satisfied by the relevant Bondholder by
the end of the second Business Day prior to any date for redemption thereof
shall, except as provided below, thereupon terminate. Notwithstanding the
foregoing, if there is a default in making full payment when due of the
redemption monies in respect of any Bond, the Conversion Right in respect
thereof shall extend up to and including the date on which payment has been
received by the Principal Paying Agent or the Trustee.

          The Conversion Right of a Bondholder in respect of a Bond becoming
due and payable as a result of the acceleration of the Maturity thereof
following an Event of Default shall terminate on the date that payment with
respect to such Bonds has been received by the Principal Paying Agent or the
Trustee.

(v)       General

          In the event where Bondholders have elected to convert their Bonds
pursuant to paragraph (i) and (ii) above by giving notice thereof to the
Issuer in accordance with the terms of the Indenture, then any subsequent
redemption of the Bonds shall not affect the right of the holders of such Bonds
to receive GTS Shares and such Bonds shall not be so redeemed.


                                       38
<PAGE>   12
      No earlier than 60 days and no later than 30 days prior to the Maturity
of the Bonds, the Issuer shall deliver a notice to the Trustee, the Bondholders
and the Luxembourg Stock Exchange of the status of the Conversion Rights, if
any, of the Bondholders.

  (B) Conversion Notice

      At any time subsequent to the Conversion Date but not later than the
Maturity of the Bonds (as such Maturity may be extended pursuant to (A) (iii)
above) (i) if a Bondholder wishes to elect to exercise his Conversion Right
under paragraph (A)(i) or (A)(ii) above, or (ii) if notice of redemption of the
Bonds pursuant to the Indenture has been given, prior to the date of redemption
specified in such notice or (iii) if the Bonds are subject to acceleration as a
result of an Event of Default, following the date notice thereof is given to
Bondholders, a Bondholder shall complete a notice in the then current form
obtainable from the Trustee or a specified office of a Conversion Agent (a
"Conversion Notice") (which may be accompanied by a share transfer form, or
other instrument which may be required, signed by the Bondholder or may include
an authorization signed by the Bondholder, authorizing the Bondholder's nominee
to become the registered transferee and to execute any requisite transfer form
or other instrument which may be required, on behalf of the Bondholder) and
deliver such Conversion Notice and where appropriate, an executed share
transfer form, or other instrument which may be required, to the Trustee or a
specified office of any Conversion Agent (together with the relevant Bond or
Bonds if in definitive form) and any payment required by paragraph (D) below.
Once given, a Conversion Notice shall be irrevocable and may not be withdrawn
without the consent in writing of the Issuer.

  (C) Conversion Price

      Each Bond will be converted into such number of GTS Shares as is equal to
the principal amount of such Bond divided by the applicable Conversion Price.

      The applicable Conversion Price of the Bonds shall be determined as
follows:

      (i) where a Complying Public Equity Offering has not been preceded, since
the Issue Date, by a Non-Complying Equity Offering, the Conversion Price shall
be equal to the per share price to the public in the Complying Public Equity
Offering multiplied by (A) 100 per cent. if the Complying Public Equity
Offering occurs on or before June 30, 1998, (B) 93 per cent. if the Complying
Public Equity Offering occurs on or before June 30, 1999 and after June 30,
1998, or (C) 85 per cent. if the Complying Public Equity Offering occurs after
June 30, 1999;

      (ii) where a Complying Public Equity Offering has been preceded by one or
more Non-Complying Equity Offerings since the Issue Date, the Conversion Price
shall be equal to the lower of (a) the dollar-weighted average conversion price
for all of such Non-Complying Equity Offerings and the Complying Public Equity
Offering (as calculated for each such offering by multiplying the gross per
share offering price for the applicable offering by (A) 100 per cent. if the
closing date of such offering occurs on or before June 30, 1998, (B) 93 per
cent. if the closing date of such offering occurs on or before June 30, 1999
and after June 30, 1998, or (C) 85 per cent. if the closing date of such
offering occurs after June 30, 1999) and (b) the conversion price for the
Complying Public Equity Offering alone (as calculated in clause (i) above);

      (iii) where a Non-Complying Public Equity Offering which is not a
Complying Public Equity Offering solely by reason of the offering's failure to
satisfy the $100,000,000 offering size condition for a Complying Public Equity
Offering but which offering has an offering size of at least $50,000,000 and
(A) no Complying Public Equity Offering has occurred since the issuance of the
Bonds, and (B) there has been one or more Non-Complying Equity Offerings, the
Conversion Price shall be equal to the lower of (a) the dollar-weighted average
conversion price for all of such Non-Complying Equity Offerings and the
Non-Complying Public Equity Offering (as calculated for each Non-Complying
Equity Offering by multiplying the per share offering price by (A) 100 per
cent. if the closing date of such offering occurs on or before June 30, 1998,
(B) 93 per cent. if the closing date of such offering occurs on or before June
30, 1999 and after June 30, 1998, or (C) 85 per cent. if the closing date of
such offering occurs after June 30, 1999) and (b) the conversion price for the
Non-Complying Public Equity Offering (as calculated in (a) above); or

      (iv) in the case of any other Non-Complying Equity Offering not provided
for in clause (iii) above, where no Complying Public Equity Offering has
occurred since the Issue Date, the applicable Conversion Price shall be equal
to the lowest conversion price calculated for each Non-Complying Equity
Offering that has occurred since the Issue Date, where each such conversion
price will be determined by multiplying the gross per share offering price for
each such offering by (A) 100 per cent. if the closing date of such offering
occurs on or before June 30, 1998, (B) 93 per cent. if the closing date of
such offering occurs on or before June 30, 1999 and after June 30, 1998, or (C)
85 per cent. if the closing date of such offering occurs after June 30, 1999.

      There shall be excluded from the calculation of the applicable Conversion
Price any Private Equity Offerings aggregating no more than $100 million in
gross proceeds if such offering or offerings are


                                     39
<PAGE>   13
consummated on or prior to December 31, 1997 and any Strategic Equity Offering
that occurs from the Issue Date so long as there has occurred a Complying
Public Equity Offering or a Non-Complying Equity Offering.

  (D) Stamp and Other Duties and Exchange Costs

      Payment of all stamp, transfer and registration duties (if any) and any
brokers' commission and stock exchange transaction charges and any other tax
thereon arising on exercise of Conversion Rights and/or on the transfer or
delivery of GTS Shares by the Issuer (or the Trustee pursuant to the Indenture)
to or to the order of the Trustee or the relevant Bondholder in connection
therewith, payable in or imposed by the United States, any state or other
political sub-division thereof and any other jurisdiction in which the register
in respect of any securities is located will be made or procured by the Issuer.
If the Issuer shall fail to pay any such duties or costs, the relevant
Bondholder shall be entitled to tender and pay the same. The Issuer has in the
Indenture covenanted to reimburse each such Bondholder in respect of the
payment of such duties or costs and any penalties paid in respect thereof. A
Bondholder exercising Conversion Rights must pay to the relevant Conversion
Agent any such duties or costs arising in any other circumstances.

  (E) Cash Payment Instructions

      Upon the exercise of Conversion Rights, a Bondholder shall, when
delivering the relevant Conversion Notice, give directions to the relevant
Conversion Agent for payment of any cash sum which such Bondholder is entitled
to receive pursuant to the Indenture and which shall be paid by way of U.S.
dollar check drawn on a bank in the City of New York or, under certain
circumstances by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the City of New York.

  (F) Fractions arising on Conversion

      No fraction of a GTS Share shall be delivered on exercise of Conversion
Rights but a cash payment shall be made by the Issuer to the relevant
Bondholder, pursuant to directions given to the relevant Conversion Agent by
the Bondholder as provided in (E) above, not later than 21 days after the
Conversion Date, of an amount equal to the value of such fraction (such amount
to be rounded up to the nearest U.S.$0.01).

REDEMPTION AND PURCHASE

  (A) Final Redemption at Maturity

      Unless previously redeemed or converted or to be converted or purchased
and cancelled, on June 30, 2000 (the Maturity) outstanding Bonds will be
redeemed by the Issuer at their principal amount plus accrued interest, if any.
However, in the event that a Complying Public Equity Offering has not occurred
prior to June 30, 2000, outstanding Bonds will be redeemed at Maturity of the
Bonds at 121.0 per cent. of their principal amount plus, accrued interest, if
any.

  (B) Acceleration following an Event of Default

      If the Bonds are accelerated following the occurrence of an Event of
Default, the Bonds will be repaid at their principal amount multiplied by 106.5
per cent. plus accrued interest to the date of acceleration, if the date of
acceleration occurs on or before June 30, 1998; 113.5 per cent. if the date of
acceleration occurs after such date but on or before June 30, 1999; and 121.0
per cent. if the date of acceleration occurs thereafter; provided that
notwithstanding the foregoing, each Bondholder shall have the option to
exercise his Conversion Right, if any.

      The payment of the premium referred to above upon the occurrence of an
Event of Default may not be enforceable under U.S. federal or New York law.

  (C) Cancellation

      All Bonds redeemed pursuant to the Indenture or purchased by the Issuer
in the open market will be forthwith cancelled and may not be reissued or sold.
The Issuer will not permit its Subsidiaries and will to the fullest extent of
the rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to purchase any of the
Bonds.

  (D) Limited Optional Redemption

      The Bonds are redeemable at the option of the Issuer, in whole but not in
part, on not less than 90 nor more than 120 days' prior notice (which notice
shall provide the Trustee and the Bondholders information concerning the right
of Bondholders to convert prior to being redeemed and information pertinent to
the Conversion Price) at the principal amount thereof plus accrued interest to
the date of redemption, on or after the second anniversary of a Complying
Public Equity Offering, provided that the GTS Shares into which

                                     40
<PAGE>   14
Bonds are convertible would not be at the time of redemption "restricted
securities" in the hands of any Bondholder not affiliated with the Issuer,
within the meaning of the Securities Act, and provided, further, that the
average Closing Price of the GTS Shares for the 20 consecutive Trading Days
prior to the date of the Issuer's notice of redemption is greater than 130 per
cent. of the Conversion Price determined in conjunction with such Complying
Public Equity Offering.

      The redemption of the Bonds at the option of the issuer under the
Indenture may be prohibited by the terms of or result in an event of default
under or require the consents of holders of Senior Indebtedness of the Issuer.
The Issuer's obligations under its Senior Indebtedness represent obligations
senior in right of payment to the Bonds.  Consequently, the purchase of the
Bonds by the Issuer pursuant to an optional redemption will be precluded,
absent any required consent of the lenders under Senior Indebtedness or
repayment of all amounts outstanding thereunder or the waiver of any event of
default caused thereunder.

EVENTS OF DEFAULT

      The following are "Events of Default" under the Indenture:

          (a) the Issuer fails to pay the principal of or any premium (if any)
      or interest (including Additional Amounts) on any of the Bonds when due
      (upon Maturity, acceleration, redemption, required purchase or otherwise
      and whether or not prohibited by the subordination provisions) and, in
      the case of interest only, such failure continues for a period of 30
      days; or

          (b) the Issuer does not perform or comply with any one or more of its
      other obligations in the Bonds or the Indenture (other than a default
      under (a) above) for a period of 60 days after written notice of such
      default shall have been given to the Issuer by the Trustee or to the
      Issuer and the Trustee by holders of at least 25 per cent. in aggregate
      principal amount of Bonds then outstanding; or

          (c) (i) one or more defaults in the payment of principal of or
      premium, if any, on Indebtedness of the Issuer or any Material Subsidiary
      or any Significant Joint Venture aggregating U.S.$10 million (or the
      foreign currency equivalent thereof) or more, when the same becomes due
      and payable at the Maturity thereof, and such default or defaults shall
      have continued after any applicable grace period and shall not have been
      cured or waived or (ii) Indebtedness of the Issuer or any Material
      Subsidiary or any Significant Joint Venture aggregating U.S.$10 million
      (or the foreign currency equivalent thereof) or more shall have been
      accelerated or otherwise declared due and payable, or required to be
      prepaid or repurchased (other than by regularly scheduled required
      prepayment) prior to the Maturity thereof; or

          (d) any holder or holders of Indebtedness in excess of U.S.$10
      million (or the foreign currency equivalent thereof) in the aggregate of
      the Issuer or any Material Subsidiary or any Significant Joint Venture
      shall notify the Issuer or the Trustee of the intended sale or
      disposition of any assets of the Issuer or any such Material Subsidiary
      or Significant Joint Venture that have been pledged to or for the benefit
      of such person to secure such Indebtedness or shall commence proceedings,
      or take action (including by way of set-off) to retain in satisfaction of
      any such Indebtedness, or to collect on, seize, dispose of or apply, any
      such assets of the Issuer or any Material Subsidiary or any Significant
      Joint Venture pursuant to the terms of any agreement or instrument
      evidencing any such Indebtedness or in accordance with applicable law; or

          (e) one or more final judgments (or judgments which can no longer be
      appealed) or orders or similar judicial or administrative action shall be
      rendered against the Issuer or any Material Subsidiary or Significant
      Joint Venture for the payment of money, either individually or in an
      aggregate amount, in excess of U.S.$10 million (or the foreign currency
      equivalent thereof) and which shall not have been discharged and either
      (A) an enforcement proceeding shall have been commenced by any creditor
      upon such judgment or order or similar judicial or administrative action
      or (B) there shall have been a period of 60 consecutive days during which
      a stay of enforcement of such judgment or order, by reason of a pending
      appeal or otherwise, was not in effect; or

          (f) the Issuer or any Material Subsidiary or Material Joint Venture,
      pursuant to or under or within any applicable bankruptcy, insolvency,
      reorganization, moratorium, liquidation or like law; (1) commences a
      voluntary case or proceeding; (2) consents to the entry of an order for
      relief against it in an involuntary case or proceeding; (3) makes a
      general assignment for the benefit of its creditors; (4) or shall
      generally not pay its debts when such debts become due or shall admit in
      writing its inability to pay its debts generally; (5) or a court of
      competent jurisdiction (or like entity) shall enter an order or decree
      under any applicable law described above that is for relief against the
      Issuer or any Material Subsidiary or Material Joint Venture in an
      involuntary case or proceeding, appoints a custodian for the Issuer or
      such other entity for all or substantially all its properties or orders
      the liquidation of the Issuer or such other entity and in each such case
      in this clause (5), the order or decree remains unstayed and in effect
      for 60 days; (6) or the Issuer or such other entity shall take any
      corporate action regarding any of the foregoing; or



                                     41
<PAGE>   15
          (g) excluding the events referred to in paragraph (f) above, any
      seizure, compulsory acquisition, expropriation or nationalization of any
      assets of the Issuer, any Subsidiary or Significant Joint Venture for
      which there is not paid Fair Market Value and where the seizure,
      compulsory acquisition, expropriation or nationalization (whether by an
      outright taking or by confiscatory tax or other policies), individually
      or in the aggregate, could reasonably be expected to result in a material
      adverse effect on the business, (including without limitation the ability
      to generate cash flow over the life of the Bonds) the condition
      (financial or other), the properties or the results of operations of the
      Issuer, its Subsidiaries, and Significant Joint Ventures on a combined
      basis (a "Material Adverse Effect").

      If an Event of Default (other than as specified in subparagraph (f) above)
shall occur and be continuing, the Trustee, by notice to the Issuer, or the
holders of at least 25 per cent. in aggregate principal amount of the Bonds
then outstanding by notice to the Trustee and the Issuer, may declare the
principal of, premium, if any, and accrued and unpaid interest on all of the
outstanding Bonds due and payable immediately upon which declaration, all
amounts payable in respect of the outstanding Bonds shall be due and payable
immediately. If an Event of Default specified in subparagraph (f) above occurs
and is continuing, then the principal of, premium, if any, and accrued and
unpaid interest, on all of the outstanding Bonds shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holders of Bonds.

      After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Bonds, by written notice to the Issuer and the Trustee, may rescind
such declaration if (a) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Bonds,
(iii) the unpaid principal of and premium, if any, on any outstanding Bonds
which have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Bonds, and (iv) to the extent that
payment of such interest is lawful, interest upon overdue interest and overdue
principal at the rate borne by the Bonds which has become due otherwise than by
such declaration of acceleration; (b) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction; and (c) all Events
of Default, other than the non-payment of principal of, premium, if any, and
interest on the Bonds that have become due solely by such declaration of
acceleration, have been cured or waived.

      The holders of not less than a majority in aggregate principal amount of
the outstanding Bonds may on behalf of the holders of all the Bonds waive any
past defects under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Bond, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Bond outstanding.

      No holder of any of the Bonds has any right to institute any proceeding
with respect to the Indenture or the Bonds or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of outstanding Bonds have
made written requests, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee under the Bonds and the Indenture, and the
Trustee has failed to institute such proceeding within 30 days after receipt of
such notice and the Trustee, within such 30-day period, has not received
directions inconsistent with such written request by holders of a majority in
aggregate principal amount of the outstanding Bonds. Such limitations do not
apply, however, to a suit instituted by a holder of a Bond for the enforcement
of the payment of the principal of, premium, if any, or interest on such Bond
on or after the respective due dates expressed in such Bonds.

      During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, whether or not an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of not less than a majority in aggregate principal
amount of the outstanding Bonds have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.

      If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Bonds notice of
the Default or Event of Default within 30 days after obtaining knowledge
thereof.  Except in the case of a Default or an Event of Default in payment of
principal or premium, if any, or interest on any Bonds, the Trustee may
withhold the notice to the holders of such Bonds if a committee of its trust
officers in good faith determines that withholding the notice is in the
interest of the holders of the Bonds.



                                     42
<PAGE>   16

REPORTING REQUIREMENTS

         For the fiscal quarters ending June 30, 1997 and September 30, 1997
and for the fiscal year ended December 31, 1997 the Issuer will (i) transmit by
mail to all Bondholders, as their names and addresses appear in the Register,
without cost to such Bondholders, and (ii) file with the Trustee copies of the
quarterly and audited annual financial reports of the Issuer (including the
condensed, combining financial data in the form and scope set forth in the
condensed, consolidated financial statements of the Issuer for the first
quarter of 1997 and for the fiscal year ending December 31, 1996, respectively)
that are generally distributed to its shareholders at the time such reports are
so distributed.

         Beginning with the financial statements of the Issuer for the quarter
ending March 31, 1998 and thereafter, whether or not the Issuer is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Issuer shall prepare the annual and quarterly reports which the Issuer
would have been required to file with the Securities and Exchange Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto
(including the condensed, combining financial data in the form and scope set
forth in the condensed, consolidated financial statements described above) on
or prior to the respective dates (the "Required Filing Dates") by which the
Issuer would have been required so to file such documents. The Issuer shall
also in any event within 15 days of each Required Filing Date (i) transmit by
mail to all Bondholders, as their names and addresses appear in the Register,
without cost to such Bondholders, and (ii) file with the Trustee, copies of
such annual and quarterly reports.

         The Issuer is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Issuer of its obligations under the
Indenture and as to any default in such performance. The Issuer is also
required to notify the Trustee within thirty (30) days after the Issuer has
knowledge of any event which is, or after notice or lapse of time or both would
become, an Event of Default.

NEGATIVE PLEDGE AND COVENANTS

         So long as any Bond remains outstanding or any amount remains unpaid
with respect to any of the Bonds or up to and including the date of (a) the
Complying Public Equity Offering or (b) a Covenant Defeasance:

(A) Negative Pledge

         The Issuer will not, and will not permit any of its Subsidiaries to,
and will to the fullest extent of the rights available to it under the relevant
contractual or organizational documents not permit its Significant Joint
Ventures to, directly or indirectly create, incur, assume or suffer to exist
any Lien that secures obligations under any Pari Passu Indebtedness or
Subordinated Indebtedness on any asset or property of the Issuer or such
Subsidiary or such Significant Joint Venture, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless
the Bonds are equally and ratably secured with the obligations so secured
(provided that any Lien securing Subordinated Indebtedness shall be subordinate
and junior to the Lien securing the Bonds with the same relative priority as
such Subordinated Indebtedness shall have with respect to the Bonds) or until
such time as such obligations are no longer secured by a Lien.

(B) Covenants

         (a) Limitation on Indebtedness. The Issuer will not, and will not
permit any of its Subsidiaries to and will to the fullest extent of the rights
available to it under the relevant contractual or organizational documents not
permit its Significant Joint Ventures to, directly or indirectly, create,
incur, issue, assume, guarantee or in any manner become directly or indirectly
liable, contingently or otherwise, for the payment of (in each case, to
"incur") any Indebtedness (including any Acquired Indebtedness); provided,
however, that the Issuer, any Subsidiary or any Significant Joint Venture will
be permitted to incur Indebtedness (including Acquired Indebtedness) if (a) at
the time of such incurrence, no Default or Event of Default under the Indenture
has occurred and is continuing, (b) at the time of such incurrence the Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period (and after giving pro
forma effect to (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, on the first day of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Issuer,
its Subsidiaries and its Significant Joint Ventures since the first day of such
four-quarter period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four-quarter period)
and (iii) the acquisition (whether by purchase, merger or otherwise) or
disposition (whether by sale, merger or otherwise) of any company, entity or
business acquired or disposed of by the Issuer or its Subsidiaries or its
Significant joint Ventures, as the case may be, since the first day of such
four-quarter period), would have been at least equal to 2:1 and (c) in the
case of the incurrence of Subordinated Indebtedness or Pari Passu Indebtedness,
such Indebtedness has no scheduled principal payment prior to the 91st day
after the Maturity of the Bonds.


                                      43
<PAGE>   17
         Notwithstanding the foregoing, the Issuer and its Subsidiaries and
Significant Joint Ventures may, to the extent specifically set forth below,
incur each and all of the following:

                 (a) Indebtedness of the Issuer evidenced by the Bonds;

                 (b) Indebtedness of the Issuer, any Subsidiary or any
         Significant Joint Venture outstanding on the Issue Date;

                 (c) Indebtedness of the Issuer, any Subsidiary and any
         Significant Subsidiary in an aggregate principal amount at any one
         time outstanding not to exceed U.S. $75,000,000 (or the foreign
         currency equivalent thereof);

                 (d) Interest Rate Protection Obligations of the Issuer or
         any Subsidiary or any Significant Joint Venture covering Indebtedness
         of the Issuer, such Subsidiary or such Significant Joint Venture;
         provided, however, that, (x) any Indebtedness to which any such
         Interest Rate Protection Obligations relate bears interest at
         fluctuating interest rates and is otherwise permitted to be incurred
         under this covenant and (y) the notional principal amount of any such
         Interest Rate Protection Obligations does not exceed the principal
         amount of the Indebtedness to which such Interest Rate Protection
         Obligations relate;

                 (e) Indebtedness of any Subsidiary or Significant Joint
         Venture owed to and held by the Issuer, another Subsidiary or
         Significant Joint Venture, in each case which is not subordinated in
         right of payment to any Indebtedness of such Subsidiary or Significant
         Joint Venture, except that (i) any transfer of such Indebtedness by
         the Issuer or a Subsidiary or a Significant Joint Venture (other than
         to the Issuer or to another Subsidiary or Significant Joint Venture)
         and (ii) the sale, transfer or other disposition by the Issuer or any
         Subsidiary or Significant Joint Venture of the Capital Stock of any
         Subsidiary or ownership interest in any Significant Joint Venture
         which is owed Indebtedness from another Subsidiary or Significant
         Joint Venture such that the first such Subsidiary or Significant Joint
         Venture ceases to be a Subsidiary or Significant Joint Venture shall,
         in each case in (i) and (ii), be an incurrence of Indebtedness by the
         second such Subsidiary or Significant Joint Venture, as the case may
         be, subject to the other provisions of this covenant;

                 (f) Indebtedness of the Issuer owed to and held by any
         Subsidiary or any Significant Joint Venture which is unsecured and
         subordinated in right of payment to the payment and performance of the
         Issuer's obligations under the Indenture and the Bonds, provided that
         any subsequent issuance or transfer of Capital Stock or other
         ownership interest or any other event which results in any such
         Subsidiary or Significant Joint Venture ceasing to be a Subsidiary or
         Significant Joint Venture, as the case may be, or any subsequent
         transfer of any such Indebtedness (except to the Issuer or another
         Subsidiary or another Significant Joint Venture) shall be deemed, in
         each case, to be an incurrence of Indebtedness by the Issuer, subject
         to the other provisions of this covenant;

                 (g) Indebtedness under Currency Agreements; provided that in
         the case of Currency Agreements which relate to Indebtedness, such
         Currency Agreements do not increase the outstanding Indebtedness of
         the Issuer or any Subsidiary or any Significant Joint Venture other
         than as a result of fluctuations in foreign currency exchange rates or
         by reason of fees, indemnities and compensation payable thereunder;

                 (h) Indebtedness of the Issuer or any of its Subsidiaries or
         any of its Significant Joint Ventures in an aggregate amount on the
         date of incurrence, not in excess of 80% of the average of the
         outstanding accounts receivable balances of the Issuer, its
         Subsidiaries and Significant Joint Ventures on a combined basis at
         each of the three preceding quarterly balance sheet dates;

                 (i) Indebtedness of Hermes as to which the Issuer or any other
         Subsidiary or any Significant Joint Venture is not directly or
         indirectly liable by virtue of being the primary obligor on, guarantor
         of or otherwise liable with respect to, such Indebtedness;

                 (j) Indebtedness of the Issuer or any Subsidiary or any
         Significant Joint Venture represented by letters of credit for the
         account of the Issuer or such Subsidiary or such Significant Joint
         Venture, as the case may be, in order to provide security for workers'
         compensation claims, payment obligations in connection with
         self-insurance or similar requirements in the ordinary course of
         business;

                 (k) Indebtedness and Acquired Indebtedness incurred by the
         Issuer or any Subsidiary or Significant Joint Venture issued to
         finance the construction, acquisition, installation or improvement of
         Telecommunications Assets to be used in Europe and/or Asia (including
         Russia and the CIS) by the Issuer, any Subsidiary or any Significant
         Joint Venture;

                 (l) (i) Indebtedness of the Issuer the proceeds of which are
         used solely to refinance (whether by amendment, renewal, extension or
         refunding) Indebtedness of the Issuer or any Subsidiary or any
         Significant Joint Venture and (ii) Indebtedness of any Subsidiary or
         Significant Joint Venture, the proceeds of which are used solely to
         refinance (whether by amendment, renewal, extension or refunding)
         Indebtedness of such Subsidiary or such Significant Joint Venture, in
         each case other than the




                                      44
<PAGE>   18
         Indebtedness incurred under the preceding clauses (c) through (g) and
         (i) through (k) of this covenant; provided, however, that (x) the
         principal amount of Indebtedness incurred pursuant to this clause (i)
         (or, if such Indebtedness provides for an amount less than the
         principal amount thereof to be due and payable upon a declaration of
         acceleration of the maturity thereof, the original Issue price of such
         Indebtedness) shall not exceed the sum of the outstanding principal
         amount of Indebtedness so refinanced, plus the amount of any premium
         required to be paid in connection with such refinancing pursuant to
         the terms of such Indebtedness or the amount of any premium reasonably
         determined by the Board of Directors of the Issuer as necessary to
         accomplish such refinancing by means of a tender offer or privately
         negotiated purchase, plus the amount of expenses in connection
         therewith, (y) in the case of Indebtedness incurred by the Issuer
         pursuant to this clause (l) to refinance Subordinated Indebtedness,
         such Indebtedness (A) has no scheduled principal payment prior to the
         91st day after the Maturity of the Bonds, (B) has an Average Life to
         Stated Maturity greater than the remaining Average Life to Stated
         Maturity of the Bonds and (C) is subordinated to the Bonds in the same
         manner and to the same extent that the Subordinated Indebtedness being
         refinanced is subordinated to the Bonds and (z) in the case of
         Indebtedness incurred by the Issuer pursuant to this clause (l) to
         refinance Pari Passu Indebtedness, such Indebtedness (A) has no
         scheduled principal payment prior to the 91st day after the Maturity
         of the Bonds, (B) has an Average Life to Stated Maturity greater than
         the remaining Average Life to Stated Maturity of the Bonds and (C)
         constitutes Pari Passu Indebtedness or Subordinated Indebtedness.

         (b) Limitation on Restricted Payments. The Issuer will not, and will
not permit any of its Subsidiaries to, and will to the fullest extent of the
rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to, directly or indirectly:

                 (i) declare or pay any dividend or make any other distribution
         or payment on or in respect of Capital Stock of the Issuer or any
         Subsidiary or any Significant Joint Venture or any payment to the
         direct or indirect holders (in their capacities as such) of Capital
         Stock of the Issuer or any Subsidiary or any Significant Joint Venture
         (other than (x) dividends or distributions payable solely in Capital
         Stock of the Issuer such Subsidiary or such Significant Joint Venture
         (other than, in each case, Redeemable Capital Stock) or in options,
         warrants or other rights to purchase Capital Stock of the Issuer
         (other than Redeemable Capital Stock), (y) the declaration or payment
         of dividends or other distributions to the extent declared or paid to
         the Issuer or any Subsidiary or any Significant Joint Venture, and (z)
         the declaration or payment of dividends or other distributions by any
         such entity to all holders of equity or similar economic interests of
         such entity on a pro rata basis),

                 (ii) purchase, redeem, defease or otherwise acquire or retire
         for value any Capital Stock or other ownership interest of the Issuer
         or any Subsidiary or any Significant Joint Venture (other than any
         such Capital Stock or other ownership interest owned by a Wholly-Owned
         Subsidiary of the Issuer),

                 (iii) make any principal payment on, or purchase, defease,
         repurchase, redeem or otherwise acquire or retire for value, prior to
         any scheduled maturity, scheduled repayment, scheduled sinking fund
         payment or other Maturity, any Subordinated Indebtedness (other than
         any such Indebtedness owned by the Issuer or a Wholly-Owned Subsidiary
         of the Issuer), or

                 (iv) make any Investment (other than any Permitted Investment)
         in any person

(such payments or Investments described in the preceding clauses (i), (ii),
(iii) and (iv) are collectively referred to as "Restricted Payments"), unless,
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the Fair
Market Value on the date of such Restricted Payment of the asset(s) proposed to
be transferred by the Issuer or the relevant entity described above, as the
case may be, pursuant to such Restricted Payment), (A) no Default or Event of
Default under the Indenture shall have occurred and be continuing, (B)
immediately prior to and after giving effect to such Restricted Payment, the
Issuer would be able to incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under "--Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness) and (C) the aggregate amount of all Restricted Payments declared
or made from and after the Issue Date would not exceed the sum of (1) 50 per
cent. of the aggregate Pro rata Combined Adjusted Net Income accrued on a
cumulative basis during the period beginning on the first day of the fiscal
quarter of the Issuer during which the Issue Date occurs and ending on the last
day of the fiscal quarter of the Issuer immediately preceding the date of such
proposed Restricted Payment, which period shall be treated as a single
accounting period (or, if such aggregate cumulative Pro rata Combined Adjusted
Net Income for such period shall be a deficit, minus 100 per cent. of such
deficit) plus (2) the aggregate net cash proceeds received by the Issuer, such
Subsidiary or such Significant Joint Venture either (x) as capital
contributions after the Issue Date from any person (other than a Subsidiary or
Significant Joint Venture) or (y) from the issuance or sale of Capital Stock
(excluding Redeemable Capital Stock, but including Capital Stock issued upon
the conversion of convertible Indebtedness or from the exercise of options,
warrants or rights to purchase Capital Stock (other than Redeemable Capital
Stock)) of such entity to any person (other than to a Wholly-Owned Subsidiary)
after the Issue Date plus (3) in the case of the disposition or repayment of





                                      45
<PAGE>   19
any Investment constituting a Restricted Payment made after the Issue Date
(excluding any Investment described in clause (v) of the following paragraph),
an amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case, less the cost of
the disposition of such Investment. For purposes of the preceding clause
(C)(2), the value of the aggregate net proceeds received by the Issuer upon the
issuance of Capital Stock upon the conversion of convertible Indebtedness or
upon the exercise of options, warrants or rights will be the net cash proceeds
received upon the issuance of such Indebtedness, options, warrants or rights
plus the incremental cash amount received by the Issuer upon the conversion or
exercise thereof.

         None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii)
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Issuer or any Subsidiary in exchange for, or
out of the net cash proceeds of, a substantially concurrent (x) capital
contribution to the Issuer from any person (other than a Subsidiary) or (y)
issue and sale of other shares of Capital Stock (other than Redeemable Capital
Stock) of the Issuer to any person (other than to a Subsidiary); provided,
however, that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase or other acquisition or retirement shall be
excluded from clause (C)(2) of the preceding paragraph; (iii) any redemption,
repurchase or other acquisition or retirement of Subordinated Indebtedness by
exchange for, or out of the net cash proceeds of, a substantially concurrent
(x) capital contribution to the Issuer from any person (other than a Subsidiary
or Joint Venture) or (y) issue and sale of (1) Capital Stock (other than
Redeemable Capital Stock) of the Issuer to any person (other than to a
Subsidiary or Joint Venture); provided, however, that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase or
other acquisition or retirement shall be excluded from clause (C)(2) of the
preceding paragraph; or (2) Indebtedness of the Issuer issued to any person
(other than a Subsidiary or Joint Venture), so long as such Indebtedness is
Subordinated Indebtedness which (x) has no Maturity earlier than the 91st day
after the Maturity of the Bonds, (y) has an Average Life to Stated Maturity
equal to or greater than the remaining Average Life to Stated Maturity of the
Bonds and (z) is subordinated to the Bonds in the same manner and at least to
the same extent as the Subordinated Indebtedness so purchased, exchanged,
redeemed, acquired or retired; (iv) so long as no Default or Event of Default
shall have occurred and be continuing, any redemption, repurchase or other
acquisition or retirement of Pari Passu Indebtedness by exchange for, or out of
the net cash proceeds of, a substantially concurrent (x) capital contribution
to the Issuer from any person (other than a Subsidiary or Joint Venture) or (y)
issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of
the Issuer to any person (other than to a Subsidiary or Joint Venture);
provided, however, that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase or other acquisition or retirement
is excluded from clause (C)(2) of the preceding paragraph; or (2) Indebtedness
of the Issuer issued to any person (other than a Subsidiary or Joint Venture),
so long as such Indebtedness is Subordinated Indebtedness or Pari Passu
Indebtedness which (x) has no Maturity earlier than the 91st day after the
Maturity of the Bonds and (y) has an Average Life to Stated Maturity equal to
or greater than the remaining Average Life to Stated Maturity of the Bonds; (v)
Investments constituting Restricted Payments made as a result of the receipt of
non-cash consideration from any Asset Sale made pursuant to and in compliance
with the covenant described under "--Disposition of Proceeds of Asset Sales"
below; (vi) payments or other actions described in clauses (i) through (vi) in
the next preceding paragraph above that would otherwise be Restricted Payments
in an aggregate amount not to exceed U.S.$10 million (or the foreign currency
equivalent thereof); and (vii) so long as no Default or Event of Default has
occurred and is continuing, repurchases by the Issuer of Common Stock of the
Issuer from employees of the Issuer or any of its Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not exceeding U.S.$10
million (or the foreign currency equivalent thereof) in any calendar year. In
computing the amount of Restricted Payments previously made for purposes of
clause (C) of the preceding paragraph, Restricted Payments made under the
preceding clauses (vi), and (vii) shall be included and clauses (i), (ii),
(iii), (iv) and (v) shall not be so included.

         (c) Change of Control. Upon the occurrence of a Change of Control, the
Issuer shall be obligated to make an offer to purchase (a "Change of Control
Offer") all of the outstanding Bonds at a purchase price (the "Change of
Control Purchase Price") equal to 106.5 per cent. (if the date of such
redemption occurs on or before June 30, 1998), 113.5 per cent. (if the date of
redemption occurs after such date but on or before June 30, 1999) or 121.0 per
cent. (if the date of redemption occurs after June 30, 1999), as applicable, of
the principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date which shall be no earlier than 60 days and no later than 90 days
from the date the notice of the Change of Control Offer is mailed to the
Bondholders and the Trustee (the "Change of Control Purchase Date"). The Issuer
shall be required to purchase all Bonds properly tendered (or the portions
thereof equal to U.S.$10,000 or increments of U.S.$1,000 in excess thereof that
are so tendered by a Bondholder in the case of a partial tender) into the
Change of Control Offer and not withdrawn on the Change of Control Purchase
Date. The Change of Control Offer is required to remain open for at least 20
Business Days and until the close of business on the Change of Control Purchase
Date.


                                      46
<PAGE>   20
         In order to effect such Change of Control Offer, the Issuer shall, not
later than the 30th day prior to the occurrence of the Change of Control, give
to each holder of Bonds notice of the proposed Change of Control Offer, which
notice shall govern the terms of the Change of Control Offer and shall state,
among other things, the procedures that holders of Bonds must follow to accept
the Change of Control Offer.

         The occurrence of the events constituting a Change of Control under
the Indenture may be prohibited by the terms of or result in an event of
default under or require the consents of holders of Senior Indebtedness of the
Issuer.  The Issuer's obligations under its Senior Indebtedness represent
obligations senior in right of payment to the Bonds.  Consequently, the
subordination provisions of the Indenture will have the effect of precluding
the purchase of the Bonds by the Issuer in the event of a Change of Control,
absent any required consent of the lenders under Senior Indebtedness or
repayment of all amounts outstanding thereunder or the waiver of any event of
default caused thereunder by such Change of Control (although the failure by
the Issuer to comply with its obligations in the event of a Change of Control
will constitute a Default under the Bonds). There can be no assurance that the
Issuer will have adequate resources to repay or refinance all Indebtedness
owing under the Senior Indebtedness or to fund the purchase of the Bonds upon a
Change of Control.

         The Issuer shall not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Issuer and purchases all
Bonds validly tendered and not withdrawn under such Change of Control Offer.

         The Issuer will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and
the Issuer is required to purchase Bonds as described above.

         (d) Disposition of Proceeds of Asset Sales. The Issuer will not, and
will not permit any of its Subsidiaries to, and will to the fullest extent of
the rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to, make any Asset Sale
unless (a) the Issuer or such entity, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least 75
per cent. of such consideration consists of cash or Cash Equivalents or the
assumption of Indebtedness of the Issuer or such Subsidiary or such Significant
Joint Venture or other obligations relating to such assets and release from all
liability on the Indebtedness or other obligations assumed, or such
consideration consists of (x) property or assets that will be owned by the
Issuer, or a Subsidiary or a Significant Joint Venture and are to be used in a
telecommunications business or in related activities or services that
thereafter will be conducted by the Issuer or such Subsidiary or such
Significant Joint Venture or (y) Capital Stock or other securities issued by a
party to the transaction or an Affiliate thereof, which Capital Stock or other
securities are freely tradeable and which are sold for cash within 90 days of
the consummation of the Asset Sale in connection with which they were acquired.
To the extent the Net Cash Proceeds of any Asset Sale are not required to be
applied to repay, and permanently reduce the commitments under Senior
Indebtedness or Indebtedness of a Subsidiary or Indebtedness of a Significant
Joint Venture or are not so applied, the Issuer or such entity, as the case may
be, within 360 days of such Asset Sale, will apply such Net Cash Proceeds to an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the business of the Issuer and such entities existing on the Issue Date
or in businesses reasonably related thereto ("Replacement Assets").  Any Net
Cash Proceeds from any Asset Sale that are neither used to repay, and
permanently reduce the commitments under Senior Indebtedness or Indebtedness of
a Subsidiary or Indebtedness of a Significant Joint Venture, nor invested in
Replacement Assets within the 360-day period described above constitute "Excess
Proceeds" subject to disposition as provided below.

         When the aggregate amount of Excess Proceeds equals or exceeds
U.S.$10,000,000, the Issuer shall make an offer to purchase (an "Asset Sale
Offer"), from all holders of the Bonds, on a date not more than 40 Business
Days thereafter, an aggregate principal amount of Bonds equal to such Excess
Proceeds, at a price in cash equal to 100 per cent. of the outstanding
principal amount thereof plus accrued and unpaid interest, if any, to the
purchase date. To the extent that the aggregate principal amount of Bonds
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Issuer may use such excess for general corporate purposes. If the aggregate
principal amount of Bonds validly tendered and not withdrawn by holders thereof
is less than the Excess Proceeds, Bonds to be purchased will be selected on a
pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero.

         The making of any Asset Sale Offer under the Indenture may be
prohibited by the terms of or result in an event of default under or require
the consents of holders of Senior Indebtedness of the Issuer. The Issuer's
obligations under its Senior Indebtedness represent obligations senior in right
of payment to the Bonds. Consequently, the purchase of the Bonds by the Issuer
pursuant to an Asset Sale Offer will be precluded, absent any required consent
of the lenders under Senior Indebtedness or repayment of all amounts
outstanding thereunder. There can be no assurance that the Issuer will have
adequate resources to repay or refinance all Indebtedness owing under the
Senior Indebtedness or to fund the purchase of the Bonds pursuant to an Asset
Sale Offer.


                                      47
<PAGE>   21
         The Issuer will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Issuer is required to purchase Bonds as described above.

         (e) Limitation on Transactions with Interested Persons. The Issuer
will not, and will not permit any of its Subsidiaries to, and will to the
fullest extent of the rights available to it under the relevant contractual or
organizational documents not permit its Significant Joint Ventures to, directly
or indirectly, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, transfer,
disposition, purchase, exchange or lease of assets, property or services) with,
or for the benefit of, any Affiliate of the Issuer, any Subsidiary or
Significant Joint Venture or any beneficial owner (determined in accordance
with the Indenture) of 5 percent or more of the Capital Stock or other
ownership interest of any of the foregoing entities at any time outstanding
("each of the foregoing being Interested Persons"), unless (a) such transaction
or series of related transactions is on terms that are no less favorable to the
Issuer or such Subsidiary or Significant Joint Venture, as the case may be,
than those which could have been obtained in a comparable transaction at such
time from persons who are not Affiliates or Interested Persons, (b) with
respect to a transaction or series of transactions involving aggregate payments
or value equal to or greater than U.S.$20,000,000 (or the foreign currency
equivalent thereof), the Issuer has obtained a written opinion from an
Independent Financial Advisor stating that the terms of such transaction or
series of transactions are fair to the Issuer or such Subsidiary or such
Significant Joint Venture, as the case may be, from a financial point of view
and (c) with respect to a transaction or series of transactions involving
aggregate payments or value equal to or greater than U.S.$10,000,000 (or the
foreign currency equivalent thereof), the Issuer shall have delivered an
officer's certificate to the Trustee certifying that such transaction or series
of transactions complies with the preceding clause (a) and, if applicable,
certifying that the opinion referred to in the preceding clause (b) has been
delivered and that such transaction or series of transactions has been approved
by a majority of the disinterested members of the Board of Directors of the
Issuer; provided, however, that this covenant will not restrict the Issuer from
(i) paying dividends in respect of its Capital Stock permitted under the
covenant described under "-- Limitation on Restricted Payments" above, (ii)
paying reasonable and customary fees to directors of the Issuer who are not
employees of the Issuer, (iii) making loans or advances to officers or
employees of the Issuer and its Subsidiaries or Significant Joint Ventures
(including travel and moving expenses) in the ordinary course of business for
bona fide business purposes of the Issuer or such Subsidiary or Significant
Joint Venture not in excess of U.S.$5,000,000 (or the foreign currency
equivalent thereof), in the aggregate at any one time outstanding, (iv)
engaging in any transaction involving the provision of telecommunications
services or related activities between or among the Issuer, any Subsidiary or
any Significant Joint Venture and, provided that such transaction is in the
ordinary course of business and consistent with commercially reasonable
practice, any Joint Venture of the Issuer that is not a Significant Joint
Venture or between any of them or (v) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby,
as listed in a schedule to the Indenture (including pursuant to any amendment
thereto so long as any such amendment in the judgment of the Board of Directors
voting to approve the amendment does not have a material adverse effect on the
Bondholders).

         (f) Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries and Significant Joint Ventures. The Issuer will not, and will not
permit any of its Subsidiaries to, and will to the fullest extent of the rights
available to it under the relevant contractual or organizational documents not
permit its Significant Joint Ventures to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any such Subsidiary or Significant Joint Venture
to (a) pay dividends, in cash or otherwise, or make any other distributions on
or in respect of its Capital Stock or any other interest or participation in,
or measured by, its profits to the Issuer or any Subsidiary or any Significant
Joint Venture, (b) pay any Indebtedness owed to the Issuer or any other
Subsidiary or Significant Joint Venture, (c) make loans or advances to, or any
investment in, the Issuer or any other Subsidiary or Significant Joint Venture,
(d) transfer any of its properties or assets to the Issuer or any other
Subsidiary or Significant Joint Venture or (e) guarantee any Indebtedness of
the Issuer or any Subsidiary or Significant Joint Venture, except for such
encumbrances or restrictions existing under or by reason of (i) applicable law,
(ii) customary nonassignment provisions of any contract or any lease governing
a leasehold interest of the Issuer or any Subsidiary or Significant Joint 
Venture, (iii) customary restrictions on transfers of property subject to a
Lien permitted under the Indenture which could not materially adversely affect
the Issuer's ability to satisfy its obligations under the Indenture and the
Bonds, (iv) any agreement or other instrument of a person acquired by the
Issuer or any Subsidiary or Significant Joint Venture (or a Subsidiary of such
person) in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any person, or the properties or assets of any person, other than the person,
or the properties or assets of the person, so acquired, (v) provisions
contained in agreements or instruments relating to Indebtedness which prohibit
the transfer of all or substantially all of the assets of the obligor
thereunder unless the transferee shall assume the obligations of the obligor
under such agreement or instrument, (vi) encumbrances and restrictions under
Indebtedness in effect on the Issue Date and encumbrances and restrictions in
permitted refinancings or replacement thereof which are no less favorable to
the holders of the


                                      48
<PAGE>   22
Bonds than those contained in the Indebtedness so refinanced or replaced, (vii)
any agreement in existence at the Issue Date or (viii) encumbrances and
restrictions in connection with Subsidiaries acquired after the Issue Date and
Significant Joint Ventures entered into after the Issue Date, including with
respect to any financing thereof, that are no more adverse to the Issuer than
those referred to in (vii) above), (ix) in the case of clause (d) of this
covenant above, arising or agreed to in the ordinary course of business, not
relating to any Indebtedness and that do not individually, or together with all
such encumbrances or restrictions, detract from the value of the property or
assets of the Issuer or any Subsidiary or any Significant Joint Venture in any
manner material to the Issuer or any Subsidiary or any Significant Joint
Venture, (x) contained in the terms of any Indebtedness incurred by Hermes or
any agreement pursuant to which such Indebtedness was issued if the encumbrance
or restriction is not materially more disadvantageous to the Bondholders than
is customary in comparable financings (as determined by the Company) and the
Company determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal payments on the Bonds, (xi)
contained in any stockholders or similar agreement, so long as such encumbrance
or restriction is not more disadvantageous to the Bondholders than the
encumbrances and restrictions contained in comparable agreements entered into
in the past by the Issuer, any of its Subsidiaries or Significant Joint
Ventures, or (xii) contained in any agreement entered into after the Issue
Date, so long as such encumbrance or restriction is not materially more
disadvantageous to the Bondholders than the encumbrances and restrictions
contained in agreements in existence on the Issue Date.

         (g) Limitation on Sale-Leaseback Transactions. The Issuer will not,
and will not permit any of its Subsidiaries to, and will to the fullest extent
of the rights available to it under the relevant contractual or organizational
documents not permit its Significant Joint Ventures to, enter into any
Sale-Leaseback Transaction with respect to any property of the Issuer or any of
its Subsidiaries or Significant Joint Ventures other than a Sale-Leaseback
Transaction between the Issuer, a Subsidiary or Significant Joint Venture or
between any of them. Notwithstanding the foregoing, the Issuer and its
Subsidiaries or Significant Joint Ventures may enter into Sale-Leaseback
Transactions involving Telecommunications Assets; provided that (i) the Issuer,
or such Subsidiary or Significant Joint Venture, as the case may be, would be
entitled to create or incur a Lien to secure Indebtedness pursuant to the
provisions of the "Negative Pledge" covenant equal in amount to the
Attributable Value of the Sale-Leaseback Transaction without equally and
ratably securing the Bonds and (ii) the Sale-Leaseback Transaction is treated
as an Asset Sale and the provisions of the "Disposition of Proceeds of Asset
Sales" covenant are satisfied with respect to such Sale-Leaseback Transaction.

         (h) Limitation on Guarantees by Subsidiaries. The Issuer will not
permit any Subsidiary to, and will to the fullest extent of the rights
available to it under the relevant contractual or organizational documents not
permit its Significant Joint Ventures to, directly or indirectly, assume,
guarantee or in any other manner become liable with respect to any Indebtedness
of the Issuer which is Subordinated Indebtedness or Parri Passu Indebtedness
unless such Subsidiary or Significant Joint Venture, as the case may be,
simultaneously executes and delivers a supplemental indenture to the Indenture,
pursuant to provisions in form and substance satisfactory to the Trustee,
providing for a guarantee of payment of the Bonds by such Subsidiary or
Significant Joint Venture and (A) if any such assumption, guarantee or other
liability is subordinated, the guarantee under such supplemental indenture
shall be subordinated to the same extent as the Bonds are subordinated to
Senior Indebtedness of the Issuer under the Indenture and (B) any such
assumption, guarantee or other liability of such Subsidiary or Significant
Joint Venture with respect to Subordinated Indebtedness shall be subordinated
to such Subsidiary's assumption, guarantee or other liability with respect to
the Bonds to the same extent as such Subordinated Indebtedness is subordinated
or junior to the Bonds under the Indenture.

         (i) Merger, Sale of Assets, Etc. The Issuer will not, in any
transaction or series of transactions, merge or consolidate with or into, or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety to, any person or
persons, and the Issuer will not permit any of its Subsidiaries to, and will to
the fullest extent of the rights available to it under the relevant contractual
or organizational documents not permit its Significant Joint Ventures to, enter
into any such transaction or series of transactions if such transaction or
series of transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the respective properties and assets of the Issuer and its Subsidiaries and
Significant Joint Ventures on a combined basis, to any other person or persons,
unless at the time of and after giving effect thereto (a) either (i) if the
transaction or series of transactions is a merger or consolidation, the Issuer
shall be the surviving person of such merger or consolidation, or (ii) the
person formed by such consolidation or into which the Issuer or such Subsidiary
or Significant Joint Venture is merged or to which the properties and assets of
the issuer and its Subsidiaries and Significant Joint Ventures are transferred
(any such surviving person or transferee person being the "Surviving Entity")
shall be a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia or the United
Kingdom, the Federal Republic of Germany, France or Italy and shall expressly
assume by a supplemental indenture executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, all the obligations of the Issuer
under the Bonds and the Indenture, and in each case, the Indenture shall remain
in full force and effect; (b) immediately before and immediately after




                                      49
<PAGE>   23
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), no Default or Event of Default shall have occurred and be
continuing and the Issuer or the Surviving Entity, as the case may be, after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), could incur $1.00 of additional Indebtedness pursuant to the
first paragraph of the covenant described under "-- Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness); (c) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth of the Issuer or the Surviving Entity, as the case may be, is at least
equal to the Consolidated Net Worth of the Issuer immediately before such
transaction or series of transactions: (d) such consolidation, merger,
conveyance, transfer, lease or other disposition does not adversely affect the
validity or enforceability of the Bonds; and (e) if the Surviving Entity is
organized in a jurisdiction other than the United States of America, any state
thereof or the District of Columbia, such entity appoints CT Corporation
System, New York, New York, as its agent for service of process in any suit,
action or proceeding with respect to the Indenture or the Bonds issued
thereunder and for actions brought under federal or state securities laws
brought in any federal or state court located in the Borough of Manhattan in
The City of New York and submits to such jurisdiction, waives forum non
conveniens, waives or is not subject to immunity from suit and any judgments
brought against such entity in respect of the Indenture and the Bonds may be
recognized and enforced in such jurisdiction of its organization.

         In connection with any consolidation, merger, transfer, lease,
assignment or other disposition contemplated hereby, the Issuer shall deliver,
or cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officer's certificate and an opinion of
counsel, each stating that, such consolidation, merger, transfer, lease,
assignment or other disposition and the supplemental indenture in respect
thereof comply with the foregoing requirements; provided, however, that solely
for purposes of computing amounts described in subclause (C) of the covenant
described under "-- Limitation on Restricted Payments" above, any such successor
person shall only be deemed to have succeeded to and be substituted for the
Issuer with respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets.

         Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Issuer in accordance with the foregoing,
in which the Issuer is not the continuing corporation, the successor
corporation formed by such a consolidation or into which the Issuer is merged
or to which such transfer is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Issuer under the Indenture with the
same effect as if such successor corporation had been named as the Issuer
therein.

         (j) Anti-Layering. The Company will not create, incur, assume,
guarantee or in any other manner become liable with respect to any Indebtedness
that is subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness is also pari passu with, or subordinate in right of payment to,
the Bonds.

Registration Rights

         Prior to the Issue Date, the Issuer shall have entered into a
registration rights agreement with the Trustee, amongst others, for the benefit
of the holders of the Bonds whereby the Issuer, at its expense, will cause a
shelf registration statement covering the issuance and resale of a sufficient
number of GTS Shares that may be issuable upon conversion of the Bonds to be
declared effective under the Securities Act prior to the first date on which
any of such GTS Shares may be issued upon such conversion. The Issuer is
required to use its best efforts to maintain the effectiveness of such shelf
registration statement until the earliest of (i) the expiration of the time
period referred to in Rule 144(k) under the Securities Act with respect to all
beneficial holders of GTS Shares that are not affiliates of the Issuer within
the meaning of the Securities Act, (ii) such time as all the GTS Shares covered
by such registration statement have been sold pursuant to such registration
statement and (iii) such time as the Bonds are no longer outstanding. The
Issuer will provide to each Bondholder and each holder of GTS Shares into
which Bonds are converted with copies of the prospectus that is part of such
registration statement, notify such holders of the effectiveness of such
registration statement and take all other action required to permit
unrestricted resales of such GTS Shares. A holder who sells the GTS Shares
pursuant to the shelf registration statement generally will be required to be
named as a selling stockholder in the related prospectus and to deliver a
prospectus to purchasers and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification provisions). If a shelf registration statement covering
the GTS Shares is not effective, the GTS Shares may not be sold or otherwise
transferred except in accordance with the provisions set forth under "Transfer
Restrictions."

         Each holder will be required to provide the Issuer with all
information with respect to such holder required by the Securities Act prior to
the effectiveness of the shelf registration statement and must notify the


                                      50
<PAGE>   24
Issuer not later than three Business Days prior to any proposed sale by
such holder of GTS Shares pursuant to the shelf registration statement, which
notice shall be effective for five Business Days. The Issuer may, upon written
notice to such holder, suspend such holder's use of the prospectus (which is
part of the shelf registration statement) for up to two periods not to exceed
45 consecutive days but not more than 60 days in any 365-day period if the
issuer in its reasonable judgment believes it may posses material non-public
information the disclosure of which would have an adverse effect on the Issuer
or any of its Subsidiaries or any Significant Joint Venture. Each holder, by its
acceptance of a Bond, agrees to hold any communication by the Issuer in
response to a notice of a proposed sale under the shelf registration statement
in confidence. 

        If a shelf registration statement has not been filed and does not
remain effective with the Commission as required by the Registration Rights
Agreement (a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Bonds from and including the day following such
Registration Default to but excluding the day on which such Registration
Default has been cured. Liquidated Damages will be paid semi-annually in
arrears, with the first semi-annual payment due on the first Interest Payment
Date, as applicable, following the date on which such Liquidated Damages begin
to accrue and will accrue at a rate per annum of one quarter of one per cent.
(.25%) of the principal amount, to and including the 90th day following such
Registration Default and at a rate per annum of one half of one per cent. (.5%)
thereof from and after the 91st day following such Registration Default. In no
event will Liquidated Damages accrue at a rate per annum exceeding one half of
one per cent. (.5%). 

        The specific provisions relating to the registrations described above
will be contained in the Registration Rights Agreement to be entered into on or
prior to the Closing Date of this offering. 

RESERVATION OF GTS SHARES 

        The Issuer shall at all times reserve and keep available out of its
authorized common stock, solely for the purpose of issuance or delivery upon
conversion of the Bonds, the number of GTS Shares that it reasonably believes
will be required to be delivered in connection with such conversion pursuant to
the terms of the Indenture. 

GOVERNING LAW 

        The Indenture and the Bonds will be governed by the internal laws of
the State of New York, without regard to the principles of conflicts of law. 

CERTAIN DEFINITIONS

        "Acquired Indebtedness" means, with respect to any specified person,
(i) Indebtedness of any other person at the time such other person merged
with or into or became a Subsidiary or Significant Joint Venture of such
specified person, and (ii) Indebtedness encumbering any asset acquired by such
specified person.

        "Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person.

        "Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition to any person other than the Issuer or a Wholly-Owned
Subsidiary of the Issuer, in one or a series of related transactions, of (a) any
Capital Stock of any Subsidiary or Significant Joint Venture (other than in
respect of director's qualifying shares or investments by foreign nationals
mandated by applicable law); (b) all or substantially all of the properties and
assets of any division or line of business of the Issuer or any Subsidiary or
Significant Joint Venture; or (c) any other properties or assets of the Issuer
or any Subsidiary or Significant Joint Venture other than in the ordinary
course of business. For the purposes of this definition, the term "Asset Sale"
shall not include (i) any sale, transfer or other disposition of equipment,
tools or other assets (including Capital Stock or other equity of any
Subsidiary or Significant Joint Venture) by the Issuer or any of its
Subsidiaries or Significant Joint Ventures in one or a series of related
transactions in respect of which the Issuer or such Subsidiary or Significant
Joint Venture receives cash or property with an aggregate Fair Market Value of
U.S.$10,000,000 (or the foreign currency equivalent thereof) or less; (ii) any
sale, issuance, conveyance, transfer, lease or other disposition of properties
or assets that is governed by the provisions described under "--Merger, Sale of
Assets, Etc." above and (iii) any direct or indirect sale, transfer or other
disposition of shares of Capital Stock of Hermes so long as after such sale,
transfer or other disposition the Issuer owns or controls at least 51 per cent.
of the Voting Stock of Hermes.

        "Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years (or any
fraction thereof) from such date to the date or dates of each successive
schedule principal payment (including, without limitation, any sinking fund
requirements) of such Indebtedness multiplied by (b) the amount of each such
principal payment by (ii) the sum of all such principal payments.


                                      51
<PAGE>   25
        "Capital Research Notes" means the aggregate $30 million of notes
issued pursuant to (i) the Senior Note Purchase Agreement, dated as of February
2, 1996, as amended, between GTS and Emerging Markets Growth Fund, Inc. and
(ii) the Senior Note Purchase Agreement, dated as of February 2, 1996, as
amended, between GTS and Capital International Emerging Markets Funds.

        "Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.

        "Capitalized Lease Obligation" means any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof
at such date, determined in accordance with GAAP.

        "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is 
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of 
the Federal Reserve System having combined capital and surplus and undivided 
profits of not less than U.S.$500,000,000 (or the foreign currency equivalent
thereof); (iii) certificates of deposit with a maturity of 180 days or less of
any financial institution that is not organized under the laws of the United 
States, any state thereof or the District of Columbia that are rated at least 
A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category
of another nationally recognized securities agency; (iv) repurchase agreements
and reverse repurchase agreements relating to marketable direct obligations 
issued or unconditionally guaranteed by the government of the United States of
America or issued by any agency thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days from the
date of acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository 
Institutions With Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985.

        "Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than the Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time, upon the happening
of an event or otherwise), directly or indirectly, of more than 40 per cent. of
the total Voting Stock of the Issuer (50.1 per cent. in the case of a Strategic
Investor); (b) the Issuer consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Issuer, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Issuer is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Issuer is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could then be paid by the Issuer as a Restricted
Payment under the Indenture, or a combination thereof, and (ii) immediately
after such transaction no "person" or "group" (as such terms are used in 
Sections 13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as 
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person 
shall be deemed to have "beneficial ownership" of all securities that such 
person has the right to acquire, whether such right is exercisable immediately 
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 50 per cent. of the total Voting Stock of
the surviving or transferee corporation; (c) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted
the Board of Directors of the Issuer (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Issuer was approved by a vote of 66 2/3 per cent. of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Issuer then in office; or (d) the Issuer is liquidated or
dissolved or adopts a plan of liquidation.

        "Chatterjee Notes" means the aggregate $40 million of notes issued
pursuant to (i) the Senior Note Purchase Agreement, dated as of January 19,
1996, as amended, among GTS, The Open Society Institute and Chatterjee Fund
Management, L.P. and (ii) the Senior Note Purchase Agreement, dated as of June
6, 1996, as amended, among the Company, The Open Society Institute, Winston
Partners II LDC and Winston Partners II LDC.

        "Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common


                                      52
<PAGE>   26
stock, whether outstanding at the Issue Date or issued after the Issue Date, and
includes, without limitation, all series and classes of such common stock.

     "Closing Price" means the closing price of the GTS Shares on a Qualifying
Stock Exchange or if the GTS Shares are listed on more than one such exchange
the average of such closing prices on all such exchanges.

     "Complying Public Equity Conditions" means the following conditions: (i)
the Issuer has made public sales of GTS Shares with a cumulative public offering
price of at least US$100,000,000 to an aggregate of not less than 50 purchasers;
(ii) the GTS Shares have been listed or shall be listed in connection with the
offering on either the New York Stock Exchange, the London Stock Exchange, the
American Stock Exchange or the Nasdaq National Market; and (iii) the Issuer
shall have registered additional GTS Shares from Private Equity Offerings with a
market value of at least U.S.$100,000,000 calculated using the offering price in
the Complying Public Equity Offering.

     "Complying Public Equity Offering" means a public offering of GTS Shares
where, immediately following completion thereof, (a) the Complying Public Equity
Conditions have been met and (b) the aggregate number of GTS Shares sold
thereby, together with any GTS Shares sold in any prior public offerings plus
the number of GTS Shares into which the Bonds may be converted (calculated as if
such conversion were to be effected on the date of determination) does not
exceed 50 percent of the total GTS Shares outstanding on a fully diluted basis.

     "Consolidated Net Worth" means, with respect to any person at any date,
the consolidated stockholders' equity of such person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such person
and its subsidiaries, as determined in accordance with GAAP.

     "Conversion Date" means the earliest date possible after the listing of
the GTS Shares on the New York Stock Exchange, London Stock Exchange, the
American Stock Exchange or the Nasdaq National Market that the Issuer may
deliver GTS Shares to converting Bondholders.

     "Covenant Defeasance" means the 123rd day after (i) the Issuer has
irrevocably deposited with the Trustee, in trust, for the benefit of the
Bondholders, cash in U.S. dollars, non-callable U.S. Government Obligations, or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accounts selected by the
Issuer, to pay the principal of and premium, if any, on the outstanding Bonds at
their Maturity or on the applicable optional redemption date, as the case may
be, of such principal or installment of principal of, or premium, if any, on
the outstanding Bonds; (ii) the Issuer must have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the holders of the outstanding Bonds will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; (iii) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (iv) such
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture)
to which the Issuer or any of its Subsidiaries or Significant Joint Ventures is
a party or by which the Issuer or any of its Subsidiaries or Significant Joint
Ventures is bound; (v) the Issuer must have delivered to the Trustee an opinion
of counsel to the effect that after the 123rd day (or such other applicable
date) following the deposit of the instruments referred to in (i), the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and the creation of the defeasance trust does not violate the
Investment Company Act of 1940, as amended; (vi) the Issuer must have delivered
to the Trustee an Officers' Certificate of the Issuer stating that the deposit
was not made by the Issuer with the intent of preferring the Bondholders over
the other creditors of the Issuer with the intent of defeating, hindering,
delaying or defrauding creditors of the Issuer or others; and (vii) the Issuer
must have delivered to the Trustee an Officers' Certificate of the Issuer and
an opinion of counsel in the United States acceptable to the Trustee, each
stating that all conditions precedent provided for relating to the Covenant
Defeasance have been complied with.

     "Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Issuer or any Subsidiary or any Significant Joint Venture against fluctuations
in currency values.

     "Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.

     "Designated Senior Indebtedness" means Senior Indebtedness permitted under
the Indenture, the principal amount of which is $30 million (or the foreign
currency equivalent) or more and has been designated by the Issuer as
Designated Senior Indebtedness (which includes the Chatterjee Notes and the
Capital Research Notes).   
 


                                      53
<PAGE>   27
     "Eligible Joint Venture" means a Joint Venture (other than a Subsidiary)
(i) that is formed with respect to the construction, development, acquisition,
servicing, ownership, improvement, operation or management of a 
telecommunications business, (ii) in which the Issuer, directly or indirectly,
owns at least 25 per cent. of the Capital Stock or other ownership interest
therein and (iii) in respect of which the Issuer, directly or indirectly, 
either (a) controls, by voting power, membership on the board of directors or 
management committee or other similar governing body, or through the provisions
of any applicable partnership, joint venture, shareholder or other similar
agreement or under an operating, maintenance or management agreement or
otherwise, the management and operation of the Joint Venture and any
telecommunications project of such Joint Venture or (b) otherwise has the right
to control or veto material acts and decisions with respect to the management
or operation of the Joint Venture that, taken as a whole, are substantially
similar to the rights of the Issuer with respect to the Existing Joint Ventures
as of the Issue Date.

     "Event of Default" has the meaning set forth under "Events of Default"
herein.

     "Existing Joint Venture" means any of PrymTelefon, Bancomsvyaz,
TeleCommunications of Moscow, Hermes Europe Railtel B.V., LvNet-Telport, GTS
Monaco Access S.A.M., Sovam Teleport Kiev Division L.L.C., EDN Sovintel, all
the entities in which SPMT-Rusnet, Inc. currently has an interest, all the
entities in which Vostok Mobile b.v. currently has an interest and their
respective successors.

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Fair Market Value" means, with respect to any assets, the price, as
determined by the Board of Directors of the Issuer, acting in good faith which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under
pressure or compulsion to complete the transaction; provided, however, that,
with respect to any transaction or related series of transactions which
involves an asset or assets in excess of U.S.$10,000,000 (or the foreign
currency equivalent thereof); in the aggregate, such determination shall be
evidenced by resolutions of the  majority of disinterested members of the Board
of Directors of the Issuer  delivered to the Trustee.

     "Fixed Charge Coverage Ratio" of the Issuer means, for any period, the
ratio of (a) the sum of Pro rata Combined Adjusted Net Income, Pro rata Combined
Interest Expense, Pro rata Combined Tax Expense and Pro rata Combined Non-cash
Charges deducted in computing Pro rata Combined Adjusted Net Income, in each 
case, for such period to (b) Pro rata Combined Interest Expense for such period.

     "GAAP" means, generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.

     "Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any (1) trade payables and (2) other
accrued current liabilities incurred in the ordinary course of business,
including, without limitation, all obligations, contingent or otherwise, of
such person in connection with any letters of credit, banker's acceptance or
other similar credit transaction, (b) all obligations of such person evidenced
by bonds, debentures or other similar instruments, (c) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such person, (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned
by such person, even though such person has not assumed or become liable for
the payment of such Indebtedness (the amount of such obligation being deemed
to be the lesser of the value of such property or asset or the amount of the
obligation so secured), (f) all guarantees of Indebtedness referred to in this
definition by such person, (g) all Redeemable Capital Stock of such person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends, (h) all obligations under or in respect of
Currency Agreements and Interest Rate Protection Obligations of such person,
(i) any Preferred Stock of the Issuer that provides for payments of
liquidation value by way of a sinking fund, or by way of a mandatory
redemption, defeasance, retirement, repurchase or otherwise, or allows the
holder the option to redeem, in each case prior to the 91st day prior to the
Maturity of the Bonds (valued at the sum of (without duplication)(A) the
liquidation preference thereof, (B) any mandatory redemption payment
obligations in respect thereof and (C) accrued dividends thereon), and (j) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (a) through (i) above.
For purposes hereof, the "maximum fixed repurchase price" of any Redeemable
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with 

                                      54
     
<PAGE>   28
the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.

        "Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a material
direct or indirect financial interest in the Issuer any Subsidiary or
Significant Joint Venture and (ii) which, in the judgment of the Board of
Directors of the Issuer, is otherwise independent and qualified to perform the
task for which it is to be engaged.

        "Interest Rate Protection Agreement" means any arrangement with any
other person whereby, directly or indirectly, such person is entitled to
receive from time to time periodic payments calculated by applying either a
floating or a fixed rate of interest on a stated notional amount in exchange
for periodic payments made by such person calculated by applying a fixed or a
floating rate of interest on the same notional amount and shall include without
limitation, interest rate swaps, caps, floors, collars and similar agreements.

        "Interest Rate Protection Obligations" means the obligations of any 
person pursuant to an Interest Rate Protection Agreement.

        "Investment" means, with respect to any person, any direct or indirect
loan or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such person of any Capital Stock, bonds, debentures or other securities or
evidences of Indebtedness issued by, any other person. "Investments" shall
exclude extensions of trade credit in the ordinary course of business in
accordance with normal trade practices.

        "Issue Date" means the closing date for the sale and issuance of the
Bonds under the Indenture.

        "Joint Venture" means a joint venture, partnership or other similar
arrangement, whether corporation, partnership or other legal form where the
Issuer or one or more Subsidiaries or by the Issuer and one or more
Subsidiaries has, directly or indirectly, less than a majority of the Voting
Stock or other ownership interest.

        "Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind; provided that in no event shall an operating lease be deemed to
constitute a Lien. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.

        "Material Joint Venture" means a Joint Venture that, as of the end of
the most recent four-quarter period, had (i) total assets which exceeded 10 per
cent. of the total combined assets of the Issuer for such period or (ii) total
revenues which exceeded 15 per cent. of the total combined revenues of the
Issuer for such period.

        "Material Subsidiary" means a Subsidiary that, as of the end of the
most recent four-quarter period, had (i) total assets which exceeded 10 per
cent. of the total combined assets of the Issuer for such period or (ii) total
revenues which exceed 15 per cent. of the total combined revenues of the Issuer 
for such period.

        "Maturity" means, (i) when used with respect to the Bonds, June 30, 
2000 and (ii) when used with respect to any Indebtedness other than the Bonds, 
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.

        "Moody's" means Moody's Investors Service, Inc. and its successors.

        "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse) net of (i) brokerage commissions and other fees and expenses
(including, without limitation, fees and expenses of legal counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) amounts required to be paid to
any person (other than the Issuer or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (iv) appropriate amounts
to be provided by the Issuer or any Subsidiary, as the case may be, as a
reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Issuer or any Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the 
Trustee.

        "Non-Complying Equity Offering" means (i) a private offering of GTS
Shares or (ii) a public offering of GTS Shares that is not a Complying Public
Equity Offering.





                                      55
<PAGE>   29
        "Non-Complying Public Equity Offering" means a public equity offering
of GTS Shares that satisfies all the Complying Public Equity Conditions, except
that the cumulative public offering price is less than US$100,000,000.

        "Pari Passu Indebtedness" means Indebtedness of the Issuer which ranks
pari passu in right of payment with the Bonds.

        "Permitted Holder" means (A) Alan B. Slifka and any entity controlled
by him, (B) one or more of George Soros, Soros Fund Management LLC, Purnendu
Chatterjee or Chatterjee Management Company or affiliates of any of the
foregoing, and any person or entity for which any such person or entity acts as
investment advisor or investment manager and (C) any person that acquires the
capital stock of the Issuer in a Strategic Equity Offering.

        "Permitted Investments" means any of the following: (i) Investments in
any Subsidiary or Significant Joint Venture; (ii) Investments in any person
that is merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Issuer or any Subsidiary or Significant
Joint Venture of the Issuer at the time such Investment is made; (iii)
Investments in cash or Cash Equivalents; (iv) Investments in deposits with
respect to leases or utilities provided to third parties in the ordinary course
of business; (v) Investments in the Bonds; (vi) Investments in Currency
Agreements on commercially reasonable terms entered into by the Issuer or any
of its Subsidiaries or Significant Joint Ventures in the ordinary course of
business in connection with the operations of the business of the Issuer or its
Subsidiaries or Significant Joint Ventures to hedge against fluctuations in
foreign exchange rates; (vii) loans or advances to officers, employees of the
Issuer and its Subsidiaries or Significant Joint Ventures in the ordinary
course of business for bona fide business purposes of the Issuer and its
Subsidiaries or Significant Joint Ventures (including travel and moving
expenses) not in excess of U.S.$5,000,000 (or the foreign currency equivalent)
in the aggregate at any one time outstanding; (viii) Investments in evidences
of Indebtedness, securities or other property received from another person by
the Issuer or any of its Subsidiaries or Significant Joint Ventures in
connection with any bankruptcy proceeding or by reason of a composition or
readjustment of debt or a reorganization of such person or as a result of
foreclosure, perfection or enforcement of any Lien in exchange for evidences of
Indebtedness, securities or other property of such person held by the Issuer or
any of its Subsidiaries or Significant Joint Ventures, or for other liabilities
or obligations of such other person to the Issuer or any of its Subsidiaries or
Significant Joint Ventures that were created, in accordance with the terms of
the Indenture; (ix) Investments in Interest Rate Protection Agreements on
commercially reasonable terms entered into by the Issuer or any of its
Subsidiaries or Significant Joint Ventures in the ordinary course of business
in connection with the operations of the business of the Issuer or its
Subsidiaries or Significant Joint Ventures to hedge against fluctuations in
interest rates; and (x) Investments in entities that are not Subsidiaries or
Significant Joint Ventures, to finance the construction, installation,
improvement, acquisition or operation of Telecommunications Assets, provided
that such Investments do not exceed in the aggregate, the greater of
U.S.$25,000,000 (or the foreign currency equivalent) or 10 per cent. of the pro
rata combined assets of the Issuer or, individually, the greater of
U.S.$5,000,000 (or the foreign currency equivalent) or 2 per cent. of the pro
rata combined assets of the Issuer. 

        "person" means any individual, corporation, limited liability company
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity. 

        "PORTAL" means the PORTAL trading system of the NASD.

        "Private Equity Offering" means a private offering of GTS Shares
pursuant to an exemption from registration under the Securities Act.

        "Pro rata Combined Adjusted Net Income" means, for any period, the pro
rata combined net income (or loss) of the Issuer and its Subsidiaries and
Significant Joint Ventures for such period, adjusted by excluding, without
duplication, (a) any net after-tax extraordinary gains or losses (less all fees
and expenses relating thereto), (b) any net after-tax gains or losses (less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, and (c) the portion of net income (or
loss) of any person (other than the Issuer or a Subsidiary or a Significant
Joint Venture of the Issuer), in which the Issuer or any such Subsidiary or
Significant Joint Venture has an ownership interest, except to the extent of
the amount of dividends or other distributions actually paid to the Issuer or
any Subsidiary or any such Significant Joint Venture in cash dividends or
distributions during such period. 

        "Pro rata Combined Interest Expense" means, for any period, without
duplication, the sum of (a) the pro rata interest expense of the Issuer and all
Subsidiaries and all Significant Joint Ventures of the Issuer for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of Interest Rate Protection Agreements (including amortization of
discounts), (iii) the interest portion of any deferred payment obligation and
(iv) amortization of debt issuance costs, plus (b) the pro rata interest
component of Capitalized Lease Obligations of the Issuer, its Subsidiaries and
Significant Joint Ventures during such period, less (c) pro rata interest
income of the Issuer and all Subsidiaries and all Significant Joint Ventures,
in each case as 





                                      56
<PAGE>   30
determined on a pro rata combined basis; provided that (x) the Pro rata
Combined Interest Expense attributable to interest on any Indebtedness computed
on a pro forma basis and (A) bearing a floating interest rate shall be computed
as if the rate in effect on the date of computation had been the applicable
rate for the entire period and (B) which was not outstanding during the period
for which the computation is being made but which bears, at the option of the
Issuer, a fixed or floating rate of interest, shall be computed by applying at
the option of the Issuer, either the fixed or floating rate, and (y) in making
such computation, the Pro rata Combined Interest Expense attributable to
interest on any Indebtedness under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period; provided further that,
notwithstanding the foregoing, the interest rate with respect to any
Indebtedness covered by any Interest Rate Protection Agreement shall be deemed
to be the effective interest rate with respect to such Indebtedness after
taking into account such Interest Rate Protection Agreement.

     "Pro rata Combined Income Tax Expense" means, for any period the
provision for federal, state, local and foreign income taxes of the Issuer and
all Subsidiaries and all Significant Joint Ventures of the Issuer for such
period as determined on a pro rata combined basis.

     "Pro rata Combined Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash expenses of the Issuer and its
Subsidiaries and Significant Joint Ventures reducing Pro rata Combined Adjusted
Net Income for such period, determined on a pro rata combined basis (excluding
any such non-cash charge that requires an accrual of or reserve for cash
charges for any future period).

     "Qualifying Stock Exchange" means the New York Stock Exchange, the
American Stock Exchange, the London Stock Exchange or the Nasdaq National
Market.

     "Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any Bond
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity Date, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity.

     "Sale-Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such person of any property or asset of such person which has
been or is being sold or transferred by such person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any person to whom funds have been or are to
be advanced by such lender or investor on the security of such property or
asset. The stated maturity of such arrangement shall be the date of the last
payment of rent or any other amount due under such arrangement prior to the
first date on which such arrangement may be terminated by the lessee without
payment of a penalty.

     "Senior Indebtedness" means the principal of, premium, if any, and
interest on any Indebtedness of the Issuer, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Bonds.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Bonds, (b) Indebtedness that is pursuant to the
instrument creating such Indebtedness expressly subordinate or junior in right
of payment to any Indebtedness of the Issuer, (c) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Issuer, (d) Indebtedness which
is represented by Redeemable Capital Stock, (e) Indebtedness for goods,
materials or services purchased in the ordinary course of business or
Indebtedness consisting of trade payables or other current liabilities, (f)
Indebtedness of or amounts owed by the Issuer for compensation to employees or
for services rendered to the Issuer, (g) any liability for federal, state,
local or other taxes owed or owing by the Issuer, (h) Indebtedness of the
Issuer to a Wholly-Owned Subsidiary of the Issuer or any other Affiliate of the
Issuer or any of such Affiliate's Wholly-Owned Subsidiaries, (i) that portion
of any Indebtedness which is incurred by the Issuer in violation of the
Indenture and (j) amounts owing under leases (other than Capitalized Lease
Obligations).

     "Significant Joint Venture" means any Existing Joint Venture or any
Eligible Joint Venture.

     "S&P" means Standard & Poor's Corporation, and its successors.

     "Strategic Equity Offering" means a private sale of more than 10 per cent.
and less than 30 per cent. (calculated on a fully-diluted basis after giving
effect to such offering) of GTS Shares to a Strategic Investor.

     "Strategic Investor" means an entity that has a total market
capitalization of at least $3,000,000,000 or a rating of at least BBB- from S&P
and/or a rating of Baa3 from Moody's, and is engaged in the business of





                                      57
<PAGE>   31

providing telecommunications services or in the manufacture and sale of
telecommunications equipment, or any Subsidiary of such person.

        "Subordinated Indebtedness" means Indebtedness of the Issuer which is
by its terms subordinated in right of payment to the Bonds.

        "Subsidiary" means, with respect to the Issuer, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
the Issuer, by one or more Subsidiaries of the Issuer or by the Issuer and one
or more Subsidiaries and (ii) any other person (other than a corporation),
including, without limitation, a joint venture, in which the Issuer, one or
more Subsidiaries or the Issuer and one or more Subsidiaries, directly or
indirectly, at the date of determination thereof, has at least majority
ownership interest entitled to vote in the election of directors, managers or
trustees thereof (or other person performing similar functions). For purposes
of this definition, and directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Subsidiary.

        "Telecommunications Assets" means, with respect to any person, any
tangible or intangible asset (including the capital stock of another person)
that is utilized by such person, directly or indirectly, for the design,
development, installation, integration, management or provision of
telecommunications systems and/or services, including without limitation, any
business or services in which the Issuer, or any Subsidiary or any Significant
Joint Venture of the Issuer is engaged at the Issue Date.

        "Trading Days" means, with respect to a securities exchange or
automated quotation system, a day on which such exchange or system is open for
a full day of trading.

        "U.S. Government Obligations" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligations or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligations or the specific payment
of principal of or interest on the U.S. Government Obligations evidenced by
such depository receipt.

        "Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof are ordinarily entitled to vote in the election of
directors, managers or trustees of any person (irrespective of whether or not,
at the time, Capital Stock of any other class or classes shall have, or might
have, voting power by reason of the happening of any contingency).

        "Wholly-Owned Subsidiary" means any Subsidiary of the Issuer of which
100 per cent. of the outstanding Capital Stock is owned by the Issuer or by one
or more Wholly-Owned Subsidiaries of the Issuer or by the Issuer and one or
more Wholly-Owned Subsidiaries of the Issuer. For purposes of this definition,
any directors' qualifying shares or investments by foreign nationals mandated
by applicable law shall be disregarded in determining the ownership of a 
Subsidiary.

ENFORCEMENT

        At any time after the Bonds shall have become due and payable, the
Trustee may, at its discretion and without further notice, take such
proceedings against the Issuer as it may think fit to enforce repayment of the
Bonds together with premium (if any) and accrued interest and to enforce the
provisions of the Indenture, but it shall not be bound to take any such
proceedings unless (a) it shall have been so directed in writing by the holders
of at least 25 per cent. in principal amount of the Bonds then outstanding, and
(b) it shall have been indemnified to its satisfaction. No Bondholder shall be
entitled to proceed directly against the Issuer unless the Trustee, having
become bound so to proceed, fails to do so within a reasonable period and such
failure shall be continuing.

NOTICES

        Notices to Bondholders shall be validly given if (i) mailed to them at
their respective addresses in the register and (ii) published in an English
language newspaper of general circulation in Europe approved by the Trustee,
currently expected to be the Financial Times, and, so long as the Bonds are
listed on the Luxembourg Stock Exchange, published in a newspaper of general
circulation in Luxembourg approved by the Trustee, currently expected to be the
Luxemburger Wort. Any such notices shall be deemed to have been given on the
first date on which both conditions shall have been met.

                                      58


<PAGE>   32
MEETINGS OF BONDHOLDERS, MODIFICATION AND WAIVER

        The Indenture contains provisions for convening meetings of Bondholders
to consider any matter affecting their interests, including any modification
of, or arrangement in respect of, the terms and conditions of the Bonds or of
the provisions of the Indenture. Certain special quorum provisions apply for
meetings of Bondholders convened for the purpose of amending certain terms
concerning, inter alia, the amounts payable on and the currency of payment of
the Bonds and the Conversion Rights. Any resolution duly passed at any such
meeting will be binding on all Bondholders, whether present or not.

SATISFACTION AND DISCHARGE

        The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Bonds, as expressly provided for in the Indenture) as to all outstanding Bonds
when (i) either (a) all the Bonds theretofore authenticated and delivered
(except lost, stolen or destroyed Bonds which have been replaced or repaid and
Bonds for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the Issuer
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Bonds not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed Bonds which have been replaced
or paid) have been called for redemption pursuant to the terms of the Bonds or
have otherwise become due and payable and the Issuer has irrevocably deposited
or caused to be deposited with the Trustee funds in an amount sufficient to pay
and discharge the entire Indebtedness on the Bonds not theretofore delivered to
the Trustee for cancellation, for principal of, premium, if any, and interest
on the Bonds to the date of deposit together with irrevocable instructions from
the Issuer directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Issuer has paid all other
sums payable under the Indenture by the Issuer; (iii) there exists no Default
or Event of Default under the Indenture; and (iv) the Issuer has delivered to
the Trustee an officers' certificate and an opinion of counsel stating that
all conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.

AMENDMENTS AND WAIVERS

        From time to time, the Issuer, when authorized by a resolution of its
Board of Directors, and the Trustee may, without the consent of the holders of
any outstanding Bonds, amend, waive or supplement the Indenture or the Bonds
for certain specified purposes, including, among other things, (a) curing
ambiguities, defects or inconsistencies, (b) qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act of 1939, (c)
evidencing the succession of another Person to the Issuer or any other obligor
on the Bonds, and the assumption by any such successor of the covenants of the
Issuer or such obligor in the Indenture and in the Bonds in accordance with the
"Merger, Sale of Assets, Etc." covenant; (d) adding to the covenants of the
Issuer or any other obligor upon the Bonds for the benefit of the holders of
the Bonds or surrendering any right or power conferred upon the Issuer or any
other obligor upon the Bonds, as applicable, in the Indenture or in the Bonds;
(e) evidencing the replacement of the Trustee by a trustee that is appointed to
so act pursuant to the terms of the Indenture; and (f) evidencing or making any
other change that does not adversely affect the rights of any holder of Bonds;
provided, however, that the Issuer has delivered to the Trustee an opinion of
counsel stating that such change does not adversely affect the rights of any
holder of Bonds.

        Other amendments and modifications of the Indenture or the Bonds may be
made by the Issuer and the Trustee with the consent of the holders of not less
than a majority of the aggregate principal amount of the outstanding Bonds;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Bond affected thereby, (i) reduce the
principal amount of, extend the fixed maturity of or alter the redemption
provisions of, the Bonds, (ii) change the currency in which any Bonds or any
premium or the interest thereon is payable or make the principal of, premium,
if any, or interest on any Bond payable in money other than that stated in the
Bond, (iii) reduce the percentage in principal amount of outstanding Bonds that
must consent to an amendment, supplement or waiver or consent to take any
action under the Indenture or the Bonds, (iv) impair the right to institute
suit for the enforcement of any payment on or with respect to the Bonds, (v)
waive a default in payment with respect to the Bonds, (v) amend, change or
modify the obligations of the Issuer to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate the offer with
respect to any Asset Sale or modify any of the provisions or definitions with
respect thereto, (vii) reduce or change the rate or time for payment of
interest on the Bonds, or (viii) modify or change any provision of the
Indenture affecting the subordination or ranking of the Bonds in a manner
adverse to the holders of the Bonds, or (ix) take any other action otherwise
prohibited by the Indenture to be taken without the consent of each Bondholder
affected thereby.




                                      59
<PAGE>   33
THE TRUSTEE

     The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.

     The Trustee may, without the consent of the Bondholders:

       (i)  agree to any modification of the provisions of the Indenture or the
     Bonds which, in the opinion of the Trustee, is of a formal, minor or
     technical nature, is made to correct a manifest error or to comply with
     mandatory provisions of law or is not materially prejudicial to the
     interests of the Bondholders;

       (ii) waive or authorize any breach or proposed breach by the Issuer of
     the provisions of the Indenture or the Bonds, or determine that the
     occurrence of any Event of Default shall not be treated as such, which, in
     the opinion of the Trustee, is not materially prejudicial to the interests
     of the Bondholders.

Any such modification, waiver or authorization shall be binding on the
Bondholders and, if the Trustee so requires, such modification shall be notified
by the Issuer to the Bondholders as soon as possible.

INDEMNIFICATION OF THE TRUSTEE

     The Indenture contains provisions for the indemnification of the Trustee
and for its relief from responsibility, including provisions relieving it from
taking proceedings to enforce repayment or taking steps to enforce the
Conversion Rights unless indemnified to its satisfaction. The Trustee is
entitled to enter into business transactions with the Issuer or any entity
related to it without accounting for any profit.





                                      60

<PAGE>   1
                                                                 EXHIBIT 10.8(k)



                                August 14, 1997



Global TeleSystems Group, Inc.
1751 Pinnacle Drive
North Tower 12th Floor
McLean, Virginia 22102


                         Global TeleSystems Group, Inc.


Ladies and Gentlemen:

        We refer to (i) the Senior Note Purchase Agreement, dated as of
February 2, 1996, as heretofore amended, between Global TeleSystems Group, Inc.
(the "Company") and Emerging Markets Growth Fund, Inc., as purchaser, and (ii)
the Senior Note Purchase Agreement, dated as of February 2, 1996, as heretofore
amended, between the Company and Capital International Emerging Markets Funds,
as purchaser (each such Senior Note Purchase Agreement being a "Cap Re
Agreement"; and Emerging Markets Growth Fund, Inc. and Capital International
Emerging Markets Fund being, collectively, the "Cap Re Purchasers"). Terms
defined or referenced in either of the Cap Re Agreements and not otherwise
defined or referenced herein are used herein as therein defined or referenced.

        The Company and the Cap Re Purchasers hereby agree as follows:


        1.      Schedule A to each Cap Re Agreement is amended by substituting
the words "$265 million" for the words "$250 million" both (i) in the caption
"Existing Financings--Hermes Europe Railtel--$250 million Senior Note
Financing--Gross Proceeds" and (ii) in the description under such caption.

        2.      THIS LETTER AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
<PAGE>   2
                                      2

        3.      This letter agreement becomes effective as of the date first
above written, on the date on which the Company and each Cap Re Purchaser shall
have executed and delivered a counterpart hereof.  Upon the effectiveness of
this letter agreement, each reference in any Initial Transaction Document or
Transaction Document to either Cap Re Agreement or any term or provision thereof
shall mean such Cap Re Agreement, such term or such provision, respectively, as
amended hereby. Except as otherwise provided herein, the Transaction Documents
shall remain in full force and effect and are hereby in all respects ratified
confirmed.

        4.      This letter agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same letter
agreement.  Delivery of an executed counterpart of a signature page of this
letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.
<PAGE>   3
                                     3

        Please indicate your agreement to the foregoing by executing a
counterpart of this letter agreement in the appropriate space provided below.

                                     Very truly yours,



EMERGING MARKETS GROWTH                         CAPITAL INTERNATIONAL
FUND, INC.                                      EMERGING MARKETS FUND
                                                By:  Capital International, Inc.



By: /s/ PETER C. KELLY                          By: /s/ PETER C. KELLY
   -----------------------------                   -----------------------------
   Name:   Peter C. Kelly                          Name:   Peter C. Kelly
   Title:  Vice President                          Title:  Senior Vice President




                             Accepted and Agreed:

                        GLOBAL TELESYSTEMS GROUP, INC.

                        By: /s/ VIMAL AGARWAL
                           ---------------------------
                           Name:   Vimal Agarwal
                           Title:  Treasurer

<PAGE>   1
                                                                EXHIBIT 10.8(l)


                                [GTS LETTERHEAD]

                               September 29, 1997

By fax: +310 996 6402

Mr. Laurentius Harrer,
Vice President
Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071

Copy to: +41 22 741 1722

Mr. Pierre-Marie Bouvet
Capital Research International, S.A.
3, Place des Bergues
1201 Geneva, Switzerland

Dear Messrs. Harrer and Bouvet:

Reference is made to (a) the following agreements, each as heretofore amended,
supplemented or otherwise modified (collectively, the "Cap Re Agreements"): (i)
the Senior Note Purchase Agreement, dated as of February 2, 1996, between
Global TeleSystems Group, Inc. (the "Company") and Emerging Markets Growth
Fund, Inc., as purchaser; and (ii) the Senior Note Purchase Agreement, dated as
of February 2, 1996, between the Company and Capital International Emerging
Markets Fund, as purchaser (collectively, the "Purchasers"); and (b) the
transactions, contracts and actions listed below and on the attached Schedule
A, collectively, the "Transactions."

GTS and its subsidiaries propose to enter into the Transactions, for which your
consent may be required under the terms of the Cap Re Agreements. The
Transactions are described more fully on Schedule A.

GTS believes that the Transactions are in the best interest of the Company, and
we hereby solicit your consent, under (and for all purposes of) the Cap Re
Agreements, to the Transactions therein.
<PAGE>   2
                                       2

Please evidence your consent by signing and returning to me a copy of the
enclosed letter.


                                        Sincerely,



                                        Vimal Agarwal
                                        Treasurer

Accepted and acknowledged this __ day of September, 1997:

EMERGING MARKETS GROWTH FUND


- ----------------------------
By:
Its:


Accepted and acknowledged this __ day of September, 1997:

CAPITAL INTERNATIONAL EMERGING MARKETS FUND


- ----------------------------
By:
Its:




                                       3
<PAGE>   3


                                   SCHEDULE A

        Global TeleSystems Group, Inc. (the "Company") is in the process of
purchasing the remaining minority interest in Vostok Mobile B.V. ("VM") that
the Company does not currently own. VM is the western partner in eleven Russian
cellular companies.

        De Nationale Investeringsbank ("NIB"), a Dutch bank, made loans in
December 1995 of one million guilders to each of five of such Russian cellular
companies (the "Borrowers"). (The Borrowers have commenced scheduled repayment
of the loans and a total of 4 million guilders (or, approximately U.S.$2
million under current exchange rates) in loans remains outstanding.) The Dutch
government and VM guaranteed these loans. The loans contain a covenant that the
ownership of VM would not change. Following the purchase of the minority
interest, there will no longer be any Dutch beneficial ownership of VM and it
is likely that the Dutch government will terminate its guarantee thereby
triggering an event of default under the loans. Because the loans, and the
related Russian Central Bank licenses, do not provide for optional prepayment,
it is in the interest of the Company and the Borrowers that the loans remain
outstanding until June 30, 2001, which is their scheduled final maturity.

        In order to keep the loans outstanding, the NIB has requested that the
Company provide security in the amount of a cash deposit of the remaining
principal amount, plus the next scheduled interest payment, and a Company
guarantee of the amounts that may be due under the loans, which are not covered
by such deposit. The Company's Board of Directors has approved the purchase of
the remaining minority interest in Vostok Mobile and the mechanism to keep the
loans in place. The Company guarantee and the deposit would result in
additional indebtedness and a lien which would be prohibited by the Senior Note
Purchase Agreements. The Company respectfully requests your waiver of the
provisions of the Senior Note Purchase Agreements which would otherwise
prohibit these actions.


<PAGE>   1
                                                                   EXHIBIT 10.26


                                   AGREEMENT

               On the Creation and Functions of the Joint Venture

                                "[ILLEGIBLE]"

         The parties to this Agreement are the Main Trunk Lines Control Centre
of the Ministry of Posts and Telecommunications of the U.S.S.R., a legal entity
organized and existing under the laws of the U.S.S.R., with its principal
office at 25, Dubovaya roscha, 127427 Moscow, U.S.S.R. ("MTLCC"), and Sovinet,
a general partnership organized and existing under Virginia law, with its
principal office at 1700 Old Meadow Road, McLean, Virginia 22102, U.S.A.
("SOVINET"). SOVINET is a general partnership by and between GTE International
Communication Services Corporation, a Delaware corporation with its principal
office at 1700 Old Meadow Road, McLean, Virginia 22102, U.S.A., and San
Francisco/Moscow Teleport, Inc., a California corporation with its principal
office at 3278 Sacramento Street, San Francisco, California 94115, U.S.A. The
parties hereby agree to the following:


                                   ARTICLE 1

                           Establishment and Purposes

         MTLCC and SOVINET (collectively the "Participants") hereby establish a
joint venture under the laws of the U.S.S.R., to be created in the U.S.S.R. in
the city of Moscow ("the Venture"). The Venture is to be established for the
following purposes:

         (1)     to enhance communications services between the USSR and third 
countries, and within the USSR;

         (2)     for this purpose, to design, construct, and operate a modern,
digital, private international telecommunications network (the "Network")
incorporating microwave, cellular telephone, international satellite, and other
types of communications media, in


<PAGE>   2
order to provide voice, data, and facsimile services to customers in exchange
for freely convertible foreign ("hard") currency in Moscow, and in other cities
in the U.S.S.R. as permitted by appropriate governmental authorities;

         (3)     to obtain (by import or otherwise, as the Venture may
determine) all equipment, supplies, services, and raw materials that the
Venture deems necessary for its operations;

         (4)     to enter into agreements with hotels, businesses, enterprises,
joint ventures, and other persons and entities of all types, in connection with
the operation and/or use of the Network;

         (5)     to apply for and obtain all necessary approvals, 
authorizations and permits for these purposes;

         (6)     to engage in other means of provision of telecommunications
services, both on the Soviet domestic market and internationally, in order to
provide voice, data, and facsimile services in exchange for hard currency; and

         (7)     to borrow funds in hard currency or Soviet rubles ("rubles"),
as the Venture deems necessary or convenient for its operations and programs,
and to repay the principal and interest due in respect of such loans in hard
currency or rubles.

         To pursue these goals, the Venture may also carry out other business
and commercial activities of all types which are permitted in the U.S.S.R., and
provide goods and services to customers in the U.S.S.R., as the Venture
determines from time to time. The Venture will independently develop and
approve its own program of economic, production, and trade activities.

                                   ARTICLE 2

                               Name and Location

         Name for the Venture:

                 In Russian: "[ILLEGIBLE]".

<PAGE>   3
                 In English: "EDN".

         Principal Location of the Venture: 25, Dubovaya roscha, 12742 Moscow,
U.S.S.R.


                                  ARTICLE 3

                                  Duration

         The Venture will be established and will operate, and the term of its
existence and activities will continue, until the earlier of (1) December 31,
2001, or (2) the effective date of its liquidation pursuant to Article 23.

                                  ARTICLE 4

                                 Applicable Law

         The Venture will be a legal entity organized and existing under the
laws of the U.S.S.R. The Venture will be established, function and conduct its
activities in accordance with this Agreement, its Charter, which is attached
as Exhibit 1, and applicable Soviet law. Where any terms of this Agreement and
any terms of the Charter appear contradictory or inconsistent, the terms of
this Agreement will prevail. This Agreement will be governed by, and
interpreted and enforced in accordance with, the internal, substantive laws of
Sweden applicable to agreements negotiated, executed and performed entirely in
Sweden by parties resident in Sweden, and without regard to any conflicts of
law principles.

                                   ARTICLE 5

                                 Effective Date

         (1)     This Agreement will become effective upon its execution


<PAGE>   4
by the Participants, and the Venture will be created and begin its operations
on and from the date of its registration with the U.S.S.R. Ministry of Finance.
The Participants will use their best efforts to secure such registration as
promptly as possible.

         (2)     Notwithstanding anything to the contrary in this Agreement, in
the event that the Venture is not registered by the U.S.S.R. Ministry of
Finance within three (3) months of the date of execution of this Agreement by
the Participants, or such longer period as MTLCC and SOVINET may mutually agree
upon in their sole discretion, then this Agreement will terminate and will have
no further force or effect, and the Participants will have no liability to one
another in respect hereof, except that their respective obligations under
Articles 16, 17 and 30(7) shall survive the termination. Upon such termination,
at its own expense, MTLCC shall promptly return to SOVINET any and all cash
and/or property imported into the U.S.S.R. by or for SOVINET for use by, or as
a capital contribution to, the Venture.

                                   ARTICLE 6

             Capital Contributions; Financing and Other Matters

         (1)     The capital stock of the Venture will initially consist of
cash to be contributed by the Participants as follows, subject to the
conditions precedent set forth in Article 22:

                 (a)      MTLCC will contribute rubles in an amount equal to
One Million United States Dollars (U.S.$1,000,000), converted at the official
exchange rate of the U.S.S.R. Gosbank on the day of the contribution, and MTLCC
will correspondingly own fifty percent (50%) of the capital stock of the
Venture.

                 (b)      SOVINET will contribute U.S. Dollars in the amount of
One Million United States Dollars (U.S.$1,000,000), and SOVINET will
correspondingly own fifty percent (50%) of the capital stock of the Venture.

         (2)     MTLCC and SOVINET will make these contributions to the

<PAGE>   5
capital stock of the Venture, respectively, within ninety (90) days of the date
of registration of the Venture with the U.S.S.R. Ministry of Finance.

         (3)     Promptly upon the registration of the Venture, the
Participants will use their best efforts to obtain one or more loans, from
banking or financial institutions of international reputation, inside or
outside the U.S.S.R., to the Venture, in the aggregate principal amount of Ten
Million United States Dollars (U.S.$10,000,000) at interest rates, at a
repayment schedule, and on such other terms and conditions as shall be mutually
agreeable to the Participants. The Participants agree that their intent is to
obtain such loan(s) on a basis that would require SOVINET, or one of its equity
owners, to guarantee no more than fifty percent (50%) of the total amount of
Ten Million United States Dollars (U.S.$10,000,000) and, accordingly, the
Participants agree that each of them will apply its best efforts to obtain the
loan(s) on this basis. If the Venture borrows funds from any bank whose
principal office is not located in the U.S.S.R., or opens bank accounts or
establishes banking relationships with any such bank, the Venture shall first
obtain the permission of U.S.S.R. Vneshekonombank for such action to the extent
required by Soviet law, and MTLCC shall be principally responsible for
obtaining, and shall use its best efforts to obtain, such required permission.

         (4)     Within thirty (30) days of the date of registration of the
Venture, the Participants shall cause the Venture to execute and deliver to GTE
Spacenet International Corporation, and SOVINET shall cause GTE Spacenet
International Corporation to execute and deliver to the Venture, an Equipment
Purchase and Installation Agreement ("Equipment Agreement") in form reasonably
satisfactory to both parties and incorporating such terms and conditions as the
Venture and GTE Spacenet International Corporation may mutually agree upon.

                                   ARTICLE 7

                            Changes in Capital Stock

                 The Board of Directors of the Venture (as described in Article

<PAGE>   6
11) ("Board") may increase the amount of the capital stock of the Venture, in
its discretion, upon a unanimous vote of the members of the Board. In
accordance with the terms of such decision, the Board may accept supplementary
contributions from the Participants, or may cause all or a portion of the
profits of the Venture to be contributed to the capital stock, to the extent of
the authorized capital stock. No Participant will be required to make any
supplementary contributions to the capital stock of the Venture, except as both
Participants may expressly agree in advance, in writing.

                                   ARTICLE 8

                                     Funds

         The following operating capital accounts or funds ("Funds") will be
established out of the balance profits (as defined below) and certain other
capital of the Venture to support certain of the Venture's activities, as
specified below, and to provide benefits to its employees:

         (1)     a reserve fund of up to twenty-five percent (25%) of the
amount of the capital stock ("Reserve Fund").

         (2)     a fund for production and development related to the
activities of the Venture ("Production and Development Fund").

         (3)     a fund for employee benefits.

         The amounts and procedures for allocating capital to the Funds, if
any, and the use of the Funds, will be as determined by the Board from time to
time, in its sole discretion, and will be reviewed by the Board at least once
per year and set forth in each annual budget of the Venture. The proceeds of
loans in hard currency obtained by the Venture may also be allocated to the
Production and Development Fund, and the repayment of principal under such
loans may be charged against the Production and Development Fund.
<PAGE>   7
                                   ARTICLE 9

                                   Valuation

         The valuation of any capital goods, real property, intangible assets,
contract rights, know-how and/or other assets acquired by the Venture (other
than pursuant to Article 6) will be established by prior written agreement of
the Participants, with due regard for then current world market prices. Where
necessary and solely for the purposes of keeping the books of the Venture that
are denominated in rubles, the recalculation into rubles of the value of such
acquired property, assets, rights, and other items, will be conducted in
accordance with the official U.S.S.R. Gosbank rate of exchange, or other
applicable exchange rate, on the day of the acquisition.

                                   ARTICLE 10

                                   Insurance

         If the Board so determines, the property and interests of the Venture
and of the Participants may be insured (against damage, casualty, fire, theft,
or other loss, or business or political risk) by Ingosstrakh at its current
rates, or by other Soviet or foreign insurance companies at their current
rates, and payment to the Venture under such insurance may be made in hard
currency. Upon a decision of the Board to this effect, the Venture may also
obtain health, life, or other insurance on behalf of its employees.

                                   ARTICLE II

                                   Governance

         (1)     The Venture will be governed as follows. The Venture will have
a Board consisting of six (6) members, three (3) of whom will be appointed by
MTLCC and three (3) of whom will be appointed by SOVINET. The members of the
Board appointed by MTLCC will represent its interests and act on its behalf,
and the members of the Board appointed by SOVINET will represent its interests
and act on
<PAGE>   8
its behalf. The Board will have ultimate authority and control over all actions
and decisions of the Venture, its Management and its Audit Committee (as those
terms are defined below), its personnel, and its other bodies or committees, if
any. Day-to-day operations of the Venture and the implementation of decisions
of the Board will be carried out by the senior executive employees of the
Venture (collectively the "Management"), as specified below, who will remain
subject at all times to the authority and control of the Board.

         (2)     The Management will consist of a Director General, a First
Deputy Director, a Technical/Engineering Director, a Marketing/Sales Director,
and a Finance/Accounting Director, each of whom will be appointed by the Board,
subject to the following selection process. The individual who serves as First
Deputy Director also may serve, simultaneously, in one of the other Director
positions. The Director General will be nominated by MTLCC and approved by
SOVINET. The parties acknowledge that it will be highly desirable that the
Director General speak both Russian and English. Each of the First Deputy
Director, Marketing/Sales Director and Finance/Accounting Director will be
nominated by SOVINET and approved by MTLCC. Further, during the period prior to
operation of the Network, the Technical/Engineering Director will be nominated
by SOVINET and approved by MTLCC. Once the Network commences operation, the
Technical/Engineering Director will be nominated by MTLCC and approved by
SOVINET. Each of these positions may be filled by Soviet or foreign citizens.
Each member of the Management will have the duties set forth in the Charter,
unless otherwise determined by the Board. The Director General will be entitled
to attend meetings of the Board, but will have no voting rights.

         (3)     Except to the extent expressly authorized in Article 6 of this
Agreement or in the approved annual budget of the Venture then in effect, or as
may be required pursuant to any contract or agreement of the Venture which was
approved and entered into pursuant to this Agreement, the prior written
approval of the Board (or the approval of the Director General, with the prior
written consent or approving signature of the First Deputy Director to such
action) will be, required for the taking of each of the following actions by
the Venture, or by any of its personnel on behalf of the Venture:
<PAGE>   9
         (a)     During any twelve (12) month period, undertaking any of the
following transactions with a value in excess of U.S. $10,000:

                 (i)      Capital investments in or purchases of equipment;

                 (ii)     Sale, lease, or other disposition of assets, other
than in the ordinary course of business; or

                 (iii)    Borrowing or lending funds of any kind, except for
trade credits granted or received in the ordinary course of business;

         (b)     Mergers and acquisitions, investments in other entities, or
similar transactions;

         (c)     Selection of the Venture's accountants, auditors, or legal
counsel;

         (d)     Settlement of any legal action in excess of U.S. $10,000;

         (e)     Mortgaging, encumbering or granting any lien or security
interest in any or all of the assets of the Venture;

         (f)     Making or modifying any material term of contracts,
agreements or business arrangements with a value in excess of U.S. $10,000;

         (g)     Designation of the persons or entities entitled to disburse or
withdraw from deposit the operating capital or cash balances of the Venture;

         (h)     Establishing any office or place of business outside of the
U.S.S.R.;

         (i)     Conducting negotiations concerning, entering into, or
modifying any material term of any definitive agreement with Intourist or any
successor organization ("Intourist"), or any other governmental organization in
the U.S.S.R.;

         (j)     Inviting or assigning specialists to travel or work pursuant
to Article 18;

<PAGE>   10


                 (k)      opening or closing bank accounts, or

                 (l)      providing telecommunications services to customers in
         the U.S.S.R. in exchange for rubles.

         (4)     The Venture shall also have an Audit Committee which shall be
formed, and which shall conduct periodic audits, as described in the Charter.

         (5)     All matters relating to the governance or administration of
the Venture and not specifically addressed by this Agreement will be handled as
provided in the Charter or, if the Charter does not specifically address them,
by decision of the Board.

         (6)     The Board will have two co-chairmen, one of whom will be
designated by each Participant and acceptable to the other Participant. The
Board will meet at least four (4) times per year for the first two (2) years
after registration of the Venture with the U.S.S.R. Ministry of Finance.
Thereafter, it will meet at least twice per year, and more often if deemed
necessary by the Participants. Where applicable, the co-chairman appointed by
the Participant in whose home country the meeting is being held will preside at
the meeting; if the meeting is held in a third country, the Board will select
the presiding co-chairman. Except with respect to decisions that under this
Agreement or the Charter require the unanimous consent of all Board members,
all decisions of the Board will require the affirmative vote of at least four
(4) members, either in person or by written proxy, and four (4) members must be
present for any valid meeting to be held. The agenda for each Board meeting
shall be discussed and agreed upon in principle by the Board members not less
than thirty (30) days in advance of the meeting.

         (7)     The Board will establish the annual budgets and activities of
the Venture. Budgets for each fiscal year will be prepared by the Director
General and circulated to the Board members for their review at least ninety
(90) days prior to the commencement of such fiscal year. Budgets shall be
approved and become effective upon the decision of the Board. Each annual budget
shall set forth the proposed expenditures and disbursements of the Venture for
the relevant fiscal year, and shall project the estimated revenues, income, and
profits for that fiscal year, in both rubles and hard
<PAGE>   11
currency. Until an annual budget is approved for a given fiscal year, the
Venture shall follow the annual budget adopted by the Board for the previous
fiscal year.

         (8)     The Venture shall compensate members of the Board in hard
currency for their reasonable expenses, including without limitation travel and
hotel expenses, incurred in connection with their attendance at meetings of the
Board.

                                   ARTICLE 12

                          Cooperation of Participants

         The Participants agree to cooperate exclusively with each other to
create and operate the Network to serve the hotels and business centers listed
in Exhibit 2. In addition, the Participants will use their best efforts to
include other and new international hotels and business centers in Moscow as
customers served by the Network. Each of the Participants promises not to
create or enter into another joint enterprise, directly or indirectly (for
SOVINET - with a Soviet partner; for MTLCC - with a foreign partner), to
construct and/or operate another network in Moscow similar to the Network. The
Participants agree that the obligations set forth in this Article 12 are
essential to the success of the Venture in view of the innovative nature of the
Network, the need to keep the know-how and marketing plans of the Venture
confidential (pursuant to Article 17), and the special requirements of the
business to be conducted by the Venture.
<PAGE>   12
                                   ARTICLE 13

                            Distribution of Profits

         (1)     The profits of the Venture in each fiscal year (which shall be
the calendar year, unless otherwise determined by the Board) will be determined
and distributed as follows. The following amounts will be deducted from the
gross revenues of the Venture (which will not include the proceeds of loans
obtained by the Venture) for each fiscal year:

                 (a)      all expenditures for commercial purposes for that
fiscal year,

                 (b)      all deductions for depreciation and loss carry-
forwards (as set forth in Article 21(4)) for that fiscal year, and

                 (c)      all repayments of principal and payments of interest
under the loan obligations of the Venture (including without limitation the
loan(s) described in Article, 6(3)) in that fiscal year.

         (2)     After such deductions are made (and any other deductions or
credits permitted by applicable Soviet law are applied), the resulting amount
of revenue will be known as the "balance profit" of the Venture for that fiscal
year.  From the balance profit will then be deducted all amounts allocated by
the Board to the Reserve Fund and Production and Development Fund of the
Venture for that fiscal year. The resulting amount of revenue will be known as
the "taxable profit" of the Venture for that fiscal year. The Venture will pay
Soviet income taxes of thirty percent (30%), or such lesser percentage as may
be available under applicable law, on such taxable profit, except as provided
in Article 21 or otherwise in this Agreement. All Soviet income taxes due will
be paid to the U.S.S.R. State Budget, or as may be otherwise required by
Soviet law, in rubles. For the purposes of calculating Soviet income taxes that
are due in rubles with respect to the taxable profits of the Venture that are
actually received in hard currency, the applicable exchange rate will be either
the official exchange rate of the U.S.S.R. Gosbank on the date of actual
payment, or the official rate of the U.S.S.R. Gosbank on the date of execution
of this Agreement by the

<PAGE>   13
Participants, whichever is more favorable to the Venture.

          (3)     Up to ten percent (10%) of any amounts remaining after payment
of such taxes, or such greater percentage as the Board may determine, may be
allocated by the Venture for employee benefits, social and cultural needs of
personnel, and housing, as and when determined by the Board. Any amounts
remaining after such payment and allocation shall be known as "distributable
profits," and shall be distributed to the Participants in proportion to their
respective percentages of the capital stock of the Venture, as and when
determined by the Board, but in any event not later than sixty (60) days after
the end of the fiscal year in question. All amounts due to SOVINET in respect of
the distributable profits of the Venture which are denominated in hard currency
shall be distributed to SOVINET in U.S. dollars or other hard currency.  SOVINET
will have the right at all times to transfer its distribution of the Venture's
distributable profits in hard currency abroad without restriction. Distributions
of distributable profits shall be made to all Participants at the same time.

                                   ARTICLE 14

                                   Contracts

         (1)      The Venture may enter into and perform contracts and
agreements of all types with the Participants, their affiliates (as defined in
(3) below), and third parties, subject to the limitations set forth in the
other provisions of this Agreement and the Charter. Where required by the terms
of such contracts or agreements, the Venture may pay fees, royalties or costs
owed under such contracts or agreements in hard currency, to the extent
permitted by the hard currency cash balances of the Venture.

         (2)      Where the Venture negotiates concerning, or enters
into, definitive agreements with Intourist, Sovincenter, Expocenter, or other
persons or entities in the U.S.S.R. designated by the Board, each of the
Participants (or persons designated by the Participants) shall be entitled to
participate directly in such negotiations and in the preparation, drafting and
execution of such definitive agreements.
<PAGE>   14
         (3)      The Venture shall only enter into contracts,
agreements or business arrangements requiring aggregate payments in any fiscal
year in excess of US$10,000 (or the performance of services or provision of
goods in excess of such value in such period) (a) with a Participant, (b) with
an equity owner of SOVINET, or (c) with any other person or entity controlling,
controlled by, or under common control with a Participant or such an equity
owner (hereafter, an "affiliate" of the Participant or equity owner), upon
the unanimous consent of the members of the Board; provided, however, that all
such contracts, agreements or arrangements entered into pursuant to an express
provision of this Agreement are hereby deemed approved unanimously by the
Board.

                                   ARTICLE 15

                               Independent Status

         The Venture may carry out its activities freely in the
U.S.S.R. The Venture will have independent economic status, will be governed by
the principles of self-financing and self-management, will finance and support
its own activities, and will generate its own sources of rubles and hard
currency. The Venture may conduct its own export and import activities
independently, as well as through Soviet foreign trade organizations or other
Soviet or foreign organizations engaging in foreign economic activity, as
determined by the Board in its sole discretion. The Venture shall automatically
be entitled to all rights and privileges that may subsequently become available
to joint ventures (or other legal entities involving foreign equity
participation) under Soviet law after the date of execution of this Agreement.

                                   ARTICLE 16

                        Intellectual and Other Property

         The Venture will have its own intellectual and industrial
property rights, under and in accordance with Soviet law,
<PAGE>   15
safeguarding such property of the Venture as patents, unpatented inventions,
"know-how," copyrights, trade secrets, industrial designs and trademark rights.
Procedures for the commercial usage, protection, and defense of these rights by
the Venture will be determined by the Board. The Participants will not possess
any individual rights to any such property of the Venture, or to any other
goods, rights, property or assets contributed by either Participant to the
capital stock of the Venture. Notwithstanding the foregoing, the Venture will
not have any rights to any patents, inventions, "know-how," trademarks,
copyrights, trade secrets, industrial designs, software, or other intellectual
or industrial property which may be licensed or sublicensed to the Venture by
MTLCC, or by SOVINET or its affiliates, except as expressly provided in the
Venture's applicable license agreement(s), if any. The Venture will be entitled
to own real property, but may not have rights to ownership of the earth,
innermost depths of the earth, bodies of water, or forests, except as permitted
by Soviet law.

                                   ARTICLE 17

                                Confidentiality

         The Venture and each Participant will, and will cause their
respective agents, representatives and employees to, maintain strict
confidentiality with respect to all technical, financial, commercial, and other
information received from the Venture or from a Participant and identified as
confidential in writing by the disclosing party, and take all reasonable
measures to protect such information from unauthorized use or disclosure, until
the date that falls five (5) years after the date of termination or liquidation
of the Venture; provided, however, that MTLCC shall be entitled to disclose
such financial information to third parties in the Soviet Union, and SOVINET
shall be entitled to disclose such financial information to third parties in
the United States, to the extent required by applicable laws; provided,
further, that this Agreement shall not restrict the disclosure of any
information to the extent that it (1) is or becomes generally available to the
public without breach of this Agreement; (2) is received from a third party
without limitation or restrictions; (3) is information which the recipient
Participant independently developed; (4) became known to the recipient
<PAGE>   16
Participant without restriction on use or disclosure; or (5) is disclosed
pursuant to the compulsory requirement of a governmental agency, court order,
injunction, writ, order, or other legal process in the United States or the
U.S.S.R., provided that the Participant subject to any such legal requirement
shall (i) notify the other Participants and the Venture in writing immediately
upon becoming aware of any such requirement, and (ii) provide the other
Participants and the Venture full opportunity to contest such disclosure prior
to making any such disclosure.

                                   ARTICLE 18

                                  Specialists

         In conducting its activities (including without limitation
export and import operations, licensing, distribution, sales and marketing),
and subject to the prior approval of the Board, the Venture will have the right
to invite foreign specialists to the U.S.S.R., to send Soviet or foreign
specialists abroad on business trips, and to make arrangements to pay all
reasonable travel, lodging, meals, and other expenses incurred by such
specialists in connection with such trips, in rubles or hard currency.

                                   ARTICLE 19

                        Refraining from Harm to Venture

         At all times until the date of liquidation of the Venture, the
Participants will use their best efforts to refrain from conducting activities
that might inflict material harm on the Venture or on either Participant;
provided, however, that this Article 19 shall not prevent any Participant or an
affiliate of SOVINET from engaging in any commercial or investment activity in
the normal course of its business, or in any activity permitted by Article 12,
<PAGE>   17
                                   ARTICLE 20

                            Information and Records

         Each Participant will have the right, through its participation on the
Board, or otherwise promptly upon written request to any member of Management,
to receive complete, current, and accurate information on the Venture's
activities; on the status of the Venture's property, inventory, accounts,
contracts and agreements, labor relations, profits and losses; and on all other
matters involving the Venture. The Venture will, in accordance with Soviet law,
keep and prepare accurate and current records, which shall be located at its
principal office in Moscow (or elsewhere as determined by the Board), and will
conduct periodic audits as provided in the Charter. The following information
and records of the Venture will be kept in Russian and in English, unless
otherwise determined by the Board: audit reports, accounting books and records,
tax records, Board minutes and agendas, contracts and other agreements with
third parties, and other information and records designated by the Board as
subject to this requirement.

                                   ARTICLE 21

                                  Tax Matters

         (1)      Notwithstanding Article 13 or any other provision of
this Agreement, the Venture will be exempt from all Soviet income taxes imposed
by the national government of the U.S.S.R. for a period of two (2) years
commencing on the first day of the first fiscal year after the first fiscal
year in which the Board determines that the Venture earned a balance profit,
and shall continue to be so exempt thereafter to the maximum extent permitted
by applicable law; further, at all times the Venture shall be exempt from all
income, sales or other taxes which may be imposed by regional, local or
municipal authorities in the U.S.S.R. "Balance profit" means a balance profit
calculated as provided in Article 13, and appearing on the official financial
statements of the Venture. (In determining the first fiscal year in which the
Venture has earned a balance profit, foreign exchange profits or gains based on
conversion of SOVINET's capital
<PAGE>   18
contributions to the Venture shall not be counted.)

         (2)      All distributable profits actually paid to SOVINET by
or from the Venture shall be subject to applicable Soviet withholding tax, if
any, at a rate of up to twenty percent (20%), or at such lesser rate as may be
imposed by applicable Soviet laws and international tax treaties, whichever
rate is most favorable to SOVINET. All other payments to SOVINET and its
affiliates by or from the Venture will be exempt from all withholding,
repatriation, or other transfer taxes (i.e., taxes imposed upon the remission
of funds across national boundaries) which may be imposed by Soviet law. The
Participants shall also use their best efforts to obtain similar exemption from
all such withholding, repatriation, and other transfer taxes for all payments
by the Venture to GTE Spacenet International Corporation under the Equipment
Agreement.

         (3)      All products or services which the Venture imports
into the U.S.S.R. for use in its activities, or for use in constructing or
operating the Network, will be exempt from all Soviet customs duties, tariffs,
or similar charges.

         (4)      Notwithstanding any other provision of this Agreement
to the contrary:

                  (a)     the Venture shall be entitled to carry forward any 
losses, and to deduct them from its gross revenues prior to calculating its 
balance profit, in any of the five (5) fiscal years subsequent to the year in 
which the loss occurred, and

                  (b)     the tangible assets of the Venture may be 
depreciated on a straight-line basis at a rate of ten percent (10%) per fiscal
year, or such other rates as the Board may select, and the Venture shall be
entitled to deduct the amounts so depreciated from its gross revenues prior to
calculating its balance profit in each applicable fiscal year.

         (5)      The Participants understand that upon the registration of the
Venture by the U.S.S.R. Ministry of Finance, the Venture will be entitled to
the tax privileges, benefits and exemptions set forth in this Agreement. The
Participants are relying upon such understanding in entering into this
Agreement.
<PAGE>   19
                                   ARTICLE 22

                         Excuse for Failure to Perform

         (1)     Failure by either Participant to perform any of its
responsibilities under this Agreement will not be a violation of this Agreement
if and to the extent that such performance is rendered impossible by fires,
floods, other acts of nature, riots or civil disturbances, freight embargoes,
acts of war or hostilities of any nature; provided, however, that this Article
22(l) shall not apply to the responsibilities of the Participants to make
contributions under Article 6.

         (2)     Notwithstanding anything to the contrary in this Agreement,
the obligations of the Participants to make their respective capital
contributions under Article 6 shall be contingent upon and subject to the prior
occurrence of each of the following events:

                 (a)      registration of the Venture with the U.S.S.R.
Ministry of Finance within three (3) months of the date of execution of this
Agreement, or such longer period as the Participants may agree upon;

                 (b)      within one (1) month of the date of registration of
the Venture, or such longer period as the Participants may agree upon, the
negotiation, execution and delivery of a definitive agreement with the
management of each of the hotels and business centers listed in Exhibit 2,
granting the Venture the exclusive right to provide Network services to hard
currency customers in such hotels and business centers;

                 (c)      the granting by the appropriate governmental
authorities in the United States and elsewhere of all approvals, consents,
licenses, permits, and authorizations which are necessary, in the reasonable
opinion of SOVINET's legal counsel, for SOVINET to enter into this Agreement
and to make its capital contributions hereunder (including, without limitation,
all licenses and authorizations which may be necessary under the U.S. Export
Administration Act of 1979, as amended, and the regulations
<PAGE>   20
thereunder);

                 (d)      the Venture and GTE Spacenet International
Corporation shall have entered into the Equipment Agreement in form reasonably
satisfactory to both parties and incorporating the terms and conditions
described in Article 6(4), together with such other terms and conditions as
the Venture and GTE Spacenet International Corporation may mutually agree upon;
and

                 (e)      within one (1) month of the date of registration of
the Venture with the U.S.S.R. Ministry of Finance, or such longer period as the
Participants may agree upon in their sole discretion, the Venture shall have
obtained the loans described in Article 6(3).

                                   ARTICLE 23

                    Liquidation and Withdrawal; Transfers

         (1)     The Venture will be liquidated if:

                 (a)      the Participants agree in writing upon its
liquidation;

                 (b)      the Council of Ministers of the U.S.S.R. reasonably
determines, after due inquiry, that the activities of the Venture have
materially failed to conform to the aims and purposes set forth in this
Agreement, and provides ninety (90) days' advance written notice of such
determination to the Venture and both Participants;

                 (c)      the term of the Venture as specified in Article 3
expires, and is not renewed by mutual agreement of the Participants;

                 (d)      either Participant commits a material breach of its
obligations under Articles 6 or 12, and such breach is not cured within ninety
(90) days after written notice by the other Participant to the breaching
Participant;

                 (e)      either Participant fails to perform any of its
obligations under this Agreement due to circumstances described in Article
22(l), and such failure continues for one (1) year after
<PAGE>   21
written notice to the failing Participant by the other Participant (which
notice may be given or withheld in the notifying Participant's sole
discretion); or

                 (f)      any interest of SOVINET in the Venture is
expropriated or nationalized by governmental authorities in the U.S.S.R., or
Soviet laws, regulations or governmental actions materially prevent the Venture
from conducting its activities and pursuing its purposes as described in
Article 1, or from distributing profits as described in Article 13, and such
events are not cured within ninety (90) days after written notice of such
events is delivered by SOVINET to MTLCC (or any successor organization), which
notice may be given or withheld in SOVINET's sole discretion.

         (2)     In the event of liquidation of the Venture, the assets of the
Venture will be distributed by the Board, upon its review of the report of the
Liquidation Committee (as described in the Charter), to the Participants as
follows, after the repayment of all loans and the satisfaction of all other
debts owed by the Venture to the Participants, their affiliates, or third
parties:

                 (a)      First, all tangible assets contributed by each of the
Participants will be returned to them, respectively, at their addresses as set
forth below. Notwithstanding the foregoing, at the election of the contributing
Participant, any or all of the tangible assets that it contributed may instead
be sold at public auction, and the proceeds of sale distributed to the
contributing Participant. The contributing Participant shall be entitled to bid
at the auction, and to repurchase the tangible asset(s) in question if its bid
is highest; provided, however, that upon such repurchase, the purchase price
shall be paid into the remaining funds of the Venture, and distributed as
described in (b) below.

                 (b)      Second, the hard currency and other assets of the
Venture will be distributed to the Participants in proportions corresponding to
their respective percentage ownership of the capital stock of the Venture at
the moment of liquidation. Where tangible assets which the Venture has acquired
from third parties are to be distributed, the Liquidation Committee shall take
into account the preferences of the Participants and the fair market value of
the assets in determining the distribution. Notwithstanding the
<PAGE>   22
foregoing, upon agreement of the Participants, any or all such tangible assets
may instead be sold at public auction, and the proceeds of the sale distributed
between the Participants as described in the first sentence of this Article
23(2)(b). Either Participant shall be entitled to bid at the auction, and to
repurchase the tangible asset(s) in question if its bid is highest; provided,
however, that upon such repurchase, the purchase price shall be paid into the
remaining funds of the Venture, and distributed as described in the first
sentence of this Article 23(2)(b).

The Board will undertake all steps described above and supervise the
distribution of assets to the Participants.

         (3)     No Participant shall be entitled to transfer its ownership
interest in the Venture to a third party without the prior, written consent of
the other Participants. New parties shall not be admitted as Participants to
the Venture without the prior written consent of all existing Participants.

                                   ARTICLE 24

                             Resolution of Disputes

         (1)     In the event that disagreements or disputes arise with respect
to the interpretation or performance of this Agreement or any of its provisions
the Participants will use their best efforts to resolve them through
consultation. Disagreements or disputes that have not been settled by such
consultation within ninety (90) days after they first arise will be submitted
to, and conclusively settled by, binding arbitration.

         (2)     Each disagreement or dispute relating to the operations of the
Venture which is between Soviet members of the Management and employees of the
Venture who are Soviet citizens, or between the Venture and third parties
(except as otherwise agreed between the Venture and such third parties in
writing), will be resolved by the Court of Arbitration of the U.S.S.R. Chamber
of Commerce and Industry in proceedings conducted according to the rules
thereof in Moscow, U.S.S.R.
<PAGE>   23
         (3)     All disputes among the Participants or their respective
appointed Board members, among one or more Participants and the Venture, or in
any way involving SOVINET or its equity owners, will be conclusively resolved
by an arbitrator appointed by the Stockholm Chamber of Commerce in proceedings
conducted in Stockholm, Sweden, in English and in accordance with the
arbitration rules of that Chamber (but without regard to the conflicts of law
rules thereof or of the laws of Sweden).

         (4)     In conducting the proceedings and rendering a decision, the
arbitrator will apply the governing law specified in the last sentence of
Article 4, without regard to the place of execution of this Agreement. In such
proceedings and in any other court, arbitral, administrative, or formal
proceeding involving SOVINET or this Agreement, MTLCC irrevocably waives all,
and shall not raise any, defenses based on sovereign immunity.  Further, to the
extent that MTLCC has or hereafter acquires any immunity from the jurisdiction
of any proceedings, arbitral tribunals, courts or from any legal process
(whether through service of notice or otherwise) with respect to itself or its
property, MTLCC hereby irrevocably waives such immunity in respect of its
obligations under this Agreement. The foregoing waiver is intended to be
effective to the fullest extent now or hereafter permitted by the applicable
law of any jurisdiction in which any arbitration, suit, action or proceeding
with respect to this Agreement may be commenced.

         (5)     All decisions resulting from such arbitration will be final
and binding on the Participants, the Venture and any other parties thereto.
Each Participant shall be separately responsible for its expenses in connection
with the arbitration. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction. The arbitrators shall determine
all questions of fact and law relating to any controversy, claim or dispute
hereunder, including but not limited to whether or not any such controversy,
claim or dispute is subject to the arbitration provisions contained herein. If
a controversy, claim or dispute arises between the parties which is subject to
the arbitration provisions hereunder, and there exists or later arises a
controversy, claim or dispute between the parties and any third party, which
controversy, claim or dispute
<PAGE>   24
arises out of or relates to the same transaction or series of transactions,
said third party controversy, claim or dispute shall be consolidated with the
arbitration proceedings hereunder; provided, however, that any such third party
must be a party to an agreement with a party hereto which provides for
arbitration or disputes thereunder in accordance with rules and procedures
substantially the same in all material respects as provided for herein or, if
not, must consent to arbitration as provided for hereunder. Any demand for
arbitration hereunder shall be made within a reasonable time after the claim,
dispute or other matter in question has arisen, and in no event shall it be
made after the date when institution of legal or equitable proceedings based on
such claim, dispute or other matter in question would be barred by the
applicable statutes of limitations.

                                   ARTICLE 25

                             Changes and Additions

         Changes and additions to this Agreement and/or the Charter will be
valid only if they are presented in written form and signed by authorized
representatives of both Participants.

                                   ARTICLE 26

                                   Personnel

         The personnel of the Venture will primarily consist of Soviet citizens
who will be employed by the Venture, and will include foreign citizens who will
primarily be employed by SOVINET or the equity owners thereof (and who will
remain employees of SOVINET or such equity owners, unless otherwise agreed by
the Participants). Foreign employees or consultants employed by or assigned to
work for the Venture will have the rights and privileges and be compensated as
set forth in the Charter, as determined by the Board, and as otherwise provided
by Soviet law. The Management may consist of any number of Soviet and/or
foreign citizens. The actions and decisions of the Management will be subject
to the supervision of the Board. The employees of the Venture who are Soviet
citizens may be assigned to work in one of the three (3) eight-hour shifts to
<PAGE>   25
be operated by the Venture per day, subject to the collective bargaining
agreement to be entered into with the trade union of such employees. The
Venture will operate seven (7) days per week, or as determined by the Board.

                                   ARTICLE 27

                         Representations and Warranties

         (1)     MTLCC represents and warrants to SOVINET as follows:

                 (a)      MTLCC is a production enterprise duly organized and
validly existing under the laws of the U.S.S.R., and has the full legal power
and authority to own and operate its properties and to enter into and perform
the terms of this Agreement and the transactions contemplated hereby.   The
execution and delivery of this Agreement by MTLCC, its performance of the
provisions hereof, and the provision of telecommunications services in the
U.S.S.R. and operation of the Network by the Venture, have all been duly
authorized by all necessary legal action of MTLCC, and of the Ministry of Posts
and Telecommunications of the U.S.S.R. This Agreement will be executed on
behalf of MTLCC by persons with due authorization to execute international
contracts on its behalf, in compliance with Soviet law and, without limitation,
with Decree No. 122 of the U.S.S.R. Council of Ministers, "On the Procedure for
Signing Foreign Trade Transactions," dated February 14, 1978. MTLCC has
obtained all licenses from the U.S.S.R. Ministry of Foreign Economic Relations
necessary to engage in foreign trade and to enter into this Agreement. Upon its
execution by MTLCC, this Agreement will constitute a valid and binding
obligation of MTLCC, enforceable in accordance with its terms. Neither the
execution and delivery of this Agreement nor the performance of the
transactions contemplated hereby will constitute a violation of, or default
under, or will conflict with any terms of the charter or foundation documents
of MTLCC, of any existing law, regulation, rule, order, judgment or decree of
any court or governmental authority in the U.S.S.R., or of any material
contract, agreement, or business relationship to which MTLCC is a party or by
which it is bound.

                 (b)      According to the document of which a copy is
<PAGE>   26
attached as Exhibit 3, MTLCC has the authority to operate, and to cooperate
with SOVINET through the Venture to operate, the Network as contemplated by
this Agreement.

         (2)     SOVINET hereby represents and warrants to MTLCC as follows:

                 (a)      SOVINET is duly organized and validly existing under
the laws of the state of Virginia, U.S.A., and has the full legal power and
authority to own and operate its properties and to enter into and perform the
terms of this Agreement and the transactions contemplated hereby. The execution
and delivery of this Agreement by SOVINET and its performance of the provisions
hereof have been duly authorized by all necessary legal action of SOVINET. Upon
its execution by SOVINET, this Agreement will constitute a valid and binding
obligation of SOVINET, enforceable in accordance with its terms. Neither the
execution and delivery of this Agreement nor the performance of the
transactions contemplated hereby will constitute a violation of, or default
under, or will conflict with any terms of the agreement establishing SOVINET,
of any existing law, regulation, rule, order, judgment or decree of any court
or governmental authority in the U.S.A., or of any material contract,
agreement, or business relationship to which SOVINET is a party or by which it
is bound.

                 (b)      According to its foundation documents, copies of
certain of which are attached as Exhibit 4, SOVINET has the authority to
operate, and to cooperate with MTLCC through the Venture to operate, the
Network as contemplated by this Agreement.

                                   ARTICLE 28

                             Liability for Damages

         (1)     Each of the Participants shall be liable to the others for its
material breach of a provision of this Agreement, or the material failure or
inaccuracy of any of its representations or warranties in this Agreement, which
causes the other Participant(s) to incur actual damages; provided, however,
that the extent of the
<PAGE>   27
liability shall be limited to the direct damages actually incurred; and
provided, further, that to be entitled to damages under this Article 28, a
damaged Participant must first have notified the breaching Participant of such
breach or failure, and such breach or failure must not have been cured or
corrected within thirty (30) days of the date of the notice. All damages due
under this Article 28 shall be payable in hard currency.

         (2)     No Participant shall be liable for the debts, obligations or
liabilities of the Venture, or of the other Participants, except for
liabilities which the Participant has expressly agreed in writing to assume.
Upon the termination or liquidation of the Venture, neither Participant will
have any liability to the other in consequence of this Agreement or the
Venture, except for liabilities that arose prior to the effective date of the
liquidation.

                                   ARTICLE 29

                                    Notices

         All notices and other communications required or permitted to be given
under this Agreement shall be deemed given when actually received by the
addressee, shall be in writing and shall be either (1) mailed by registered or
certified air mail, postage prepaid; (2) delivered by hand; or (3) given by
"tested" telex (i.e., a telex for which the proper answer back has been
received) or facsimile transmission. In each case, the notice shall be
addressed to the relevant Participant at its address set forth below, or, where
the appropriate telex or facsimile numbers of the notified Participant have
previously been designated to the other Participant pursuant to this Article
29, to such number.

                                   ARTICLE 30

                                 Miscellaneous

          (1) From the moment this Agreement is executed by the Participants,
all previous agreements or other correspondence and all negotiations relating
to this Agreement or the subject matter
<PAGE>   28
hereof will have no further force or effect.

         (2)     The Exhibits to this Agreement are integral parts hereof.

         (3)     This Agreement is executed on the 18 day of 1990, in four (4)
original copies, in Russian and in English, both versions being identical and
equally valid.

         (4)     The parties agree to do such further acts and things and to
execute and deliver such additional agreements and instruments as the other may
reasonably require to consummate, evidence or confirm the agreements contained
herein in the manner contemplated hereby.

         (5)     Time is of the essence with respect to this Agreement and the
performance hereof.

         (6)     Whenever possible, this Agreement shall be interpreted in such
a manner as be to effective, valid and enforceable under applicable law, but if
any provision of this Agreement should be prohibited or invalid under
applicable law, such provisions shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

         (7)     Except as expressly provided to the contrary in this
Agreement, each party shall be solely responsible for its expenses incurred in
connection with its negotiation and performance of this Agreement. Without
limitation, each party shall pay its own costs with respect to the hiring of
auditors and attorneys.

         (8)     The addresses of the Participants for notice purposes will
be:

         MTLCC:     25, Dubovaya roscha, 127427
                    Moscow, U.S.S.R.
                    Telex:               
                          -------------
         Attention: Michael Smirnov, Director

         SOVIET:    1700 Old Meadow Road,
                    McLean, Virginia 22102, U.S.A.

<PAGE>   29
                                  Telex:
                                   Attention: Glenn Sacra and Wayne Van Dyck,
                                    Members of the Management Committee

         Signed for the Participants as follows:

SOVINET                                            Main Trunk Lines Control
                                                   Centre of the U.S.S.R.
                                                   Ministry of Posts and
                                                   Telecommunications
                                                   ("MTLCC")
   
By: GTE International Communication
Services Corporation, a General
 Partner

By:      /s/ GLENN SACRA                   By:     /s/ [ILLEGIBLE]              
      ----------------------------               -------------------------------
Its:     President                         Its:    Director                     
      ----------------------------               -------------------------------
Date:    May 7, 1990                       Date:   18.06, 1990
     

                                           By:                                
                                               -------------------------------
                                           Its:                               
                                                ------------------------------

                                           Date:                        , 1990
                                                 -----------------------       

By: San Francisco/Moscow Teleport,
Inc., a General Partner

By:      /s/ WAYNE VAN DYCK      
     ----------------------------
Its:     Chairman                
     ----------------------------

Date:    May 8, 1990
      


By:      /s/ [ILLEGIBLE]         
     ----------------------------
Its:     President               
     ----------------------------

Date:    May 8, 1990
    
     


<PAGE>   30
                                           Supplement to the Agreement on the
                                             Creation and Functions of the Joint
                                                Venture "EDN"

                        THE CHARTER OF THE JOINT VENTURE

         The joint venture "EDN", to be referred to below as the "Venture", is
established by the Agreement on the Creation and Functions of the Joint Venture
to which this Charter is attached, to be referred to below as "Agreement"
and dated 18-06, 1990. All terms used herein and defined in the Agreement
shall have the meanings set forth in the Agreement. Where the terms of the
Agreement and this Charter are inconsistent or conflicting, the terms of the
Agreement shall prevail.

                                   ARTICLE 1

         The Participants in the Venture are the Main Trunk Lines Control
Centre of the Ministry of Posts and Telecommunications of the U.S.S.R., a
juridical entity governed by Soviet law, which will be referred to below as
"MTLCC", and SOVINET, a juridical entity governed by the laws of the state of
Virginia, U.S.A., which will be referred to below as "SOVINET".

                                   ARTICLE 2

         The Venture is established for the general purposes described in the
Agreement. The Venture is also established for the purposes of providing and
achieving stable and profit-making activities for itself. The Venture may
conduct all activities authorized by the Agreement.
<PAGE>   31
                                   ARTICLE 3

         (1)     The Venture is a legal entity governed by the laws of the
Union of Soviet Socialist Republics. The Venture has full rights as a legal
entity from the moment it is registered with the U.S.S.R. Ministry of Finance.
The Venture has the right to conclude contracts on its own behalf, to acquire
property rights and other rights, and to fulfill its commitments. The Venture
may be called as a plaintiff or a defendant in court or in arbitration, as the
case may be.  The Venture has the right to carry out directly licensing,
marketing, distribution, sales, and export or import operations that it deems
necessary or convenient for its economic activities, and to establish
independent prices for its services. Upon decision of the Board, the Venture
can create branches and representative offices in one or more locations in the
countries of the Participants, and in third countries. The branches of the
Venture will be separate legal entities, and will not have to answer for any
obligations of the Venture, nor will it have to answer for the obligations of
its branches.

         (2)     To carry out its functions, the Venture has the right to
procure and pay for necessary transport (including by the purchase or rental of
vehicles), communications, and other goods and services in the U.S.S.R.,
U.S.A., and other countries, in Soviet rubles ("rubles") or freely convertible
foreign currency ("hard currency"). The Venture has the right to purchase or
rent plots of land, buildings (including factories, storage and shipping
facilities, and housing for the Venture's foreign personnel), and other
properties; to receive and pay for communal and other services; and to decide
on questions concerning the design and construction of all of its buildings and
properties. The Venture has the right to sign contracts with accounting,
insurance, transportation, and all other individuals and organizations that
provide goods or services. The Venture has the right to transfer information,
within and outside of the U.S.S.R., related to its manufacturing, marketing,
sales, design, economic, commercial and/or organizational functions with the
aid of mail or printed correspondence, telegraphs, telephones, teletype and
telefax, and through all types of digital, analog and satellite information
transfer.
<PAGE>   32
         (3)     The Venture may obtain credit on a commercial basis:

                 (a)      in hard currency from the U.S.S.R. Vneshekonombank,
from banks in foreign countries, or from other organizations; or

                 (b)      in rubles from the U.S.S.R. Gosbank or from the
U.S.S.R.  Vneshekonombank.

The credit obtained may be guaranteed by the property of the Venture or any
portion thereof. Guarantees of the Venture's obligations may also be granted by
any third party, including each of the Participants. The Venture will have
accounts in the U.S.S.R. Gosbank and in the U.S.S.R. Vneshekonombank. The
Venture has the right to exchange hard currency =according to the official
exchange rates of the U.S.S.R. Gosbank or other applicable exchange rates,
within the limits of the Venture's own hard currency funds and in accordance
with established procedures. The Venture will also have the maximum rights
permitted by Soviet law to buy or sell hard currency in public or private
auctions or in other legal circumstances.

         (4)     The Venture will own and use its property within the
guidelines of Soviet law, and in accordance with its goals and the nature of
the property. The Venture will use all of its property to cover its
obligations. The Soviet government and the Participants in the Venture will not
be separately liable for any of the Venture's obligations except to the extent
they may expressly assume such liability, and the Venture will not be liable
for the obligations of the Soviet government or its Participants.

         (5)     The Venture's activities will be governed by Soviet or other
applicable law, by the Agreement, and by this Charter, subject to applicable
inter-state and inter-governmental agreements mutually established by the
U.S.S.R.  and the U.S.A.

         (6)     The Venture will have a seal, as approved by the Board of the
Venture. The headquarters of the Venture will be located at 25, Dubovaya
roscha, 127427 Moscow, U.S.S.R. The official languages of the Venture are
Russian and English, and these languages are also the working languages of the
Venture.
<PAGE>   33
                                   ARTICLE 4

         The Venture will form its capital stock from the contributions of the
Participants, as set forth in the Agreement, to enable the functions of the
Venture to be carried out. The size of this capital stock, the relative shares
of the Participants, and the procedure for forming the capital stock are set
forth in the Agreement. The Board will issue certificates documenting the
Participants' contributions to the capital stock and their ownership of the
capital stock.

                                   ARTICLE 5

         The profits in hard currency and rubles obtained by the Venture may be
retained for use in the activities of the Venture, or may be allocated to the
Funds or distributed to the Participants in accordance with the Agreement.

                                   ARTICLE 6

         (1)     The highest body of the Venture is the Board, which is
comprised of members appointed by the Participants, as described in the
Agreement. A member of the Board may have an assistant, who will have no voting
power or formal authority.

         (2)     Unless otherwise provided in the Agreement, the Board has the
right to make decisions on any question concerning the functions of the
Venture. Without limitation, and subject to the Agreement, unless otherwise
agreed by the Participants, or unless the Board delegates such authority to the
Management, the Board will have the exclusive right and authority:

                 (a)      subject to Article 8 of this Charter, to introduce
changes and additions in or to this Charter;
<PAGE>   34
                 (b)      to determine major policies and directions for the
operations of the Venture, and to approve its current and long-term plans,
reports of its activities, and annual budgets;

                 (c)      to determine the administrative structure of the
Venture;

                 (d)      subject to Article 11 of the Agreement and to Article
9 of this Charter, to supervise and review the activities of, and, if the Board
so determines, remove from duty the Director General and the First Deputy
Director and other members of the Management;

                 (e)      to approve the members of the Audit Committee, and to
approve of its reports and conclusions, as described in Article 10 below;

                 (f)      to determine the schedule for creating and using the
Funds and earnings of the Venture, the distribution of its profits in
accordance with the Agreement, and the procedures for covering or otherwise
managing losses;

                 (g)      to deal with questions pertaining to the
establishment and closing of branches and representative offices;

                 (h)      to make decisions on obtaining credit;

                 (i)      to propose the admission of new Participants to the

Venture;

                 (j)      to appoint and remove the members of the Liquidation
Committee, and to approve its reports and decisions;

                 (k)      to decide on the compensation, if any, of the members
of the Board, Management, and members of the Audit Committee; and

                 (l)      subject to Article 11 of the Agreement, to approve
contracts (whether between the Venture and either or both of the Participants,
or with third parties) or expenditures of any type that are not authorized in
advance by the Agreement or by the Board in
<PAGE>   35
the annual budget for that year, and that require the Venture to spend more
than 10,000 U.S. dollars or the equivalent in hard currency.

                                   ARTICLE 7
                                   - - - - - 

         (1)     The Board will review issues pertaining to the activities of
the Venture, and will make decisions concerning them, at its meetings. Each of
the members of the Board, and the Director General of the Venture, will have
the right to introduce issues for the consideration of the Board.

         (2)     The appropriate co-chairman (as stipulated by Article 11(6) of
the Agreement) will preside at each meeting of the Board. The presiding
co-chairman will appoint a secretary who will be responsible for keeping the
minutes of each meeting, or causing them to be kept, in both Russian and
English. All of the members of the Board will have an opportunity to review the
minutes. The minutes will state who was present at the meeting, how the members
voted, what matters were discussed, which decisions were made, and what
particular opinions were presented. Each member of the Board will sign the
minutes after being personally satisfied of their accuracy.

         (3)     Members of the Board may participate in meetings in person or
by telephone provided that all members can hear one another. Any member of the
Board who is unable to participate in a meeting may create a written proxy,
granting to his representative the power to participate in the meeting and to
cast votes on his behalf. Representatives so appointed will strictly observe
the directions of the appointing member regarding participation and voting, as
set forth in the written proxy. A representative, pursuant to a duly-authorized
proxy, may sign the minutes on behalf of a member of the Board.

         (4)     By unanimous action of the members of the Board, decisions and
votes of the Board may be validly made in written form (including agreement by
telex or electronic means) without an actual meeting, and will have the same
power and legal force as a
<PAGE>   36
decision made at a valid meeting of the Board.

         (5)     Each member of the Board, including the presiding co-chairman,
will have one vote. Meetings will be deemed validly held if at least four (4)
of the six (6) members of the Board are present.

         (6)     The Board will discuss the results of each fiscal year's
activities at an annual meeting to be held no later than sixty (60) days after
the end of that year.

         (7)     A vacancy on the Board due to illness, death, resignation or
recall of a member by a Participant will be filled by the Participant who
initially designated the absent member. A member of the Board may be recalled
or replaced at any time by the appointing Participant.

                                   ARTICLE 8
                                   - - - - - 

         A vote of at least four (4) of the members of the Board will be
required to decide all issues or questions presented to the Board, with the
exception of issues or questions for which the Agreement or this Charter may
expressly require a unanimous vote. A unanimous vote of all of the members of
the Board or their authorized representatives will be necessary when dealing
with the following issues:

         (1)     any alterations of or additions to this Charter;

         (2)     approvals of proposals for changes in the size of the capital
stock of the Venture; and

         (3)     determining the size, procedure, and terms of requests for
additional capital contributions from the Participants.
<PAGE>   37
                                   ARTICLE 9
                                   - - - - - 

         (1)     Except as otherwise expressly provided in the Agreement or
this Charter, the day-to-day activities of the Venture will be conducted by the
Management, headed by the Director General. The structure and staff of the
Management will be determined and approved by the Board. The Director General
will report to the Board and will have operational responsibility for the
actions of the Venture and the fulfillment of the tasks and functions assigned
to the Director General.

         (2)     The Director General of the Venture, who will be appointed as
set forth in the Agreement:

                 (a)      will be responsible for implementing current and
future business plans of the Venture;

                 (b)      will hire and dismiss employees, with the exception
of members of the Management;

                 (c)      will carry out all decisions of the Board and present
reports to the Board concerning their implementation;

                 (d)      will manage and protect the property of the Venture,
as directed by the Board;

                 (e)      subject to Article 11 of the Agreement and Article
6(2)(1) of this Charter, and with the assistance and participation of the First
Deputy Director, will conclude commercial contracts on behalf of the Venture,
and ensure that they are fully performed;

                 (f)      will perform all other functions stipulated in the
Agreement and this Charter or specified by the Board; and

                 (g)      Subject to Article 11 of the Agreement and Article
6(2)(1) of this Charter, and with the assistance and participation of the First
Deputy Director, will represent the Venture in dealings with other
organizations, ventures and entities, and also with government organizations of
participating countries and third countries, with respect to all matters
concerning the Venture or its activities as
<PAGE>   38
permitted by the Agreement or this Charter.

         (3)     The Director General will have the right to make decisions on
all other matters concerning the Venture that are not within the exclusive
jurisdiction of the Board. Subject to Article 11 of the Agreement and Article
6(2)(1) of this Charter, the Director General, the First Deputy Director and
other person(s) so appointed in writing by the Board may sign contracts and
other legal documents on behalf of the Venture.

         (4)     The First Deputy Director, and Technical/Engineering,
Marketing/Sales, and Finance/Accounting Directors, will have the respective
duties specified in the Agreement or this Charter, or otherwise determined by
the Board.

                                   ARTICLE 10     
                                   - - - - -  

         (1)     The Venture will have independent economic status and will
function on the basis of complete self-support, and hard currency
self-repayment, and carry out its activities in accordance with the annual
productivity plan and other plans approved by the Board.

         (2)     The Venture will conduct its bookkeeping, statistical
recordkeeping, and reporting activities in accordance with applicable Soviet
law, and will keep the resulting records in both Russian and English. In
addition, at the written request of SOVINET to the Venture at any time, the
Venture will also conduct its bookkeeping activities in accordance with
generally accepted accounting principles in the United States, and will keep a
second set of books in English for this purpose. In this event, SOVINET will
provide reasonable assistance to the Venture to assist its personnel in
conducting such activities, but the Venture shall otherwise bear all costs of
keeping such second set of books.

         (3)     Expenses and revenues will be entered on the books of the
Venture in rubles or in foreign currency, as they are actually incurred or
received. For internal bookkeeping purposes only, and not for purposes of
valuing a Participant's contribution, conversion of

<PAGE>   39
all amounts from rubles into foreign currency or vice versa will be conducted
at the official exchange rate of the U.S.S.R. Gosbank, or other applicable
exchange rate under Soviet law, on the day of the conversion.

         (4)     The Venture may obtain credit from Soviet and/or foreign
finance organizations and from foreign firms in accordance with applicable
procedures.

         (5)     The fiscal year of the Venture will begin on January 1 and end
on December 31 of each calendar year.

         (6)     The duration of the first fiscal year will be determined by
the Board, but will not extend beyond December 31 of the year in which the
Venture is registered.

         (7)     At the end of each fiscal year or promptly thereafter at a
time and place specified by the Board, the Director General will present a
report of the activities of the Venture during that fiscal year, including
proposals concerning the distribution of profits, to the Board for its review.

         (8)     Periodic audit reviews of the economic and commercial
activities of the Venture will be conducted by a Soviet self-financing
organization selected by the Board (such as Inaudit), which will be paid for
this service at its standard rates. In addition, at the written request of
SOVINET, an international accounting firm of established reputation and
selected by the Board will be retained to conduct its own audit review of the
activities of the Venture, and of the manufacturing, financial, sales and other
books and records of the Venture. As a result of the audit review, the firm
will be asked to prepare financial statements setting forth the profits and
losses of the Venture, and the current assets and liabilities of the Venture,
for the immediately preceding twelve (12) month period (or, at the request of
SOVINET, for the last preceding fiscal year of the Venture). SOVINET shall be
entitled to cause such an audit review to be conducted not more than twice per
fiscal year. The Venture will bear all of the costs of these audit reviews, and
the results of the reviews will be provided in writing to each of the
Participants, in English and in Russian.
<PAGE>   40
         (9)     The general supervision and monitoring of the financial and
economic activities of the Venture and its branches will be carried out by the
Audit Committee, which shall consist of two (2) members. One (1) member of the
Audit Committee will be nominated by each of the Participants, and both members
will be subject to approval by the Board.  SOVINET will initially appoint one
of its designated representatives as the chairman of the Audit Committee, to
serve for a two (2) year term, and thereafter the Participants will take turns
in appointing such a chairman on an alternating, biannual basis. The members of
the Audit Committee will hold office for terms of two (2) years and may be
reappointed. The Audit Committee will be directly responsible to the Board and
will submit its audit reports, as well as its commentary on those reports, to
the Board in writing at least two (2) times per year. One of the required audit
reports will include financial statements setting forth the profits and losses
of the Venture, and the assets and liabilities of the Venture, for the
immediately preceding twelve (12) month period. The second of the required
audit reports will set forth such financial statements for the last preceding
fiscal year of the Venture, and will be prepared and submitted within sixty
(60) days of the end of each fiscal year. In preparing such audit reports, the
Audit Committee will take into consideration the audit reviews described in (8)
above. Such audit reports will become effective upon approval by the Board. The
Venture will not be required to submit audit reports or financial, technical,
commercial, or other information to any third parties, except to the extent
that financial reporting is required to comply with applicable Soviet tax laws
or U.S. laws applicable to SOVINET.

                                   Article 11

         (1)     The Management of the Venture will conclude a collective
bargaining agreement with the trade union associated with the Venture. The
content of this agreement will be consistent with Article 26 of the Agreement.

         (2)     Subject to Article 26 of the Agreement, and to applicable
<PAGE>   41
Soviet law, the salaries, work hours, vacation and social security benefits
available to Soviet employees of the Venture will be as determined by the
Board.

         (3)     The Venture may hire foreign specialists to work for the
Venture. The salaries, vacations, pensions, and other benefits available to
foreign employees or foreign consultants of, or assigned to, the Venture
(collectively "personnel" of the Venture) will be governed by individual
contracts to be concluded by the Management of the Venture with each such
person. All foreign personnel of the Venture will be paid in hard currency,
except as otherwise determined by the Board.

         (4)     The Venture will pay sums to the U.S.S.R. State Budget as
required by Soviet law, for the social insurance of Soviet and foreign
employees and the pensions of Soviet employees, in amounts and at rates
applicable to Soviet organizations.

         (5)     The pension benefits of foreign employees hired by the Venture
will be transferred directly to the appropriate pension funds of the country of
their permanent residence.

         (6)     The salaries and bonuses of foreign personnel paid in hard
currency and not spent in the U.S.S.R. may be freely transferred abroad at the
request and in the sole discretion of these persons, and such transfer shall
not be subject to Soviet transfer, repatriation or withholding taxes. All
foreign personnel of the Venture will be entitled to the maximum extent
possible to all rights, exemptions from taxes, and other benefits which are
currently or may subsequently be permitted or granted to foreign personnel
under Soviet law.

         (7)     The Venture will have the independent right to hire and
dismiss its employees in accordance with the labor agreements it may have
concluded with them.

                                 ARTICLE 12

         (1)     A Liquidation Committee consisting of four (4) members,
<PAGE>   42
two (2) of whom will be appointed by each of the Participants, will be
established promptly if there is a decision to liquidate the Venture pursuant
to Article 23 of the Agreement.

         (2)     If the Venture is liquidated:

                 (a)  the Board will form the Liquidation Committee, which will
prepare a statement of the Venture's affairs, assets and liabilities, and a
proposed liquidation schedule, and will present them to the Board for approval
within sixty (60) days of the decision to liquidate the Venture;

                 (b)  subject to and in accordance with the applicable 
provisions of the Agreement, the Board will then decide how to dispose of all
property of the Venture;

                 (c)  all property leased or loaned to the Venture will be 
returned to the owners thereof; all fees or royalties due to each Participant
and unpaid at the moment of liquidation will be added to the total amount due
to that Participant upon the final division of funds; and

                 (d)  the capital stock of the Venture, and other funds and 
assets remaining after satisfying the valid demands of the Venture's creditors,
will be divided among the Participants to the Venture in accordance with the
applicable provisions of the Agreement. The liquidation will be registered with
the U.S.S.R. Ministry of Finance.

                                 ARTICLE 13

         This Charter will take effect on and from the date of registration of
the Venture with the U.S.S.R. Ministry of Finance.
<PAGE>   43
                                 ARTICLE 14

         The addresses of the Participants for notice purposes will be:

           MTLCC:   25, Dubovaya roscha, 127427
                    Moscow, U.S.S.R.
                    Telex:
                          Attention: Michael Smirnov, Director

           SOVINET:  1700 Old Meadow Road,
                     McLean, Virginia 22102, U.S.A.
                     Telex:
                          Attention: Glenn Sacra and Wayne Van Dyck,
                           Members of the Management Committee
<PAGE>   44
                                   Exhibit 2

                      List of Hotels and Business Centers

         Savoy
         Slavyanskaya
         Expocenter
         Sovincenter - Hotel Portion
         Sovincenter - Business Offices
         Cosmos
         Metropol
         Penta
<PAGE>   45
                                   Exhibit 4

                          SOVINET Foundation Documents

                                   (Attached)
<PAGE>   46

                                SIGNATURE PAGE



                                 [ILLEGIBLE]



     Glenn Sacra and Wayne Van Dyck, Members of the Management Committee



         /s/ GLENN H. SACRA                     /s/ [ILLEGIBLE]
         --------------------                   --------------------
            Glenn H. Sacra                         [ILLEGIBLE]
            May 7, 1990                            18.06 1990





         /s/ WAYNE VAN DYCK  
         --------------------
            Wayne Van Dyck   
            May 8, 1990




         
         /s/ [ILLEGIBLE]     
         --------------------
            [ILLEGIBLE]      
            May 8, 1990



<PAGE>   1
                                                                   EXHIBIT 10.27






                            STOCK PURCHASE AGREEMENT

                                     Among

                        GLOBAL TELESYSTEMS GROUP, INC.,

                          KOMPANIYA "INVEST-PROJECT",

                                SWINTON LIMITED,

                                GTS-VOX LIMITED

                                      and

                                   MTU-INFORM

                                     dated

                               September 6, 1995
<PAGE>   2
                 STOCK PURCHASE AGREEMENT dated as of September 6, 1995 (this
"Agreement") among Global TeleSystems Group, Inc., a Delaware corporation
("GTS"), Kompaniya "Invest-Project", a limited liability partnership organized
under the laws of the Russian Federation (the "Parent"), Swinton Limited, an
international business company organized under the laws of the Commonwealth of
the Bahamas (the "Seller"), GTS-Vox Limited, a private limited company
organized pursuant to the Companies Act 1985 of England and Wales ("GTS-Vox"
and, together with the Seller, the "Swinton Parties"), and MTU-Inform, a
partnership organized under the laws of the Russian Federation ("MTU-Inform").

                 WHEREAS, GTS-Vox owns beneficially and of record 95 ordinary
registered shares (the "AOZT Shares") of Invest-Project, a closed joint stock
company organized under the laws of the Russian Federation ("AOZT"), and
MTU-Inform owns beneficially and of record the remaining five ordinary
registered shares of AOZT;

                 WHEREAS, GTS and AOZT entered into a Memorandum of
Understanding dated March 3, 1995 pursuant to which the parties agreed to
cooperate in the joint provision of enhanced telecommunications services in the
city of Moscow;

                 WHEREAS, AOZT and Moscow City Telephone Network ("MCTN")
entered into an agreement dated May 29, 1995, as amended by Supplement 1
No. 1657 to Agreement No. 1587 dated June 23, 1995 ("Agreement No. 1587"),
pursuant to which AOZT is authorized to receive, construct and sell 150,000
telephone numbers (each, a "Port"), using the 69 zone and portions of the 79
and 71 zones; and

                  WHEREAS, GTS desires to purchase 5,264 of the ordinary shares
(the "GTS-Vox Shares"), par value one penny sterling per share (the "GTS-Vox
Ordinary Shares"), of GTS-Vox from the Seller in exchange for shares (the
"Exchange Shares") of common stock, par value $0.0001 per share, of GTS ("GTS
Common Stock"), and the Seller desires to sell the GTS-Vox Shares to GTS in
exchange for the Exchange Shares, subject to the terms and conditions
hereinafter set forth;

                 NOW, THEREFORE, in consideration of the mutual promises and
conditions contained herein and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE>   3

                                       2

                                   ARTICLE I

                               PURCHASE AND SALE

                 SECTION 1.01. Purchase and Sale of the GTS-Vox Shares. Upon
the terms and subject to the conditions of this Agreement, at the Closing, the
Seller shall sell to GTS, and GTS shall purchase from the Seller, the GTS-Vox
Shares.

                 SECTION 1.02. Purchase Price; Delivery of Exchange Shares. (a)
The purchase price for the GTS-Vox Shares shall be as set forth in this Section
1.02 and may include all or a portion of the Exchange Shares, the GTS Note (as
hereinafter defined) and the cash payments as described herein. The dates on
which GTS may issue portions of the aggregate number of Exchange Shares to the
Seller shall be determined pursuant to the terms of this Section 1.02. The
number of shares of GTS Common Stock which constitute the aggregate number of
Exchange Shares on the dates specified in this Section 1.02 shall be determined
pursuant to Section 1.06 of this Agreement.

                 (b)      At the Closing, GTS shall deliver to the Seller (i)
in cash, one pence per GTS-Vox Share, for a total of L52.94 and (ii) a note in
the principal amount of $693,380, payable to the Seller, subject to the terms
and conditions provided therein, as set forth in Exhibit 1.02(b) (the "GTS
Note").

                 (c)      The parties hereto acknowledge that GTS does not have
all corporate and shareholder approvals required for issuance of the share
certificates referred to in this Section 1.02. GTS shall use its reasonable
commercial efforts to obtain all such corporate and shareholder approvals as
soon as practicable.

                 (d)      By March 31, 1996, the Seller and MTU-Inform shall
cause AOZT to make available 20,000 Ports, in addition to the 5,000 Ports
provided by MTU-Inform to AOZT in accordance with Section 5.02(b), (the "First
Ports") for commencement of service (the "Commencement Date"), and AOZT shall
deliver written notice thereof to GTS. As soon as practicable, but in no event
later than seven days, thereafter:

                 (i)      GTS shall deliver to the Seller a certificate issued
         in the name of the Seller, with all required stock transfer tax stamps
         affixed and bearing such legends as are required by Section 5.01 (a
         "GTS Certificate"), evidencing 37,480 Exchange Shares, or

                 (ii)     if the corporate and shareholder approvals referred
         to in Section 1.02(c) have not been obtained by such date, GTS shall
         provide the Seller with a note in substantially the form attached
         hereto as Exhibit 1.02(d) (a "GTS Note II") in place of such GTS
         Certificate.
<PAGE>   4
                                       3

                 (e)      As soon as practicable, but in no event later than
seven days, following the delivery of consolidated financial statements and
consolidated statements of net income of AOZT prepared using U.S. dollar
figures (a "Reference Financial Statement"), together with a report thereon
prepared by internationally recognized independent certified public accountants
the appointment of which shall be approved by GTS and the Seller, stating that
such financial statements were prepared in accordance with United States
generally accepted accounting principles ("U.S. GAAP") consistently applied
and fairly present the consolidated financial position of AOZT as of the end of
such fiscal year (an "AOZT Financial Report"), for AOZT's 1996 fiscal year, (i)
GTS shall deliver to the Seller a GTS Certificate evidencing 25% of the
Reference Exchange Number (as hereinafter defined) of Exchange Shares, subject
to adjustment as provided in Section 1.06(d), or (ii) if the corporate and
shareholder approvals referred to in Section 1.02(c) have not been obtained by
such date, GTS shall provide the Seller with a GTS Note II in place of such GTS
Certificate.

                 (f)      As soon as practicable, but in no event later than
seven days, following the delivery of a Reference Financial Statement, together
with an AOZT Financial Report for AOZT's 1997 fiscal year, (i) GTS shall
deliver to the Seller a GTS Certificate evidencing 25% of the Reference
Exchange Number (as hereinafter defined) of Exchange Shares, subject to
adjustment as provided in Section 1.06(d), or (ii) if the corporate and
shareholder approvals referred to in Section 1.02(c) have not been obtained by
such date, GTS shall provide the Seller with a GTS Note II in place of such GTS
Certificate.

                 (g)      As soon as practicable, but in no event later than
seven days, following the delivery of a Reference Financial Statement, together
with an AOZT Financial Report for AOZT's 1998 fiscal year, (i) GTS shall
deliver to the Seller a GTS Certificate evidencing 25% of the Reference
Exchange Number (as defined herein) of Exchange Shares, subject to adjustment
as provided in Section 1.06(d), or (ii) if the corporate and shareholder
approvals referred to in Section 1.02(c) have not been obtained by such date,
GTS shall provide the Seller with a GTS Note II in place of such GTS
Certificate.

                 SECTION 1.03. Closing. Upon the terms and subject to the
conditions of this Agreement, the purchase and sale contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at such
place and on such date as GTS and the Parent may mutually agree upon in writing
(the day on which the Closing takes place being the "Closing Date ").

                 SECTION 1.04. Closing Deliveries by the Seller. At the
Closing, the Seller shall deliver or cause to be delivered to GTS:

                 (a)      a stock certificate evidencing the GTS-Vox Shares
         duly endorsed to GTS, accompanied by a stock transfer form duly
         executed to GTS, in form
<PAGE>   5
                                       4

         satisfactory to GTS, and the Seller shall pay for all required stock
         transfer tax stamps to be affixed thereon;

                 (b)      a receipt for cash consideration and the GTS Note
         delivered by GTS to the Seller pursuant to Section 1.02(b);

                 (c)      a copy of the Indemnity Agreement attached hereto as 
         Exhibit 1.04(c) (the "Indemnity Agreement"), executed by the Seller;

                 (d)      a copy of the Shareholders Agreement attached hereto 
         as Exhibit 1.04(d) (the "Shareholders Agreement"), executed by the
         Seller;

                 (e)      a certificate of the General Director of the Parent,
         certifying (i) the names and signatures of the officers of the Parent
         authorized to sign this Agreement and the other documents to be
         delivered hereunder, and (ii) a copy of the resolutions duly and
         validly adopted by the Board of Directors of the Parent evidencing its
         authorization of the consummation of the transactions contemplated by
         this Agreement;

                 (f)      a power of attorney for the authorized representative
         of the Seller, and a certification from the Person holding such power
         of attorney that (i) the names and signatures of the officers of the
         Seller authorized to sign this Agreement and the other documents to be
         delivered hereunder, and (ii) a copy of the resolutions duly and
         validly adopted by the Board of Directors of the Seller evidencing its
         authorization of the consummation of the transactions contemplated by
         this Agreement;

                 (g)      a certificate of the Secretary or an Assistant 
         Secretary of GTS-Vox, certifying (i) the names and signatures of the
         officers of GTS-Vox authorized to sign this Agreement and the other
         documents to be delivered hereunder, (ii) that the Articles of
         Association and Memorandum of Association of GTS-Vox attached thereto
         are true and correct copies of such documents, (iii) a copy of the
         resolutions duly and validly adopted by the Board of Directors of
         GTS-Vox evidencing its authorization of the consummation of the
         transactions contemplated by this Agreement, and (iv) that the copy
         of the minute books and stock register of GTS-Vox attached thereto are
         true and correct copies of such documents;

                 (h)      a certificate of the President of AOZT, certifying 
         (i) that the constituent documents of AOZT attached thereto are true
         and correct copies of such documents, and (ii) that the copy of the
         minutes of meetings and stock register of GTS-Vox attached thereto are
         true and correct copies of such documents;
<PAGE>   6
                                       5

                 (i)      a certificate of the First Deputy of the General
         Director of MTU-Inform certifying the names and signatures of the
         officers of MTU-Inform authorized to sign this Agreement and the other
         documents to be delivered hereunder; and

                 (j)      statements from each of the President and the chief
         accounting officer of each of GTS-Vox, MTU-Inform and AOZT that as of
         the Closing Date, AOZT has no debts, obligations or other Liabilities
         and that all reports required to be filed prior to the Closing Date
         with any governmental authority by or on behalf of AOZT have been
         filed, other than those listed in Schedule 1.04(j).

                 SECTION 1.05. Closing Deliveries by GTS. At the Closing, GTS
shall deliver to the Seller:

                 (a)     the GTS Note set forth in Section 1.02(b);

                 (b)     a receipt for the GTS-Vox Shares delivered by the 
         Seller to GTS;

                 (c)     a copy of the Indemnity Agreement, executed
         by GTS;

                 (d)     a copy of the Shareholders Agreement,
         executed by GTS; and

                 (e)     a certificate of the Secretary or an Assistant 
         Secretary of GTS certifying (i) the names and signatures of the
         officers of GTS authorized to sign this Agreement and the other
         documents to be delivered hereunder, and (ii) a copy of the
         resolutions duly and validly adopted by the Board of Directors of GTS
         evidencing its authorization of the consummation of the transactions
         contemplated by this Agreement.

                 SECTION 1.06. Calculation of the Number of Exchange Shares.
(a) As of the Closing Date, the number of Exchange Shares to be exchanged (the
"Exchange Number") shall be 299,840 (the "Reference Exchange Number").

                 (b)      Time of Adjustment of Exchange Number. The Exchange
Number shall be adjusted as of the last day of AOZT's 1996, 1997 and 1998
fiscal years (each, a "Reference Date") within five days following the delivery
of the Reference Financial Statement together with the AOZT Financial Report
for AOZT's 1996, 1997 and 1998 fiscal years, respectively. The adjustment to
the Exchange Number shall be determined by GTS as set forth in this Section
1.06.

                 (c)      GTS Share Price. The Seller agrees that, solely for
the purpose of determining the Exchange Number, the value of each Exchange
Share shall be deemed to be
<PAGE>   7
                                       6

$22.20 on the first Reference Date; $26.64 on the second Reference Date; and
$31.97 on the third Reference Date (the "GTS Share Price"); provided, however,
that:

                 (i)      if shares of GTS Common Stock have been sold to the
         public pursuant to a registration statement under the United States
         Securities Act of 1933, as amended, solely for the purpose of
         determining the Exchange Number, the GTS Share Price with respect to
         any Reference Date following such sale shall be the average of the
         closing prices for the shares of GTS Common Stock on the principal
         stock exchange on which such shares are listed or traded on the last
         ten trading days of the fiscal year that includes such Reference Date;
         and

                 (ii)     if shares of GTS Common Stock have not been sold to
         the public and the Seller notifies GTS, or GTS notifies the Seller,
         within three business days after the delivery of any Reference
         Financial Statement together with the related AOZT Financial Report
         that such party believes that the GTS Share Price does not accurately
         reflect the value of the Exchange Shares as of the related Reference
         Date, then the GTS Share Price will be determined by the Board of
         Directors of GTS in the same manner used to determine the exercise
         price of employee stock options under then existing employee stock
         option plans of GTS.

                 (d)      Adjustment of Exchange Number. As promptly as
practicable following the delivery of each Reference Financial Statement
together with the related AOZT Financial Report, the Exchange Number shall be
adjusted as follows:

                 (i)      in the event that the Net Income (as hereinafter
         defined) reflected in the Reference Financial Statement for the fiscal
         year reported on therein differs from the Net Income reflected in the
         business plan for AOZT, dated May 24, 1995, attached hereto as Exhibit
         A (the "Business Plan") for such period by at least 10%, then the
         Exchange Number with respect to the related Reference Date shall be
         adjusted by multiplying the Reference Exchange Number by a fraction,
         the numerator of which shall be equal to the Net Income reflected in
         such AOZT Financial Report for such fiscal year and the denominator of
         which shall be equal to the Net Income reflected in the Business Plan
         for such fiscal year; and

                 (ii)     in the event that the GTS Share Price with respect to
         such Reference Date has been adjusted according to the provisos
         included in Section 1.06(c), then the Exchange Number with respect to
         such Reference Date, as adjusted pursuant to Section 1.06(d)(i), shall
         be multiplied by a fraction, the numerator of which shall be equal to
         the GTS Share Price before the adjustment set forth in clauses (i) or
         (ii) of Section 1.06(c) and the denominator of which shall be equal to
         the GTS Share Price after such adjustment;
<PAGE>   8
                                       7

provided, however, in the event that sum of the Net Income reflected in the
Reference Financial Statements for the three fiscal years ending on December
31, 1998 differs from the sum of the Net Income reflected in the Business Plan
for such years by at least 10%, then the Exchange Number shall be adjusted (1)
by multiplying the Reference Exchange Number by a fraction, the numerator of
which shall be equal to the sum of the Net Income reflected in the Reference
Financial Statements for such years and the denominator of which shall be equal
to the Net Income reflected in the Business Plan for such years and (2) as set
forth in Section 1.06(d)(ii), and the number of Exchange Shares to be delivered
pursuant to Section 1.02(f) shall be equal to such adjusted Exchange Number
less the aggregate number of shares previously delivered to the Seller by GTS
pursuant to Section 1.02;

provided, however, that in no event shall the Exchange Number on any Reference
Date exceed 449,760 nor shall the aggregate number of shares of GTS Common
Stock delivered pursuant to Section 1.02 exceed 449,760. For the purposes of
this Section 1.06, "Net Income" shall mean the net income of AOZT, after
deductions of all taxes; provided, that Net Income for 1996 shall be deemed to
include all profits received in 1995 by AOZT attributable to sales of the 5,000
Ports to be provided to AOZT by MTU-Inform pursuant to Section 5.02(b);

provided, however, that in no event shall the aggregate number of shares of GTS
Common Stock delivered as per Article I: (i) exceed 50% of 449,760 in the case
of delivery in accordance with Section 1.02(e); (ii) exceed 75% of 449,760 in
the case of delivery in accordance with Section 1.02(f); and (iii) exceed 100%
of 449,760 in the case of delivery in accordance with Section 1.02(g).

                                   ARTICLE II

                       REPRESENTATIONS AND WARRANTIES OF
                           SWINTON PARTIES AND PARENT

                 As an inducement to GTS to enter into this Agreement, each of
the Swinton Parties and the Parent hereby, jointly and severally, represents
and warrants to GTS that:

                 SECTION 2.01. Organization and Standing of the Swinton Parties
and the Parent. The Parent is a limited liability partnership duly formed,
validly existing and in good standing under the laws of the Russian Federation.
The Seller is an international business company duly formed, validly existing
and in good standing under the laws of the Commonwealth of the Bahamas. GTS-Vox
is a private company limited by shares, duly formed, validly existing and in
good standing under Companies Act 1985 of England and Wales. AOZT is a closed
joint stock company duly organized, validly existing and in good standing under
the laws of the Russian Federation. Each of the Swinton Parties, the Parent
<PAGE>   9
                                       8

and AOZT has the requisite power and all necessary licenses, permits, approvals
and other authorizations to own and operate its properties and assets and to
carry on its businesses as currently conducted or contemplated to be conducted
or operated. None of the Swinton Parties has received notice of proceedings
relating to the revocation of any such license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would adversely affect their ability to perform
its obligations under this Agreement, or would have a material adverse effect
upon the business condition (financial or otherwise), prospects, affairs,
operations, properties or assets of GTS-Vox or AOZT. All actions taken by each
of the Swinton Parties, the Parent and AOZT have been duly authorized, and none
of the Swinton Parties, the Parent or AOZT has taken any action that in any
respect conflicts with, constitutes a default under or results in a violation
of any provision of its respective constituent documents. True and correct
copies of the constituent documents of each of the Swinton Parties, as in
effect on the date hereof, have been delivered by the Seller to GTS.

                 SECTION 2.02. Power and Authority of the Swinton Parties and
the Parent. Each of the Swinton Parties and the Parent has all necessary power
and authority to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of the Swinton Parties
and the Parent and (assuming due authorization, execution and delivery by GTS
and MTU-Inform) constitutes a legal, valid and binding obligation of each of
the Swinton Parties and the Parent enforceable against each of the Swinton
Parties and the Parent in accordance with its terms.

                 SECTION 2.03. Ownership of the Seller, GTS-Vox and AOZT. (a)
The Seller owns of record and beneficially and has good and marketable title
to, free and clear of all Encumbrances (as hereinafter defined), all of the
shares of capital stock of GTS-Vox. No Person (as hereinafter defined) other
than the Seller owns, directly or indirectly, of record or beneficially, any of
the shares of capital stock of GTS-Vox.

                 (b)      Prior to July 22, 1995, the Parent owned of record
and beneficially and had good and marketable title to, free and clear of all
Encumbrances, the AOZT Shares. On July 22, 1995, the Parent transferred the
AOZT Shares to GTS-Vox, pursuant to Agreement of Purchase and Sale No. 5/14,
dated July 6, 1995, between the Parent and GTS-Vox. The transfer of the AOZT
Shares from the Parent to GTS-Vox has been duly registered with all appropriate
authorities under the laws of the Russian Federation.

                 (c)      GTS-Vox owns of record and beneficially, and has good
and marketable title to, free and clear of all Encumbrances, the AOZT Shares.
MTU-Inform owns beneficially and of record five shares of AOZT. No Person other
than GTS-Vox or MTU-Inform owns, directly or indirectly, of record or
beneficially, any interest in AOZT.
<PAGE>   10
                                       9

                 SECTION 2.04. Capitalization of GTS-Vox and AOZT. (a) The
authorized share capital of GTS-Vox consists of 10,000 GTS-Vox Ordinary Shares,
all of which are issued and outstanding. All such issued and outstanding shares
have been duly authorized and validly issued and are fully paid and
nonassessable. There are no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments to which GTS-Vox
is a party of any character relating to the issued or unissued share capital
of, or other equity interests in, GTS-Vox or obligating GTS-Vox to grant,
issue or sell any shares of the share capital of, or other equity interests in,
GTS-Vox, by sale, lease, license or otherwise. There are no obligations,
contingent or otherwise, of GTS-Vox to repurchase, redeem or otherwise acquire
any shares of the share capital of GTS-Vox. There are no preemptive rights to
purchase or otherwise acquire any securities of GTS-Vox pursuant to any
provision of Law (as hereinafter defined), or the Memorandum of Association or
Articles of Association of GTS-Vox, in effect on the date hereof (the "GTS-Vox
Constituent Documents") by agreement or otherwise. There are no restrictions
upon payment of dividends by GTS-Vox in the GTS-Vox Constituent Documents or
any agreement to which it is a party.

                 (b)      The authorized capital stock of AOZT consists of 100
ordinary registered shares, all of which are issued and outstanding. All such
issued and outstanding ordinary registered shares have been duly authorized and
validly issued and are fully paid and nonassessable. There are no preemptive
rights to purchase or otherwise acquire any securities of AOZT pursuant to any
provision of Law, or the constituent documents of AOZT, or by agreement or
otherwise.  There are no restrictions upon payment of dividends by AOZT in its
constituent documents or any agreement to which it is a party. There are no
outstanding contractual obligations of AOZT to repurchase, redeem or otherwise
acquire any shares of its capital stock or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person.

                 SECTION 2.05. Required Filings and Consents, No Conflicts. (a)
No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority on the part of any of the Swinton Parties, the Parent or AOZT is or
was required in connection with (i) the valid execution and delivery of this
Agreement and the performance of the transactions contemplated hereby or (ii)
the transfer of the AOZT Shares, in each case, except as may be necessary as a
result of any fact or circumstance relating solely to GTS.

                 (b)      The execution and delivery of this Agreement by each
of the Swinton Parties and the Parent do not, and the performance of this
Agreement by each of the Swinton Parties and the Parent will not, (i) conflict
with or violate the constituent documents of such Swinton Party or the Parent,
(ii) conflict with or violate any Law, rule, regulation, order, judgment or
decree applicable to any of the Swinton Parties or the Parent or by which any
property or asset of any of the Swinton Parties or the Parent, as the case may
be, is bound or
<PAGE>   11
                                       10

subject or (iii) result in any breach of, constitute a default (or event which,
with the giving of notice or lapse of time or both, would become a default)
under, require any consent under, give to others any right of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result
in the creation of any Encumbrance on any property or asset of any of the
Swinton Parties or the Parent pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which any of the Swinton Parties or the Parent is a party or by
which any of the Swinton Parties or the Parent or any property or asset of any
of the Swinton Parties or the Parent is bound or subject.

                 SECTION 2.06.    Permits; Compliance. AOZT is in possession of
all franchises, grants, authorizations, licenses, permits, easements,
variances, exceptions, consents, certificates, approvals and orders of any
governmental authority necessary for AOZT to own, lease and operate its
properties or to carry on its business as it is now being conducted (the "AOZT
Permits"), and, as of the date of this Agreement, no suspension or cancellation
of any of the AOZT Permits is pending or, to the knowledge of any of the
Swinton Parties, the Parent or AOZT, threatened. AOZT is not in conflict with,
or in default or violation of, any AOZT Permits.

                 SECTION 2.07.    Compliance with Laws. None of the Swinton
Parties or the Parent is in violation of any applicable Law.

                 SECTION 2.08.    No Prior Activities of GTS-Vox or the Seller.
GTS-Vox and the Seller were formed solely for the purpose of engaging in the
transactions contemplated by this Agreement. Except for obligations or
liabilities incurred in connection with the transactions contemplated by this
Agreement, neither GTS-Vox nor the Seller has incurred, directly or indirectly
through any subsidiary or affiliate, any obligations or liabilities or engaged
in any business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person.

                 SECTION 2.09.    Assets and Contracts of AOZT. (a) AOZT has
good and marketable title to its properties and assets and AOZT has good title
to all its leasehold estates, in each case subject to no Encumbrance, other
than tax, materialmen's or like Encumbrances for obligations not yet due and
payable.

                 (b)      True and correct copies of each contract and
agreement to which AOZT is a party, as in effect on the date hereof, have been
delivered by the Seller to GTS.

                 SECTION 2.10.    Validity of Agreement No.1587. Agreement No.
1587 is valid and in full force and effect. None of the Swinton Parties or the
Parent knows, after due investigation, of any condition of Agreement No. 1587
which has not been fulfilled on or prior to the date on which such condition
was agreed to be fulfilled. None of the Swinton
<PAGE>   12

                                     11

Parties or the Parent knows, after due investigation, of any reason that
Agreement No. 1587 may be revoked, canceled, altered or modified in any respect
as a result of the transactions contemplated by this Agreement. Agreement
No. 1587 is binding upon and inures solely to the benefit of AOZT and MCTN and
their permitted assigns, and nothing therein, express or implied, is intended
to or shall confer upon any other Person any legal or equitable right, benefit
or remedy of any nature whatsoever under or by reason of Agreement No. 1587.
Pursuant to Agreement No. 1587, AOZT is authorized to receive, construct and
sell 50,000 Ports using the 79 zone and 100,000 Ports using the 69 zone, and,
upon payment therefor or the waiver of any such payment as permitted by
Agreement No. 1587, AOZT will acquire all right, title and interest to and in
such Ports. The Seller intends to cooperate with GTS in causing AOZT to
construct and sell 100,000 Ports and to negotiate in good faith with GTS with
respect to the construction and sales of the remaining 50,000 Ports.  AOZT has
not assigned any rights or obligations of AOZT under Agreement No. 1587 to any
other Person. A true, correct and complete copy of Agreement No. 1587 as in
effect on the date hereof has been provided by the Seller to GTS.

                 SECTION 2.11.    Litigation, Claims, Etc. There are no
actions, suits, arbitrations or legal, administrative, governmental or other
proceedings or investigations pending or, to the best knowledge of each of the
Swinton Parties, the Parent and AOZT, threatened against any of the Swinton
Parties or AOZT, or, to the best knowledge, after due investigation, of each of
the Swinton Parties, the Parent and AOZT, involving any of the properties or
assets of any of the Swinton Parties or AOZT.

                 SECTION 2.12.    Subsidiaries; Employees. The Seller has no
subsidiaries other than GTS-Vox and GTS-Vox has no subsidiaries other than
AOZT. GTS-Vox has no employees.

                 SECTION 2.13.    Investment Representation; Rule 144;
Restrictions on Transfer. The shares of GTS Common Stock being acquired by the
Seller hereunder will be acquired for investment for the Seller's own account
and not with a view to the distribution or resale of any part thereof, except
as otherwise described herein. The Seller understands (a) that the Exchange
Shares are restricted securities within the meaning of Rule 144 under the
United States Securities Act of 1933, as amended (the "Securities Act"); (b)
that such securities are not registered pursuant to the Securities Act and must
be held indefinitely unless they are subsequently registered pursuant to the
Securities Act or an exemption from such registration is available; (c) that,
in any event, the exemption from registration under Rule 144 will not be
available for at least two years from the date of issue of any Exchange Shares
and, even then, will not be available unless: (i) a public trading market then
exists for the shares of GTS Common Stock; (ii) adequate information concerning
GTS is then available to the public; and (iii) other terms and conditions of
Rule 144 are complied with, including, among other things, the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a "market maker" and the number of
<PAGE>   13
                                       12

shares being sold in any three-month period not exceeding specified
limitations; and (d) that any sale of such securities may be made by it only in
limited amounts in accordance with such terms and conditions if the seller is
an affiliate of GTS or has held such securities for fewer than three years
(except as otherwise described herein).

                                  ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF MTU-INFORM

                 As an inducement to GTS to enter into this Agreement,
MTU-Inform hereby represents and warrants to GTS that:

                 SECTION 3.01.    Organization and Standing of MTU-Inform.
MTU-Inform is a limited liability partnership duly formed, validly existing and
in good standing under the laws of the Russian Federation. MTU-Inform has the
requisite power and all necessary licenses, permits, approvals and other
authorizations to own and operate their properties and assets, and to carry on
their businesses as currently conducted or contemplated to be conducted or
operated. MTU-Inform has not received notice of proceedings relating to the
revocation of any such license, certificate, franchise, or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would adversely affect MTU-Inform's ability to perform its obligations
under this Agreement, or would have a material adverse effect upon the business
condition (financial or otherwise), prospects, affairs, operations, properties
or assets of AOZT. All actions taken by MTU-Inform have been duly authorized,
and MTU-Inform has not taken any action that in any respect conflicts with,
constitutes a default under or results in a violation of any provision of its
respective constituent documents. True and correct copies of the constituent
documents of MTU-Inform, as in effect on the date hereof, have been delivered
by MTU-Inform to GTS.

                 SECTION 3.02.    Power and Authority of MTU-Inform. MTU-Inform
has all necessary power and authority to enter into this Agreement, to carry
out its obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by MTU-Inform and
(assuming due authorization, execution and delivery by GTS and the Swinton
Parties) constitutes a legal, valid and binding obligation of MTU-Inform
enforceable against MTU-Inform in accordance with its terms.

                 SECTION 3.03.    Required Filings and Consents; No Conflicts.
(a) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority on the part of MTU-Inform is or was required in connection with the
valid execution and delivery of this Agreement and the performance of the
transactions contemplated hereby.
<PAGE>   14
                                       13

                 (b)      The execution and delivery of this Agreement by
MTU-Inform does not, and the performance of this Agreement by MTU-Inform will
not, (i) conflict with or violate the constituent documents of MTU-Inform, (ii)
conflict with or violate any Law, rule, regulation, order, judgment or decree
applicable to MTU-Inform or by which any property or asset of MTU-Inform is
bound or subject or (iii) result in any breach of, constitute a default (or
event which, with the giving of notice or lapse of time or both, would become a
default) under, require any consent under, give to others any right of
termination, amendment, acceleration, suspension, revocation or cancellation
of, or result in the creation of any Encumbrance on any property or asset of
MTU-Inform pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which any such Person is a party or by which any such Person or any property
or asset of such Person is bound or subject.

                 SECTION 3.04.    Title to and Right to Transfer Ports.
MTU-Inform has all right, title and interest in the Ports to be transferred to
GTS pursuant to Section 5.02 of this Agreement and has the right to transfer
all right, title and interest to and in such Ports to GTS or any company
nominated by GTS as contemplated by Section 5.02 of this Agreement.

                                   ARTICLE IV

                     REPRESENTATIONS AND WARRANTIES OF GTS

                 As an inducement to the Swinton Parties to enter into this
Agreement, GTS hereby represents and warrants to each of the Swinton Parties as
follows:

                 SECTION 4.01.    Organization and Standing. GTS is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. GTS has the requisite corporate power and all
necessary licenses, permits, approvals and other authorizations to own and
operate its properties and assets and to carry on its businesses as currently
conducted.

                 SECTION 4.02.    Power and Authority of GTS. (a) Except as
provided in Section 1.02(c), GTS has all necessary power and authority to enter
into this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by GTS have been duly authorized by all requisite corporate action on
the part of GTS and the performance by GTS of its obligations hereunder and the
consummation by GTS of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of GTS. This Agreement
has been duly executed and delivered by GTS and (assuming due authorization,
execution and delivery by the Swinton Parties and MTU-Inform) constitutes the
legal, valid and binding obligation of GTS, enforceable against GTS in
accordance with its terms, subject to the
<PAGE>   15
                                       14

effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

                 SECTION 4.03.    Capitalization. The authorized capital stock
of GTS consists of two classes: (i) 40,000,000 shares of GTS Common Stock,
17,349,527 shares of which are issued and outstanding; and (ii) 10,000,000
shares of Preferred Stock, none of which are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued and
are fully paid and nonassessable. The Exchange Shares have been duly authorized
and, if delivered to the Seller pursuant to this Agreement, will be validly
issued, fully paid and nonassessable. GTS has reserved for issuance the
Exchange Shares to be issued hereunder. Except for the rights granted by GTS
herein and in connection with its private placements in 1993, 1994 and 1995 and
certain stock options granted by GTS, there are no rights to purchase or
otherwise acquire any securities of GTS pursuant to any provision of law, or
the Certificate of Incorporation or By-Laws of GTS, or by agreement or
otherwise. There are no restrictions upon payment of dividends by GTS in its
Certificate of Incorporation, By-Laws or any agreement to which it is a party.

                 SECTION 4.04.    Required Filings and Consents; No Conflicts.
(a) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any governmental
authority on the part of GTS is required in connection with the valid execution
and delivery of this Agreement and the performance of the transactions
contemplated hereby, except (i) where the failure to obtain such consent,
approval, order, authorization, qualification or designation or to make such
registration, declaration or filing would not prevent GTS from performing any
of its obligations under this Agreement and (ii) as may be necessary as a
result of any fact or circumstance relating solely to the Swinton Parties.

                 (b)      Except as previously disclosed by GTS to the Parent
in writing, the execution and delivery of this Agreement by GTS do not, and the
performance of this Agreement by GTS will not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of GTS, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to GTS or by
which any property or asset of GTS is bound or subject or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other Encumbrance of any nature on any property or asset
of GTS pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
GTS is a party or by which GTS or any property or asset of GTS is bound or
subject, except for any such conflicts, violations, breaches, defaults or other
occurrences as would not, individually or in the aggregate, adversely affect
the ability
<PAGE>   16
                                       15

of GTS to carry out its obligations under, and to consummate the transactions
contemplated by, this Agreement.

                                   ARTICLE V

                             ADDITIONAL AGREEMENTS

                 SECTION 5.01.    Legends on Exchange Shares; Restrictions. (a)
Legends. Each GTS Certificate shall be stamped or otherwise imprinted with a
legend in substantially the following form:

         THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933, AS AMENDED. IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
         STATEMENT UNDER SUCH ACT, THESE SECURITIES MAY NOT BE OFFERED, SOLD,
         TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT FIRST OBTAINING AN
         OPINION OF COUNSEL, SATISFACTORY TO GLOBAL TELESYSTEMS GROUP, INC.,
         THAT SUCH DISPOSITION MAY BE MADE WITHOUT REGISTRATION OF THE
         SECURITIES UNDER SUCH ACT. IN ADDITION, THE SALE, TRANSFER,
         DISPOSITION OR ENCUMBRANCE OF THESE SECURITIES IS RESTRICTED BY A
         STOCK PURCHASE AGREEMENT DATED SEPTEMBER 6, 1995 AMONG GLOBAL
         TELESYSTEMS GROUP, INC., KOMPANIYA "INVEST-PROJECT", SWINTON LIMITED,
         GTS-VOX LIMITED AND MTU-INFORM, A COPY OF WHICH IS ON FILE AT THE
         OFFICE OF GLOBAL TELESYSTEMS GROUP, INC.

                 (b)      Limitation on Transfers of Exchange Shares. The
Seller agrees that, with respect to any GTS Certificate:

                 (i)      it will not, without the prior written consent of
         GTS, sell, assign, transfer or encumber the beneficial interest in any
         Exchange Shares, except pursuant to an effective registration
         statement under the Securities Act or pursuant to the Agreement, dated
         as of September 6, 1995, between the Seller, GTS-Vox and the other
         parties thereto (the "Seller Shareholders' Agreement"), which provides
         for the distribution of the Exchange Shares held by the Seller to the
         shareholders of the Seller; provided, that, subject to the provisions
         of clause 5.01(b)(iii)(B) below:

                          (A)     the Seller may sell up to 48% of the Exchange
                 Shares that it receives pursuant to each of subsections
                 1.02(d), (e) and (f), or pursuant to the GTS Note, at any time
                 after the date which is six months following the date
<PAGE>   17
                                       16

                 that the Seller receives such Exchange Shares pursuant to such
                 subsection; provided, however, that in no event may the Seller
                 sell any Exchange Shares prior to the Commencement Date;

                          (B)     the Seller may sell the remaining Exchange
                 Shares that it receives pursuant to each of subsections
                 1.02(d), (e) and (f), or pursuant to the GTS Note, at any time
                 after the date which is 12 months following the date that the
                 Seller receives such Exchange Shares pursuant to such
                 subsection; and

                          (C)     the Seller may sell any of the Exchange
                 Shares that it receives pursuant to subsection 1.02(g) at any
                 time after the date which is six months following the date
                 that the Seller receives such Exchange Shares.

                 (ii)     in connection with any distribution pursuant to the
Seller Shareholders' Agreement, each of the Persons to whom such distribution
is made (a "Permitted Transferee") shall (A) execute and deliver to GTS an
agreement, in form and substance reasonably satisfactory to GTS, whereby such
Permitted Transferee confirms that, with respect to the Exchange Shares that
are the subject of such distribution, it shall be deemed to be the "Seller" for
purposes of this Section 5.01 and agrees to be bound by all the terms of this
Section 5.01, and (B) deliver to GTS an opinion of counsel, satisfactory in
form and substance to GTS, to the effect that the agreement referred to above
that is delivered by such Permitted Transferee is a legal, valid and binding
obligation of such Permitted Transferee enforceable against such Permitted
Transferee in accordance with its terms. Upon the execution and delivery by
such Permitted Transferee of the agreement referred to in clause (A) of the
preceding sentence and the delivery of the opinion of counsel referred to in
clause (B) of the preceding sentence, such Permitted Transferee shall be deemed
the "Seller" for purposes of this Section 5.01 and shall have the rights and be
subject to the obligations of the Seller under this Section 5.01, in each case
with respect to the Exchange Shares beneficially owned by such Permitted
Transferee.

                 (iii)    (A) it will not sell, assign, transfer or encumber
the beneficial interest in any Exchange Shares, except pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from the registration requirements of the Securities Act or pursuant
to the Seller Shareholders' Agreement, and (B) it will, in connection with any
such sale, assignment, transfer or encumbrance, other than pursuant to an
effective registration statement under the Securities Act or the Seller
Shareholders' Agreement, deliver to GTS a copy of an opinion of counsel,
satisfactory to GTS, that such sale, assignment, transfer or encumbrance may be
made without registration of the Exchange Shares pursuant to the Securities
Act.
<PAGE>   18
                                       17

                 (c)      Assistance with Sale of Shares. GTS agrees that it
         shall use its reasonable efforts to assist the Seller in identifying a
         purchaser for the Exchange Shares that the Seller is permitted to sell
         pursuant to clauses (A), (B) or (C) or subsection 5.01(b)(i) and that,
         if the Seller is unable to identify a purchaser for such shares,
         GTS will repurchase such shares at a purchase price equal to:

                          (i)     if shares of GTS Common Stock have been sold
                 to the public pursuant to a registration statement under the
                 United States Securities Act of 1933, as amended, the average
                 of the closing prices for the shares of GTS Common Stock on
                 the principal stock exchange on which such shares are listed
                 or traded on the last ten trading days preceding such
                 repurchase; and

                          (ii)    if no such public sale shall have occurred
                 prior to such repurchase, (A) the price received by GTS
                 for shares of GTS Common Stock in the most recent private
                 placement of such shares or, (B) if no such private placement
                 has occurred within the three months preceding such purchase,
                 the price determined by an independent financial institution
                 of international reputation to be agreed upon by GTS and the
                 Seller, and, in either case, otherwise on terms and subject to
                 conditions to be agreed upon by GTS and the Seller.

                 SECTION 5.02.     Commencement Date; Delivery of Ports by
MTU-Inform. (a) MTU-Inform agrees that if the Commencement Date is not on or
prior to March 31, 1996, MTU-Inform shall (i) irrevocably assign to GTS, or a
company nominated by GTS, all right, title and interest of MTU-Inform to and in
500 Ports which it owns for each full month, and that number of Ports equal to
500 multiplied by the portion of any part of a month, by which the Commencement
Date follows March 31, 1996, free of one-time payment for such Ports and (ii)
will indemnify and hold harmless GTS, GTS-Vox and AOZT from and against any and
all payments which may become due to any person with respect to such Ports.

                 (b)      Pursuant to Addendum No. 1, dated August 11, 1995,
between GTS, the Parent, AOZT and MTU-Inform, to the Frame Transaction
Agreement, dated June 23, 1995, between GTS, the Parent, AOZT and MTU-Inform,
MTU-Inform shall assign 5,000 Ports to AOZT, which Ports shall be available for
the immediate commencement of service, free of charge to AOZT, on or prior to
October 1, 1995. As promptly as practicable following the Commencement Date,
GTS-Vox shall cause AOZT to assign 5,000 Ports to MTU-Inform, free of charge to
MTU-Inform, which Ports shall not necessarily be the same Ports as previously
assigned by MTU-Inform to AOZT pursuant to this Section 5.02(b).

                 SECTION 5.03.    Audit of AOZT. GTS and the Seller agree that
they will cause AOZT to retain Ernst & Young to perform an audit of AOZT's
financial statements as soon as practicable following the Closing Date.
<PAGE>   19
                                       18

                 SECTION 5.04.    Cooperation with Respect to Implementation of
Agreement No. 1587. The Seller shall cooperate with GTS in causing AOZT to
construct and sell 100,000 Ports and shall negotiate in good faith with GTS
with respect to the construction and sales of the remaining 50,000 Ports.

                 SECTION 5.05.    Membership of AOZT in GTS Group. The Seller,
GTS-Vox, MTU-Inform and GTS agree that following the date of this Agreement,
AOZT shall be a member of the GTS group of companies (the "GTS Group") in Russia
and will follow the standard procedures of the GTS Group, including, but not
limited to, procedures with respect to employee compensation and the
preparation of financial and tax accounts.

                 SECTION 5.06.    Confidentiality. Each of the Swinton Parties,
the Parent and MTU-Inform agrees that it will not, and will cause each of its
affiliates not to, at any time, reveal to any Person or use in any way
detrimental to GTS or its subsidiaries any nonpublic, confidential or
proprietary information relating to the business or affairs of GTS, GTS-Vox or
AOZT that is acquired or otherwise received by any Person in connection with
the transactions contemplated hereby, other than such information that (i) is
generally available to the public (other than as a result of a disclosure by
such Person), (ii) is available to such Person on a nonconfidential basis from
a source that is not prohibited from disclosing such information to such Person
or (iii) after notice and an opportunity to contest, such Person is required to
disclose under any applicable Law or under subpoena or other process of Law.

                 SECTION 5.07.    Further Action. Each of the parties hereto
shall use all reasonable efforts to take, or cause to be taken, all appropriate
action, do or cause to be done all things necessary, proper or advisable under
applicable Law and execute and deliver such documents and other papers as may
be required to carry out the provisions of this Agreement and consummate and
make effective the transactions contemplated by this Agreement.

                                   ARTICLE VI

                                 MISCELLANEOUS

                 SECTION 6.01.    Survival of Representations and Warranties.
The representations and warranties contained in this Agreement shall survive
the Closing until the fifth anniversary of the Closing Date. Neither the period
of survival nor the liability of any party hereto with respect to their
representations and warranties shall be reduced by any investigation made at
any time by or on behalf of any other party. If written notice of a claim has
been given prior to the expiration of the applicable representations and
warranties, then the relevant representations and warranties shall survive as
to such claim until such claim has been finally resolved.
<PAGE>   20
                                       19

                 SECTION 6.02.    Expenses; Brokers. Except to the extent
expressly provided herein, all costs and expenses, including, but not limited
to, attorneys' and accountants' fees, incurred by GTS in connection with the
transactions contemplated hereby shall be shared equally by GTS, on the one
hand, and the Seller, on the other hand, and all such costs and expenses
incurred by any other party hereto shall be paid by the party incurring such
costs and expenses. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by or on
behalf of GTS, the Swinton Parties, the Parent, MTU-Inform or AOZT.

                 SECTION 6.03.    Certain Defined Terms. As used in this
Agreement, the following terms have the following meanings:

                          "Encumbrance" means any security interest, pledge,
         mortgage, lien (including, without limitation, environmental and tax
         liens), charge, encumbrance, adverse claim, preferential arrangement
         or restriction of any kind, including, without limitation, any
         restriction on the use, voting, transfer, receipt of income or other
         exercise of any attributes of ownership.

                          "Law" means any federal, state, local or foreign
         statute, law, ordinance, regulation, rule, code, order, other
         requirement or rule of law.

                          "Liabilities" means any and all debts, liabilities
         and obligations, whether accrued or fixed, absolute or contingent,
         matured or unmatured or determined or determinable, including, without
         limitation, those arising under any Law or any order, writ, judgment,
         injunction, decree, stipulation, determination or award entered by or
         with any governmental authority and those arising under any contract,
         agreement, arrangement, commitment or undertaking.

                          "Person" means any individual, partnership, firm,
         corporation, association, trust, unincorporated organization, limited
         liability partnership, close joint stock company, private limited
         company or other entity, as well as any syndicate or group that would
         be deemed to be a person under Section 13(d)(3) of the United States
         Securities Exchange Act of 1934, as amended.

                 SECTION 6.04.    Notices, Etc. All notices and other
communications required or permitted hereunder shall be in writing and shall be
delivered personally if a receipt is obtained, by facsimile (followed within 24
hours by a hard copy sent by overnight delivery service as hereinafter
provided) or by overnight delivery service with a service that customarily
obtains a receipt for delivery, to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 6.04):
<PAGE>   21

                                       20

                 If to GTS:

                          Global TeleSystems Group, Inc.
                          1751 Pinnacle Drive
                          North Tower, 12th Floor
                          McLean, Virginia 22102
                          Facsimile No.: (703) 918-0338
                          Attention: General Counsel

                 If to the Parent:

                          Kompaniya "Invest-Project"
                          52 Stolyarny Perevlok
                          Moscow, Russia 123022
                          Facsimile No.: 7-501-258-7870
                          Attention: Michael Aizman

                 If to the Seller:

                          Swinton Limited
                          Lowe House
                          55 Townsend Street
                          Cheltenham
                          Gloucester, England GL51 9HA
                          Facsimile No.: 44-1242-262219
                          Attention: Mark Bruce-Smith

                 SECTION 6.05. Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.

                 SECTION 6.06. Entire Agreement. This Agreement, the Indemnity
Agreement, the Option Agreement and the Shareholders' Agreement constitute the
entire agreement of the parties hereto with respect to the subject matter
hereof and thereof and
<PAGE>   22
                                       21

supersedes all prior agreements and undertakings, both written and oral,
between GTS and any of the Swinton Parties with respect to the subject matter
hereof.

                 SECTION 6.07. Assignment. This Agreement may not be assigned
by operation of law or otherwise without the express written consent of each of
the parties hereto (which consent may be granted or withheld in the sole
discretion of such parties); provided, however, that GTS may assign this
Agreement to any affiliate of GTS without the consent of any of the other
parties hereto.

                 SECTION 6.08. No Third-Party Beneficiaries. Except for the
provisions of Exhibit 1.04(c) relating to Indemnified Parties, this Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns and nothing herein, express or implied, is intended to
or shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.

                 SECTION 6.09. Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, all of
the parties hereto.

                 SECTION 6.10. Governing Law and Governing Language. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York applicable to contracts executed in and to be performed
entirely within that state. This Agreement shall be executed in the English and
Russian languages; in case of any difference in interpretation between the
English and Russian versions of this Agreement, both versions shall govern.

                 SECTION 6.11. Arbitration. Where any dispute or disagreement
among the parties hereto, arising out of or in connection with this Agreement,
cannot be settled through negotiations within thirty days after one of the
parties hereto has notified the other parties in writing about the existence of
a respective dispute, the parties shall have the right to initiate an
arbitration procedure for the purpose of settling the dispute or disputes. Such
a procedure shall be conducted at the Arbitration Institute of the Stockholm
Chamber of Commerce (Stockholm, Sweden) under the regulations of the
Arbitration Institute, by three arbitrators appointed in keeping with such
regulations. The arbitration examination shall be conducted in English.
Resolutions and the decision adopted during the arbitration procedure shall be
final and binding for both parties and may be enforced by a law court of a
respective jurisdiction, with the expenses incurred in connection with such an
arbitration procedure to be paid by the losing party.
<PAGE>   23
                                       22

                 SECTION 6.12. Termination. GTS may terminate this Agreement at
any time following the material breach of this Agreement by any of the Parent,
the Seller or MTU-Inform. Any of the Parent, the Seller or MTU-Inform may
terminate this Agreement at any time following the material breach of this
Agreement by GTS.

                 SECTION 6.13. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE>   24
                                       23

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be 
duly executed by their respective authorized officers as of the day and year 
first above written.

                                             GLOBAL TELESYSTEMS GROUP, INC.


                                             By /s/ HENRY RADZIKOWSKI
                                               ---------------------------------
                                               Name: Henry Radzikowski
                                               Title: Senior Vice President
[SEAL]
                                             
                                             KOMPANIYA "INVEST-PROJECT"

                                             
                                             By /s/ VICTOR L. VOLCHEK
                                               ---------------------------------
                                               Name: Victor L. Volchek
                                               Title: General Director
[SEAL]

                                             SWINTON LIMITED


                                             By /s/ A. CHAMBAZOV
                                               ---------------------------------
                                               Name: A. Chambazov
                                               Title: Attorney-in-Fact
[SEAL]
                                             
                                             GTS-VOX LIMITED

                                             
                                             By [ILLEGIBLE]
                                               ---------------------------------
                                               Name: London Auditing and
                                                     Consulting Ltd.
                                               Title: Director
[SEAL]

                                             MTU-INFORM


                                             By /s/ A. SANDOMIRSKY
                                               ---------------------------------
                                               Name: A. Sandomirsky
                                               Title: First Deputy of General
                                                      Director
<PAGE>   25
                             INVEST-PROJECT AND GTS
                                CO-79/69 PROJECT
                                 BUSINESS PLAN
                                  MAY 24, 1995


1.   MARKET SIZE

     The principal competitors in Moscow have been Comstar, Telmos, and
Combelga. Of these only Comstar, Sovintel, and Telmos have local lines. During
the last three years, the following port takeup has been experienced:

     1993      10,000
     1994      20,000
     1995      40,000

     At the present expansion rate of the business sector, through in-process
real-estate developments, annual numbering plan requirements approach 40-50,000
numbers for the ensuing five year period.

2.   MOSCOW EXCHANGE PORT AVAILABILITY (DID'S)

     There are a series of projects that have been underway in Moscow for the
past year:

     o    Comstar has 10,000 numbers that should have been available but are not
          yet operational due to technical difficulties.

     o    Telmos and AT&T are putting 400,000 numbers into operation as part of
          "The Golden Bullet" project. The first numbers are expected to be
          available starting in Q4 1996. Of these, 320,000 numbers will be used
          by MGTS to replace existing numbers. An additional capacity of only
          80,000 numbers will be available for sale by Telmos.

     o    Combelga was granted the right to construct a 100,000 numbers zone
          according to the Telmos formula. Thus 20,000 numbers will be available
          for sale by Combelga. Project start has been scheduled only after
          completion of first three phases of Golden Bullet Program. The first
          numbers are expected to be operational in Q3 of 1997.

     o    ASVT (Iskra) together with Ericson was granted the right to construct
          a "100,000" zone by the previous MGTS director. It has been
          rescinded by the present director.

The following table summarizes the estimated requirements and port take-up
during the next five year period:

<TABLE>
<CAPTION>
          NEW OFFICE       NO OF DID'S/        OTHER REQMTS.                       AVAILABLE FROM
YEAR     SPACE (SQ.M.)       100 SQ.M.        (CELLULAR, ETC.)     TOTAL DID'S      MGTS/PROJECTS
- -------------------------------------------------------------------------------------------------
<S>           <C>               <C>                <C>                <C>               <C> 
1993           30                4                    --               1,200            10,000
1994          170                8                  5,000             18,600            20,000
1995          180               10                 20,000             38,000            30,000
1996          240               20                 30,000             54,000            50,000
1997          300               10                 30,000             60,000            50,000
1998          300               10                 30,000             60,000            50,000
1999          300               10                 30,000             60,000            50,000
</TABLE>


GTS/Invest-Project "79-Exchange"\24/5/95                                     2 

                                     
<PAGE>   26
3.   GENERAL PROJECT DESCRIPTION

     The "79/69 Project" consists of the development and implementation of a
"100,000" zone, by the "Invest-Project," a Closed Joint Stock Company licensed
by MGTS and the Russian Ministry of Communications, within the numbering plan of
Moscow, interconnection thereof to the Sovintel Gateway, the existing MGTS
network, and the buildout of a trunking and distribution network to the customer
base.

     The "79" index is part of the "7 million" zone out of which 400,000 numbers
will be built by ATT and MGTS for the GOLDEN BULLET PROJECT. Current schedule
calls for implementation of the first phase of the project in the fourth
quarter of 1996.

     The objective of the project from GTS perspective is the generation of
incremental international and intercity revenue for Sovintel and RTS and a new
source of revenue through the sales and rental of local lines.

     MGTS has agreed to put the necessary indexes (10 or 20,000 numbers) from
an existing "100,000" zone at our disposition to bridge the gap between the
"258" and the "79/69 Project." Specifically, this implies that this will be the
only organization able to offer new digital switching numbering capacity in the
96 timeframe.

     The Invest-Project company will be expanded, through the sale of a 50%
ownership of the company to GTS. This joint-venture will conclude contractual
arrangement with Sovintel and RTS concerning access to networks.

4.   BUSINESS STRUCTURE

     The following diagram depicts the business structure of the new venture. In
brief, the present Invest-Project shareholders would sell 5% of their shares to
MTU-Inform (in order to maintain a Russian partner). The remaining 95% would be
sold to an offshore company with 2 shareholders. GTS with 52.6312% of the
shares and an offshore company consisting of the present Invest-Project
shareholders with 47.368% of the shares. Thus, GTS would have 50% of the shares
in the Russian legal entity, the present "79/69 Project" shareholders 45% and
MTU-Inform 5%.

                                    [CHART]

GTS/Invest-Project "79-Exchange"\24/5/95                                   3
<PAGE>   27
        Fifty percent of the Invest-Project company shares will be sold by the
present shareholders for the price of 50% of the cumulative cash flow,
discounted with a 40% discount factor assuming that the firm has a terminal
value equal to 5 times the cash flow of the seventh year.

        Taking the following P&L assumptions into account this cumulative
discounted cash flow amounts to $11.6 million. Thus, 50% of the Invest-Project
shares would be valued at $5.8 million.

5.   STRUCTURE OF THE TRANSACTION

     The purchase of the Invest-Project shares is a stock transaction, whereby
GTS provides stock to the Invest-Project parent company, in exchange for the 50%
ownership. The provision of stock is based on the following terms:

     1.  Current GTS stock price based on current company evaluation by
         Morgan-Stanley, at $18.75 per share.

     2.  Thus, GTS will provide 293,000 shares, over a pre-agreed period of time
         and stock growth rate.

     3.  GTS stock price is assumed to grow at 20% per annum.

     4.  12.5% of the shares will be paid at the conclusion of the transaction.

     5.  12.5% of the shares will be paid upon putting the first numbers into 
         operation.

     6.  25% of the shares will be paid after the first year of operation.

     7.  25% of the shares will be paid after the second year of operation.
     
     8.  25% will be paid after the third year of operation.

     9.  The quantity of shares will be adjusted linearly based on the actual 
         cash flow at the end of the period in question. Cash flow greater than 
         the model, will increase the quantity of shares, and lower cash flow 
         will reduce the quantity.

     10. The quantity of shares will be adjusted linearly based on the share 
         price growth during the period. Greater growth will reduce quantity of 
         shares, and slower growth will increase quantity.

6.   P&L ASSUMPTIONS

      1. 10,000 numbers per year are sold to customers for a price of $500 
         decreasing by 10%/per year starting from 1996 onwards.

      2. 5,000 numbers per year are sold back to MGTS from 1997 onwards for a 
         fixed price of $300 per number (as agreed by MGTS).

      3. Monthly revenue per port sold to customers is $20 decreasing at 
         10%/year.

      4. Average usage per port amounts to 10,000 minutes per year.
 
          o 80% of traffic is local

          o 15% of traffic is intercity

          o 5% of traffic is international
     
      5. Average revenue per minute for international traffic is $1.85 
         decreasing at 10%/year.

      6. Average price per minute for intercity traffic is $0.45 decreasing at 
         10%/year.

      7. Average revenue per minute for local traffic is $0.01 per minute.

      8. Average international traffic settlement is $0.90 per minute decreasing
         at 5%/year.

      9. Average intercity traffic settlement is $0.45 per minute decreasing at 
         5%/year.

     10. No settlement is assumed for local traffic.

     11. We assume that we will sell half of the PABX's needed to distribute 
         70,000 numbers (140x500 numbers) with a margin of 25%.

     12. Compensation of staff, rent of facilities, advertising, telephone, T&E,
         insurance and contingency are assumed to be similar to those of 
         Sovintel and are either a fixed amount or a percentage of total revenue
         and costs.

     13. International and intercity settlements are based on current average
         rates as charged by Rostelecom to third parties assuming that Sovintel
         and RTS will charge the same rates to the "79/69 Project". 

     14. No investment in trunking to connect with the MGTS network is
         required. However a one time settlement of $300 and a monthly
         settlement of $31.20 per number to 


GTS/Invest-Project "79 - Exchange" \24/5/95                                    4
<PAGE>   28
          compensate MGTS for the construction and maintenance of the trunking
          capacity is required.

6.   CAPITAL INVESTMENT

     1.   Switch is assumed to cost $5 million, as per quotations from Alcatel
          and ATT. This investment would be made in 1997. The first 10,000
          numbers are provided via the existing DMS-100 from Sovintel. The
          "79/69 Company" pays a lease for this facility to Sovintel which is 
          included in "fixed expenses other/contingency".
     2.   The 70,000 numbers are assumed to be distributed via 140 PABX's half
          of which will be sold. Average cost per PABX amounts to $90k
     3.   It is assumed that an average of 5 km of fiber-optic will have to
          be constructed per PABX (sold plus own investment) at an average cost
          of $9k per km including transmission equipment).

5.   FINANCING

     1.   A loan with a maximum outstanding amount of 2.2 million dollars is
          required.
     2.   Loan repayment as per schedule. Interest of 12% is assumed.
     3.   Vendor financing both from Alcatel and ATT can be obtained to cover
          the investment for the switch of 5 million.


GTS/Invest-Project "79-Exchange"\24/5/95                                   5
<PAGE>   29
Notes/Assumptions of "79" Business Plan

A.   Capital Investment 

     1.   Investment in the Fiber Optic Distribution Network and in PABXs 
          assumed at $900k each per year (total of $1,800 per year). In the
          second year a Nokia Switch for $5 million is installed for a capacity
          of 100,000 ports. 70,000 of these ports are to be sold by the project
          and will generate traffic revenue. The remaining 30,000 ports are to
          be sold to the Moscow City Telephone Network (MGTS).

B.   Revenues

     1.   Installation

          a)   Ports are sold to customers at $500 in year 1. The price per port
               decreases by 10% each year thereafter.

          b)   Ports sold to MGTS are at a constant rate of $300 per port over
               the life of the project.

     2.   Traffic

          a)   Each port was assumed to generate 10,000 minutes per port per
               year.

          b)   Of the minutes generated, the following breakdown was assumed:
               5% International, 15% Intercity, 80% Local.

               1)   International minutes are tariffed at $1.85 per minute in
                    year 1 decreasing by 10% each year thereafter.

               2)   Intercity minutes are tariffed at $0.45 per minute in year 1
                    decreasing by 10% each year thereafter.

               3)   Local minutes are tariffed at $0.01 per minute in each year.
          
          c)   Incoming traffic revenue is earned at the rate of 10 cents per
               minute. Volume of minutes is assumed to be equivalent to the
               outgoing international minutes.

     3.   Recurring Charges

          a)   A monthly charge of $20 per port was assumed on the average
               number of ports outstanding for each time period. The charge per
               port was assumed to decrease by 10% each year after the first
               year.

     4.   Sale of Equipment

          a)   It was assumed that there would be $900K of equipment sales per
               year.

     5.   Bad Debt

          a)   It was assumed that there would be a 2% bad debt rate on ports
               sales other than to MGTS, and on all traffic revenues. No bad
               debt was assumed on incoming call revenue nor on equipment sales.

C.   Cost Of Revenue

     1.   Installation

          a)   A connection fee of $300 is paid to MGTS for each port sold and
               connected. It was assumed that this expense would not decrease
               over time.

     2.   Traffic

          a)   International settlement is assumed to start at $0.90 per minute
               in year 1 decreasing by 5% each year thereafter.

          b)   Intercity settlement is assumed to start at $0.36 per minute in
               year 1 and remain constant at a level of 80% of intercity
               revenues per minute throughout the life of the project.

     3.   Recurring Charges



        
 
<PAGE>   30

          a) It was assumed that 1 trunk line, at a rate of $41.20 per month,
             would be required for each 6 ports in operation. The average number
             of ports in service for the period was used in calculating the
             cost. It was assumed that the $41.20 cost per trunk line would
             not decrease over time.

     4.   Sale of Equipment

          a) It was assumed that equipment was sold at a 25% markup.

     5.   Other Costs

          a) Technical staff cost was assumed to start at $250K in the first
             quarter and increase by 10% in the next three quarters as
             operations ramp up and the project becomes fully staffed. In
             the subsequent years the costs were assumed to increase 10%
             each year.

          b) Technical facilities were assumed to be $200K per year.

          c) Depreciation was calculated on the basis of a 10 year useful life
             on a straight line basis.

          d) Equipment Maintenance was assumed to be $200K per year.

          e) A contingency was calculated on the basis of 15% of
             Staff+Facilities+Depreciation costs.

D.   Sales, General & Administrative Expenses

     1.   Sales, Finance, and Administrative staff costs were assumed to start 
          at $250K in the first quarter and increase by 10% in the next three
          quarters as operations ramp up and the project becomes fully staffed. 
          In the subsequent years the costs were assumed to increase 10% each
          year.

     2.   Administrative facilities were assumed to be $400K per year.

     3.   Office Telephone costs were assumed to be $25K/year.

     4.   Advertising was budgeted for at 2% of overall revenue after bad debt.

     5.   Professional fees were assumed to be $120K in the first year and
          $125k/year thereafter.

     6.   Travel & Entertainment was assumed to be $144k in the first year and
          $150k/year thereafter.

     7.   Insurance and Other were assumed to start at $100K in the first 
          quarter and increase by 10% in the next three quarters. In the 
          subsequent years the costs were assumed to increase 10% each year.

     8.   A contingency was calculated on the basis of 10% of all SG&A expenses.

E.   Other Expenses

     1.   Organizational costs of $240K were assumed to be written off in the
          first year.

     2.   Interest Expense was calculated using a 12% interest rate on loans
          outstanding that were necessary to cover shortfalls in cash flow.

     3.   The full Russian statutory rate of 38% was used in estimating income
          tax expense.
<PAGE>   31
<TABLE>
<CAPTION>

"79 Project" ---- Income Statement
REVENUES                                                                                                                         
- -------------------------------
<S>                                                                    <C>        <C>        <C>      <C>        <C>
                                                                        1Q         2Q         3Q        4Q       TOTAL
                                               -D-R-A-F-T-             1996       1996       1996      1996      1996
       Port Revenue                                                     1,080      1,240      1,940     2,108     6,440
       Port Revenue MGTS Sales                 $       300                  0          0          0         0         0
       International Traffic                                              231        694      1,272     1,966     4,163
       Intercity Traffic                                                  169        506        928     1,434     3,038
       Local Traffic                                                       20         60        110       170       360
       Incoming Traffic                        $      0.10                 13         38         69       106       225
       Sale of PBXs                                                       180        180        270       270       900
       Bad Debt                                        2.0%               (30)       (50)       (85)     (115)     (280)
                                                                       ......     ......      .....    ......     .....
       TOTAL REVENUE                                                    1,663      2,668      4,504     6,011    14,845

COST OF REVENUE
- -------------------------------
VARIABLE EXPENSES
       Port Payment (MGTS)                             300                600        600        900       900     3,000
       International Settlements                                          113        338        619       956     2,025
       Intercity Settlements                                              135        405        743     1,148     2,430
       Local Settlements                                                    0          0          0         0         0
       MGTS Trunk Line Payments                $     41.20                 21         62        113       175       371
       Sale of PBXs                                   75.0%               135        135        203       203       675
                                                                       ......     ......      .....    ......     .....

       TOTAL VARIABLE FXP                                               1,003      1,539      2,577     3,381     8,501

FIXED EXPENSES
       Comp & Benefit Tech. Staff                    10.0%                250        275        303       333     1,160
       Facilities                                                          50         50         50        50       200
       Depreciation                                                        12         24         42        60       138
       Int'l Channels                                                       0          0          0         0         0
       Maintenance                                                         50         50         50        50       200
       Other/Contingency (% Cost)                    15.0%                 47         52         59        66       225
                                                                       ......     ......      .....    ......     .....

       TOTAL FIXED EXP                                                    409        451        504       559     1,923
                                                                       ......     ......      .....    ......     .....

TOTAL COST OF REVENUE                                                   1,412      1,991      3,081     3,941    10,424

GROSS MARGIN                                                              251        677      1,423     2,071     4,421
GROSS MARGIN %                                                             15%        25%        32%       34%       30%

SALES, GENERAL & ADMINISTRATIVE
- -------------------------------

       Comp & Benefit/Admin                          10.0%                250        275        303       333    1,160
       Facilities                                                         100        100        100       100      400
       Telephone                                                            6          6          6         6       24
       Advertising (% of Rev)                         2.0%                 33         53         90       120      297
       Professional Fees                                                   30         30         30        30      120
       Travel & Entertainment                                              36         36         36        36      144
       Insurance & Other                             10.0%                100        110        121       133      464
       Contingency (% of Cost)                       10.0%                 56         61         69        76      261
                                                                       ......     ......      .....    ......    .....

TOTAL SG&A                                                                611        671        754       834    2,870
SG&A AS % OF REVENUE                                                       37%        25%        17%       14%      19%

OPERATING MARGIN                                                        (360)          5        669     1,237    1,551
OPERATING MARGIN %                                                        -22%         0%        15%       21%      10%

OTHER EXPENSE/(INCOME)
- -------------------------------
       Amort of Org Costs                                                  60         60         60        60      240
       Interest Expense                              12.0%                 15         33         51        54      153
                                                                       ......     ......      .....    ......    .....
</TABLE>



<TABLE>
<CAPTION>


"79 Project" ---- Income Statement
                                                                                                        TOTAL                      
                                    1997      1998       1999        2000        2001       2002       1995-2002
REVENUES
- -------------------------------
<S>                                 <C>       <C>        <C>         <C>         <C>        <C>        <C>
       Port Revenue                  7,740     8,850      9,530      10,310      10,880      11,240       64,990
       Port Tevenue MGTS Salaes      1,500     1,500      1,500       1,500       1,500       1,500        9,000
       International Traffic        12,525    18,750     23,625      27,450      30,250      32,175      148,938
       Intercity Traffic             9,225    13,875     17,325      20,250      22,275      23,400      109,388
       Local Traffic                 1,200     2,000      2,800       3,600       4,400       5,200       19,560
       Incoming Traffic                750     1,250      1,750       2,250       2,750       3,250       12,225
       Sale of PBXs                    900       900        900         900         900         900        6,300
       Bad Debt                       (614)     (870)   (1,066)     (1,232)     (1,356)     (1,440)      (6,858)
                                    ......    ......     ......     .......     .......     .......     ........

       TOTAL REVENUE                33,226    46,255     56,364      65,028      71,599      76,225      363,542

COST OF REVENUE
- -------------------------------
VARIABLE EXPENSES
       Port Payment (MGTS)           3,000     3,000      3,000       3,000       3,000       3,000       21,000
       International Settlements     6,450    10,250     13,650      16,650      19,250      21,775       90,050
       Intercity Settlements         7,425    11,250     13,650      16,200      15,150      18,525       87,630
       Local Settlements                 0         0          0           0           0           0            0
       MGTS Trunk Line Payments      1,236     2,060      2,884       3,708       4,532       5,356       20,147
       Sale of PBXs                    675       675        675         675         675         675        4,725
                                    ......    ......     ......     .......     .......     .......     ........
       TOTAL VARIABLE FXP           18,756    27,235     33,859      40,233      45,607      49,331      223,552

FIXED EXPENSES
       Comp & Benefit/Admin          1,276     1,404      1,544       1,699       1,869       2,055       11,007
       Facilities                      200       200        200         200         200         200        1,400
       Depreciation                    868     1,040      1,220       1,400       1,580       4,760        7,998
       Int'l Channels                                                                                          0
       Maintenance                     200       200        200         200         200         200        1,400
       Other/Contingency (% Cost)      350       397        445         495         547         602        3,061
                                    ......    ......     ......     .......     .......     .......     ........

       TOTAL FIXED EXP               2,887     3,240      3,609       3,994       4,396       4,818       24,866
                                    ......    ......     ......     .......     .......     .......     ........

TOTAL COST OF REVENUE               21,673    30,475     37,468      44,227      50,003      54,149      248,418

GROSS MARGIN                        11,553    15,780     18,896      20,801      21,596      22,076      115,124
GROSS MARGIN %                          35%       34%        34%         32%         30%         29%          32%

SALES, GENERAL & ADMINISTRATIVE
- -------------------------------
       Comp & Benefit/Admin          1,276     1,404      1,544       1,699       1,869       2,055       11,007
       Facilities                      400       400        400         400         400         400        2,800
       Telephone                        25        25         25          25          25          25          174
       Advertising (% of Rev)          665       925      1,127       1,301       1,432         525        7,271
       Professional Fees               125       125        125         125         125         125          870
       Travel & Entertainment          150       150        150         150         150         150        1,044
       Insurance & Other               511       562        618         679         747         822        4,403
       Contingency (% of Cost)         315       359        399         438         475         510        2,757
                                    ......    ......     ......     .......     .......     .......     ........

TOTAL SG&A                           3,466     3,950      4,388       4,817       5,223       5,612       30,326
SG&A AS % OF REVENUE                    10%        9%         8%          7%          7%          7%           8%

OPERATING MARGIN                     8,087    11,830     14,508      15,985      16,373      16,464       84,798
OPERATING MARGIN %                      24%       26%        26%         25%         23%         22%          23%

OTHER EXPENSE/(INCOME)
- -------------------------------
       Amort of Org Costs                0         0          0           0           0           0          240
       Interest Expense                144       264          0           0           0           0          561
                                    ......    ......     ......     .......     .......     .......     ........
</TABLE>

<PAGE>   32

<TABLE>
<S>                                              <C>       <C>       <C>       <C>       <C>       <C>  
TOTAL OTHER EXPENSE/(INCOME)                                    75        93       111       114       393

NEBIT                                                        (435)      (88)       555     1,123     1,458

Corporate Income Tax                               38.0%     (165)      (33)       212       427       440

Net Income/(Loss)                                            (270)      (54)       346       696       718


STATISTICS                                                  1Q         2Q       3Q        4Q       TOTAL
                                                           1996      1996      1996      1996      1996 
LINE STATISTICS
       Number of Ports Sold                                  2,000     2,000     3,000     3,000    10,000
       Cumulative Ports                                      2,000     4,000     7,000    10,000    10,000
       Average Number of Ports                               1,000     3,000     5,500     8,500     8,500
       Mins/Port/year                            10,000      2,500     2,500     2,500     2,500    10,000
       Total Minutes (000s)                                  2,500     7,500    13,750    21,250    45,000
       Port sales to MGTS
PORTS
       Installation Revenue/port                   90.0%       500       500       500       500       500
       Monthly Revenue/port                        90.0%        20        20        20        20        20
       Port Revenue (000s)                                   1,080     1,240     1,940      2,180    6,440
       MGTS Port Connection Fee                     300        600       600       900       900     3,000
INTERNATIONAL
       Revenue per Minute Int'l                    90.0%    $ 1.85   $  1.85    $ 1.85    $ 1.85    $ 1.85
       Int'l Settl/Min.                            95.0%    $ 0.90   $  0.90    $ 0.90    $ 0.90    $ 0.90
       Pct. Int'l Usage                             5.0%       5.0%      5.0%      5.0%      5.0%      5.0%
       Int'l Minutes                                           125       375       688      1,063    2,250
       Int'l Revenue                                           231       694     1,272      1,966    4,163
       Int'l Settlement                                        113       338       619        956    2,025
       Int'l Settlement + Int'l Channel                        113       338       619        956    2,025
INTERCITY
       Pct. Intercity                              15.0%      15.0%     15.0%     15.0%     15.0%     15.0%
       Rev./Min via Rostelekom                     90.0%    $ 0.45   $  0.45    $ 0.45    $ 0.45    $ 0.45
       Settl/Min vis Rostelekom                    80.0%    $ 0.36   $  0.36    $ 0.36    $ 0.36    $ 0.36
       Rev./Min -- via Rusnet                      90.0%    $ 0.45   $  0.45    $ 0.45    $ 0.45    $ 0.45
       Settl/Min via Rusnet                        80.0%    $ 0.36   $  0.36    $ 0.36    $ 0.36    $ 0.36
       Pct. Mins. via Rusnet                                5.0%         7.%       9.0%     11.0%      8.0%
       Avg. Revenue/min                                     $ 0.45   $  0.45    $ 0.45    $ 0.45    $ 0.45
       Intercity Settl/Min.                                 $ 0.36   $  0.36    $ 0.36    $ 0.36    $ 0.36
       Intercity Minutes                                       375     1,125     2,063      3,188    6,750
       Intercity Revenue                                       169       506       928      1,434    3,038
       Intercity Settlement                                    135       405       743      1,148    2,430
LOCAL
       Pct. Local                                  80.0%      80.0%     80.0%     80.0%     80.0%     80.0%
       Local Minutes                                         2,000     6,000    11,000     17,000   36,000
       Revenue per Local Minute                   100.0%    $ 0.01   $  0.01    $ 0.01    $ 0.01    $ 0.01
       Local Revenue                                            20        60       110        170      360
       Settle per Local Minute                    100.0%    $ 0.00   $  0.00    $ 0.00    $ 0.00    $ 0.00
       Local Settlement                                          0         0         0          0        0

                                                             1Q        2Q         3Q        4Q      TOTAL
CASH FLOW                                    Investment     1996      1996       1996      1996     1996 
- ----------------------------------------     -------------------------------------------------------------
Beg Bal                                               0     140       122        152       100           0

Net Income                                                (270)      (54)        346       696         718
Add: Depr                                                    12        24         42        60         138

Cash From Operations                                      (258)      (30)        388       756         856

Capital Purchases                              
       DMS Upgrade              anything more?                                                           0
       Fiber Link To Sovintel   anything more?                                                           0
       Remote Subscriber Units  anything more?                                                           0

</TABLE>


<TABLE>


<S>                                       <C>        <C>        <C>        <C>        <C>        <C>      <C>    <C> 
TOTAL OTHER EXPENSE/(INCOME)                  144        264          0          0          0          0          801

NEBIT                                       7,943     11,566     14,508      5,985     16,373     16,464       83,997

Corporate Income Tax                        3,018      4,395      5,513      6,074      6,222      6,256       31,919

Net Income/(Loss)                           4,925      7,171      8,995      9,911     10,151     10,208       52,075


STATISTICS                                                                                                   TOTAL
                                          1997       1998       1999       2000       2001       2002     1995 - 2002
LINE STATISTICS
       Number of Ports Sold                10,000     10,000     10,000     10,000     10,000     10,000       70,000
       Cumulative Ports                    20,000     30,000     40,000     50,000     60,000     70,000       70,000
       Average Number of Ports             15,000     25,000     35,000     45,000     55,000     65,000       65,000
       Mins/Port/year                      10,000     10,000     10,000     10,000     10,000     10,000       70,000
       Total Minutes (000s)               150,000    250,000    350,000    450,000    550,000    650,000    2,445,000
       Port sales to MGTS                   5,000      5,000      5,000      5,000      5,000      5,000       30,000
PORTS
       Installation Revenue/port              450        405        365        329        296        266        2,611
       Monthly Revenue/port                    18         16         14         13         12         11           15
       Port Revenue (000s)                  7,740      8,850      9,530     10,310     10,880     11,240       64,990
       MGTS Port Connection Fee             3,000      3,000      3,000      3,000      3,000      3,000       21,000
INTERNATIONAL
       Revenue per Minute Int'l           $  1.67    $  1.50    $  1.35    $  1.22    $  1.10    $  0.99    $    1.38
       Int'l Settl/Min.                   $  0.86    $  0.82    $  0.78    $  0.74    $  0.70    $  0.67    $    0.73
       Pct. Int'l Usage                       5.0%       5.0%       5.0%       5.0%       5.0%       5.0%         5.0%
       Int'l Minutes                        7,500     12,500     17,500     22,500     27,500     32,500      122,250
       Int'l Revenue                       12,525     18,750     23,625     27,450     30,250     32,175      148,938
       Int'l Settlement                     6,450     10,250     13,650     16,650     19,250     21,775       90,050
       Int'l Settlement + Int'l Channel     6,450     10,250     13,650     16,650     19,250     21,775       90,050
INTERCITY
       Pct. Intercity                        15.0%      15.0%      15.0%      15.0%      15.0%      15.0%        15.0%
       Rev./Min via Rostelekom            $  0.41    $  0.37    $  0.33    $  0.30    $  0.27    $  0.24    $    0.34
       Settl/Min vis Rostelekom           $  0.33    $  0.30    $  0.26    $  0.24    $  0.22    $  0.19    $    0.27
       Rev./Min -- via Rusnet             $  0.41    $  0.37    $  0.33    $  0.30    $  0.27    $  0.24    $    0.34
       Settl/Min via Rusnet               $  0.33    $  0.30    $  0.26    $  0.24    $  0.22    $  0.19    $    0.27
       Pct. Mins. via Rusnet                 15.0%      15.0%      15.0%      15.0%      15.0%      15.0%        14.0%
       Avg. Revenue/min                   $  0.41    $  0.37    $  0.33    $  0.30    $  0.27    $  0.24    $    0.34
       Intercity Settl/Min.               $  0.33    $  0.30    $  0.26    $  0.24    $  0.22    $  0.19    $    0.27
       Intercity Minutes                   22,500     37,500     52,500     67,500     82,500     97,500      366,750
       Intercity Revenue                    9,225     13,875     17,325     20,250     22,275     23,400      109,388
       Intercity Settlement                 7,425     11,250     13,650     16,200     18,150     18,525       87,630
LOCAL
       Pct. Local                            80.0%      80.0%      80.0%      80.0%      80.0%      80.0%        80.0%
       Local Minutes                      120,000    200,000    280,000    360,000    440,000    520,000    1,956,000
       Revenue per Local Minute           $  0.01    $  0.01    $  0.01    $  0.01    $  0.01    $  0.01    $    0.01
       Local Revenue                        1,200      2,000      2,800      3,600      4,400      5,200       19,560
       Settle per Local Minute            $  0.00    $  0.00    $  0.00    $  0.00    $  0.00    $  0.00    $    0.00
       Local Settlement                         0          0          0          0          0          0            0

                                                                                                             TOTAL
CASH FLOW                                 1997       1998       1999       2000       2001       2002     1995 - 2002
 ..............................

Beg Bal                                       256         241     4,451     12,866     22,377     32,308

Net Income                                  4,925       7,171     8,995      9,911     10,151     10,208       52,078
Add: Depr                                     860       1,040     1,220      1,400      1,580      1,760        7,998

Cash From Operations                        5,785       8,211    10,215     11,311     11,731     11,968

Capital Purchases                             
       DMS Upgrade                            
       Fiber Link To Sovintel                 
       Remote Subscriber Units                
</TABLE>

<PAGE>   33

<TABLE>

<S>                                          <C>        <C>       <C>       <C>            <C>         <C>             <C>  
       Nokia Switch                                                                                        0           5,000
       Fiber Distrib. Network                180        180       270       270                          900             900
       PABXs                                 180        180       270       270                          900             900
       Duties and Taxes                 included                                                           0
       Installation                     included                                                           0
       Nokia Services                   included                                                           0
       Test Equipment                        ???                                                           0
Subtotal Capital                             360        360       540       540            0           1,800           6,800

Cash Funding
Capital                                      ???                                                           0
Loans                                        500        600       600       100                        1,800           1,000
Loan Repayment                                                                          (600)           (600)
Subtotal Funding                             500        600       600       100         (600)          1,200           1,000

Cash Flow for Period                         140        (18)       30       (52)         156             256             (15)
Ending Cash                                  140        122       152       100          256             256             241

Cash Flow w/o Financing                     (360)      (618)     (570)     (152)         756            (944)         (1,015)
IRR                                                                                                    -27.1%            ERR
                                     Year                                                                  1               2
                                       40%                                                                .4            1.96
Discounted Cash Flow                                                                                    (674)           (518)
Cumulative Discounted Cash Flow (NPV)                                                                   (674)         (1,192)

Cumulative Assets                            360        720     1,260     1,800        1,800           1,800           8,600
Loans Outstanding                            500      1,100     1,700     1,800        1,200           1,200           2,200
   (to cover cash shortfall)
</TABLE>


<TABLE>

<S>                                       <C>             <C>           <C>            <C>           <C>                 <C>   
       Nokia Switch                                                                                                       5,000
       Fiber Distrib. Network                900             900            900             900             900           6,300
       PABXs                                 900             900            900             900             900           6,300
       Duties and Taxes                                            
       Installation                                                
       Nokia Services                                              
       Test Equipment                                              
Subtotal Capital                           1,800           1,800          1,800           1,800           1,800          17,600

Cash Funding
Capital                                                            
Loans                                                              
Loan Repayment                            (2,200)
Subtotal Funding                          (2,200)              0              0               0               0

Cash Flow for Period                       4,211           8,415          9,511           9,931          10,168
Ending Cash                                4,451          12,866         22,377          32,308          42,476

Cash Flow w/o Financing                    6,411           8,415          9,511           9,931          10,168
IRR                                        112.3%          168.7%           ERR             ERR             ERR
                                    Year       3               4              5               6               7
                                      40%  2.744          3.8416        5.37824        7.529536      10.5413504
Discounted Cash Flow                       2,336           2,190          1,768           1,319           4,823 Terminal value
Cumulative Discounted Cash Flow (NPV)      1,144           3,334          5,103           5,422          11,244 of 5x cash flow

Cumulative Assets                         10,400          12,200          4,000          15,800          17,600
Loans Outstanding                              0               0              0               0               0
   (to cover cash shortfall)
</TABLE>


ASSUMPTIONS

<TABLE>
<CAPTION>
                                  Total          Per No.
 .............................................................................
<S>                           <C>                <C>
Switch, 100,000 numbers        5,000,000              71 Up Front
Trunks                                 0               0
Payment to connect numbers    21,000,000             300 As sold
PABXs                          6,300,000              90 As sold, ea 500 Nos = 1 PABX @ 90,000. NOTE: Half to be sold?
Fiber Optic*                   6,300,000              90 As sold, ea PABX = 45,000
                              ..........         .......

Total Investment              38,600,000             551
Numbers for use                   70,000
                              ..........
Investment per number                551
                                                     

* FO=500 Nos per PBX=100 PBXs * 5km/PBX @ $9,000/km
Sale Price per No.                   500             500
Sales per year of Numbers         10,000

=========================

Revenue Stats                           % Min      Minutes         Price                           % Rev

Intercity                               76.4%      621,000          $0.46      285,660               42.2%
International                           23.6%      192,000          $2.04      391,680               57.8%
                                                   .......                     .......

                                                   813,000                     677,340
                                                                                11,000 ports
                                                                               .......
                                                                                    62 Rev/port/month

</TABLE>

<PAGE>   34
Exhibit 1.02(b)
to the Stock Purchase Agreement
                                    GTS NOTE

U.S.$693,380                                             Date: September 6, 1995

                 FOR VALUE RECEIVED, the undersigned Global TeleSystems Group,
Inc., a Delaware corporation ("GTS"), HEREBY PROMISES TO PAY to the order of
Swinton Limited, an international business company organized under the laws of
the Commonwealth of the Bahamas (the "Seller"), on or before March 31, 1996, at
the Seller's option, either (i) the principal sum of U.S.$693,380 or (ii) (x)
if the corporate and shareholder approvals referred to in Section 1.02(c) of
the Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of
September 1, 1995, among GTS, the Seller, Kompaniya "Invest-Project", a limited
liability partnership organized under the laws of the Russian Federation,
GTS-Vox Limited, a private limited company organized pursuant to the Companies
Act 1985 of England and Wales, and MTU-Inform, a partnership organized under
the laws of the Russian Federation ("MTU-Inform"), have been obtained by such
date, a certificate (a "GTS Certificate") issued in the name of the Seller,
with all required stock transfer tax stamps affixed and bearing such legends as
are required by Section 5.01 of the Stock Purchase Agreement, evidencing 37,480
shares of common stock, par value $0.0001 per share, of GTS ("GTS Common
Stock") or (y) if such corporate and shareholder approvals have not been
obtained by the payment request date, at any time from the date hereof until
three years following the date of issuance of this Note, at the written
request of the Seller, an amount in U.S. dollars equivalent to the cash value
of such GTS Certificate, where such cash value shall be determined as follows:

                 (A)      if shares of GTS Common Stock have been sold to the
         public pursuant to a registration statement under the United States
         Securities Act of 1933, as amended, the average of the closing prices
         for the shares of GTS Common Stock on the principal stock exchange on
         which such shares are listed or traded on the last ten trading days
         preceding such payment request date; and

                 (B)      if no such public sale shall have occurred prior to
         such payment request date, the price received by GTS for shares of GTS
         Common Stock in the most recent private placement of such shares or,
         if no such private placement has occurred within the three months
         preceding such payment request date, the price determined by an
<PAGE>   35
                                       2

         independent financial institution of international reputation to be
         agreed upon by GTS and the Seller, and, in either case, otherwise on
         terms and subject to conditions to be agreed upon by GTS and the
         Seller;

provided, that (a) such amount payable in U.S. dollars shall be increased by
five percent if GTS pays any dividends on GTS Common Stock from the date hereof
until the payment request date; and (b) GTS shall make the payment to the
Seller no later than ten days following such payment request date;

provided, further, that in case of either (i) or (ii) above, Invest-Project, a
closed joint stock company organized under the laws of the Russian Federation
("AOZT") has available 20,000 telephone numbers, in addition to the 5,000
telephone numbers provided by MTU-Inform to AOZT in accordance with Section
5.02(b) of the Stock Purchase Agreement, for commencement of service by the
payment request date, which in no event shall be later than March 31, 1996, in
accordance with the terms and conditions of the Stock Purchase Agreement and an
agreement between AOZT and Moscow City Telephone Network, dated May 29, 1995,
as amended by Supplement 1 No. 1657 to Agreement No. 1587 dated June 23, 1995
("Agreement No. 1587"), pursuant to which AOZT is authorized to receive,
construct and sell 150,000 telephone numbers, using the 69 zone and portions of
the 79 and 71 zones and the Seller has provided written notice to GTS of such
availability, as required by Section 1.02(d) of the Stock Purchase Agreement.

                 No interest shall be payable on this Note. Subject to the
terms and conditions contained herein, the principal amount is payable in
lawful money of the United States of America to the Seller, to such bank
account as shall be designated by the Seller no less than five business days
prior to the requested payment date. This Note is the GTS Note referred to in
Section 1.02(b) of the Stock Purchase Agreement and shall be governed by the
laws of the State of New York applicable to contracts executed in and to be
performed entirely within that state.

                 This Note may not be assigned by operation of law or otherwise
without the express written consent of each of the parties hereto (which
consent may be granted or withhold in the sole discretion of such parties);
provided, however, that GTS may assign this Note to any affiliate of GTS
without the consent of any of the parties hereto.

                                            GLOBAL TELESYSTEMS GROUP, INC.
                                            
                                            By 
                                              ----------------------------------
                                              Name:    Henry Radzikowski
                                              Title:   Senior Vice President
<PAGE>   36
Exhibit 1.02(d)
to the Stock Purchase Agreement

                                  GTS NOTE II

                                                     Date: 
                                                          ----------------------

                 FOR VALUE RECEIVED, the undersigned Global TeleSystems Group,
Inc., a Delaware corporation ("GTS"), HEREBY PROMISES TO PAY to the order of
Swinton Limited, an international business company organized under the laws of
the Commonwealth of the Bahamas (the "Seller"), at any time from the date
hereof until three years following the date of issuance of this GTS Note II, at
the written request of the Seller, an amount in U.S. dollars equivalent to the
cash value of [INSERT NUMBER OF SHARES TO BE ISSUED PURSUANT TO THE GTS
CERTIFICATE ON SUCH DATE] shares of common stock, par value $0.0001 per share,
of GTS ("GTS Common Stock"), calculated as follows:

                 (i)      if shares of GTS Common Stock have been sold to the
         public pursuant to a registration statement under the United States
         Securities Act of 1933, as amended, the average of the closing prices
         for the shares of GTS Common Stock on the principal stock exchange on
         which such shares are listed or traded on the last ten trading days
         preceding such payment request date; and

                 (ii)     if no such public sale shall have occurred prior to
         March 31, 1996, (A) the price received by GTS for shares of GTS Common
         Stock in the most recent private placement of such shares or, (B) if
         no such private placement has occurred within the three months
         preceding such payment request date, the price determined by an
         independent financial institution of international reputation to be
         agreed upon by GTS and the Seller, and, in either case, otherwise on
         terms and subject to conditions to be agreed upon by GTS and the
         Seller;

provided, however, that such amount payable in U.S. dollars shall be increased
by five percent if GTS pays any dividends on GTS Common Stock from the date
hereof until the payment request date; and provided, further, that GTS shall
make the payment to the Seller no later than ten days following such payment
request date.

                 This GTS Note II shall be governed by the laws of the State of
New York applicable to contracts executed in and to be performed entirely
within that state.
<PAGE>   37
                                       2

                 This GTS Note II may not be assigned by operation of law or 
otherwise without the express written consent of each of the parties hereto
(which consent may be granted or withhold in the sole discretion of such
parties); provided, however, that GTS may assign this GTS Note II to any
affiliate of GTS without the consent of any of the parties hereto.

                                            GLOBAL TELESYSTEMS GROUP, INC.
                                            
                                            By   [ILLEGIBLE]
                                               ---------------------------------
                                               Name:
                                               Title:

<PAGE>   38
Exhibit 1.04(c) to
Stock Purchase Agreement

                          FORM OF INDEMNITY AGREEMENT

                               September 6, 1995

Swinton Limited
Lowe House
55 Townsend Street
Cheltenham
Gloucester, England GL51 9HA

Gentlemen:

                 Reference is made to the Stock Purchase Agreement dated as of
September 6, 1995 (the "Stock Purchase Agreement") among Global TeleSystems
Group, Inc. ("GTS"), Kompaniya "Invest-Project" (the "Parent"), Swinton
Limited, an international business company organized under the laws of the
Commonwealth of the Bahamas ("Swinton"), GTS-Vox Limited ("GTS-Vox") and
MTU-Inform. Capitalized terms used herein and not otherwise defined herein have
the meanings ascribed to them in the Stock Purchase Agreement.

                 1.       Swinton agrees to indemnify GTS and its affiliates,
officers, directors, employees, agents, successors and assigns (each an
"Indemnified Party") and hold them harmless from any and all liabilities,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, attorneys' and consultants' fees and
expenses) actually suffered or incurred by them (including, without limitation,
any Action brought or otherwise initiated by any of them) (hereinafter a
"Loss"), arising out of or resulting from:

                 (i)      the breach of any representation, warranty, covenant
         or agreement made by any of GTS-Vox, Swinton, the Parent or MTU-Inform
         in the Stock Purchase Agreement;

                 (ii)     any liabilities of GTS-Vox and "Invest-Project", a
         closed joint stock company organized under the laws of the Russian
         Federation ("AOZT"), whether arising before or after the Closing Date,
         arising from or relating to the ownership or actions or inactions of
         GTS-Vox or AOZT or the conduct of their businesses prior to the
         Closing;
<PAGE>   39
                                       2

                 (iii)    any claim or cause of action of any third party to
         the extent arising out of any action, inaction, event, condition,
         liability or obligation of any of GTS-Vox, Swinton, the Parent,
         MTU-Inform or AOZT occurring or existing prior to the Closing; or

                 (iv)     any liabilities for taxes of any of GTS-Vox, Swinton,
         the Parent, MTU-Inform or AOZT for any period.

To the extent that Swinton's undertakings set forth in this Agreement may be
unenforceable, Swinton shall contribute the maximum amount that it is permitted
to contribute under applicable law to the payment and satisfaction of all
Losses incurred by an Indemnified Party.

                 2.       An Indemnified Party shall give Swinton notice of any
matter which an Indemnified Party has determined has given or could give rise
to a right of indemnification under this Agreement, within 60 calendar days of
such determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement and the Stock Purchase Agreement in respect of which such right of
indemnification is claimed or arises. The obligations and liabilities of
Swinton under this Agreement with respect to Losses arising from claims of any
third party which are subject to the indemnification provided for in this
Agreement ("Third Party Claims") shall be governed by and contingent upon the
following additional terms and conditions: if an Indemnified Party shall
receive notice of any Third Party Claim, the Indemnified Party shall give
Swinton notice of such Third Party Claim within 30 calendar days of the receipt
by the Indemnified Party of such notice; provided, however, that the failure to
provide such notice shall not release Swinton from any of its obligations under
this Agreement, except to the extent Swinton is materially prejudiced by such
failure and shall not relieve Swinton from any other obligation or liability
that they may have to any Indemnified Party otherwise than under this
Agreement. If Swinton acknowledges in writing its obligation to indemnify the
Indemnified Party hereunder against any Losses that may result from such Third
Party Claim, then Swinton shall be entitled to assume and control the defense
of such Third Party Claim at its expense and through counsel of its choice if
it gives notice of its intention to do so to the Indemnified Party within five
business days of the receipt of such notice from the Indemnified Party;
provided, however, that if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate, in the judgment of the
Indemnified Party in its sole and absolute discretion, for the same counsel to
represent the Indemnified Party and Swinton, then the Indemnified Party shall
be entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of Swinton. In
the event Swinton exercises the right to undertake any such defense against any
such Third Party Claim, as provided above, the Indemnified Party shall
cooperate with Swinton in such defense and make available to Swinton, at
Swinton's expense, all witnesses, pertinent records, materials and information
in the Indemnified Party's possession or under
<PAGE>   40
                                       3

the Indemnified Party's control relating thereto as is reasonably required by
Swinton. Similarly, in the event the Indemnified Party is, directly or
indirectly, conducting the defense against any such Third Party Claim, Swinton
shall cooperate with the Indemnified Party in such defense and make available
to the Indemnified Party, at Swinton's expense, all such witnesses, records,
materials and information in Swinton's possession or under Swinton's control
relating thereto as is reasonably required by the Indemnified Party. No such
Third Party Claim may be settled by Swinton without the prior written consent
of the Indemnified Party.

                 3.       Miscellaneous. (a) Notices, Etc. All notices and
other communications required or permitted hereunder shall be in writing and
shall be delivered personally if a receipt is obtained, by facsimile (followed
within 24 hours by a hard copy sent by overnight delivery service as
hereinafter provided) or by overnight delivery service with a service that
customarily obtains a receipt for delivery, to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 3(a)):

                 If to GTS:

                          Global TeleSystems Group, Inc.
                          1751 Pinnacle Drive
                          North Tower, 12th Floor
                          McLean, Virginia 22102
                          Facsimile No.: (703) 918-0338
                          Attention: General Counsel

                 If to Swinton:

                          Swinton Limited
                          Lowe House
                          55 Townsend Street
                          Cheltenham
                          Gloucester, England GL51 9HA
                          Facsimile No.: 44-1242-262219
                          Attention: Mark Bruce-Smith

                 (b)      Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate
<PAGE>   41
                                       4

in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.

                 (c)      Entire Agreement. This Agreement and the Stock
Purchase Agreement constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, between GTS and Swinton with respect to
the subject matter hereof.

                 (d)      Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of GTS and
Swinton (which consent may be granted or withheld in the sole discretion of
such parties); provided, however, that GTS may assign this Agreement to any
affiliate of GTS without the consent of Swinton.

                 (e)      Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, GTS and
Swinton.

                 (f)      Governing Law and Governing Language. This Agreement
shall be governed by, and construed in accordance with, the laws of the State
of New York, applicable to contracts executed in and to be performed entirely
within that state. This Agreement shall be executed in the English and Russian
languages; in case of any difference in interpretation between the English and
Russian versions of this Agreement, both versions shall govern.

                 (g)      Arbitration. Where any dispute or disagreement among
the parties hereto, arising out of or in connection with this Agreement, cannot
be settled through negotiations within thirty days after one of the parties
hereto has notified the other parties in writing about the existence of a
respective dispute, the parties shall have the right to initiate an arbitration
procedure for the purpose of settling the dispute or disputes. Such a procedure
shall be conducted at the Arbitration Institute of the Stockholm Chamber of
Commerce (Stockholm, Sweden) under the regulations of the Arbitration
Institute, by three arbitrators appointed in keeping with such regulations. The
arbitration examination shall be conducted in English. Resolutions and the
decision adopted during the arbitration procedure shall be final and binding
for both parties and may be enforced by a law court of a respective
jurisdiction, with the expenses incurred in connection with such an arbitration
procedure to be paid by the losing party.

                 (h)      Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE>   42
                                       5


        If the foregoing is in accordance with your understanding, please sign
and return one counterpart hereof and, upon execution and delivery hereof by
you, this Agreement shall constitute a binding agreement among GTS and Swinton.

                                        Very truly yours,

                                        GLOBAL TELESYSTEMS GROUP, INC.

                                        By:  /s/   HENRY RADZIKOWSKI
                                            --------------------------------
                                            Name:  Henry Radzikowski
                                            Title: Senior Vice President

Accepted and agreed as of the date hereof:

SWINTON LIMITED

By   /s/  A. CHAMBAZOV
   -------------------------------
   Name:  A. Chambazov
   Title: Attorney-in-Fact
<PAGE>   43
Exhibit 1.04(d) to
Stock Purchase Agreement

                         FORM OF SHAREHOLDERS AGREEMENT

                 SHAREHOLDERS AGREEMENT (this "Agreement") dated as of
September 6, 1995 among GTS-Vox Limited, a private limited company organized
pursuant to the Companies Act 1985 of England and Wales (the "Company"), Global
TeleSystems Group, Inc., a Delaware corporation ("GTS"), and Swinton Limited,
an international business company organized under the laws of the Commonwealth
of the Bahamas ("Swinton").

                 WHEREAS, the Company, GTS and Swinton are parties to a Stock
Purchase Agreement dated as of September 6, 1995 (the "Purchase Agreement"),
pursuant to which GTS has agreed to purchase from Swinton, and Swinton has
agreed to sell to GTS, simultaneously herewith, 5,264 ordinary shares, par
value one penny sterling per share, of the Company ("Ordinary Shares");

                 WHEREAS, following such purchase and sale, Swinton will own
4,736 Ordinary Shares; and

                 WHEREAS, it is a condition to the obligations of the parties
under the Purchase Agreement that the parties hereto enter into this Agreement;

                 NOW, THEREFORE, in consideration of the premises and the
mutual agreements and covenants hereinafter set forth, the parties hereto
hereby agree as follows:

                 1.       Composition and Number of the Board. (a) Subject to
Section 1(b), each of GTS, on the one hand, and Swinton and those Permitted
Transferees that have complied with the provisions of Section 4, on the other
hand (the "Swinton Parties"), shall be entitled to designate such number of
persons for election to the Board and each committee of the Board equal, in
each case, to one-half of the total number of members thereof, and each of GTS
and the Swinton Parties agrees to vote any Ordinary Shares owned by it to cause
the election of such designees to the Board, and the Company agrees to take all
necessary action to cause the election of each such designee to the Board.
Unless the parties hereto agree otherwise, there shall be four members of the
Board. In the event that a vacancy is created at any time by the death,
disability, retirement, resignation or removal (with or without cause) of any
director, the party designating such director shall have the right to designate
a replacement director to fill such vacancy and each of GTS and the Swinton
Parties agrees to
<PAGE>   44
                                       2

vote any Ordinary Shares owned by it to cause the election of each such
designee to the Board, and the Company agrees to take all necessary action to
cause the election of each such designee to the Board. Upon the written request
of the Swinton Parties or GTS, as the case may be, to remove any director
designated by such party, GTS and the Swinton Parties shall take or cause to be
taken all actions necessary to remove the director, and any replacement
director shall be designated by the requesting party and elected as provided in
the first sentence of this Section 1(a). Neither GTS nor the Swinton Parties
shall take any action to cause the removal of any director designated by the
other without cause.

                 (b)      GTS and the Swinton Parties shall be entitled to
designate directors as set forth in Section 1(a), and GTS, the Swinton Parties
and the Company shall take the actions specified in Section 1(a), in each case
so long as the Swinton Parties hold all of the Ordinary Shares held by such
Persons as of the date of this Agreement.

                 2.       Board Procedures. The Board shall follow the
following procedures:

                 (a)      Meetings. The Board shall hold regularly scheduled
         meetings at such times as may from time to time be fixed by resolution
         of the Board, and no notice (other than the resolution) need be given
         of a regularly scheduled meeting. Special meetings of the Board may be
         called by any member of the Board or in the manner designated in the
         Memorandum of Association of the Company as in effect from time to
         time and may be held at any time upon oral, telephonic, telegraphic or
         facsimile notice duly given or sent at least seven days, or by written
         notice sent by express mail at least seven days, before the meeting to
         each director, provided that all such notices to directors located
         outside the United Kingdom shall be given or sent orally or by
         telephone, telegraph or facsimile transmission (receipt of which has
         been duly confirmed). Reasonable efforts shall be made to ensure that
         each director actually receives timely notice of any such special
         meeting.

                 (b)      Agenda. The Board shall use reasonable efforts to
         supply a reasonably detailed agenda to each director reasonably in
         advance of each meeting, including each special meeting, of the Board
         to adequately inform directors regarding matters to come before the
         Board. Any director wishing to place a matter on the agenda for any
         meeting of the Board may do so by communicating with the Chairman of
         the Board sufficiently in advance of the meeting of the Board so as to
         permit timely dissemination to all directors of information with
         respect to the agenda items.

                 (c)      Powers of the Board. The Board shall reserve to
         itself the power to approve transactions for all business conducted by
         the Company that are of a type customarily subject to board approval
         as a matter of good corporate practice for corporations organized in
         England and Wales, and shall not delegate to any officers of the
         Company or to any other Persons the authority to conduct business in
         any manner
<PAGE>   45
                                       3

         that would circumvent, or deprive GTS, the Swinton Parties or any
         other Person of the rights or protections accorded to it under, this
         Agreement.

                 (d)      Decisions of the Board. All decisions of the Board
         shall be made unanimously.

                 3.       Limitation on Amendments to Articles of Association
and Memorandum of Association. Without the consent of GTS or the Swinton
Parties, as the case may be, the Company shall not, and neither the Swinton
Parties nor GTS shall cause or permit the Company to, amend its Articles of
Association or Memorandum of Association in any manner that would be adverse to
such party. GTS and the Swinton Parties agree that this Agreement shall have
priority over GTS-Vox' Articles of Association and that the Chairman of
GTS-Vox shall not have a casting vote.

                 4.       Restriction on Transfer of Ordinary Shares. (a) None
of the Swinton Parties shall, directly or indirectly, make or solicit any sale
of, or create, incur, solicit or assume any Encumbrance with respect to, any
Ordinary Share, except pursuant to the Agreement, dated as of September 6,
1995, between Swinton, the Company and the other parties thereto (the "Swinton
Shareholders' Agreement"), which provides for the distribution of the Ordinary
Shares held by Swinton to the shareholders of Swinton. In connection with such
distribution, each of the Persons to whom such distribution is made (a
"Permitted Transferee") shall (i) execute and deliver to the Company and GTS an
agreement, in form and substance reasonably satisfactory to the Company and
GTS, whereby such Permitted Transferee confirms that, with respect to the
Ordinary Shares that are the subject of such distribution, it shall be deemed
to be a "Swinton Party" for purposes of this Agreement and agrees to be bound
by all the terms of this Agreement, and (ii) deliver to the Company and GTS an
opinion of counsel, satisfactory in form and substance to the Company and GTS,
to the effect that the agreement referred to above that is delivered by such
Permitted Transferee is a legal, valid and binding obligation of such Permitted
Transferee enforceable against such Permitted Transferee in accordance with its
terms. Upon the execution and delivery by such Permitted Transferee of the
agreement referred to in clause (i) of the preceding sentence and the delivery
of the opinion of counsel referred to in clause (ii) of the preceding sentence,
such Permitted Transferee shall be deemed a "Swinton Party" for purposes of
this Agreement and shall have the rights and be subject to the obligations of a
Swinton Party under this Agreement, in each case with respect to the Ordinary
Shares beneficially owned by such Permitted Transferee.

                 (b)      Other than as provided pursuant to Section 4(a), if
any of the Swinton Parties, on the one hand, or GTS, on the other hand, intends
to sell or transfer any Ordinary Shares or shares of common stock of Swinton,
pursuant to a bona fide offer from a third party (the "Offer"), such party (the
"Offeror") shall notify the other party to this Agreement within five business
days of its receipt of the Offer, disclosing the price, terms and
<PAGE>   46
                                       4

conditions of the sale and the name of the proposed purchaser. Such notice
shall constitute a written offer to sell such shares to the other party at the
time of the offer, at the price, terms and conditions of the Offer. Such other
party shall have a period of thirty days in which to accept the offer (the
"Offer Period"). In the event that the Offeror has not received from the other
party, within the Offer Period, an irrevocable written acceptance of such offer
to purchase all (but not less than all) of Ordinary Shares or shares of common
stock of Swinton offered to them, then such other party shall be deemed to have
declined to purchase any such shares.

                 (c)      In the event that such other party does not purchase
the shares offered to it pursuant to Section 4(b), the Offeror may sell such
Ordinary Shares or shares of common stock of Swinton to the third party who
made the Offer within ninety days from the expiry of the Offer Period;
provided, however, that such sale shall not be made at a lower price or upon
less favorable terms to the Offeror that the original Offer. If the price
should be decreased or the terms or conditions made more favorable to the
proposed purchaser, then the shares shall be reoffered to the other parties to
this Agreement pursuant to this Section 4.

                 5.       Access to Information. From and after the date
hereof, the Company will permit representatives of GTS and its affiliates to
obtain all documents and other information in the possession of the Company as
may reasonably be requested in order to enable GTS to monitor its investment in
the Company and to exercise its rights under this Agreement, and, to the extent
applicable, to provide such other access and information as GTS may reasonably
require.

                 6.       Representations and Warranties of the Parties. Each
party signatory hereto hereby represents and warrants to the other parties
signatory hereto that (i) such party is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary corporate power and authority to enter into
this Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby and (ii) this Agreement has been duly executed
and delivered by such party, and (assuming due authorization, execution and
delivery by the other parties signatory hereto) this Agreement constitutes a
legal, valid and binding obligation of such party enforceable against such
party in accordance with its terms.

                 7.       Miscellaneous. (a) Notices, Etc. All notices and
other communications required or permitted hereunder shall be in writing and
shall be delivered personally if a receipt is obtained, by facsimile (followed
within 24 hours by a hard copy sent by overnight delivery service as
hereinafter provided) or by overnight delivery service with a service that
customarily obtains a receipt for delivery, to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 7(a)):
<PAGE>   47
                                       5

                 If to GTS:

                          Global TeleSystems Group, Inc.
                          1751 Pinnacle Drive
                          North Tower, 12th Floor
                          McLean, Virginia 22102
                          Facsimile No.: (703) 918-0338
                          Attention: General Counsel

                 If to Swinton:

                          Swinton Limited
                          Lowe House
                          55 Townsend Street
                          Cheltenham
                          Gloucester, England GL51 9HA 
                          Facsimile No.: 44-1242-262219 
                          Attention: Mark Bruce-Smith

                 (b)      Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.

                 (c)      Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written and
oral, between GTS and Swinton with respect to the subject matter hereof.

                 (d)      Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of GTS and
Swinton (which consent may be granted or withheld in the sole discretion of
such parties); provided, however, that GTS may assign this Agreement to any
affiliate of GTS without the consent of the Swinton Parties.

                 (e)      No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other person any legal or
<PAGE>   48
                                       6

equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.

                 (f)      Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of, the
Company, GTS and Swinton.

                 (g)      Governing Law and Governing Language. This Agreement
shall be governed by, and construed in accordance with, the laws of the State
of New York, applicable to contracts executed in and to be performed entirely
within that state. This Agreement shall be executed in the English and Russian
languages; in case of any difference in interpretation between the English and
Russian versions of this Agreement, both versions shall govern.

                 (h)      Arbitration. Where any dispute or disagreement among
the parties hereto, arising out of or in connection with this Agreement, cannot
be settled through negotiations within thirty days after one of the parties
hereto has notified the other parties in writing about the existence of a
respective dispute, the parties shall have the right to initiate an arbitration
procedure for the purpose of settling the dispute or disputes. Such a procedure
shall be conducted at the Arbitration Institute of the Stockholm Chamber of
Commerce (Stockholm, Sweden) under the regulations of the Arbitration
Institute, by three arbitrators appointed in keeping with such regulations. The
arbitration examination shall be conducted in English. Resolutions and the
decision adopted during the arbitration procedure shall be final and binding
for both parties and may be enforced by a law court of a respective
jurisdiction, with the expenses incurred in connection with such an arbitration
procedure to be paid by the losing party.

                 (i)      Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.

                 (j)      Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.

                 (k)      Termination. This Agreement shall terminate on the
tenth anniversary of the date hereof.
<PAGE>   49
        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.

                                GTS-VOX LIMITED

[SEAL]                          By   /s/   [ILLEGIBLE]
                                    ------------------------------------------
                                    Name:  London Auditing and Consulting Ltd.
                                    Title: Director

                                GLOBAL TELESYSTEMS GROUP, INC.

                                By   /s/   HENRY RADZIKOWSKI
                                    ------------------------------------------
                                    Name:  Henry Radzikowski
                                    Title: Senior Vice President

                                SWINTON LIMITED

                                By   /s/   A. CHAMBAZOV
                                    ------------------------------------------
                                    Name:  A. Chambazov
                                    Title: Attorney-in-Fact
<PAGE>   50

                               CLOSING MEMORANDUM

                         GLOBAL TELESYSTEMS GROUP, INC.
                       Purchase of 5,264 Ordinary Shares
                                       of
                                GTS-VOX LIMITED
                                      from
                                SWINTON LIMITED

                               September 6, 1995

I.   DEFINED TERMS

     Any defined term not defined herein, but defined in the Purchase Agreement,
shall have the meaning defined therein and unless otherwise indicated, section
references are to the Purchase Agreement. For convenience of reference, the
following defined terms are used herein, unless the context otherwise indicates:

Agreement No. 1587       Agreement No. 1587, dated May 29, 1995, between AOZT 
                         and MCTN.

AOZT                     Invest-Project, a closed joint stock company organized
                         under the laws of the Russian Federation.

GTS                      Global TeleSystems Group, Inc., a Delaware corporation.

GTS-Vox                  GTS-Vox Limited, a private limited company organized
                         pursuant to the Companies Act 1985 of England and
                         Wales.

Indemnity Agreement      Indemnity Agreement, dated as of the date hereof,
                         between GTS and the Seller.

MCTN                     Moscow City Telephone Network.

MTU-Inform               MTU-Inform, a partnership organized under the laws of
                         the Russian Federation.

<PAGE>   51
Parent                   Kompaniya "Invest-Project", a limited liability 
                         partnership organized under the laws of the Russian 
                         Federation.

Purchase Agreement       Stock Purchase Agreement, dated as of September 6, 
                         1995, among GTS, the Parent, the Seller, GTS-Vox and 
                         MTU-Inform.

Seller                   Swinton Limited, an international business company
                         organized under the laws of the Commonwealth of the
                         Bahamas.

Shareholders Agreement   Shareholders Agreement, dated as of the date hereof,
                         between GTS and the Seller.

S&S                      Shearman & Sterling, counsel to GTS.


II.  ACTIONS TAKEN PRIOR TO THE CLOSING

A.   By the Parent

     1.   On May 6, 1994, V.I. Volchek, director general of the Parent, and L.G.
          Zhukov, director general of MTU-Inform, executed the Application for
          Incorporation of AOZT.

     2.   On March 3, 1995, the Parent and GTS entered into a Memorandum of 
          Understanding.

     3.   On May 24, 1995, the Parent and GTS agreed to a Business Plan.

     4.   On June 23, 1995, GTS, AOZT and the Parent entered into the Frame 
          Transaction Agreement.

     5.   On July 6, 1995, the Parent and GTS-Vox entered into an Agreement of
          Purchase and Sale No. 5/14.

     6.   Between July 20 and July 26, the Parent purchased shares of AOZT.
          GTS-VOX duly became a shareholder of AOZT, which is registered with
          the Russian State Registration Authority.
<PAGE>   52
B.   By Swinton

     1.   On June 22, 1995, Antoinette Stubbs, an assistant secretary of
          Mossfon Nominees International, Ltd., and Keloine Smith, an assistant
          secretary of Mossfon Nominees Limited, executed the Memorandum of
          Association of the Seller.

     2.   On June 22, 1995, Antoinette Stubbs, an assistant secretary of
          Mossfon Nominees International, Ltd., and Keloine Smith, an assistant 
          secretary of Mossfon Nominees Limited, executed the Articles of
          Association of the Seller.

     3.   On June 22, 1995, the Registrar General of the Commonwealth of the
          Bahamas certified the incorporation of the Seller pursuant to the
          International Business Companies Act (No. 2 of 1990) as an
          international business company on such date.

     4.   On September 6, 1995, Swinton and its shareholders entered into a 
          Shareholders' Agreement.

C.   By GTS-Vox

     1.   On February 1, 1995, Graham Stephens and Kathryn Jones executed the
          Memorandum of Association of Swinton Limited.

     2.   On February 1, 1995, Graham Stephens and Kathryn Jones executed the
          Articles of Association of GTS-Vox.

     3.   On June 28, 1995, the registrar of Companies for England and Wales
          certified the incorporation of GTS-Vox under the Companies Act 1985 as
          a private limited company on such date.

     4.   On July 4, 1995, it was resolved that Michael Muraev be appointed
          attorney-in-fact to purchase 95% of MTU-Inform on behalf of GTS-Vox
          Limited and a power of attorney was issued on his behalf.

     5.   On July 6, 1995, the Parent and GTS-Vox entered into an Agreement of
          Purchase and Sale No. 5/14.

     6.   On July 22, 1995, GTS-Vox duly became a shareholder of AOZT.

<PAGE>   53
D.   By AOZT

     1.   On May 6, 1994, V.I. Volchek, director general of the Parent, and
          L.G. Zhukov, director general of MTU-Inform, executed the Application
          for Incorporation of AOZT.

     2.   On May 6, 1994, V.I. Volchek, director general of the Parent, and L.G.
          Zhukov, director general of MTU-Inform, executed the By-Laws of AOZT.

     3.   On May 29, 1995, AOZT and MCTN entered into Agreement No. 1587.

     4.   On June 23, 1995, GTS, AOZT and the Parent entered into the Frame
          Transaction Agreement.

     5.   On June 23, 1995, AOZT and MCTN entered into Supplement 1 No. 1657 to
          Agreement No. 1587.

E.   By MTU-Inform

     1.   On May 30, 1992, MTU-Inform was formed and registered.

     2.   On May 6, 1994, MTU-Inform became a shareholder of AOZT.

     3.   On June 23, 1995, MTU-Inform approved the terms of the Frame
          Transaction Agreement.

     4.   On July 5, 1995, MTU-Inform agreed that GTS-Vox would become a
          shareholder of and the Parent of AOZT.

F.   By GTS

     1.   On March 3, 1995, the Parent and GTS entered into a Memorandum of
          Understanding.

     2.   On May 24, 1995, the Parent and GTS agreed to a Business Plan.

     3.   On June 23, 1995, GTS, AOZT and the Parent entered into the Frame
          Transaction Agreement.

<PAGE>   54
III.     TRANSACTIONS EFFECTED AND DOCUMENTS DELIVERED AT THE CLOSING

                 As of September 6, 1995, (i) GTS, each of the Swinton Parties
and MTU-Inform had received, each in form and substance satisfactory to GTS,
all authorizations, consents, orders and approvals of all governmental
authorities and officials and all third-party consents and estoppel
certificates which GTS deemed necessary or desirable for the consummation of
the transactions contemplated by the Purchase Agreement; (ii) GTS had completed
all of its business, legal, accounting and environmental due diligence with
respect to GTS-Vox and AOZT and was satisfied with the results thereof; and
(iii) No event or events had occurred, or were reasonably likely to occur,
which, individually or in the aggregate, had, or could have, a material adverse
effect upon the business condition (financial or otherwise), prospects,
affairs, operations, properties or assets of GTS-Vox or AOZT. [6.02(d), (j),
(k)]. These conditions to the Closing having been met, the Closing was held on
September 6, 1995, (the "Closing Date") at 25/3 Tsvetnoy Boulward, Moscow,
Russia. All transactions at the Closing were deemed to have taken place
simultaneously, and no transaction was deemed to have been completed, no
document was deemed to have been delivered and no payment was deemed to have
been made until all transactions had been completed, all documents had
been delivered and all payments had been made. Unless otherwise indicated, all
documents were dated the date of the Closing. Unless otherwise indicated, one
copy of each of the documents and certificates was delivered to the Parent, the
Seller, GTS-Vox, MTU-Inform, GTS and S&S, making a total of six copies of each
delivered at the Closing. The persons present at the Closing (in person or by
phone) are listed in Exhibit A attached to this Closing Memorandum.
<PAGE>   55
A.       From the Parent

         1.      A certificate, in the form attached hereto as Annex A.1.,
                 signed by the General Director of the Parent.  [1.04(f);
                 6.02(a)]

         2.      A certificate, in the form attached hereto as Annex A.2., of
                 the General Director the Parent. [1.04(f); 6.02(b), (c)]

B.       From the Seller

         1.      Stock certificate evidencing the GTS-Vox Shares duly endorsed
                 to GTS, and accompanied by a stock transfer form duly executed
                 to GTS, in form satisfactory to GTS, and the Seller shall pay
                 for all required stock transfer tax stamps to be affixed
                 thereon. [1.04(a)]

         2.      A copy of the Option Agreement, executed by the Seller.
                 [1.04(d); 6.02(d)]

         3.      A copy of the Shareholders' Agreement, executed by the Seller.
                 [1.04(e); 6.02(g)]

         4.      A certificate, in the form attached hereto as Annex B.1., of
                 the [Secretary or an Assistant Secretary] of the Seller.
                 [1.04(f); 6.02(b), (c)]

         5.      A certificate, in the form attached hereto as Annex B.2.,
                 signed by a duly authorized officer of the Seller. [1.04(f);
                 6.02(a)]

         6.      A receipt, in the form of Annex B.3, for (i)  L.52.64 
                 and (ii) the GTS Note delivered by GTS to the Seller pursuant
                 to Section 1.02(b). [1.04(b)]

C.       From GTS-Vox

         1.      A certificate, in the form attached hereto as Annex C.1.,
                 signed by a duly authorized officer of GTS-Vox. [1.04(f);
                 6.02(a)]

         2.      A certificate, in the form attached hereto as Annex C.2., of
                 the [Secretary or an Assistant Secretary] of GTS-Vox.
                 [1.04(e); 6.02(b), (c), (h) and (i)]

         3.      An undertaking executed by Mark Bruce-Smith stating that
                 GTS-Vox will take the stock certificate evidencing the GTS-Vox
                 Shares to the English tax office and pay to have all
                 appropriate stock transfer tax stamps affixed thereon.
<PAGE>   56
D.       From AOZT

         1.      A copy of the Indemnity Agreement, executed by Swinton.
                 [1.04(d); 6.02(e)] 

         2.      A certificate, in the form attached hereto as Annex D.1., of 
                 the General Director AOZT. [1.04(e); 6.02(h), (i)]

E.       From MTU-Inform

         1.      A certificate, in the form attached hereto as Annex E.1.,
                 signed by the First Deputy of the General Director of
                 MTU-Inform. [1.04(f); 6.02(a)]

         2.      A certificate, in the form attached hereto as Annex E.2., of
                 the First Deputy of the General Director of MTU-Inform.
                 [1.04(f); 6.02(b), (c)]

F.       From GTS

         1.      The GTS Certificate set forth in Section 1.02(b). [1.05(a)]

         2.      A copy of the Indemnity Agreement, executed by GTS. [1.05(c)]

         3.      A copy of the Option Agreement, executed by GTS. [1.05(d)]

         4.      A copy of the Shareholders' Agreement, executed by GTS.
                 [1.05(e)]

         5.      A certificate, in the form attached hereto as Annex F.1.,
                 signed by a duly authorized officer of GTS.  [1.05(f);
                 6.01(a)]

         6.      A certificate, in the form attached hereto as Annex F.2., of
                 the [Secretary or an Assistant Secretary] of GTS. [1.05(f);
                 6.01(b), (c)]

         7.      A receipt, in the form of Annex F.3., for the GTS-Vox Shares
                 delivered by the Seller to GTS. [1.05(b)]
<PAGE>   57
                                   EXHIBIT A

                               PERSONS AT CLOSING

From the Parent
V. Volchek, Director General

From Swinton
A. Chambazov, Attorney-in-Fact
London Corporate Services Limited, represented by M. Muraev, Secretary

From GTS-Vox
London Auditing & Consulting Ltd., represented by Mr. M. Bruce-Smith
London Corporate Services Ltd., represented by M. Bruce-Smith, Secretary

From AOZT
D.A. Gzomov, General Director

From MTU-Inform
A. Sandomirsky, First Deputy of the General Director

From GTS 
Henry Radzikowski, Senior Vice President

<PAGE>   58
                                                              ANNEX A.1


                           KOMPANIYA "INVEST-PROJECT"

                   Certificate as to Truth and Correctness of
                    Representations and Warranties and as to
                       Performance of and Compliance with
                            Agreements and Covenants

     I, V. Volchek, the General Director of Kompaniya "Invest-Project", a
limited liability partnership organized under the laws of the Russian
Federation (the "Company"), hereby certify on behalf of the Company in my
capacity as an officer of the Company, and not in my personal capacity, that:

     1.   The representations and warranties of the Company contained in the
          Stock Purchase Agreement, dated as of September 6, 1995, among Global
          TeleSystems Group, Inc., the Company, Swinton Limited, GTS-Vox and
          MTU-Inform were true and correct when made and are true and correct as
          of the date hereof, with the same force and effect as if made as of
          the date hereof, other than such representations and warranties as are
          made as of another date.

     2.   The Company has performed or complied with the covenants and
          agreements contained in the Stock Purchase Agreement to be complied
          with by the Company on or prior to the date hereof.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.

                                         /s/  V. VOLCHEK
         [SEAL]                         ----------------------------
                                        V. Volchek
                                        General Director

<PAGE>   59
                                                                     ANNEX A.2

                           KOMPANIYA "INVEST-PROJECT"
                                        
                   Certificate as to Truth and Correctness of
                        Resolutions and as to Election,
                    Qualification, Incumbency and Signatures

     I, V. Volchek, do hereby certify that:

     1.   I am the duly elected, qualified and acting General Director of
Kompaniya "Invest-Project", a limited liability partnership organized under the
laws of the Russian Federation (the "Company"), and, in such capacity, have
access to and the authority to certify to the books and records of the Company;

     2.   Attached hereto as Exhibit A is a true, correct and complete copy of
resolutions duly adopted by the General Meeting and Board of Directors of the
Company at a meeting duly held on [Date], 1995; such resolutions have not been
rescinded and are in full force and effect on the date hereof.

     3.   The person named below at March 3, 1995, and at all times subsequent
thereto, up to and including the date hereof, has been a duly elected,
qualified and acting officer of the Company holding the office set forth
opposite his name below, and the signature of such person appearing opposite
his name is his genuine signature.

     Name                          Title                         Signature

     M. Muraev           ________________________

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.


                                   /s/ V. VOLCHEK
            [Seal]                 ----------------------------
                                   V. Volchek
                                   General Director 
<PAGE>   60
          I, M. Muraev, in my capacity as GTS General Counsel-CIS, do hereby
certify that Mr. V. Volchek is the duly elected, qualified and acting General
Director of the Company and the signature above is his genuine signature.

          IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of
September, 1995.

                                            /s/ M. MURAEV
                                        ----------------------
                                        M. Muraev
                                        GTS General Counsel-CIS

<PAGE>   61
                                                                       ANNEX B.1

                                SWINTON LIMITED

                   Certificate as to Truth and Correctness of
                    Representations and Warranties and as to
                       Performance of and Compliance with
                            Agreements and Covenants

     Swinton Limited, an international business company organized under the laws
of the Commonwealth of the Bahamas (the "Company") does hereby certify as 
follows:

     1. The representations and warranties of the Company contained in the    
        Stock  Purchase Agreement, dated as of September 6, 1995, among Global
        TeleSystems Group, Inc., Kompaniya "Invest-Project", the company, 
        GTS/Vox and MTU-Inform were true and correct when made and are true and
        correct as of the date hereof, with the same force and effect as if   
        made  as of the date hereof, other than such representations and      
        warranties as are made as of another date.                            
                                                                                
                                                                              
        
     2. The Company has performed or complied with the covenants and agreements
        contained in the Stock Purchase Agreement to be complied with by the
        Company on or prior to the date hereof.

     IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed by its duly authorized attorney-in-fact this 6th day of September,
1995.


                                                       SWINTON LIMITED     
                                                      
                                                          /s/  A. Chambazov   
                                                       ------------------------
                                                       Name: Mr. A. Chambazov,
                                                             Attorney-in-Fact
<PAGE>   62
                                                                       ANNEX B.2

                                SWINTON LIMITED

                   Certificate as to Truth and Correctness of
                        Resolutions and as to Election,
                    Qualification, Incumbency and Signatures

     I, Michael Muraev, acting on behalf of London Corporate Services, Ltd. do
hereby certify that:

     1.   I am the duly elected, qualified and acting Secretary of Swinton
Limited, an international business company organized under the laws of the
Commonwealth of the Bahamas (the "Company"), and, in such capacity, have
access to and the authority to certify to the books and records of the Company;

     2.   Attached hereto as Exhibit A is a true, correct and complete copy of
resolutions duly adopted by the [Board of Directors] of the Company at a
meeting duly held on [Date], 1995; such resolutions have not been rescinded and
are in full force and effect on the date hereof.

     3.   The person named below at September 6, 1995, and at all times
subsequent thereto, up to and including the date hereof, has been a duly
elected, qualified and acting officer of the Company holding the office set
forth opposite his name below, and the signature of such person appearing
opposite his name is his genuine signature.

<TABLE>
<CAPTION>
      Name                    Title                   Signature
   ----------              -----------             ---------------
<S>                        <C>                     <C>
London Auditing             Director                [ILLEGIBLE] 
and Consulting Ltd.
</TABLE>

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 6th day of September, 1995.

                                                    /s/ MICHAEL MURAEV
                                                 -------------------------------
                                                 Name:  Michael Muraev
                                                 Title: Secretary, London
                                                        Corporate Services Ltd.
<PAGE>   63
     I, London Auditing and Consulting Ltd., in my capacity as director, do
hereby certify that M. Muraev is the duly elected, qualified and acting
Secretary of the Company and the signature above is his genuine signature.

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 6th day of September, 1995.


                                                [ILLEGIBLE]
                                                ----------------------------
                                                London Auditing and Consulting
                                                Ltd. Director
<PAGE>   64
                                                                       ANNEX B.3


                           RECEIPT OF SWINTON LIMITED
                            dated September 6, 1995

     Reference is made to Section 1.04(b) of the Stock Purchase Agreement,
dated as of September 6, 1995, between Global TeleSystems Group, Inc.,
Kompaniya "Invest-Project", Swinton Limited, GTS-Vox and MTU-Inform (the
"Agreement"; unless otherwise defined herein, capitalized terms used herein are
defined as set forth in the Agreement).

     Swinton Limited hereby acknowledges receipt of (i) L.52.64 and (ii) the
GTS Note delivered by GTS to Swinton Limited pursuant to Section 1.04(b) of the
Agreement.

     By executing this receipt, the Company acknowledges and agrees that all
conditions to the Company's obligation to consummate the transactions
contemplated by the Agreement have been satisfied.


SWINTON LIMITED




By:
   -----------------------------
   Name:  A. Chambazov
   Title: Attorney-in-Fact
<PAGE>   65
                                                                       ANNEX C.1


                                GTS-VOX LIMITED

                   Certificate as to Truth and Correctness of
                    Representations and Warranties and as to
                       Performance of and Compliance with
                            Agreements and Covenants

     GTS-Vox Limited, a private limited company organized pursuant to the
Companies Act of 1985 of England and Wales (the "Company"), does hereby certify
as follows:

     1.   The representations and warranties of the Company contained in the
          Stock Purchase Agreement, dated as of September 6, 1995, among Global
          TeleSystems Group, Inc., Kompaniya "Invest-Project", Swinton Limited,
          the Company, and MTU-Inform were true and correct when made and are
          true and correct as of the date hereof, with the same force and effect
          as if made as of the date hereof, other than such representations and
          warranties as are made as of another date.

     2.   The Company has performed or complied with the covenants and
          agreements contained in the Stock Purchase Agreement to be complied
          with by the Company on or prior to the date hereof.

          IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed by its duly authorized attorney-in-fact this 6th day of
September, 1995.


                                        GTS-VOX LIMITED



                                        /s/ MARK BRUCE-SMITH
                                        ---------------------------------------
                                        Mark Bruce-Smith, representing London
                                        Auditing and Consulting Ltd.
<PAGE>   66

                                                                       ANNEX C.2

                                GTS-VOX LIMITED


                   Certificate as to Truth and Correctness of
           Constituent Documents and Resolutions, and as to Election,
                    Qualification, Incumbency and Signatures


     I, London Corporate Services, Ltd., do hereby certify that:

     1.   I am the duly elected, qualified and acting Secretary of GTS-Vox
Limited, a private limited company organized pursuant to the Companies Act 1985
of England and Wales (the "Company"), and, in such capacity, have access to and
the authority to certify to the books and records of the Company;

     2.   Attached hereto as Exhibit A is a true and correct copy of the
Articles of Association of the Company (the "Articles"), certified by the sole
director, as of September 6, 1995;

     3.   No amendments have been made to such Articles of Association since
such date; and

     4.   Attached hereto as Exhibit B is a true and correct copy of the
Memorandum of Association of the Company, certified by the sole director, as of
September 6, 1995.

     5.   Attached hereto as Exhibit C is a true, correct and complete copy of
resolutions duly adopted by the Board of Directors of the Company at a meeting
duly held on September 6, 1995; such resolutions have not been rescinded and
are in full force and effect on the date hereof.

     6.   Attached hereto as Exhibits D and E, respectively, are the minute
books and stock register of GTS-Vox, which minute books contain all documents
required to be contained therein as of the date hereof and which stock register
is complete as of the date hereof.

<PAGE>   67
          7.   The person named below at July 6, 1995, and at all times
subsequent thereto, up to and including the date hereof, has been a duly
elected, qualified and acting officer of the Company holding the office set
forth opposite his name below, and the signature of such person appearing
opposite his name is his genuine signature.

     Name                     Title               Signature

     London Auditing and      Director            /s/ [ILLEGIBLE]
     Consulting Ltd.                              

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.


                                                  /s/ [ILLEGIBLE]
                                                  
                                                  London Corporate Services Ltd.
                                                  Secretary
<PAGE>   68
          I, London Auditing and Consulting Ltd., in my capacity as Director,
do hereby certify that London Corporate Services Ltd. is the duly elected,
qualified and acting Corporate Secretary of the Company and the signature above
is his genuine signature.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.



                                             /s/ [ILLEGIBLE]
                                             --------------------
                                             London Auditing and Consulting Ltd.
                                             Director

<PAGE>   69
                                                                ANNEX D.1

                                 INVEST-PROJECT

                   Certificate as to Truth and Correctness of
                             Constituent Documents

        I. D.A. Gzomov, do hereby certify that:

        1.  I am the duly elected, qualified and acting General Director of
Invest-Project, a closed joint stock company organized under the laws of the
Russian Federation (the "Company"), and, in such capacity, have access to and
the authority to certify to the books and records of the Company;

        2.  Attached hereto is a true and correct copy of the Articles of
Association of the Company (the "Articles"), certified by the Russian State
Registration Authority, as of September 6, 1995;

        3.  No amendments have been made to the Articles of Association since
such date; and

        4.  Attached hereto is a true and correct copy of the Bylaws of the 
Company.


        IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 6th day of September, 1995.


                                         /s/   D.A. GZOMOV
                                        ---------------------------------
                                        Name:  D.A. Gzomov
                                        Title: General Director

                                        [SEAL]
   
<PAGE>   70

        I, M. Muraev, in my capacity as GTS General Counsel, CIS, do hereby
certify that D.A. Gzomov is the duly elected, qualified and acting General
Director of the Company and the signature above is his genuine signature.

        IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 6th day of September, 1995.


                                        /s/  M. MURAEV
                                        -----------------------------------
                                        M. Muraev
                                        GTS General Counsel, CIS
<PAGE>   71

                                                                ANNEX E.1

                                   MTU-INFORM

                   Certificate as to Truth and Correctness of
                    Representations and Warranties and as to
                       Performance of and Compliance with
                            Agreements and Covenants


                I, A. Sandomirsky, the First Deputy of the General Director of
MTU-Inform, a partnership organized under the laws of the Russian Federation
(the "Company"), hereby certify on behalf of the Company in my capacity as an
officer of the Company, and not in my personal capacity, that:

        1.      The representations and warranties of the Company contained in
                the Stock Purchase Agreement, dated as of September 6, 1995,
                among Global TeleSystems Group, Inc., Kompaniya
                "Invest-Project", Swinton Limited, GTS-Vox and the Company were
                true and correct when made and are true and correct as of the
                date hereof, with the same force and effect as if made as of the
                date hereof, other than such representations and warranties as
                are made as of another date.

        2.      The Company has performed or complied with the covenants and
                agreements contained in the Stock Purchase Agreement to be
                complied with by the Company on or prior to the date hereof.


                IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
seal of the Company this 6th day of September, 1995.

                                        /s/     A. SANDOMIRSKY
                                        -------------------------------------
                                        Name:   A. Sandomirsky
                                        Title:  First Deputy of the General
                                                Director

                                        [SEAL]
<PAGE>   72
                                                                ANNEX E.2

                                   MTU-INFORM

                   Certificate as to Truth and Correctness of
                        Resolutions and as to Election,
                    Qualification, Incumbency and Signatures


                I, A. Sandomirsky, do hereby certify that:

                1.  I am the duly elected, qualified and acting First Deputy of
the General Director of MTU-Inform, a partnership organized under the laws of
the Russian Federation (the "Company"), and, in such capacity, have access to
and the authority to certify to the books and records of the Company;

                2.  The person named below at September __, 1995, and at all
times subsequent thereto, up to and including the date hereof, has been a duly
elected, qualified and acting officer of the Company holding the office set
forth opposite his name below, and the signature of such person appearing
opposite his name is his genuine signature.

        Name                    Title                   Signature
        ----                    -----                   ---------

        A. Sandomirsky          First Deputy of
                                the General Director

                IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
seal of the Company this 6th day of September, 1995.


                                        /s/  A. SANDOMIRSKY
                                        ------------------------------------
                                        A. Sandomirsky
                                        First Deputy of the General Director

                                        [SEAL]
<PAGE>   73
          I, M. Muraev, in my capacity as GTS General Counsel-CIS, do hereby
certify that Mr. A. Sandomirsky is the duly elected, qualified and acting First
Deputy of the General Director of the Company and the signature above is his
genuine signature.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.

                                             /s/ M. MURAEV
                                             -----------------------
                                             M. Muraev
                                             GTS General Counsel-CIS         
<PAGE>   74
                                                                       ANNEX F.1

                         GLOBAL TELESYSTEMS GROUP, INC.

                   Certificate as to Truth and Correctness of
                    Representations and Warranties and as to
                       Performance of and Compliance with
                            Agreements and Covenants

     I, Henry Radzikowski, the Senior Vice President of Global TeleSystems
Group, Inc., a Delaware corporation (the "Company"), hereby certify on behalf
of the Company in my capacity as an officer of the Company, and not in my
personal capacity, that:

     1.   The representations and warranties of the Company contained in the
          Stock Purchase Agreement, dated as of September 6, 1995, among the
          Company, Kompaniya "Invest-Project", Swinton Limited, GTS-Vox and
          MTU-Inform were true and correct when made and are true and correct
          as of the date hereof, with the same force and effect as if made as
          of the date hereof, other than such representations and warranties
          as are made as of another date.

     2.   The Company has performed or complied with the covenants and
          agreements contained in the Stock Purchase Agreement to be complied
          with by the Company on or prior to the date hereof.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.




                                             /s/ HENRY RADZIKOWSKI
                                             ---------------------------------
                                             Henry Radzikowski
                                             Senior Vice President
<PAGE>   75
                                                                       ANNEX F.2

                         GLOBAL TELESYSTEMS GROUP, INC.

                    Certificate as to Truth and Correctness
                       of Resolutions and as to Election,
                    Qualification, Incumbency and Signatures

     I, Henry Radzikowski, do hereby certify that:

     1.   I am the duly elected, qualified and acting Senior Vice President of
          Global TeleSystems Group, Inc., a Delaware corporation (the
          "Company"), and in such capacity, have access to and the authority
          to certify to the books and records of the Company;

     2.   Attached hereto as Exhibit A is a true, correct and complete copy of
          resolutions duly adopted by the [Board of Directors] of the Company
          at a meeting duly held on [Date], 1995; such resolutions have not
          been rescinded and are in full force and effect on the date hereof.

     3.   The person named below at March 3, 1995, and at all times subsequent
          thereto, up to and including the date hereof, has been a duly elected,
          qualified and acting officer of the Company holding the office set
          forth opposite his name below, and the signature of such person
          appearing opposite his name is his genuine signature.

<TABLE>
<CAPTION>
     Name                     Title                    Signature
     ----                     -----                    ---------
     <S>                      <C>                      <C>
     Henry Radzikowski        Senior Vice President
</TABLE>

     IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Company this 6th day of September, 1995.



                                             /s/ HENRY RADZIKOWSKI
                                             ---------------------------------
                                             Henry Radzikowski
                                             Senior Vice President
<PAGE>   76
          I, M. Muraev, in my capacity as GTS General Counsel-CIS, do hereby
certify that H. Radzikowski is the duly elected, qualified and acting Senior
Vice President of the Company and the signature above is his genuine signature.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 6th day of September, 1995.


                                             /s/ M. Muraev
                                             -------------------
                                             M. Muraev
                                             General Counsel-CIS
<PAGE>   77
                                                                     ANNEX F.3

                   RECEIPT OF GLOBAL TELESYSTEMS GROUP, INC.
                            dated September 6, 1995

          
          Reference is made to Sections 1.04(a) of the Stock Purchase
Agreement, dated as of September 6, 1995, between Global TeleSystems Group,
Inc., Kompaniya "Invest-Project", Swinton Limited, GTS-Vox and MTU-Inform (the
"Agreement"; unless otherwise defined herein, capitalized terms used herein are
defined as set forth in the Agreement).

          GTS hereby acknowledges receipt of a stock certificate evidencing the
GTS-Vox Shares duly endorsed to GTS, and accompanied by a stock transfer form
duly executed to GTS, in form satisfactory to GTS.

          By executing this receipt, the Company acknowledges and agrees that
all conditions to the Company's obligation to consummate the transactions
contemplated by the Agreement have been satisfied.


GLOBAL TELESYSTEMS GROUP, INC.


By: /s/ HENRY RADZIKOWSKI
    -----------------------
    Name: Henry Radzikowski
    Title: Senior Vice President
<PAGE>   78
                               ADDENDUM AGREEMENT

THIS ADDENDUM AGREEMENT is made as of this 17 day of January 1997 by and among
Global TeleSystems Group, Inc., a Delaware corporation ("GTS"), Kompaniya
"Invest-Project", a limited liability partnership organized under the laws of
the Russian Federation, Swinton Limited, a company organized under the laws of
the Commonwealth of the Bahamas (the "Seller"), GTS-Vox limited, a private
limited company organized pursuant to the Companies Act of 1985 of England and
Wales ("GTS-Vox"), and MTU-Inform, a partnership organized under the laws of
the Russian Federation.

     WHEREAS, the Parties entered into a Stock Purchase Agreement dated
September 6, 1995 (the "Agreement") pursuant to which GTS agreed to purchase
5,264 of the ordinary shares of GTS-Vox from the Seller in exchange for cash
and shares of GTS as further set forth therein;

     WHEREAS, the Parties desire to modify the terms and conditions of the
Agreement as set forth herein and in the revised business plan dated April 20,
1996 which is attached hereto as Exhibit A.

     NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants hereinafter set forth, the parties hereto hereby agree as follows:

A.   AMENDMENTS

     Capitalized terms used herein without definition shall have the definition
ascribed to them in the Agreement.

     1.   The following shall be added to the end of Section 1.02(a):

     "GTS shall not issue fractional shares to the Seller in connection with any
transaction contemplated herein. Any calculation of shares hereunder which
results in fractional shares shall be rounded to the nearest whole number of
shares."

     2.   Section 1.02(c) shall be deleted in its entirety and replaced with
the following:

"(c) Within ten days after the execution of this Addendum Agreement, GTS shall
deliver to the Seller eight GTS Certificates,each of which shall represent
3,313 shares of GTS Common Stock. Such GTS Certificates, taken together,shall
constitute 26,506 shares of GTS Common Stock, representing the difference of
between the Reference Exchange Number (as defined herein) and the shares of GTS
Common Stock to be delivered in accordance with Section 1.02(e), (f) and (g)
hereof (without adjustment)."

     3.   Section 1.02(d)(ii) shall be amended as follows:

     a.   the words "if the corporate and shareholder approvals referred to in
Section 102(c) have not been obtained by such date," shall be deleted, and

     b.   the following shall be added to the end of Section 1.02(d)(ii):




                                                                              1
<PAGE>   79
     "Within ten days after the execution of this Addendum Agreement, and
following the surrender by the Seller of the GTS Note II which was issued to
the Seller by GTS on May 6, 1996 (the "1996 GTS Note II"), GTS shall deliver to
the Seller eight GTS Certificates, each of which represent 4,685 shares of GTS
Common Stock. Such GTS Certificates, taken together, shall constitute 37,480
shares of GTS Common Stock, which is the number of shares of GTS Common Stock
which the 1996 GTS Note II represents."

     4.   In Section 1.06(a), the number "299,840" shall be deleted and
replaced with the number 405,867.

     5.   The following revisions shall be made to Section 1.06(d)(i):
         
          a.   the word "revised" shall be added before the words "business
               plan" on the third line;
               
          b.   the date shall be changed to April 20, 1996 on the third line;

          c.   the word "Revised" shall be added after the first quotation mark
               and before the words "Business Plan" on the fourth line; and

          d.   the following shall be added after the words "Business Plan" on
               the fourth line: ", provided, however, that the Net Income for
               1996 as reflected in the Revised Business Plan shall be
               $718,000."

     6.   In Section 1.06(d)(ii), the number "449,760" shall be deleted and
replaced with the number "747,760" in each of the places specified in (a)
through (d) below.

          a.   after the word "exceed" in the second and third lines of the
               third paragraph of Section 1.06(d)(ii);

          b.   after the words "exceed 50% of" in the second line of the fourth
               paragraph of Section 1.06(d)(ii);

          c.   after the words "exceed 75% of" in the third line of the
               fourth paragraph of Section 1.06(d)(ii);
          
          d.   after the words "exceed 100% of" in the fourth line of the
               fourth paragraph of Section 1.06(d)(ii).

     7.   A new Section 1.06(e) shall be added which shall read in its entirety
as follows:

     "(e) The parties hereby agree that the total consideration paid by GTS
under the terms of this Agreement shall in no event exceed 747,760 shares of
GTS (or the cash equivalent thereof) plus Section L.52.94. The principal amount
of the GTS Note ($693,380) shall be considered the equivalent of 37,480 shares
of GTS Common Stock for the purposes of this Section 1.06. The GTS Common Stock
equivalent of any other GTS Note issued and payable in cash shall be calculated
in accordance with Sections 1.02(e), (f), (g) and Section 1.06(a)-(d) hereof.





                                                                              2

          

<PAGE>   80
     8.   Section 2.10 shall be amended as follows:

          a.   by adding the words ", as amended by Supplement 1 No. 1657 to
               Agreement 1587 dated June 23, 1995 and by Addendum No. 1/2392
               dated July 29, 1996" after the words "Pursuant to Agreement No.
               1587";

          b.   by deleting the number "50,000" on the eleventh and sixteenth
               lines thereof and replacing it with the number "100,000";

     9.   Section 5.01(a) shall be amended by adding the words ", AS AMENDED
PURSUANT TO AN ADDENDUM AGREEMENT DATED January 17, 1997," after the words
"DATED SEPTEMBER 6, 1995" on the eleventh line of the second paragraph thereof.

     10.  A new Section 5.01(d) shall be added as follows:

     "(d) Number of GTS Certificates. Upon each issuance of GTS Common Stock by
GTS to the Seller hereunder, GTS shall deliver to the Seller eight GTS
Certificates each of which shall represent one-eighth of the aggregate amount
of GTS Common Stock which GTS is obligated to deliver at such time."

B.   MISCELLANEOUS

     1.   This Addendum Agreement shall be attached to and become a part of the
Agreement.

     2.   All of the representations and warranties contained in the Agreement
continue as of the date hereof to be true and correct in all respects.

     3.   This Addendum Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be performed entirely within that state (without giving
effect to the conflicts of law principles thereof).





                                                                           3
<PAGE>   81
     IN WITNESS WHEREOF, the parties hereto have caused this Addendum Agreement
to be duly executed by their respective authorized officers as of the day and 
year first above written.

                              GLOBAL TELESYSTEMS GROUP, INC.

                              By /s/ HENRY RADZIKOWSKY
                                 ----------------------------
                                 Name: Henry Radjikowski
                                 Title: Senior Vice President

                              KOMPANIYA "INVEST-PROJECT"

                              By /s/ VICTOR L. VOLCHEK
                                 ----------------------------
                                 Name: Victor L. Volchek
                                 Title: General Director 
                              [SEAL]

                              SWINTON LIMITED

                              By /s/ A. CHAMBAZOV
                                 ----------------------------
                                 Name: A. Chambazov
                                 Title: Attorney-in-Fact

                              [SEAL]

                              GTS-VOX LIMITED

                              By /s/ MARK BRUCE-SMITH
                                 ----------------------------
                                 Name: Mark Bruce-Smith
                                 Title: Director of London 
                                 Auditing and Consulting Ltd.

                              [SEAL]

                              MTU-INFORM

                              By /s/ A. SANDOMIRSKY
                                 ----------------------------
                                 Name: A. Sandomirsky
                                 Title: First Deputy of
                                 General Director

                              [SEAL]





                                                                               4
<PAGE>   82
                                  CERTIFICATE

I hereby declare that, at the time of the execution of the Addendum dated July
29, 1996 to the Agreement No. 1587 between Moscow City Telephone Network, a
Russian joint stock company ("MCTN") and Invest Project, a Russian joint stock
company ("Invest Project") dated May 29, 1995, I disclosed to the governing
bodies of MCTN that I was a member of the board of directors of
TeleCommunications of Moscow ("TCM"), a Russian joint stock company, a legal
successor of Invest Project, a Russian joint stock company. Such members of the
governing body of MCTN have been aware of my continued membership on TCM board
since I was elected in November of 1995.

                                   /s/ A. CHAMBAZOV
                                   _______________________
                                   Name: A. Chambazov

I, Mark Bruce-Smith, a director of London Auditing and Consulting Ltd., do
hereby certify that the above named individual, Mr. A. Chambazov has signed
this document before me in my presence.

/s/ MARK BRUCE-SMITH                [Seal]


<PAGE>   1
                                                                   EXHIBIT 10.28

                            STATE REGISTRATION BOARD
                               Russian Federation
                             Ministry of Economics

                                  CERTIFICATE

                                No. R-3028.17.5
                                      
                              OF REGISTRATION OF

               REVISED AND AMENDED FOUNDATION DOCUMENTS IN THE

                                STATE REGISTRY

                          OF COMMERCIAL ORGANIZATIONS
                                      
         Issued to: the "TeleRoss" Closed Joint-Stock Company
                     with 100% Foreign Ownership (U.S.A.)
                     pursuant to the Minutes, Set No. 6,
             of the General Shareholders Meeting of May 17, 1996

           MAILING ADDRESS: Building 12, Krasnokazarmennaya Street,
           Moscow, Russian Federation, 111250

                 THIS CERTIFICATE GRANTS THE RIGHT TO ENGAGE
             IN COMMERCIAL ACTIVITIES PURSUANT TO THE FOUNDATION
       DOCUMENTS AND IN COMPLIANCE WITH CURRENT RUSSIAN FEDERATION LAW
                            

[Signed]    V.P. SERYOGIN
            First Deputy General Director

                                             May 30, 1996

[Seal of State Registration Board,
Russian Federation Ministry of Economics]

<PAGE>   2
APPROVED                                   REGISTERED
by Decision of the                         AND ENTERED IN 
Founder - the American                     THE STATE REGISTRY
firm "SFMT-Rusnet, Inc."                   OF THE STATE
No. 6 of May 17, 1996                      REGISTRATION BOARD
[Seal of "SFMT-Rusnet, Inc."]              [illegible]
                                           May 30, 1996
                                           No. R-3028.17.5
                                           [Signed][illegible]
                                           [seal illegible]





                                  (Revised)

                                   CHARTER

                              of the "TeleRoss"
                                      
                          Closed Joint-Stock Company




                                     Moscow
                                      1996
<PAGE>   3
                             1.  GENERAL PROVISIONS

     1.1. The "TeleRoss" Closed Joint-Stock Company, which was registered by
the Russian Agency for International Cooperation and Development on December 23,
1993, Registration No. 3028.17, revisions for which have been registered by the
State Registration Board of the Russian Federation Ministry of Economics on
September 27, 1994, Registration No. R-3028.17.1; May 26, 1995, Registration
No. R-3028.17.2; June 5, 1995, Registration No. R-3028.17.3; and September 8,
1995, Registration No. R-3028.17.4, hereby brings its foundation documents into
compliance with the provisions of the Russian Federation Federal Law "On
Joint-Stock Companies" by drafting a revised version thereof in which the
company is organized as a legal entity in the form of a joint-stock company.

     1.2. The provisions of this revised Charter of the "TeleRoss" Closed
Joint-Stock Company (hereinafter referred to as the "Company") shall contain
all necessary information as should or may be contained in the charter of the
said joint-stock company pursuant to the requirements of the Russian Federation
Federal Law "On Joint-Stock Companies".

     1.3. The activities of the Company and its governing bodies relating to
issues not addressed in the provisions of this version of the Company Charter
shall be regulated by the provisions of the Russian Federation Federal Law "On
Joint-Stock Companies" and other current laws of the Russian Federation.

                          2.  COMPANY NAME AND ADDRESS

     2.1. The official name of the Company shall be as follows:

     -    in the Russian language, the full name shall be the "TeleRoss Closed
          Joint-Stock Company," and the abbreviated name shall be the "TeleRoss
          CJSC;"

     -    in the English language, the full name shall be the "TeleRoss
          Joint-Stock Company," and the abbreviated name shall be the "TeleRoss
          JSC."

     2.2. The address of the Company shall be: 32, Khamovnichesky val, Moscow,
119048.

     2.3. The mailing address of the Company shall be: 12, ul. 
Krasnokazarmennaya, Moscow, 111250.

                        3.  LEGAL STATUS OF THE COMPANY

     3.1. The Company shall be a commercial organization with an authorized
capital divided into a specific number of shares that shall certify the
Founders' (shareholders') guaranteed rights with respect to the Company.

     3.2. The Company shall be founded in the form of a closed joint-stock
company.  Shares in the Company shall be distributed solely among its founders
or among another fixed group of parties.  The Company shall not have the right
to conduct open subscription of the shares issued by the Company or to
otherwise offer them for sale to a group or parties, not previously determined.




                                                                             2
<PAGE>   4
     3.3.  The shareholders shall not be liable for the obligations of the
Company and shall incur the risk of losses associated with its activities
within the limits of the value of the shares belonging to them.

     Shareholders that have not paid for their shares in full shall bear joint
liability for the obligations of the Company within the limits of the unpaid
cost of the shares belonging to them.

     3.4.  The Company shall be a legal entity, shall own detached property
listed on an independent Company balance sheet, and may on its own behalf
acquire and exercise property and personal nonproperty rights, assume
obligations and sue and be sued in the courts.

     3.4.1. The Company shall be established for the purpose of engaging in
various types of commercial activity for the purpose of earning a profit for
the Company and its shareholders.

     The Company shall be established in perpetuity.

     3.4.2. In accordance with the above mentioned objectives, the Company
shall primarily engage in the following types of activity:

     -         provide and distribute local, long-distance and international
               communications services of all types on the territory of the
               Russian Federation through the use of ground, radio and satellite
               communications channels and other communications facilities;

     -         provide information services of various types, including
               database links;

     -         design, build and operate communications channels and networks
               on Russian territory for both the provision of the aforementioned
               communications services by the Company and on behalf of clients;
               

     -         engage in investment activities relating to the establishment of
               communications networks and the distribution of communications
               services;

     -         procure telecommunications and other related equipment,
               technologies, services, etc., essential to the Company's
               activities on the basis of purchase, lease and other contracts;

     -         lease communications channels and services from Russian and
               foreign communications authorities and enterprises;

     -         sell and otherwise distribute special telephone calling cards;

     -         provide marketing, advertising, consulting, expert and brokerage
               services;

     -         train the personnel of users of communications services and
               equipment and provide service and support to users of
               communications services;

     -         engage in scientific and technical research, introduce research
               findings in industry, and exercise inventor's oversight in the
               field of communications;


                                                                             3
<PAGE>   5
        -      produce communications equipment and devices and service them;

        -      perform installation, repair and maintenance;

        -      conduct export-import transactions in connection with the
               construction of networks, the provision of communications
               services and other company activities; 

        -      buy and sell patents, licenses and know-how;                   

        -      create and sell intellectual property and scientific and
               technical products;

        -      provide organizational and financial support to various
               production and commercial structures and engage in joint
               activities;
               
        -      provide patent and licensing services as a co-owner of patents;

        -      establish banks, investment funds, holding companies and other
               financial and lending institutions pursuant to current law;

        -      construct, modernize and operate industrial and social-service
               facilities, residential and nonresidential buildings and 
               structures, infrastructure, offices, etc.

     3.4.3. The Company shall possess civil rights and may assume
obligations essential to the conduct of any type of activity not prohibited by
federal law.

     3.4.4. The Company may engage in those types of activities specified by
federal law as requiring special permits (licenses).

     3.5. The Company shall have the right to open bank accounts on the
territory of the Russian Federation and abroad pursuant to prescribed
procedure.

     3.6. The Company shall have a round seal bearing its full official name in
the Russian and English languages and its address, as well as stamps and
letterhead bearing its name in the Russian and English languages, its own logo,
a trademark registered pursuant to the prescribed procedure and other means of
visual identification.

     3.7.  The Company shall conclude major transactions and transactions in
which specific officers have an interest pursuant to the procedure established
by the Russian Federation Federal Law "On Joint-Stock Companies."

     3.8.  The Company shall be liable for its obligations to the full extent of
its property.

     The Company shall not be liable for the obligations of its Founders
(shareholders).

     The state and agencies thereof shall not be liable for the obligations of
the Company, and the Company shall not be liable for the obligations of the
state or agencies thereof.


                                                                              4
<PAGE>   6
     3.9. If insolvency (bankruptcy) of the Company should result from the
actions (inaction) of its Founders (shareholders) or other parties that have
the right to issue binding directives to the Company or otherwise have the
capability to determine its actions, said Founders (shareholders) or other
parties may be subject to subsidiary liability for the Company's obligations
should the Company's properties be insufficient.

     3.10. The Company shall have the right to establish branches and open
offices on the territory of the Russian Federation pursuant to the requirements
of Russian law.

     3.11. Offices and branches of the Company shall not be legal entities and
shall operate on the basis of By-laws approved by the Company.

     The Company shall assign property to its offices and branches that shall
be listed on separate balance sheets thereof, as well as on the balance sheet
of the Company.

     Officers of branches and offices shall be appointed by the Company and
shall act on the basis of powers of attorney issued by the Company.

     3.12. Branches and offices shall engage in activities on behalf of the
Company.  The Company shall be liable for the activities of the branches and
offices.

     3.13. The Company may establish subsidiaries and subordinate companies
with the rights of legal entities on the territory of the Russian Federation
pursuant to Russian law.

     3.14. Subsidiaries shall not be liable for the obligations of the Company.

     The parent Company shall be liable jointly with a subsidiary for
transactions concluded by the latter on the instructions of the parent Company
in instances in which the right to issue binding instructions to the subsidiary
is stipulated in a contract between them or in the charter of the subsidiary.

     3.15. In the event of insolvency (bankruptcy) of a subsidiary through the
fault of the parent Company, the latter shall bear subsidiary liability for the
subsidiary's debts.

     Shareholders of the subsidiary shall have the right to demand compensation
from the parent Company for losses caused to the subsidiary through the fault
of the parent Company. 

                               4. COMPANY FOUNDER

     4.1. The Founder of the Company shall be the "SFMT-Rusnet, Inc." firm, a
legal entity under the laws of the state of Delaware, United States of America.

     The address of the Founder shall be:  477 Madison Avenue, Eighth Floor,
New York, NY 10022.


                                                                             5
<PAGE>   7
                     5.  AUTHORIZED CAPITAL OF THE COMPANY;
                         SHARES; NET ASSETS OF THE COMPANY

     5.1. The Authorized Capital of the Company shall consist of the par value
of the shares purchased by the shareholders and shall be equal to
12,600,000,000 (twelve billion, six hundred million) rubles.

     The Authorized Capital of the Company as of its foundation shall consist
of 12,600,000 (twelve million, six hundred thousand) common shares having a per
share par value of 1,000,000 (one million) rubles.

     5.2. All of the Company's shares shall be distributed among its founders
upon its foundation.  All of the Company's shares shall be registered.

     5.3. By decision of the General Shareholders Meeting, the Company may
determine the quantity and par value of shares that the Company is authorized
to place in addition to its placed shares (authorized but unissued shares) by
revising and amending the Company's Charter.

     5.4. The Authorized Capital of the Company may be increased by increasing
the par value of the shares or by placing additional shares.

     A decision to increase the Authorized Capital shall be adopted by the
Company Board of Directors.

     5.5. The Company's Authorized Capital may be decreased by decreasing the
par value of the shares or by reducing the total quantity thereof, including by
means of purchasing or canceling a portion of the shares.

     Decisions regarding reductions of the Authorized Capital shall be
determined by the General Meeting of Company Shareholders.

     5.6. The Company shall notify its creditors in writing of any reduction in
its Authorized Capital not later than 30 days after the date of adoption of a
decision to that effect.

     5.7. Each common share shall confer identical rights on its owner.
Shareholders may participate in the General Shareholders Meeting with the right
to vote on all issues assigned to its jurisdiction, shall have the right to
receive dividends and, in the event of the Company's liquidation, shall have the
right to receive a portion of its property and other rights set forth in this
Charter and in the Russian Federation Federal Law "On Joint-Stock Companies."

     5.8. Fifty percent of the Company's Authorized Capital shall have been
paid in as of the moment of its registration, and the balance shall be payable
within one year of the moment of registration.

     Additional shares shall be paid for within the time period specified in
the decision to place them, but not later than one year from the date of
placement thereof.

     5.9. Payment for the Company's shares may take the form of money,
securities and other tangible assets or property rights having monetary value.


                                                                            6

<PAGE>   8
     For additional shares requiring monetary payment, a down payment of 25% of
their par value shall be submitted upon the purchase of same.

     5.10. Company shares for which non-monetary payment is to be made shall be
paid in full upon purchase of same.

     The monetary valued of property contributed as payment for shares upon the
Company's foundation shall be determined by agreement among the Founders.

     When non-monetary assets are submitted as payment for additional shares,
the monetary value of said property shall be determined pursuant to the
regulations established by the Federal Law "On Joint-Stock Companies."

     5.11. A share shall not confer voting rights until it has been paid for in
full, excepting shares acquired by the Founders upon the Company's
establishment.

     If a share has not been paid for in full within the time period specified
in point 5.8 of this Charter, the share shall be placed at the disposal of the
Company, and an entry to that effect shall be made in the shareholders'
register.

     Upon expiration of the aforesaid time period, money and/or other property
contributed as payment for the shares shall not be refunded or returned.

     In instances of default on the obligation to pay for shares, the Company
shall impose a fine on the party in default in the amount of 10 percent of the
outstanding amount.

     5.12. The Company shall have the right to place bonds and other securities
referenced in Russian Federation securities law.

     Bonds and other securities shall be placed by decision of the Company
Board of Directors pursuant to the requirements of the Federal Law "On
Joint-Stock Companies."

     5.13. The Company shall form a reserve fund in the amount of 15 percent of
its Authorized Capital.

     The reserve fund shall be formed through mandatory annual deductions of 5
percent of net profit until the fund reaches the abovementioned amount.

     The reserve fund shall be used to cover Company losses, as well as to
repay bonds and redeem Company shares in the event that other monies are
lacking.

     The reserve fund may not be used for any other purposes.

     5.14. The value of the Company's net assets shall be based on their book
value in the procedure established by current law.

                                                                            7

<PAGE>   9
     If, at the end of the second and each subsequent fiscal year, the value of
net assets is less than the Authorized Capital, the Company shall be required
to declare a decrease in its Authorized Capital to an amount not exceeding the
value of its net assets.

                    6.  PLACEMENT OF SHARES BY THE COMPANY;
                        PURCHASE AND REDEMPTION OF PLACED SHARES
          
     6.1. Company shares shall be paid for at market value, but not less than
their par value.

     Upon the Company's foundation, the Founders shall pay for shares in the
Company at their par value.

     6.2. The Company shall have the right to place shares solely by means of
closed subscription.

     6.3. Shareholders shall have preemptive rights to purchase shares being
sold by other Company shareholders at the price being offered to a third party.

     The Company shall have a preemptive right to purchase shares being sold by
its shareholders in the event that the other shareholders have waived their
preemptive rights to purchase said shares.

     6.4. The following procedure and time periods shall be established for the
exercise of preemptive rights to purchase shares being sold by Company
shareholders.

     6.4.1. Company shareholders may exercise their preemptive rights to
purchase Company shares from other shareholders only in the event that said
other shareholders are selling (transferring in exchange for compensation)
shares belonging to them to other parties.

     In other instances, Company shareholders have the right to freely transfer
the shares they hold in the Company to both the Company's shareholders and
third parties.

     Unless established otherwise by the Company's shareholders, shares may be
transferred only after they have been paid for in full by the shareholder
selling them.

     The Company itself may purchase the shares of a shareholder that has
paid for its shares in full and wishes to transfer them.  In such instances,
the Company shall be required to assign the shares to other Company shareholders
or other parties within 60 (sixty) days of the date of purchase.  Throughout
that period, the distribution of profit, as well as voting and the
determination of a quorum at Shareholders meetings, shall take place without
respect to the shares purchased by the Company.

     All changes in the composition of the Company's shareholders and in the
amounts of shares belonging to them shall be specified in the register of
Company shareholders, which shall be maintained by the Company pursuant to
established procedure.

     6.4.2. The procedure for transfer in exchange for compensation (sale)
of shares to other parties shall be as follows:

               
                                                                             8
 
     
<PAGE>   10
     a)   The shareholder (shareholders) wishing to transfer its shares in the
          Company to another party shall be required to notify the executive
          body of the Company in writing at least 30 days prior to the date on
          which the shares will be offered for sale; said notice shall specify
          the substantive terms of the transaction (the date on which the notice
          is received by the executive body of the Company shall be deemed to be
          the date of the notice).

     These terms shall include:

     -    all information necessary to the identification of the other party
          wishing to purchase the shares in the Company held by the shareholder;
     
     -    the quantity of shares being offered;

     -    the sale price per share or for the entire package of shares being
          offered;

     -    the terms of payment for the shares;

     -    other terms of the transaction.

     The notice submitted by the shareholder regarding the transfer (sale) of
its shares to another party in exchange for compensation may be delivered to the
executive body of the Company in the form of a statement to which a copy of
the shareholder's offer to the other party or the other party's offer to the
shareholder should be appended.

     b)   The executive body of the Company shall be required to inform the
          remaining shareholders of the offer received and the terms thereof
          within 10 days of the date of receipt of the shareholder's notice of 
          transfer of shares in exchange for compensation.

     c)   Shareholders may express a desire to accept the offer in writing
          within 15 (fifteen) days of the date on which they were notified by
          the executive body of the Company.

     d)   If two or more shareholders express a desire to purchase the offered
          shares pursuant to the terms proposed, the offered shares shall be 
          distributed among these shareholders in proportion to the quantity of 
          shares they hold in the Company.

     e)   If neither the Company nor any of the shareholders expresses a desire
          to purchase the offered shares in the proper manner and by the
          specified deadline, or if, having accepted the offer, the Company or
          any shareholder fails to purchase the shares being offered by the 
          shareholder pursuant to the terms proposed by the latter within 2 
          (two) months of the date on which the shareholder gave notice of 
          offer of shares to the Company's executive body, that shareholder
          shall have the right to sell the shares to another party that has
          agreed to purchase the offered shares pursuant to the terms proposed.

     Transfers of shareholders' Company shares to other parties in violation of
the abovementioned procedure shall be deemed null and void.

   
                                                                              9 
<PAGE>   11
     Share transfers shall be registered in the registry of Company
shareholders, which shall be maintained by the Company pursuant to the
established procedure.

     The time period for the exercise of preemptive rights shall be not fewer
than 30 nor more than 60 days from the date on which shares are offered for
sale.

     6.5. If the Company increases its Authorized Capital by placing additional
shares to be sold for money, the shareholders that hold voting shares in the
Company shall have preemptive rights to purchase said shares in a quantity
proportional to the quantity of voting shares they already hold in the company.

     6.6. If a decision is adopted to decrease the Authorized Capital, the
Company shall purchase and redeem placed shares pursuant to the provisions of
the Law "On Joint-Stock Companies."

                              7. COMPANY DIVIDENDS

     7.1. The Company's profit shall be determined at the end of each fiscal
year.  The net profit of the Company calculated in accordance with prescribed
procedure, after payment of taxes as required by legislation and contributions
to the Company's funds, shall remain at the Company's disposal and, by decision
of the General Shareholders Meeting, shall be distributed among the
shareholders in the form of dividends or shall be transferred to the Company's
reserves.

     Dividends shall be paid from net profit for a current year (annual
dividends).

     7.2. Decisions regarding distribution of annual dividends, dividend amount
and methods of payment shall be determined by the General Shareholders Meeting
upon the recommendation of the Board of Directors.

     Annual dividends may not exceed the amount recommended by the Board of
Directors or be less than any interim (quarterly or semiannual) dividends paid.

     The General Shareholders Meeting shall have the right to adopt a decision
to not pay a dividend.

     7.3. The Company shall be required to pay declared dividends.

     Dividends shall be paid in cash.  Dividends may be paid in the form of
other property, including shares or consumer goods, by special decision of the
Board of Directors.
        
     7.4. In addition to paying annual dividends, the Company may pay interim
(quarterly or semiannual) dividends, the amount and method of payment of which
shall be determined by the Company Board of Directors.

     7.5. The payment date of annual dividends shall be specified in the
decision adopted by the General Shareholders Meeting to pay annual dividends.

                        
                                                                             10 
<PAGE>   12
     The payment date of interim dividends shall be specified in the decision
adopted by the Company Board of Directors to pay interim dividends but shall
not be fewer than 30 days from the date of adoption of the decision.

     7.6. For each dividend payment, the Company Board of Directors shall draft
a list of parties eligible to receive the dividend.

     The list of parties eligible to receive interim dividends shall include
shareholders that were entered in the registry of Company shareholders not
later than 10 days prior to the date on which the Company Board of Directors
adopted the decision to pay dividends.

     The list of parties eligible to receive annual dividends shall include
shareholders that were entered in the register of Company shareholders as of
the date of compilation of the list of parties having the right to participate
in the annual General Shareholders Meeting.

     7.7. The Company shall not have the right to adopt a decision to pay
dividends on shares:

     -    before the Company's entire Authorized Capital has been paid in full;

     -    pending redemption by the Company of all shares at the demand of
          shareholders having the right to demand redemption of their shares 
          pursuant to current law;

     -    if, at the time of a dividend payment, the Company meets the
          criteria of bankruptcy as defined by Russian Federation insolvency
          (bankruptcy) laws or would meet such criteria as a result of the 
          dividend payment;

     -    if the value of the Company's net assets is less than its Authorized
          Capital and reserve fund.

                      8. REGISTRY OF COMPANY SHAREHOLDERS

     8.1. The Company shall maintain a registry of Company shareholders and 
shall provide for its safekeeping pursuant to the requirements of Russian
Federation law not later than one month from the date of the Company's state
registration.

     8.2. The registry of Company shareholders shall contain information
regarding each shareholder and shall indicate the quantity of shares listed in
the name of each shareholder and other information by Russian Federation Law.

     A party registered in the register of Company shareholders shall be
required to promptly inform the registrar of any changes in the information
regarding that party.  If a shareholder has failed to give notice of any
changes in the information regarding that party, the Company shall not be
liable for any consequent losses.
        
     8.3. An entry shall be made in the register of Company shareholders
pursuant to the demand of a shareholder not later than three days from the
date of submission of the documents specified in Russian Federation laws.



                                                                             11 
<PAGE>   13
                            9. COMPANY MANAGEMENT

     9.1. The governing bodies of the Company shall be: the General
Shareholders Meeting, the Board of Directors, and the Company's one-person
executive body (the general director).

     9.2. The General Shareholders Meeting.

     9.2.1. The General Shareholders Meeting shall be the highest authority of
the Company. The Company shall hold a General Shareholders Meeting each year
(the annual General Shareholders Meeting) not earlier than three months nor
later than five months after the end of the Company's fiscal year.

     Any meetings that are not General Shareholders Meetings shall be
extraordinary meetings.

     9.2.2. The date on which a General Shareholders Meeting is to be convened,
the procedure for giving notice of the meeting to shareholders and a list of
materials to be provided to shareholders in preparation for the General
Meeting shall be established by the Board of Directors.

     9.2.3. The annual General Shareholders Meeting shall consider the
following issues: election of the Board of Directors and the auditing
commission, approval of the Company's auditor, review of the Company's annual
reports, balance sheets and profit and loss statements as submitted by the
Board of Directors, and distribution of Company profits and losses.

     9.2.4. The following issues shall be assigned to the exclusive
jurisdiction of the General Shareholders Meeting:

     1) revisions and amendments to the Company Charter or approval of a
revised Company Charter;

     2) reorganization of the Company;

     3) liquidation of the Company, appointment of a liquidation commission and
approval of the interim and final liquidation balance sheets;

     4) determination of the number of directors of the Company Board of
Directors, election of its members and the premature termination of their
powers;
     
     5) determination of the maximum quantity of authorized but unissued shares;
     
     6) reductions in the Company's Authorized Capital through a decrease in
the par value of its shares, the Company's purchase of a portion of the shares
in order to reduce the total quantity thereof or to cancel partially paid
shares, or the cancellation of shares purchased or redeemed by the Company;

     7) election of members of the Company auditing commission and the
premature termination of their powers;


                                                                             12
 
<PAGE>   14
     8) approval of the Company's auditor;

     9) approval of the Company's annual reports, balance sheets and profit and
loss statements and distribution of its profits and losses;

     10) division (splits) or consolidation of Company shares;

     11) procedures regulating the conduct of General Meetings;

     12) formation of a vote-counting commission or appointment of a person to
perform the commission's functions;

     13) determination of methods for communicating information to shareholders;

     14) formation of the Company's executive body and the premature
termination of its powers;

     15) approval of transactions involving the interests of persons specified
by Article 81 of the Russian Federation Federal Law "On Joint-Stock
Companies";

     16) the conclusion of major transactions involving the purchase and
alienation of property by the Company;

     17) decision-making on other issues specified by the Russian Federation
Federal Law "On Joint-Stock Companies."

     9.2.5. Issues assigned to the exclusive jurisdiction of the General
Meeting may not be assigned to the Company's Board of Directors or executive
body for decision.

     9.2.6. The General Shareholders Meeting shall not have the right to
consider or render decisions on issues not assigned to its jurisdiction by the
Federal Law "On Joint-Stock Companies."

     9.2.7. The General Shareholders Meeting shall adopt decisions on the basis
of majority vote of the shareholders participating in the meeting, unless the
Federal Law "On Joint-Stock Companies" or the Company Charter requires a
greater number of votes.

     Decisions on procedures regulating the conduct of the General Meeting
shall be adopted by majority vote of the shareholders present at the meeting;
all proposals submitted by the shareholders attending the meeting shall be
considered.

     9.2.8. Decisions on the issues cited in subpoints 2, 10, 13, 15 and 16 of
point 9.2.4 of this Charter shall be adopted by the General Shareholders
Meeting solely on the basis of proposals submitted by the Company Board of
Directors.


     9.2.9. Decisions on the issues cited in subpoints 1-3, 5 and 16 of point
9.2.4 of this Charter shall be adopted by a vote of three-quarters of the
shareholders participating in the General Shareholders Meeting.



                                                                             13
<PAGE>   15
     9.2.10. The General Shareholders Meeting shall not have the right to
render decisions on issues that were not included on the meeting agenda or to
alter the agenda.

     9.2.11. Decisions adopted by the General Shareholders Meeting, as well as
voting results, shall be communicated to the shareholders in the procedure and
time periods set forth in the Russian Federation Federal Law "On Joint-Stock
Companies," but not later than 45 days from the date of adoption of a decision.

     A shareholder shall have the right to appeal to the courts any decision
adopted by the General Shareholders Meeting in violation of the Federal Law
"On Joint-Stock Companies," other Russian Federation laws, or this Charter if
the shareholder did not participate in the General Shareholders Meeting or
voted against the decision in question and the decision violated his rights and
legitimate interests.

     9.2.12. The list of shareholders having the right to participate in the
General Meeting shall be drafted in the time period and procedure set forth in
the Federal Law "On Joint-Stock Companies."

     9.2.13. Notice of a General Meeting shall be given to the shareholders by
written notice delivered to them by registered mail.

     Notice shall be sent not later than three weeks prior to the date of the
General Meeting.

     9.2.14. Company shareholders (a shareholder) that hold a combined total of
not less than 2 percent of the shares shall have the right to submit not more
than two proposals for the agenda of the annual General Shareholders Meeting
and to nominate candidates for the Company Board of Directors and the auditing
commission, the number of which may not exceed the number of members required
for the body in question, within 30 days of the end of the Company's fiscal
year.

     An issue proposed for the agenda of the General Shareholders Meeting shall
be submitted in writing and shall set forth the reason for which it is being
proposed, the name of the shareholder (shareholders) submitting the issue, and
the quantity and categories of the shares belonging to the stockholder.

     9.2.15. Proposals submitted for the nomination of candidates for the
Company Board of Directors and auditing commission, including proposals in
which a candidate nominates himself, shall indicate the name of the candidate
and (if the candidate is a Company shareholder) the quantity and category
(class) of the shares belonging to him, as well as the names of the
shareholders nominating the candidate and the quantity and category (class) of
the shares belonging to them.

     9.2.16. The Company Board of Directors shall consider the proposals
submitted and shall render a decision to include them on the agenda of the
General Meeting or to deny inclusion on the agenda not later than 15 days after
the deadline established for the submission of proposals.

     9.2.17. The following shall constitute grounds to deny inclusion of an
issue on the agenda of the General Shareholders Meeting or inclusion of
candidates on the slate in elections of the Board of Directors or auditing
commission:




                                                                             14 
<PAGE>   16
     -    failure to meet the deadline for submitting proposals established in
          part one of point 9.2.14 of this Charter;

     -    absence of information specified in part two of point 9.2.14 of this
          Charter;

     -    non-compliance of a proposal with the requirements of the Federal Law
          "On Joint-Stock Companies" and other Russian Federation laws.

     A decision of the Board of Directors to deny inclusion of an issue on the
agenda of the General Shareholders Meeting or inclusion of a candidate on the
slate in elections of the Company Board of Directors or auditing commission
shall set forth the grounds on which the decision was rendered; said grounds
shall be forwarded to the shareholder (shareholders) that submitted the issue
or proposal not later than three days after the date of its adoption.

     A decision by the Board of Directors not to include an issue on the
agenda or a candidate on a slate of candidates may be appealed to the courts. 

     9.2.18. When preparing to convene a General Shareholders Meeting, the
Board of Directors (or the parties demanding the convening of an extraordinary
General Meeting) shall determine:

     -    the date, place and time of the General Meeting;

     -    the agenda of the General Meeting;

     -    the date of compilation of the list of shareholders eligible to
          participate in the General Meeting:

     -    the procedure for giving notice of the General Meeting to the
          shareholders;

     -    a list of information to be furnished to the shareholders in
          preparation for the General Meeting.

     9.2.19. An extraordinary General Shareholders Meeting shall be held by
decision of the Board of Directors on its own initiative or at the demand of
the auditing commission, the Company's auditor, or a shareholder (shareholders)
that holds not less than 10 percent as of the date on which the demand is made.

     The decision shall specify the method by which the General Shareholders
Meeting is to convene (collective attendance or correspondence vote).

     The adoption of a decision to hold an extraordinary General Shareholders
Meeting and the preparation and conduct thereof shall comply with the
regulations set forth in the Law "On Joint-Stock Companies."

     9.2.20. The right to participate in the General Shareholders Meeting may
be exercised by shareholders in person or by proxy.



                                                                             15
<PAGE>   17
     A shareholder shall have the right at any time to replace his proxy or to
take part in the General Meeting in person.

     A shareholder's proxy shall act in accordance with the powers set forth in
a written power of attorney.  A power of attorney to vote shall be drafted
pursuant to the requirements of points 4 and 5 or Article 185 of the Russian
Federation Civil Code or shall be notarized.  Said power of attorney shall
contain information regarding the party being represented and the
representative (name, place of residence or business, passport data).

     9.2.21.  The General Shareholders Meeting shall be legally empowered
(have a quorum) if shareholders (or proxies thereof) holding a combined total
or more than half of the votes conferred by the Company's placed shares have
registered by the end of registration for participation in the General Meeting.

     If a quorum to hold the General Meeting is not reached, the date on which
a new General meeting is to convene shall be announced.  The agenda may not be
modified when the new General Shareholders Meeting convenes.

     The General Meeting convened in place of the one that lacked a quorum
shall be legally empowered if shareholders (or proxies thereof) holding a
combined total of not less than 30 percent of the votes conferred by the
Company's placed voting shares have registered by the end of registration for
participation in it.

     Notice of the new General Meeting shall be given not later than 10 days
prior to the meeting date in the procedure set forth in part one of point
9.2.13 of this Charter.

     9.2.22.  Voting in the General Meeting shall be conducted according to
the "one voting share, one vote" principle.

     Voting may be conducted by ballot.

     The form and text of ballots shall be approved by the Board of Directors.

     9.2.23.  A report on the voting results shall be drafted and signed by
the members of the vote-counting commission or the person performing its
functions.

     The report on the voting results shall be appended to the minutes of the
General Shareholders Meeting.

     The results of a vote shall be announced at the General Meeting in
question or communicated to the shareholders after the close of the General
Meeting by forwarding to shareholders a report on the vote's outcome.

     9.2.24.  The minutes of the General Meeting shall be drafted not later
than 15 days after the close of the General Meeting in two counterparts, which
shall be signed by the presiding officer and secretary of the General Meeting
and shall contain the information specified in the Russian Federation Federal
Law "On Joint-Stock Companies."

     9.3.  The Company Board of Directors and the Company Executive Body.


                                                                            16

<PAGE>   18
     9.3.1.  The Board of Directors shall exercise overall supervision of the
Company's activities, with the exception of decision-making on issues assigned
to the exclusive jurisdiction of the General Shareholders Meeting.

     The Board of Directors shall be comprised of seven members.

     9.3.2.  The following issues shall be assigned to the exclusive
jurisdiction of the Company Board of Directors:

     1)  determination of priority fields of the Company's activities;

     2)  convening of annual and extraordinary General Shareholders Meetings,
with the exception of instances in which an extraordinary General Meeting is
convened by parties demanding the convening of such a meeting in accordance
with the Russian Federation Federal Law "On Joint-Stock Companies";

     3)  approval of the agenda of the General Shareholders Meeting;

     4)  determination of the date of compilation of the list of shareholders
eligible to participate in the General Meeting and other issues that are
assigned to the jurisdiction of the Board of Directors by this Charter in
connection with the preparation and conduct of the General Shareholders
Meeting, pursuant to the Russian Federation Federal Law "On Joint-Stock
Companies";

     5)  submission for decision by the General Meeting of the issues specified
in subpoints 2, 10, 13, 15 and 16 of point 9.2.4 of this Charter, as well as 
issues pertaining to the Company's purchase of placed shares of the Company's
participation in holding companies, financial-industrial groups or other
associations of commercial organizations;

     6)  increasing the Company's Authorized Capital by increasing the par value
of shares or by placing additional shares within the limits of the authorized 
but unissued shares;

     7)  determination of property market values pursuant to Article 77 of the
Law "On Joint-Stock Companies";

     8)  the purchase of shares placed by the Company;

     9)  the placement of bonds and other securities issued by the Company;

     10) recommendations concerning amounts of salary and compensation to be
paid to members of the Company auditing commission and determination of the
amount of payment for the auditor's services;

     11) recommendations concerning share dividend amounts and the procedure for
their distribution;

     12) use of the Company's reserve and other funds;

                                                                       17
                               
<PAGE>   19
     13) approval of internal Company documents that regulate the activities of
its governing bodies;

     14) establishment of Company branches and Company offices;

     15) decisions regarding the Company's participation in other organizations,
except for participation in holding companies, financial-industrial groups or
other associations of commercial organizations;

     16) the conclusion of major transactions involving the acquisition or
alienation of property by the Company except for issues that are assigned to
the jurisdiction of the General Shareholders Meeting;

     17) the conclusion of transactions involving the interests of persons
specified in Chapter XI of the Law "On Joint-Stock Companies", unless this
issue is assigned to the jurisdiction of the General Shareholders Meeting;

     18) other issues specified in the Law "On Joint-Stock Companies" and this
Charter.

     9.3.3. Issues assigned to the exclusive jurisdiction of the Company
Board of Directors may not be assigned to the general director for decision.

     9.3.4. Members of the Board of Directors shall be elected by the annual
General Shareholders Meeting for one-year terms from among candidates nominated
by the shareholders.

     Elections and the nomination of candidates shall be carried out in such a
way that shareholders that hold more than 25 percent of the Company's
Authorized Capital shall not have fewer than two representatives on the Board
of Directors.

     Candidates nominated for election to the Board of Directors pursuant to
this Charter shall be deemed to have been elected as members of the Board of
Directors if they received a majority of the votes of the shareholders that
hold voting Company shares and participated in the meeting, within the limits
of the number of members required for the Board of Directors pursuant to this
Charter.  In the event that equal numbers of votes are cast for candidates, the
vote of the presiding officer at the meeting shall be the deciding vote.

     Persons elected to the Board of Directors may be re-elected an unlimited
number of times.

     The powers of any member of the Board of Directors may be terminated
prematurely by decision of the General Shareholders Meeting.

     The person performing the functions of the one-person executive body (the
general director) may not serve concurrently as chairman of the Company Board
of Directors.

     Requirements for members of the Board of Directors shall be set forth in
the internal Company document regulating the activities of the Board of
Directors.
                                                                       18

    
<PAGE>   20
     9.3.5.  The chairman of the Board of Directors shall be elected by the
members of the Board of Directors from among their number by majority vote of
the total number of members of the Board of Directors.

     The Board of Directors shall have the right at any time to re-elect its
chairman by majority vote of the total number of members of the Board of
Directors.

     9.3.6.  The chairman of the Company Board of Directors shall:

     -      organize the Board's work;

     -      convene meetings of the Board of Directors;
     
     -      preside at meetings of the Board of Directors;

     -      arrange for the recording of minutes at meetings;

     -      preside at the General Shareholders Meeting.

     In the absence of the chairman of the Board of Directors, his functions
shall be performed by one of the Board members by decision of the Board of
Directors.

     9.3.7.  Meetings of the Board of Directors shall be convened by the
chairman on his own initiative or at the demand of a member of the Board of
Directors, the auditing commission, the Company's auditor or the Company
executive body.     

     The procedures for convening and conducting meetings of the Board of
Directors shall be set forth in an internal Company document.

     9.3.8.  A quorum for a meeting of the Board of Directors shall be not
fewer than three of the elected members of the Board of Directors.

     9.3.9.  Decisions at meetings of the Board of Directors shall be adopted
by majority vote of those present.  Each member of the Board of Directors shall
have one vote.  The assignment of a vote by one member of the Board of
Directors to a different member shall be prohibited.

     In the event of a tie vote in decision-making by the Board of Directors,
the vote of the chairman of the Board of Directors shall be the deciding vote.

     9.3.10. Minutes shall be recorded at meetings of the Company Board of
Directors.

     The minutes of a meeting shall be drafted not later than 10 days after the
meeting is held.

     9.3.11. Management of the Company's day-to-day activities shall be the
responsibility of the Company's one-person executive body - the general
director.

     The general director shall be appointed by decision of the General
Shareholders Meeting.  The general director shall be a full member of the Board
of Directors.  All issues relating to the management of day-to-day activities,
with the exception of the issues assigned to the exclusive


                                                                            19
<PAGE>   21
jurisdiction of the General Shareholders Meeting or the Company Board of
Directors, shall be assigned to the jurisdiction of the general director.

     The Company general director shall organize implementation of the
decisions of the General Shareholders Meeting and the Company Board of
Directors.

     9.3.12.  The general director shall act on the Company's behalf without a
power of attorney, represent its interests, conclude transactions on the
Company's behalf, approve personnel arrangements and issue orders and
directives that shall be binding on all Company employees. 

     9.3.13.  The rights and obligations of the general director relating to
management of the Company's day-to-day activities shall be defined by the
Federal Law "On Joint-Stock Companies," other Russian Federation laws and the
contract concluded with the Company.

     Said contract shall be signed on behalf of the Company by the chairman of
the Board of Directors or by a person authorized by the Company Board of
Directors.

     9.3.14.  Relations between the Company and the general director shall be
regulated by Russian Federation labor laws insofar as they do not conflict with
the provisions of the Russian Federation Federal Law "On Joint-Stock Companies."

     9.3.15.  The general director may hold positions in the governing bodies
of other organizations only with the consent of the Company Board of Directors.

     9.3.16.  The General Shareholders Meeting shall have the right to
terminate the contract with the general director at any time.

     9.3.17.  In performing their obligations, members of the Board of
Directors and the general director shall act in the best interests of the
Company and shall exercise their rights and fulfill their obligations to the
Company reasonably and in good faith.

     Members of the Board of Directors and the general director shall be liable
to the Company for losses caused to the Company as a result of wrongful action
(inaction) on their part, unless other grounds and degrees of liability are
established by federal law.

     9.3.18.  The Company or a shareholder (shareholders) holding a combined
total of not less than 1 percent of the Company's placed shares shall have the
right to file suit in the courts against a member of the Board of Directors
and/or the general director for restitution of losses caused to the Company by
wrongful acts on their part.

                        10.  OVERSIGHT OF THE COMPANY'S
                       FINANCIAL AND ECONOMIC ACTIVITIES


     10.1.  The auditing commission shall be elected by the General 
Shareholders Meeting to oversee the Company's financial and economic activities.

     The auditing commission shall be elected from among the shareholders or
proxies thereof and shall be comprised of not fewer than three persons.  The
auditing commission shall be elected


                                                                       20
<PAGE>   22

for a two-year term.  Procedures governing the activities of the auditing
commission shall be set forth in an internal Company document approved by the
General Shareholders Meeting.

     10.2. The financial and economic activities of the Company shall be
reviewed (audited) on an annual basis, as well as at any time on the initiative
of the auditing commission, by decision of the General Shareholders Meeting or
the Board of Directors, or at the demand of a Company shareholder
(shareholders) holding not less than 10 percent of the Company's shares.

     The auditing commission shall forward the findings of its reviews to the
General Shareholders Meeting.

     10.3. The auditing commission shall:

     -    perform documentary audits and conduct full and selective reviews of
          the Company's financial and economic activities;
     
     -    audit compliance with estimates for expenditures from Company funds
          and the proper use of financial resources;

     -    review the organization and authenticity of the Company's
          statistical, accounting and other reports;

     -    review the state of the Company's assets and audit its cash
          management office;

     -    prepare opinions on the Company's annual reports;

     -    verify that the registry of Company shareholders is properly
          maintained;

     -    verify lists of shareholders prior to General Shareholders Meetings
          and relay them to the counting commission;

     -    verify lists of shareholders prior to the calculation of dividends
          and ensure that dividends are calculated correctly and in a timely
          fashion.

     10.4. Pursuant to a demand made by the auditing commission, persons who
hold positions in the Company's governing bodies shall be required to furnish
documents pertaining to the Company's financial and economic activities.

     The auditing commission shall have the right to convene an extraordinary
General Shareholders Meeting pursuant to Article 55 of the Russian Federation
Federal Law "On Joint-Stock Companies."

     10.5. Auditing commission members may not be members of the Board of
Directors simultaneously or hold other positions in the Company's governing
bodies.

     Shares belonging to members of the Board of Directors or to persons
holding positions in the Company's governing bodies may not be voted in
elections of auditing commission members. 

                    
                                                                           21
           
          
          
<PAGE>   23
     10.6. The auditor (an individual citizen or an auditing organization) shall
review the Company's financial and economic activities by contract with the
Company.

     The General Shareholders Meeting shall approve the Company's auditor.  The
amount of payment for his services shall be determined by the Board of
Directors.

     10.7. Based on the findings of the review of the Company's financial and
economic activities, the auditing commission or auditor shall prepare an opinion
that shall:

     -    vouch for the authenticity of the data contained in the Company's
          reports and other financial documents;

     -    contain information regarding any violations of the procedures
          regulating accounting and the submission of financial reports or any
          violations of Russian Federation law.

                11.  ACCOUNTING AND REPORTING; COMPANY DOCUMENTS

     11.1. The Company shall maintain accounts and submit financial reports in
the procedure prescribed by Russian Federation law.

     In addition, in order to comply with current U.S. accounting and reporting
requirements, the shareholders agree that the Company shall maintain its books
of account and reporting statements pursuant to the generally accepted
accounting principles (GAAP) of the United States.  The cost of maintaining
reporting statements in accordance with GAAP shall be borne by the Company.

     The general director shall be liable for the organization, state and
accuracy of the Company's accounting and for the timely submission of the
annual report and other financial reports to the relevant bodies, as well as
for the timely submission to shareholders and creditors of information
pertaining to the Company's activities.

     11.2. The accuracy of the date contained in the annual report, the balance
sheet and the profit and loss statement shall be confirmed by the auditing
commission.

     The Company's annual report shall be subject to preliminary approval by
the Board of Directors not later than 30 days prior to the date on which the
annual General Shareholders Meeting is to convene.

     11.3. The Company shall maintain the following documents:

     -    the Company Charter, revisions and amendments to the Charter
          registered in the prescribed procedure, the decision to establish the
          Company, and the decision to apply for state registration of the
          Company;

     -    documentation confirming the Company's rights to the assets specified
          on its balance sheet;

     -    internal Company documents approved by the General Shareholders
          meeting and other governing bodies of the Company;


                                                                            22

<PAGE>   24
     -    by-laws governing Company branches or offices;

     -    accounting records;

     -    financial reporting documents submitted to the relevant agencies;

     -    the minutes of General Shareholders Meetings and meetings of the
          Board of Directors and auditing commission;

     -    the opinions of the auditing commission, the Company's auditor and
          state and municipal financial oversight authorities;

     -    other documents referenced by current law, the Company's Charter and
          internal documents and the decisions of its governing bodies.
     
     11.4. Information pertaining to the Company shall be furnished by the
Company pursuant to current Russian Federation law.

     The Company shall ensure that shareholders have access to the documents
listed in point 11.3 of this Charter, with the exception of accounting
documents.

     Pursuant to the demand of any shareholder, the Company shall be required
to furnish same with copies of the documents listed in point 11.3 of this
Charter in exchange for a fee.  The amount of the fee shall be established by
the Company and shall not exceed the cost of preparation of the copies and
mailing expenses.

                   12. COMPANY REORGANIZATION AND LIQUIDATION

     12.1. The Company may be reorganized by merger, acquisition, division,
spin-off or conversion.

     The Company shall be recognized as reorganized, with the exception of 
reorganization in the form of acquisition, as of the moment of state
registration of the newly established legal entities.

     Upon reorganization of the Company by acquisition, the first company shall
be recognized as reorganized as of the moment that an entry recording the
termination of the acquired Company is made in the uniform state registry of
legal entities by the state registration authority.

     12.2. Reorganization of the Company in any of the forms referenced by law
shall be carried out in the procedure established by the Russian Federation
Civil Code, the Russian Federation Federal Law "On Joint-Stock Companies" and
other current laws.

     12.3. The Company may be liquidated voluntarily in the procedure set forth
in the Russian Federation Civil Code, with due regard for the requirements of
the Federation Law "On Joint-Stock Companies."

                                                                       23
<PAGE>   25
     The Company may be liquidated by court ruling on grounds referenced in the
Russian Federation Civil Code.

     Liquidation of the Company shall result in termination without assignment
of its rights and obligations to legal successors.

     12.4. Liquidation of the Company shall be deemed to have been completed and
the Company to have ceased to exist as of the moment the state registration
authority records an entry to that effect in the uniform state registry of
legal entities.

     For the "SFMT-Rusnet, Inc." company:

     [Signed]  Henry Radzikowski
               Director for CIS and East European Countries

     [seal of "SFMT-Rusnet, Inc."]







                                             24



                          

<PAGE>   1
                                                                   EXHIBIT 10.29

                                   AGREEMENT

               On the Creation and Functions of the Joint Venture

                                "SOVAM TELEPORT"

         The Institute for Automated Systems ("IAS"), a juridical person under
the laws of the USSR, and San Francisco/Moscow Teleport, Inc. ("SFMT"), a
juridical person under the laws of California, hereby agree to the following:

                                   ARTICLE 1

         IAS and SFMT (the "Participants") hereby establish a joint venture
under the laws of the USSR, to be created in the USSR in the city of Moscow
("the Venture").  The Venture is to be established for the transmission of
packet-switched digital information between the USSR and the USA, and for the
purposes of providing and ensuring users of digital packet-switched computer
communications in the USSR and USA with advanced means of fulfilling joint
humanitarian, scientific, technical, and commercial projects, and with
consultation and computer technology training.  The Venture will also develop
and implement solutions to complex problems of its customers.  To pursue these
goals, the Venture will carry out other commercial activities and provide goods
and services to customers in the USSR and abroad, as the Venture wishes.  The
Venture will independently develop and approve its own program of economic,
production, and trade activities.

                                   ARTICLE 2

        Name for the Venture:
        In Russian:
        ["[ILLEGIBLE]"]
        In English:
        "SOVAM TELEPORT".
        Location of the Venture:
        USSR, 103009, Moscow, Nezdanova Street, 2a.

                                   ARTICLE 3

         The Venture will be established and will operate until the effective
date of termination of this Agreement.
<PAGE>   2
                                      2


                                   ARTICLE 4

         The Venture will be a legal entity governed by Soviet law.  The Venture
will be established, function and conduct its activities in accordance with
Soviet legislation, this Agreement, and the Charter, which is an integral part
of this Agreement.  Where this Agreement and the Charter appear contradictory or
inconsistent, the terms of this Agreement will prevail.

                                   ARTICLE 5

         This Agreement will become effective, and the Venture will be deemed
to establish and begin its operations, on and from the date of its registration
with the USSR Ministry of Finance.

                                   ARTICLE 6

         The capital stock of the Venture will initially consist of cash with a
value of 500,000 U.S. dollars and will be formed by the contributions of the
Participants.  IAS will contribute the sum of 250,000 U.S. dollars in roubles
and will thus own 50% of the capital stock of the Venture.  The conversion of
this sum from U.S. dollars into roubles will be made in accordance with the
official exchange rate of the USSR Gosbank on the day of the contribution.  SFMT
will contribute the sum of 250,000 U.S. dollars, and will thus own 50% of the
capital stock of the Venture.  IAS and SFMT will make their contributions to the
capital stock of the Venture in cash, to the Venture's accounts in the USSR
Gosbank and the USSR Vneshekonombank, respectively, within thirty (30) days
after the opening of the accounts, provided that the registration of the
Venture with the USSR Ministry of Finance will have been completed.

                                   ARTICLE 7

         The Board of Directors of the Venture may modify the amount of the
capital stock of the Venture, in its discretion.  For this purpose, it may
accept supplementary contributions from the Participants, or, if so decided by
the Board of Directors, may use the profits of the Venture itself.

                                   ARTICLE 8

         The following necessary funds will be established to ensure and
support the Venture's activities and social benefits:
<PAGE>   3
                                      3


        (1) a reserve fund of up to 25% of the capital stock.
        (2) a fund for research and development of production, science, and 
technology.
        (3) a fund for employee benefits, including financial and social 
benefits and necessary housing.
        The amounts and procedures for allocating the funds, and the use of 
the funds, will be determined by the Board of Directors.

                                   ARTICLE 9

         The valuation of any capital goods, personal property rights and/or
personal rights not pertaining to property to be contributed by either
Participant to the capital stock of the Venture will be carried out by mutual
Agreement of the Participants, taking into account prices on the world market.
The recalculation of the value of contributions into roubles will be conducted
in accordance with the official USSR Gosbank rates of exchange on the day such
currency is deposited in the account of the Venture.

                                   ARTICLE 10

         The property of the Venture will be insured by the insurance
joint-stock company of the USSR (Ingosstrakh).

                                   Article 11  

         The Venture shall have a supreme body, executive body and audit body.
The supreme body and authority of the Venture will be the Board of Directors,
consisting of four (4) members, two (2) appointed by each of the Participants.
Day-to-day operations of the Venture and the implementation of decisions of the
Board of Directors will be carried out by the Management.  The Management will
be headed by the General Director, who will be appointed by the Board of
Directors.  The Management is formed of the persons appointed by the
Participants.  The authority of the Board of Directors and the Management, and
the procedures for making decisions, are described in the Charter.  The Venture
shall have an Audit Committee formed according to the procedure described in
the Charter.  Matters relating to the administration of the Venture not
addressed by this Agreement will be determined by the Charter or by the Board
of Directors.

                                   ARTICLE 12

         For the creation, development, and functioning of the Venture, the
Venture will acquire and/or develop sufficient technical and technological
documentation to
<PAGE>   4
                                      4


ensure its effective functioning, including plans for developing technology and
achieving high productivity.

                                   ARTICLE 13

         The Venture may carry out its activities in the USSR and abroad.  The
Venture shall have an independent economic status and will function on the
basis of complete selfsupport, hard currency self-repayment, and
self-financing.  Export and import activities should be carried out by the
Venture independently, as well as through Soviet foreign trade organizations,
or other Soviet foreign organizations engaging in foreign economic activity.
All products or services imported into the USSR by the Venture will be exempt
from all customs duties, or tariffs, or similar charges in accordance with
Soviet legislation.

                                   ARTICLE 14

         The Venture will have its own intellectual and industrial property
rights, under and in accordance with Soviet legislation, which rights will
safeguard such property of the Venture as patents, unpatented inventions, "know
how", copyrights, trade secrets, industrial designs and trademark rights.
Procedures for the commercial usage, protection, and defense of these rights by
the Venture within the USSR and abroad will be determined by the Board of
Directors.  The Participants will not possess any individual rights to any such
property of the Venture, or to any other objects or property contributed by
either Participant to the capital stock of the Venture.  The Venture will have
the right to ownership of property, except for rights to ownership of the
earth, innermost depths of the earth, bodies of water, and forests.

                                   ARTICLE 15

         Each Participant, its agents, representatives or employees will
maintain strict confidentiality with respect to all technical, financial,
commercial, and other information received from the other Participant, and will
take all reasonable measures to protect such information from unauthorized use
or disclosure for a period of five (5) years after the termination of this
Agreement.  The transfer of such information to third parties, publications or
any other disclosures of such information, at any time until expiration of the
five-year period after the termination of the present Agreement, may be
undertaken only if there is consent of the other Participant (irrespective of
the reason for the termination of the present Agreement).
<PAGE>   5
                                      5


                                  ARTICLE 16

         The Venture will have the right, in conducting its activities such as
export and import operations and marketing, to invite foreign specialists to
the USSR, to send specialists abroad on business trips, and to make
arrangements to pay their reasonable travel, lodging, meals, and other expenses
in connection with such trips.  The Venture will also have the right to conclude
contracts and agreements with the partners in the USSR and in other countries.

                                   ARTICLE 17

         The undersigned Participants will use their best efforts to refrain
from conducting activities that might inflict harm on the Venture.

                                   ARTICLE 18

         Each Participant will have the right, upon request, to receive
complete, current, and accurate information on the Venture's activity, status
of the Venture's property, profits and losses through its participation on the
Board of Directors.  The Venture will, in accordance with Soviet legislation,
keep and report accurate records, and will conduct regular audits as provided
in the Charter.  The profits of the Venture, minus a sum allocated to the USSR
State Budget as provided by Soviet legislation, and sums dedicated to the
establishment and increase of the Venture's funds as determined by the Board of
Directors, will be distributed among the Participants in proportion to their
ownership of the capital stock.  The Venture will have no obligation to pay any
tax on profit in accordance with applicable Soviet legislation.  SFMT will have
the right to transfer its allocated percentage of the Venture's profits in hard
currency abroad, and shall be exempt from applicable withholding taxes to the
maximum extent permitted by Soviet law.

                                   ARTICLE 19

         Failure by either Participant to carry out any of its responsibilities
under this Agreement will not be a violation of the Agreement if caused by an
event of "force majeure" (i.e., an event unforeseen by that Participant and
beyond the reasonable control of that Participant).
<PAGE>   6
                                      6


                                   ARTICLE 20

         The Venture will be liquidated if:  (a) the Participants unanimously
decide on its liquidation at a meeting of the Board of Directors; or (b) the
Council of Ministers of the USSR determines that the activities of the Venture
do not conform to the aims and purposes set forth in this Agreement or to the
Charter.  Either Participant has the right to withdraw from the Venture giving
written notice 12 months in advance.  In the event of liquidation of the
Venture, the Participants will receive monetary and/or commodity returns based
on the residual value of their contributions in portions corresponding to their
ownership of the capital stock of the Venture at the moment of liquidation,
after the satisfaction of all debts owed by the Venture to third parties.

                                   ARTICLE 21

         In the event that disagreements or disputes arise with respect to the
interpretation or performance of this Agreement or any of its provision, the
Participants will use their best efforts to resolve them through consultation.
Disagreements or disputes that are not settled by such consultation will be
submitted to binding arbitration.  Each disagreement or dispute relating to the
day-to-day operations of the Venture will be resolved by the Court of
Arbitration of the USSR Chamber of Commerce and Industry.  All disputes between
the Participants, or among the Participants and the Venture, will be resolved
by an arbitrator appointed by the Stockholm Chamber of Commerce in Stockholm,
Sweden, in accordance with its arbitration rules.  All decisions resulting from
such arbitration will be final and binding on all Participants thereto.

                                   ARTICLE 22

         Changes and additions to this Agreement and/or the Charter will be
valid only if they are presented in written form and signed by authorized
representatives of both Participants.

                                   ARTICLE 23

         The personnel of the Venture will primarily consist of Soviet
citizens.  The Management will determine the number of personnel, under the
guidance and subject to the discretion of the Board of Directors.
<PAGE>   7
                                      7


                                   ARTICLE 24

         The Venture may create branches and representative offices in the USSR
and/or abroad, which will exist and act in accordance with provisions adopted
by the Board of Directors.  Branches of the Venture may be designated as
separate legal parties, in which case they will not be liable for the
obligations of the Venture and the Venture will not be liable for the
obligations of the branches.  Authorized representatives of the Venture will not
have separate legal status, but will act in the name of the Venture.

                                   ARTICLE 25

          In the event that the present Agreement does not become effective
pursuant to Article 5 within six (6) months from the date of signing of this
Agreement by the Participants, this Agreement will have no further force or
effect, and the Participants will have no liability to one another.  From the
moment this Agreement is executed, all previous or other correspondence, or
negotiations relating to it will have no further force or effect.  Appendices to
the present Agreement are its integral parts.  This Agreement is executed on
the ____ day of ____, 1989, in four original copies, Russian and English, both 
versions being identical and equally valid.

                THE LEGAL ADDRESSES OF THE PARTICIPANTS WILL BE:

INSTITUTE FOR AUTOMATED SYSTEMS         SAN FRANCISCO/MOSCOW TELEPORT,
                                         INC.
                                        
103009 Moscow                           3278 Sacramento Street
Nezhdanova Street, 2a                   San Francisco, CA 94115 U.S.A.

                        SIGNED FOR THE PARTICIPANTS:

       IAS                                               SFMT

By:  [ILLEGIBLE]                                By:  [ILLEGIBLE]              
   --------------------------                      --------------------------
Its:                                            Its: President
    -------------------------                       -------------------------

   Date: 20.09    , 1989                         Date: 20 SEPT, 1989
         ---------                                    --------

<PAGE>   8
                          SUPPLEMENT TO THE AGREEMENT

               ON THE CREATION AND FUNCTIONS OF THE JOINT VENTURE

                                "SOVAM TELEPORT"


                                  THE CHARTER

                              OF THE JOINT VENTURE

         The joint venture "SOVAM TELEPORT", to be referred to below as the
         "Venture", is established by the Agreement on the creation and 
         functions of the Venture, to be referred to below as "Agreement" and
         dated

                                  Article 1

         1.               The Participants to the Venture are the Institute for
                          Automated Systems, a juridical entity governed by 
                          Soviet law, which will be referred to below as "IAS",
                          and the corporation San Francisco/Moscow Teleport
                          Inc., a juridical entity governed by the laws of
                          California, which will be referred to below as "SFMT".
        
         2.               The number of Participants to the Venture is being
                          increased by the admission of Cable & Wireless PLC, a
                          juridical entity governed by the laws of England,
                          which will be referred to below as "C&W", and can be
                          further increased as agreed upon in Article 4 below.

                                  Article 2

         3.               The Venture is established.

                          (i)              To organise and operate means for
                                           satellite and/or fibre optic digital
                                           packet-switching and information
                                           transfer between the USSR and the 
                                           rest of the world;

                          (ii)             To provide users of digital
                                           packet-switched computer
                                           communications in the USSR and the
                                           rest of the world with advanced
                                           means of fulfilling joint
                                           humanitarian projects, commercial
                                           activities and carrying out joint
                                           scientific research;
<PAGE>   9
                          (iii)            To service users of digital
                                           packet-switched computer
                                           communications in the USSR and the
                                           rest of the world by providing goods
                                           and services to them (including the
                                           rendering of consultation and
                                           training on computer technology,
                                           etc.); and

                          (iv)             To develop and implement solutions
                                           to complex problems of the Venture's
                                           customers.

         4.               The Venture is established for the purpose of
                          providing high quality digital packet-switched
                          computer communications service and promoting the
                          efficiency of computer and telecommunications
                          facilities on the basis of recent advances in science
                          and technology and achieving stable and profit-making
                          activities for itself.

         5.               The Venture's business is that which the Board of
                          Directors may, from time to time, decide and includes
                          the operation and management of packet-switched data
                          networks, the public offering of managed data network
                          services, the management and public offering of
                          electronic mail, messaging and host enquiry services,
                          the undertaking of consultancy contracts, the design
                          and completion of turnkey networking contracts and
                          the design and provision of wide area networking
                          systems and services to customers paying in freely
                          convertible currency and roubles within the USSR and
                          between the USSR and the rest of the world.  The
                          Venture will conduct all other activities authorised
                          by the Agreement including conducting such other
                          business as the Board of Directors may decide, from
                          time to time, in accordance with this Charter.

                                  Article 3

         6.               The Venture is a legal entity governed by the laws of
                          the Union of Soviet Socialist Republics.

         7.               The Venture has full rights as a legal entity from
                          the moment it is registered with the USSR Ministry of
                          Finance.

         8.               The Venture has the right on its behalf to conclude
                          contracts, to acquire property rights and personal
                          rights which do not pertain to property, and to
                          fulfil its commitments.  The Venture may be called as
                          a plaintiff or defendant in court, in arbitration, or
                          in an arbitration court, as the case may be.

         9.               The Venture has the right to carry out directly
                          export and import operations that it deems necessary
                          or convenient for its economic activities.  The
                          Venture also has the right to establish independent
                          prices for its services.

         10.              The Venture can create branches and representative
                          offices in all countries.  The branches of the Venture
                          will be separate legal entities and will not have to
                          answer for any obligations of the Venture, nor will
                          the Venture have to answer for the obligations of its
                          branches.
<PAGE>   10
         11.              To carry out its functions, the Venture has the right
                          to make and pay for necessary transport arrangements
                          (including the purchase or rental of vehicles) in the
                          USSR, USA, and other countries.

         12.              The Venture has the right to purchase or rent plots
                          of land, buildings (including the housing of the
                          Venture's foreign personnel) and other properties, to
                          receive and pay for communal and other services and
                          to decide on questions concerning design and
                          construction.

         13.              The Venture has the right to sign contracts with
                          insurance, transportation and contracting
                          organisations, as well as other organisations that
                          provide services.  The Venture may enter into any and
                          all contracts related to the operation or activities
                          of the Venture.

         14.              The Venture has the right to transfer information
                          within and outside of the country related to its
                          commercial and organisational functions with the aid
                          of electronic mail or printed correspondence,
                          telegraphs, telephones, teletype, and telefax and
                          through all types of digital, analog and satellite
                          information transfer networks.

         15.              If necessary, the Venture may obtain credit on a
                          commercial basis:-

                          (i)              In foreign currency from the USSR
                                           Vneshekonombank, from banks in
                                           foreign countries or from other
                                           organisations; or

                          (ii)             In Soviet roubles from the USSR
                                           Gosbank or from the USSR
                                           Vneshekonombank.  The credit obtained
                                           may be guaranteed by the property of
                                           the Venture.  Guarantees may also be
                                           granted by a third party.  The
                                           Venture will have accounts in the
                                           USSR Gosbank and in the USSR
                                           Vneshekonombank or such other
                                           banking entity acceptable to the
                                           Venture;

                          (iii)            The Venture has the right to
                                           exchange hard currency according to
                                           the official exchange rate of the
                                           USSR Gosbank, within the limits of
                                           its own hard currency funds in
                                           accordance with established
                                           procedures.

         16.              The Venture will own and use its property within the
                          guidelines of Soviet law and in accordance with its
                          goals and the nature of the property.

         17.              The Venture will use all of its property to cover its
                          obligations.

         18.              The Soviet government and the Participants in the
                          Venture will not be liable for any of the Venture's
                          obligations and the Venture will not be liable for
                          the obligations of the Soviet government or its
                          Participants.

         19.              The Venture's activities shall be governed by Soviet
                          legislation, by the Agreement and by the present
                          Charter, subject to applicable inter-state and
                          inter-governmental agreements mutually established by
                          the USSR, the USA and the UK.

<PAGE>   11
         20.              The Venture will have a seal as approved by the Board
                          of  Directors of the Venture.

         21.              The Venture is located in Moscow, USSR, Nezdanova 
                          Street, 2a.

         22.              The official languages of the Venture are Russian and 
                          English and these languages are also the working
                          languages  of the Venture.

                                   Article 4
         
         23.              The Venture forms the Charter Fund from the 
                          contributions of the Participants to enable the
                          functions of the Venture to be carried out. The
                          Charter Fund will increase to an amount equivalent of
                          US$750,000. The size of this capital stock, the
                          relative shares of the Participants and the procedure
                          for forming the capital stock are laid out in the
                          Agreement.  The procedures and dates for such
                          contributions to the capital stock of the Venture
                          will be defined by the Board of Directors.  The Board
                          of Directors of the Venture will issue certificates
                          indicating the Participants, contributions to the
                          capital stock and their ownership of the capital
                          stock.
        
         24.              None of the Participants to the Venture has the right
                          to  transfer its share in the Venture in whole or in
                          part to a third party without first offering its
                          share to the other Participants, who shall have the
                          right to take up such sale share on a pro rata basis
                          in accordance with their existing shareholding.
        
                          If any Participant fails to take up its pro rata
                          share in the sale share, the remaining Participant(s)
                          shall be entitled to take the whole, on a pro rata
                          basis if more than one Participant.  The price of any
                          such transfer will be agreed between the Participants
                          or determined by the Participants purchasing such
                          sale share as the case may be.  In no event will the
                          price offered to the Participants with respect to
                          such share be greater than the price at which such
                          share is offered to a third party.  Without prejudice
                          to the generality of the foregoing, none of the
                          Participants to the Venture may transfer its share in
                          the Venture, in whole or in part, to a third party at
                          any time during the three (3) years following the
                          initial registration of foundation documents of the
                          Venture incorporating C&W as a Participant, without
                          the prior written consent of all the other
                          Participants.

         25.              The Venture can be financed through equity and debt. 
                          Debt financing is to be on terms acceptable to all
                          Participants.  The capital stock of the Venture may
                          be supplemented by profits from the economic
                          activities under the decision of its highest body
                          and, if need be, by additional contributions of the
                          Participants in proportion to their shares in the
                          capital stock.

         26.              The Participants of the Venture do not possess 
                          individual rights to any objects which constitute the
                          property of the Venture, including objects
                          contributed by the Participants to the capital stock
                          of the Venture.
<PAGE>   12
                                   Article 5

         27.              The profits in foreign currency and Soviet roubles 
                          obtained by the Venture will be retained for use in
                          the activities of the Venture, as determined by the
                          Board of Directors, and will constitute the Venture's
                          funds.  Payments will be made to the USSR State
                          Budget as required by Soviet law.  Remaining profits
                          shall be distributed among the Participants in
                          proportion to their shares in the capital stock of
                          the Venture on such terms as the Participants shall,
                          from time to time, agree.

         28.              The Venture will create the following funds:- 

                          (i)              A reserve fund not to exceed twenty 
                                           five percent (25%) of the capital
                                           stock of the Venture;

                          (ii)             A fund for research and development 
                                           of production, science and
                                           technology;

                          (iii)            A fund for employee benefit, 
                                           including financial and social
                                           benefits and necessary housing;

                          (iv)             A special purpose fund; and

                          (v)              Other funds.

         29.              The Board of Directors will determine the 
                          composition, aim, size, sources and the procedure for
                          using each fund and the funds will be completely at
                          the disposal of the Venture.

         30.              The profits of the Venture minus the sums that are 
                          due to the USSR State Budget as specified by Soviet
                          legislation and the sums allocated to the funds
                          should be distributed among the participants in
                          proportion to their shares in the capital stock on
                          such terms as the Participants agree.

                                   Article 6

         31.              The highest body of the Venture is the Board of 
                          Directors, which is comprised of the members
                          appointed by the Participants, under the condition
                          that there will be at all times an equal number of
                          members designated by each Participant and at least
                          one member from each Participant, save where a
                          Participant's percentage holding falls below twenty
                          five percent (25%), in which case that Participant
                          shall only be entitled to appoint one member.

         32.              A member of the Board of Directors may resign at any
                          time from the Board of Directors without providing
                          the reasons.  In such event he shall be replaced by a
                          reserve member appointed by the same Participant who
                          appointed the resigning member.

         33.              A member of the Board of Directors may appoint an 
                          alternate director and shall simultaneously notify
                          the Board of such appointment.
<PAGE>   13
         34.              Representatives of IAS, SFMT and C&W will be 
                          appointed as the Chairman of the Board of Directors
                          on an annual rotating basis within sixty (60) days
                          after the Shareholders' Annual General Meeting.

         35.              The Board of Directors has the right to make 
                          decisions on any question concerning the functions of
                          the Venture. The Board of Directors will have the
                          exclusive right and authority:-

                          (i)              To introduce changes and additions 
                                           in this Charter;

                          (ii)             To determine major policies and 
                                           directions for the operations of the
                                           Venture and long-term plans and
                                           determine and approve reports for
                                           its activities and to approve the
                                           annual operating plan and annual
                                           budget;

                          (iii)            To introduce changes in the size of 
                                           the capital stock of the Venture;

                          (iv)             To determine the administrative 
                                           structure of the Venture;

                          (v)              Subject to Article 9.54 below, to 
                                           appoint and, if need be, relieve of
                                           duty the General Director and his
                                           first and other deputies;

                          (vi)             To appoint the members of the Audit 
                                           Committee and to approve of its
                                           reports and conclusions;

                          (vii)            To determine the size, procedure and
                                           time for introducing additional
                                           contributions, subject to any
                                           Participant's right to convert any
                                           existing loan into equity;

                          (viii)           To determine the schedule for 
                                           creating and using the funds, the
                                           distribution of profits and the
                                           procedures for covering or otherwise
                                           managing losses;

                          (ix)             To deal with questions pertaining to
                                           the establishment and closing of
                                           branches and representative offices;

                          (x)              To make decisions on obtaining 
                                           credit in excess of that figure from
                                           time to time stipulated in the
                                           annual operating plan;

                          (xi)             To introduce new participants to the
                                           Venture;
 
                          (xii)            To make decisions on the liquidation
                                           of the Venture;

                          (xiii)           To choose a Liquidation Committee, 
                                           to appoint and relieve its members
                                           and to approve its reports;

                          (xiv)            To decide on the salaries and 
                                           bonuses of the members of the Board
                                           of Directors, top management, members
                                           of the Audit Committee and
                                           assistants; and
<PAGE>   14
                          (xv)             To approve contracts (whether 
                                           between the Venture and one or  all
                                           of the Participants or with third
                                           parties) that are not authorised by
                                           the Board of Directors in the annual
                                           plans or budgets for that year and
                                           that require the Venture to spend    
                                           more than US$50,000 or its
                                           equivalent in foreign currency.

         36.              The Board of Directors has the right to delegate 
                          certain functions, including ones which the present
                          Charter describes as being within the authority of
                          the Board of Directors, to the General Director for
                          resolution or action.

                                   Article 7

         37.              The Board of Directors will review issues pertaining 
                          to the activities of the Venture and will make
                          decisions concerning them at its meetings.

         38.              Each member of the Board of Directors, the General 
                          Director of the Venture and the First Deputy General
                          Director will have the right to introduce issues for
                          the consideration of the Board of Directors.

         39.              Regular meetings of the Board of Directors will be 
                          held to the extent that the Board of Directors deems
                          necessary, but not less than six (6) times per year
                          or as the Board of Directors shall otherwise decide.

         40.              Special sessions of the Board of Directors may be 
                          convened by the Chairman of the Board of Directors,
                          by any member of the Board of Directors or any
                          Participant to the Venture, or by the General
                          Director of the Venture or the First Deputy General
                          Director.

         41.              The time and place for holding meetings of the Board 
                          of Directors will be determined by the Board of
                          Directors.

         42.              The Chairman of the Board of Directors or the Deputy 
                          Chairman will be responsible for organising each
                          meeting of the Board of Directors and will notify the
                          members of the Board of Directors in writing
                          (including by telex or electronic means) sixty (60)
                          days before the scheduled meeting date. The notice
                          will include the exact time and place and a general
                          agenda for the meeting.

         43.              The Chairman of the Board of Directors will serve as 
                          the Chairman of the meeting. In his absence, the
                          Deputy Chairman will so serve.

         44.              The Chairman will appoint a Secretary who will be 
                          responsible for keeping the minutes of each meeting.
                          All of the members of the Board of Directors will
                          have an opportunity to review the minutes. The
                          minutes will state who was present at the meeting,
                          how the members voted, what matters were discussed,
                          which decisions were made and what particular
                          opinions were presented. Each member of the Board of
                          Directors will sign the minutes after being
                          personally satisfied in their accurateness.
<PAGE>   15
         45.              Any member of the Board of Directors who is unable to
                          participate in a meeting may create a written proxy,
                          granting to its representative the power to
                          participate in the meeting and to cast votes on its
                          behalf. Representatives so appointed will strictly
                          observe the directions of the member regarding
                          participation and voting as set forth in that written
                          proxy. Their representative, pursuant to a
                          duly-authorised  proxy, may sign the minutes on
                          behalf of a member of the Board.

         46.              Each member of the Board of Directors, including the 
                          Chairman, will have one vote. However, in addition to
                          the votes held by the members appointed by C&W, three
                          (3) additional votes will be exercisable by those
                          said members in the following circumstances:-  

                          (i)              At every meeting of the Board of 
                                           Directors convened for the approval
                                           of the annual operating plan and
                                           annual budget until such time as C&W
                                           recovers full payment of all
                                           interest and loan; and/or

                          (ii)             At every meeting of the Board of 
                                           Directors, notwithstanding Article
                                           8.50 hereafter, during each quarter
                                           following two (2) consecutive
                                           quarters in which the Venture has
                                           losses or negative operational
                                           cashflows, where such losses or
                                           negative cash flows have not been
                                           previously approved in the annual
                                           operating plan of the Venture.

         47.              Meetings will be deemed validly held and a quorum 
                          present if at least three (3) of the six (6) members
                          of the Board are present, one representing each
                          Participant.

         48.              The Board of Directors will discuss the results of 
                          each fiscal year's activities at an annual general
                          meeting to be held no later than three (3) months
                          after the end of that fiscal year.

                                   Article 8

         49.              Subject to Article 7.46 and Article 8.50 below, at 
                          any meeting of the Board of Directors, resolutions
                          proposed on issues or questions raised with and
                          required to be decided by simple majority of the
                          Board of Directors will only be adopted it at least
                          one member representing each Participant has voted in
                          favour thereof.

         50.              A unanimous vote of all of the members of the Board 
                          of Directors or their authorised representatives will
                          be necessary when dealing with the following issues:-

                          (i)              Any alterations of or additions to 
                                           this Charter;

                          (ii)             Approvals of proposals for changes 
                                           in the size of capital stock;
<PAGE>   16
         (iii)   Determining the size, procedure and terms of requests for
                 additional capital contributions from the Participants,
                 subject to any Participant's rights to convert any existing
                 loan into equity;

         (iv)    Appointment or anticipatory termination of the General
                 Director, the First Deputy General Director and/or other
                 deputies and/or members of the management;

         (v)     Appointment of the members of the Audit Committee and approval
                 of its reports and conclusions;

         (vi)    Reviewing issues regarding liquidation of the Venture, the
                 selection of a Liquidation Committee, the appointment and
                 recall of its members and the approval of final reports;

         (vii)   Introducing new participants to the Venture;

         (viii)  Determining the procedure for distribution of profits and
                 determining the procedure for covering losses;

         (ix)    Determining major policies and new business and services
                 directions in addition to the business as defined in Article
                 2.5 for the operations of the Venture;

         (x)     Making decisions on obtaining credit in excess of that figure
                 from time to time specified in the annual operating plan;

         (xi)    Determining the salaries and bonuses of the members of the
                 Board of Directors, top management, members of the Audit
                 Committee and assistants; and

         (xii)   Approving contracts (whether between the Venture and one or
                 all of the Participants or with third parties) that are not in
                 the annual plans or budgets for year and that require the
                 Venture to spend more than US$50,000 or its equivalent in
                 foreign country.

51.      In the event that the Members of the Board of Directors fail to reach
         a unanimous decision on any issue and if the issue remains outstanding
         for a period thirty (30) days, it shall be referred to the
         Chairman/Chief Executive of the Participants who shall meet to resolve
         the issue within thirty (30) days of any referral.  Then:-

         (i)     If the Chairman/Chief Executive fails to resolve the issue and
                 the issue remains outstanding, then the dissenting Participant
                 may serve on the other Participants a notice of sale ("Sale
                 Notice") requiring each of them to buy the dissenting
                 Participant's percentage holding, together with the benefit of
                 all loans made by the dissenting party pro rata to their
                 respective holdings on the terms stipulated in the Sale
                 Notice. The Sale Notice shall stipulate the percentage
                 holding, the price and terms of payment.  The other
<PAGE>   17
                 Participants shall be entitled to introduce a third party to
                 replace the dissenting Participant and the latter shall not
                 unreasonably withhold its consent to the admission of the
                 third party. The dissenting Participant may withdraw such Sale
                 Notice any time prior to the expiry of the above referred
                 thirty (30) day period;

         (ii)    If, within thirty (30) days of receipt of such Sale Notice,
                 the non-dissenting Participant(s), whether collectively or
                 individually, refuse to accept the terms of such Sale Notice,
                 then each of them may serve their own respective Sale Notice
                 on the dissenting Participant, requiring the latter to acquire
                 the whole of their respective percentage holding within thirty
                 (30) days, together with the benefit of all loans made by the
                 non-dissenting Participant, as stipulated in the Sale Notice,
                 for the price stipulated in the Sale Notice of the dissenting
                 Participant; and

         (iii)   The dissenting Participant shall, on completion of the sale,
                 procure the resignation of all Directors appointed or deemed
                 appointed by the dissenting Participant and shall do all such
                 things and execute all such documents as may be necessary to
                 give effect to the sale pursuant to such Sale Notice.

52.      By unanimous action of the members of the Board of Directors,
         decisions and votes of the Board of Directors may be validly made in
         writing (including agreement by telex or electronic means) without an
         actual meeting, and will have the same power and legal force as a
         decision made at a valid meeting of the Board of Directors.

                                   Article 9

53.      The day-to-day activities of the Venture will be conducted by the
         management, headed by the General Director and one (1) or more
         co-Directors or the First Deputy General Director.

54.      The structure and staff of the management will be formed of the
         persons nominated by the Participants and approved and appointed by
         the Board of Directors.

55.      The General Director and the First Deputy General Director and such
         other management personnel where respective functions and
         responsibilities shall be determined by the Board of Directors, shall
         be nominated, approved and appointed in accordance with the foregoing
         Article 9.54.

56.      The General Director and any co-Director or First Deputy General
         Director will report to the Board of Directors and will have
         operational responsibility for the actions of the Venture and the
         fulfilment of the tasks and functions assigned.
<PAGE>   18
57.      The General Director and any co-Director or First Deputy General 
         Director of the Venture:-

         (i)     Will manage the business and be responsible for the general
                 supervision of the economic and financial activities of the
                 Venture;

         (ii)    Will be responsible for implementing the annual operating plan
                 and budget for the Venture and submitting revisions and
                 updates on the same every three (3) months to the Board of
                 Directors;

         (iii)   Will hire and dismiss employees, with the exception of members
                 of the management;

         (iv)    Will carry out all decisions of the Board of Directors and
                 present reports to the Board of Directors concerning their
                 implementation;

         (v)     Will manage and protect the property of the Venture, including
                 its funds, as authorised by the Board of Directors;

         (vi)    Subject of Article 6.35(15) will conclude commercial contracts
                 on behalf of the Venture, without proxies, and ensure that
                 they are fully performed;

         (vii)   Will perform all other functions stipulated in this Charter or
                 specified by the Board of Directors;

         (viii)  Will represent the Venture in dealings with other
                 organisations, ventures and entities and also with government
                 organisations of participating countries and third countries
                 with respect to all matters concerning the Venture or its
                 activities as permitted by the Agreement or this Charter.

         (ix)    Will deal with questions pertaining to the establishment and
                 closing of branches and representative offices.

58.      The management will have the right to carry out foreign currency
         transactions in accordance with the decisions of the Board of
         Directors.

59.      The General Director will have the right to make decisions on all
         other matters concerning the Venture that are not within the exclusive
         jurisdiction of the Board of Directors. Subject to Article 6.35(15),
         the General Director, the First Deputy General Director, and other
         person(s) so appointed in writing by the management may sign contracts
         and other legal documents on behalf of the Venture.

                                   Article 10

60.      The Venture will have independent economic status and will function on
         the basis of complete self-support, hard currency
<PAGE>   19
         self-repayment and carry out its activities in accordance with the
         annual productivity plan and other plans approved by the Board of
         Directors.

61.      The Venture will conduct its bookkeeping, statistical record keeping
         and reporting activities in accordance with applicable Soviet law and
         generally accepted U.S. accounting principles. All books, records,
         minutes, accounts and any other documents maintained by the Venture
         will be prepared in Russian and English.

62.      Bookkeeping documents of the Venture will be kept in Russian and in
         English. Expenses and revenues will be entered on the books of the
         Venture in roubles or in foreign currency.

63.      The Venture may obtain credit from Soviet and/or foreign finance
         organisations and from foreign firms in accordance with applicable
         USSR procedures.

64.      The fiscal year of the Venture will begin on 1st January and end on
         31st December of each calendar year.

65.      At the end of each fiscal year or promptly thereafter at a time and
         place specified by the Board of Directors, the General Director will
         present a report of the activities of the Venture during that fiscal
         year, including proposals concerning the distribution of profits, to
         the Board of Directors for its review.

66.      The audit review of the economic and commercial activities of the
         Venture will be conducted by Ernst & Young, or any such other party as
         the Board of Directors shall decide, and which will be paid for this
         service.

67.      General monitoring of the financial and economic activities of the
         Venture and its branches will be carried out by the Audit Committee,
         which shall consist of three (3) members.

68.      The Chairman and members of the Audit Committee will be nominated by
         the Participants with an equal number of nominees designated by each
         of the Participants and approved by the Board of Directors.

69.      The Chairman of the Audit Committee will be appointed alternately from
         among representatives of each Participant.

70.      The members of the Audit Committee will hold office for terms of two
         (2) years and may be re-appointed.

71.      The Audit Committee is responsible for its activities to the Board of
         Directors and will submit its audit reports, as well as its commentary
         on those reports, to the Board of Directors in writing at least two
         (2) times per year.

                                   Article 11

72.      The management of the Venture may conclude a collective
<PAGE>   20
                          bargaining agreement with the trade union associated
                          with the Venture. The content of this agreement will
                          be determined in accordance with Soviet law.

         73.              The salaries, work hours, vacations and social  
                          security benefits available to Soviet employees of
                          the Venture will be governed by Soviet law.

         74.              The Venture may hire foreign specialists to work for
                          the Venture on the basis of individual contracts with
                          each such person.

         75.              The salaries, vacations, pensions and other benefits
                          available to foreign employees of the Venture will be
                          governed by individual contracts to be concluded by
                          the management of the Venture with each such person.
                          The norms of Soviet legislation should be applied to
                          foreign employees in all other respects.

         76.              The Venture will pay set sums to the USSR State 
                          Budget for the social insurance of Soviet and foreign
                          employees and the pensions of Soviet employees in
                          amounts and at rates determined for Soviet State
                          organisations.

         77.              The pension benefits of foreign employees hired by 
                          the Venture will be transferred directly to the
                          appropriate pension funds of the country of their
                          permanent residence.

         78.              The salaries and bonuses of foreign employees paid 
                          in foreign currency and not spent in the USSR may be
                          freely transferred abroad at the request and in sole
                          discretion of these persons.

         79.              The Venture will have the independent right to hire 
                          and dismiss employees in accordance with labour
                          agreements it may have concluded with them.

                                   Article 12

         80.              A Liquidation Committee consisting of representatives
                          from each of the Participants will be established if
                          there is a decision to liquidate the Venture pursuant
                          to the Agreement or applicable Soviet law.

         81.              If the Venture's activities do not conform to the 
                          tasks and goals stipulated by the present Charter and
                          the Agreement, the Council of Ministers of the USSR
                          may also decide to liquidate the Venture by written
                          notice to the Venture.

         82.              If the Venture is liquidated:

                          (i)              The Board of Directors shall form 
                                           the Liquidation Committee, will
                                           prepare a financial statement of the
                                           Venture and compile a proposed
                                           liquidation schedule and present
                                           them to the Board of Directors for
                                           approval;

                          (ii)             The Board of Directors will decide 
                                           how to dispose of all property of
                                           the Venture;
<PAGE>   21
         (iii)   All property leased or loaned to the Venture will be returned
                 to the owners thereof; all rental fees to that Participant and
                 unpaid at the moment of liquidation will be added to the total
                 amount due to that Participant upon the final division of
                 funds; and

         (iv)    The capital stock of the Venture and other funds remaining
                 after satisfying the valid demands of the Venture's creditors
                 will be divided proportionately among the Participants of the
                 Venture according to their respective contributions from time
                 to time to the capital stock of the Venture. The liquidation
                 shall be registered with the USSR Ministry of Finance.

                                   Article 13

This amended Charter is effective on and from the date of its registration with
the RSFSR Ministry of Finance or other appropriate authority.

                      Legal Addresses of the Participants:

Institute for Automated Systems        San Francisco/Moscow Teleport Inc.,
103009 Moscow,                         3278 Sacramento Street,
Mezhdanova Street, 2a.                 San Francisco,
4115 USSR.                             California 94115,
                                       U.S.A.
IAS      SFMT                          
 ....................                   ....................
                                       
DATE:                                  DATE:
                                       
103009 Moscow,                         3278 Sacramento Street,
Nezhdanova Street, 2a,                 San Francisco,
4115 USSR.                             California 94115,
                                       U.S.A.
<PAGE>   22
                 AMENDMENTS AND CHANGES NO. 1 TO THE AGREEMENT
               ON THE CREATION AND FUNCTIONS OF THE JOINT VENTURE
                   "SOVAM TELEPORT" DATED 20TH SEPTEMBER 1989

The Institute for Automated Systems ("IAS"), a juridical person under the laws
of the Russian Federation, and San Francisco/Moscow Teleport, Inc. ("SFMT"), a
juridical person under the laws of California, USA and Cable and Wireless Plc
("C&W") a juridical person under the laws of England hereby agree to the
following:-

A.       In connection with the admission of Cable and Wireless plc as a
Participant in Sovam Teleport and pursuant to Article 22 of the Agreement On
the Creation and Functions of the Joint Venture, IAS, SFMT and C&W have agreed
to make the following changes to the said Joint Venture Agreement which shall
be amended to read as indicated below, and shall otherwise remain unchanged:-

1.       Amend the names of the Parties to state as follows:-

         "The Institute for Automated Systems ("IAS"), a juridical person under
         the laws of the Russian Federation, and San Francisco/Moscow Teleport,
         Inc. ("SFMT"), a juridical person under the laws of California, USA
         and Cable and Wireless Plc ("C&W") a juridical person under the laws
         of England hereby, agree to the following:"

2.       Amend ARTICLE 1 as follows:-

         (i)     Replace the words "hereby establish" in the first line with
                 "have established".

         (ii)    Replace "USSR" in the second line of Article 1 with "Russian
                 Federation".

         (iii)   Replace the words "is to be" in the third line with "was".

         (iv)    Replace the words "information between the USSR and the USA"
                 in the fourth line with "information within and between the
                 Russian Federation and/or other members of the Commonwealth of
                 Independent States ("CIS") and the world".
<PAGE>   23
                                     - 2 -

         (v)     Replace "USSR" in the fifth line with "Russian Federation and
                 the other members of the CIS".

         (vi)    Replace the word "USA" in the sixth line with "the world".

         (vii)   Replace "USSR" in the tenth line of Article 1 with "Russian
                 Federation and the other members of the CIS".

         (viii)  Insert a new sentence at the end of Article 1 to read as
                 follows:-

                 "The Venture conducts the Business as defined in this Article
                 1 below and will conduct such other business as the Board of
                 Directors may decide from time to time in accordance with this
                 Agreement and the Charter."

         (ix)    Add a definition of the Business of Sovam Teleport at the end
                 of Article 1 to read as follows:-

                 "THE BUSINESS" means the operation and management of packet
                 switched data networks, the public offering of managed data
                 network services, the management and public offering of
                 electronic mail, messaging and host enquiry services, the
                 undertaking of consultancy contracts, the design and
                 completion of turnkey networking contracts and the design and
                 provision of wide area networking systems and services to
                 customers paying in freely convertible currency and to rouble
                 paying customers within the Russian Federation and/or other
                 members of the CIS and between the Russian Federation and/or
                 other members of the CIS and the rest of the world and in
                 addition to the aforesaid such other business as the Board of
                 Directors may from time to time decide.

3.       Amend Article 2 by replacing "USSR" with "Russian Federation".

4.       Amend ARTICLE 3 by replacing the words "will be" in the first line
         with "is".
<PAGE>   24
                                     - 3 -


5.       Replace the first two sentences of ARTICLE 4 to read as follows:-

         The Venture is a legal entity governed by the applicable laws of the
         Russian Federation. The Venture is established, and will function and
         conduct its activities in accordance with the applicable laws of the
         Russian Federation, this Agreement, and the Charter, which is an
         integral part of this Agreement and such other agreements which the
         Parties may enter into from time to time."

6.       Amend ARTICLE 5 as follows:

         (i)     In the first sentence of ARTICLE 5 replace "USSR" with
                 "Russian Federation".

         (ii)    Add the following sentence at the end of ARTICLE 5:

                 "This amended Agreement is effective from the date of
                 registration with the Russian Federation Ministry of Finance
                 or other appropriate government authority."

7.       Amend ARTICLE 6 to read as follows:-

         "The Charter Fund of the Venture will be increased to US$750,000
         formed by the contributions of the relevant Participants. IAS has
         contributed the sum of US$250,000 in roubles and will thus own 33.33%
         share in the Venture. The conversion of this sum from US dollars into
         roubles has been made in accordance with the official exchange rate
         of the USSR Gosbank on the day of the contribution. SFMT has
         contributed the sum of US$250,000 and will thus own 33.33% in the
         Venture. C&W will contribute the sum of US$250,000 and will thus own
         33.33% in the Venture. C&W will make its cash contribution of
         US$250,000 to the Charter Fund of the Venture, to the Venture's
         accounts in the Vneshekonombank, or such other banking entity
         acceptable to the Venture, respectively, within thirty (30) days after
         the opening of the accounts, provided that the registration of the
         amended Joint Venture Agreement with the Russian Federation Ministry
         of Finance (or such other relevant governmental authority) will have
         been completed."
<PAGE>   25
                                     - 4 -


8.       Amend ARTICLE 9 by replacing the word "either" in the second line with
         "any" and by the deletion of the last sentence.

9.       Amend ARTICLE 10 to read as follows:

         "The property of the Venture will be insured by Ingosstrakh or such
         other joint-stock insurance company acceptable to the Venture".

10.      Amend ARTICLE 11 as follows:-

         (i)     Replace "executive" in the first line with "management".

         (ii)    Replace "four(4)" in the third line with "six(6)".

         (iii)   Insert a new fourth and fifth sentence to read "The Management
                 will be formed of the persons nominated by the Participants
                 and approved and appointed by the Board of Directors, and
                 shall include the General Director, a First Deputy General
                 Director, and such other management personnel whose respective
                 functions and responsibilities shall be determined by the
                 Board of Directors. The Management will be headed by the
                 General Director." and delete the words "who will be
                 appointed by the Board of Directors. The Management is formed
                 of the persons appointed by the Participants."

11.      Amend ARTICLE 13 as follows:-

         (i)     Replace the words "may carry" with "carries" in the first
                 line.

         (ii)    Replace "USSR" with "Russian Federation and the other members
                 of the CIS".

         (iii)   Replace the words "or tariffs" with "or customs-related
                 tariffs (for the avoidance of doubt, such tariffs shall not
                 include those commonly referred to as telecommunications
                 tariffs)".
<PAGE>   26
                                     - 5 -


         (iv)    In the last line replace "Soviet" with "applicable".

12.      Amend ARTICLE 14 as follows:-

         (i)     Replace the word "will" in the first line with "can".

         (ii)    Replace the word "Soviet" with "applicable".

         (iii)   Insert a new sentence between "trademark rights." and
                 "Procedures.." in the fourth line to read as "The right to
                 use any intellectual and industrial property rights developed
                 by the Venture will be licensed to the Participants on terms
                 to be agreed by the Board of Directors."

         (iv)    Replace "either" in the eighth line with "any".

         (v)     In the third sentence replace "USSR" with "Russian Federation
                 and the other members of the CIS".

         (vi)    Insert a new sentence between "the Venture." and "The" in the
                 eighth line to read as "In the event of liquidation of the
                 Venture the Participants shall be entitled freely to exploit
                 all intellectual property rights developed by the Venture."

         (vii)   Add a new paragraph to the Article to read as follows:-

                 "Any intellectual property rights owned by or used by the
                 Participants, subject to any sub-license, and which are used
                 by the Venture will remain the property of the Participant
                 which owns the right, or subject to any such sub-license as
                 aforementioned, and no rights of ownership in respect of that
                 right are acquired by the Venture unless specifically assigned
                 or licensed by the Participant to the Venture."

13.      Amend ARTICLE 15 by replacing the word "other" in the eighth line with
         "disclosing"
<PAGE>   27
                                     - 6 -


14.      Amend ARTICLE 16 by replacing "USSR" in the second and sixth lines
         with "Russian Federation and the other members of the CIS".

15.      Amend ARTICLE 18 as follows:-

         (i)     Replace "Soviet" throughout the Article with "applicable".

         (ii)    Replace "USSR" with "Russian Federations".

         (iii)   Replace the words "upon request" in the first line with
                 "monthly and whenever requested".

         (iv)    Insert between "Board of Directors" and "will be distributed"
                 in the eighth line the words "and after full repayment of any
                 interest and principal of any debt owed to any of the
                 Participants.

         (v)     Insert "and C&W" in the eleventh line between "SFMT" and "will
                 have".

16.      Amend ARTICLE 19 to read as follows:-

         "Failure by any Participant to carry out any of its responsibilities
         under this Agreement will not be a violation of the Agreement if
         caused by an event of "force majeure", namely, an event beyond the
         reasonable control of that Participant including but not limited to,
         industrial disputes, natural disaster, acts or regulations of any
         governmental or supranational bodies or authorities and none of the
         Participants shall be liable or have any responsibility of any kind
         for any loss or damage thereby incurred or suffered by the Venture."

17.      Amend ARTICLE 20 to read as follows:-

         (i)     Replace "USSR" and insert "Russian Federation" in the third
                 line.

         (ii)    Delete the second sentence entirely.
<PAGE>   28
                                     - 7 -


         (iii)   Delete and replace the third sentence with "In the event of
                 liquidation of the Venture, the Participants will receive
                 monetary returns and/or return of their assets according to
                 Article 12.81 of the Charter."

         (iv)    Insert a new paragraph to read as follows:-

         "Without prejudice to the generality of the foregoing or to their
         respective rights and remedies at law or hereunder, C&W and SFMT have
         the right to withdraw from the Venture if any of their respective
         interests are expropriated or nationalised or if distribution of
         profits to C&W and/or SFMT is prevented in any way as a result of any
         change in applicable laws or regulations."

18.      Replace ARTICLE 21 as follows:-

         "All disputes or differences which arise out of or in connection with
         this Agreement or out of its construction, operation, termination or
         cancellation shall be settled by means of negotiations between the
         Participants. If the Participants cannot settle any such dispute or
         difference within twenty-one (21) days after first conferring, then
         such dispute or difference shall be settled by arbitration. The award
         of the arbitrators shall be final and binding upon the Participants.
         The arbitration shall be in accordance with the UNCITRAL Arbitration
         Rules in effect on the date of this Agreement, except that in the
         event of any conflict between those Rules and the arbitration
         provisions of this Agreement, the provisions of this Agreement shall
         govern. The Stockholm Chamber of Commerce shall be the appointing
         authority except for the specific provisions contained in points (i),
         (ii) and (iii) below.

         The number of arbitrators shall be three. Each party to the
         arbitration proceedings shall appoint one arbitrator. If two of the
         Parties are joint claimants or joint respondents they shall together
         appoint one arbitrator. If within fifteen (15) days after receipt of
         the claimant's notification of the appointment of an arbitrator the
         respondent has not, by telegram or telex, notified the claimant of the
         name of the arbitrator he appoints, the second arbitrator shall be
         appointed in accordance with the following procedures:
<PAGE>   29
                                     - 8 -


         (i)     if the respondent is IAS, the second arbitrator shall be
                 appointed by the Russian Chamber of Commerce and Industry (or
                 its successor);

         (ii)    if the respondent is C&W, the second arbitrator shall be
                 appointed by the President of the Law Society of England and
                 Wales;

         (iii)   if the respondent is SFMT, the second arbitrator shall be
                 appointed by the American Arbitration Association, San
                 Francisco, California, USA;

         (iv)    if within fifteen (15) days after receipt of the request from
                 the claimant, the Russian Chamber of Commerce and Industry (or
                 its successor) or the President of the Law Society of England
                 and Wales or the American Arbitration Association of San
                 Francisco, California, USA, as the case may be, has not, for
                 any reason whatsoever, by telegram or telex, notified the
                 claimant of the name of the second arbitrator, the second
                 arbitrator shall be appointed by the Stockholm Chamber of
                 Commerce. The two arbitrators thus appointed shall choose the
                 third arbitrator who will act as the presiding arbitrator of
                 the tribunal. If within thirty (30) days after the appointment
                 of the second arbitrator, the two arbitrators have not agreed
                 upon the choice of the presiding arbitrator, then at the
                 request of any party to the arbitration proceedings the
                 presiding arbitrator shall be appointed by the Stockholm
                 Chamber of Commerce and shall be of a nationality other than
                 that of the Russian Federation, British, or American.

         The arbitration, including the making of the award, shall take place
         in Stockholm, Sweden and (except in those cases where this Agreement
         expressly refers to the applicability of Russian law) the arbitrators
         shall resolve any such dispute or difference referred to them in
         accordance with the substantive laws of Sweden.

         All submissions and awards in relation to arbitration hereunder shall
         be made in English and all arbitration proceedings shall be conducted
         in English."
<PAGE>   30
                                     - 9 -


19.      Amend ARTICLE 23 by replacing "Soviet" with "Russian" and the words
         "under the guidance and subject to the discretion of the Board of
         Directors." with "and through the General Director will be responsible
         for the hiring and dismissal of employees provided however, that the
         following members of the Management may only be dismissed upon the
         prior approval of the Board of Directors: the General Director, the
         First Deputy General Director and any other persons to whom this
         Article 23 shall apply by decision of the Board."

20.      Amend ARTICLE 24 by replacing "USSR" with "Russian Federation and the
         other members of the CIS".

B.       The parties agree that this Agreement for Amendments and Changes No. 1
         is an indispensable part of the Joint Venture Agreement and shall be
         read and construed together with the aforementioned Joint Venture
         Agreement.

C.       Pursuant to Article 22 of the Joint Venture Agreement, changes and
         additions must be presented in written form and signed by the
         authorised representatives of IAS and SFMT. The signatures as appear
         below constitute such authorisation.

D.       The legal addresses of the Participants shall be amended to include the
         following address of Cable and Wireless plc as follows:-

                 "Cable and Wireless Plc
                 Mercury House
                 Theobalds Road
                 London WC1X 8RX
                 England"
<PAGE>   31
                                     - 10 -


E.       This Amendments and Changes No.1 to the said Joint Venture Agreement
         is executed this [26] day of [May 1992] in six original copies, Russian
         and English, all versions being identical and equally valid and is
         effective on and from the date of its registration with the Russian
         Federation Ministry of Finance or other appropriate authority.


                          Signed for the Participants:

Signed by [W. A. Jones]    
for and on behalf of                   
CABLE AND WIRELESS PLC                      /s/ W. A. JONES                    
                                            -----------------------------------
                                                   Senior Manager   
                                            
                                                                               
Signed by [O. L. Smirnov]                                            
for and on behalf of                                                           
THE INSTITUTE FOR AUTOMATED SYSTEMS         /s/ O. L. SMIRNOV                  
                                            -----------------------------------
                                                     Director                  
                                                                               
Signed by [                       ]                                            
for and on behalf of                                                           
SAN FRANCISCO/MOSCOW TELEPORT, INC.         /s/ [ILLEGIBLE]                    
                                            -----------------------------------
                                                     Director                  

<PAGE>   1
                                                                   EXHIBIT 10.30

                  AMENDED AND RESTATED JOINT VENTURE AGREEMENT

The undersigned:

1.        GTS CELLULAR Inc. (formerly SFMT-VOSTOK, Inc.), a corporation
organized under the laws of Delaware, having its office at c/o 1751 Pinnacle
Drive, North Tower, 12th Floor, McLean, Virginia 22102, USA, hereinafter
referred to as "SFMT";

2.        TRICOR B.V., a company formed under the laws of the Netherlands, 
having its registered office at Lepelblad 8, (1452 VN) Ilpendam, the
Netherlands, hereinafter referred to as "Tricor";

 (SFMT and Tricor hereinafter also collectively referred to as the
"Shareholders")

3.       Mr. Gerard ESSING, residing at Lepelblad 8, (1452 VN) Ilpendam, The
Netherlands, hereinafter referred to as "Essing";

4.        Mr. Ivan LASKA, residing at Prague 6, Nad Octarnou 19, Czech
Republic, hereinafter referred to as "Laska";

and

5.        Mr. Erik JENNES, residing at Gogolevskiy Boulevard 23/23, Moscow,
Russia, hereinafter referred to as "Jennes";

WHEREAS

         Pursuant to a joint venture agreement dated December 20, 1994 among
the parties hereto (the "Old Agreement"), Tricor has developed certain business
opportunities to enable it to engage in the establishment and operation of
mobile communications networks in regions of the Russian Federation, and has
arranged certain financing through the National Investment Bank. (Nationale
Investerings Bank N. V.) to exploit certain of such opportunities;

         Tricor was established as a Netherlands company to provide management
services to further develop the mobile communications opportunities in the
Russian Federation;
<PAGE>   2
                                                                             -2-
         SFMT and its affiliates are engaged in the development and operation
of communications services around the world, including within the Russian
Federation;

         SFMT and Tricor formed a company, Vostok Mobile B.V., a private
limited liability company ("Vostok" or the "Company"), to engage in the
development of mobile communications ventures in the Russian Federation
utilizing AMPS frequencies technology;

         The parties hereto have determined to amend and restate the Old-
Agreement and

DO HEREBY AGREE AS FOLLOWS:

ARTICLE 1.       FORMATION OF NETHERLANDS PRIVATE COMPANY WITH LIMITED
                 LIABILITY

1.1      SFMT and Tricor arranged for the incorporation of Vostok. The costs of
incorporation have been borne by Vostok. The legal fees and expenses incurred
in the preparation of this Amended and Restated Joint Venture Agreement shall
be borne by SFMT.

1.2      Vostok has its seat and registered address at Lepelblad 8, (1452 VN)
Ilpendam, the Netherlands.

1.3      The purpose of the Company is:

a.       to form Russian joint stock companies or limited liability companies
(the "Russian Companion") to obtain licenses (the "Licenses") and the necessary
rights or contracts to develop and operate mobile communications networks in all
areas of the Russian Federation where AMPS licenses are secured; and

b.       to build, own and operate mobile communications networks in certain
areas of the Russian Federation and

c.       to establish and offer related telecommunications services.

1.4      The initial authorized capital of the Company is NLG 3,000,000,-
consisting of 1,500 class "A" shares and 1,500 class "B" shares each with a
nominal value of NLG 1,000.-, and an initial issued capital of NLG 600,000.-
(being the equivalent in
<PAGE>   3
                                                                             -3-

Dutch guilders of US$ 350,000) consisting of 306 class "A" shares and 294 class
"B" shares, all of which class "A" shares were issued to SFMT and all of which
class "B" shares were issued to Tricor upon incorporation against payment in
cash.

The amount of NLG 294,000.- to be paid up by Tricor on the 294 class "B" shares
to be issued to it, was advanced to the Company by SFMT. As of the date hereof,
the Company has obtained 5 Licenses in the name of Russian Companies and is
using its best efforts to obtain additional such Licenses, in each of which the
Company holds or shall hold a stake of at least 50%.

1.5      The class "A" shares shall be entitled to a preferred distribution
from the annual profits of the Company equal to the amounts contributed by SFMT
in excess of the nominal value by way of capital surplus (agio) on its class
"A" shares. Distributions shall be made with due regard to the cash
requirements of the Company in accordance with the approved budget of the
Company. If a write off takes place against the reserve for the class "A"
shares, profits made in subsequent years shall first be allocated to clear off
the amount which were so written off from the class "A" reserve.  The preferred
distribution rights of the class "A" shares shall end when all of the cash
amounts contributed and to be contributed by SFMT on its class "A" shares shall
have been fully recouped by SFMT from the Company's profits.

After such recoupment the preferred distribution right of the class "A"
shareholder shall terminate and the articles of association of the Company
shall be amended to delete the entitlement of the class "A" shares to a
preferred distribution from profits.

1.6      The book year of the Company is equal to the calendar year. The first
book year shall end on December 31, 1995.

ARTICLE 2.       FURTHER SUBSCRIPTIONS TO CAPITAL OF THE COMPANY

2.1      SFMT has or shall contribute on its 306 class "A" shares further
amounts up to a maximum of US$ 400,000.- per License and a maximum in total of
US$ 3,600,000.-, which shall be paid as capital surplus on the existing class
"A" shares held by SFMT. The parties shall cause the 1% capital tax due over
such payment to be paid by the Company within the statutory 30 day period.

2.2      In the event Tricor or its shareholders are offered cellular license
opportunities in the Russian Federation in excess of the initial nine Licenses
which are the basis for
<PAGE>   4
                                                                             -4-

this Amended and Restated Joint Venture Agreement, Tricot or Essing, Laska
and/or Jennes, as the case may be, shall first offer such License
opportunities to the Company and to SFMT. Each of SFMT and the Company shall
have A period of 60 (sixty) days after the date of submission to it of the
offer together with all relevant information and data, to accept or refuse such
offer.
    
If both the Company and SFMT accept such offer, SFMT may finance the
acquisition by the Company of such further License up to an amount of
US$ 400,000. In case it is determined that an amount greater than such
US$ 400,000 is required for the development of any License, SFMT and Tricor
shall jointly attempt to arrange for the financing of such additional capital; 
provided, however, that if SFMT, in its sole reasonable discretion determines
that such outside financing is not obtainable within the time period necessary
to develop the License, or upon acceptable terms and conditions, then SFMT may,
but would not be required to, elect to finance such offer in excess of
US$ 400,000; provided, further, that any additional capital paid by SFMT
("Additional Capital") to the Company to develop (a) any of the initial nine
Licenses in excess of US$ 400,000 per License and (b) any Licenses, in addition
to the initial nine Licenses, will only be paid against the issue by the Company
to SFMT of new class "A" shares ("New Shares"), thereby increasing the 
percentage interest of SFMT in the Company, in accordance with the formula set 
forth in the immediately following paragraph. Tricor accepts the dilution of
its interest in the Company in such cases.  Any such additional License
opportunities that are offered to and accepted by the Company and SFMT and the 
corresponding ownership share in the relevant Russian Company shall be
contributed and held by the Company.

The number of New Shares to be issued to SFMT from time to time (the
"Calculation Date") in consideration for the Additional Capital paid by SFMT
shall be calculated as follows; New Shares equal Additional Capital divided by
"X" where "X" equals the quotient obtained by a fraction the numerator of which
is equal to the greater of either: (a) US$ 7,408,824, plus any Additional
Capital that had been invested prior to the Calculation Date or (b) The sum of
(i) the product of the Net Profits, as defined in Article 16, of the Company
for the immediately preceding calendar year and a factor of 6 and (ii) the
product of the Revenues, as defined in Article 16, of the Company for the
immediately preceding fiscal year, and a factor of 0.5 and the denominator of
which is equal to the total number of the issued ("A" and "B") Shares in the
Company as of the Calculation Date.
<PAGE>   5
                                                                             -5-

SFMT shall pay US$ 166,667 to Tricor for each Russian Company holding any of
the initial nine Licenses that has a cellular mobile telephone system that is
"ready for service" on or prior to June 1, 1996, provided that the total
payment to Tricor under this Section 2.2 shall not exceed US$ 1,500,000, and
provided, further, that for this purpose "ready for service" means in
commercial revenue service. In consideration of SFMT's payment of the
US$ 1,500,000 to Tricor, Tricor shall grant, convey and transfer to SFMT Options
(the "Initial Options"), which will be exercisable at any time in the sole and
absolute discretion of SFMT, to purchase at an exercise price of $.10 per share,
5 shares of its class "B" shares for each US$ 166,667 paid for the Initial
Options by SFMT, upon the terms and conditions set forth in Section 7.4 and in
an option agreement in the form attached as Exhibit 2.2 (the "Initial Options
Agreement"). Any payment in accordance with the immediately preceding two
sentences shall be made by SFMT on the twentieth business day following receipt
by SFMT of any documents it may request regarding the Licenses or the formation
of the Russian Companies with regard to cellular mobile telephone systems that
are ready for service and an executed notarial deed of pledge for the number of
"B" shares underlying the Initial Options in form and substance satisfactory to
SFMT, which shall include the right for SFMT, as pledgee, to vote such shares.
With respect to any Licenses in excess of the initial nine licenses that have
been developed by Tricor and are accepted by the Company and SFMT, the Company
shall pay to Tricor for each such License a surplus on the sale of the shares
in the Company previously sold by Tricor to SFMT, as provided earlier in this
paragraph. This surplus will be paid at a time, and in an amount, to be
determined in advance by tile parties hereto for each such License when it has
a cellular mobile telephone system that is "ready for service," as defined
above.

ARTICLE 3.       LOANS TO THE COMPANY

3.1      Tricor has arranged for the providing to the Russian Companies of long
term loans from the Nationale Investerings Bank N.V.'s ("NIB ") East Europe
Credit, in an amount of at least US$ 2,000,000.- (two million United States
dollars) the terms of which are being negotiated with NIB.

3.2      In the event Tricor cannot obtain loans from NIB on terms acceptable
to SFMT, SFMT with the support of Tricor shall apply for loans from the
Overseas Private Investment Corporation (OPIC) or similar organizations, such as
the European Bank for Reconstruction and Development. In the event such loans
from NIB can be obtained on terms acceptable to SFMT but only by changing the
agreed
<PAGE>   6
                                                                             -6-

legal, economic or financial bases for the present joint venture, the terms of
this agreement shall be adjusted by the parties in good faith.

3.3      SFMT has provided or agrees to provide a loan or loans to the Company
upon terms mutually acceptable to SFMT and Tricor, in an amount sufficient to
fund the 1995 approved budget for the Company.

ARTICLE 4.        MANAGEMENT OF THE COMPANY

4.1      The day-to-day management of the Company will be performed by a Board
of Managing Directors consisting of at least one Managing Director, to be
nominated by the shareholders. The Management Board currently consists of one
member being Mr. G. Essing.

4.2      The Management Board shall be supervised by a Board of Supervisory
Directors consisting of at least 5 (five) members, the majority of whom shall
be designated by SFMT. The decisions of the Management Board specified in
section 14 of the Articles of Association shall require the prior approval of
the Supervisory Board. In addition, the Management Board shall adhere to the
(financial, social and economic) guidelines presented to it by the general
meeting of shareholders of the Company from time to time.

The Supervisory Board shall consist of:
(1) Mr. G.W. Thames
(2) Mr. G. Self, and
(3) Mr. F. Ledbetter

as "A" Supervisory Directors designated by the class "A" shareholder; and

(4) Mr, I. Laska and
(5) Mr. E. Jennes

as "B" Supervisory Directors designated by the class "B" shareholder; and

Decisions of the Supervisory Board shall be made by majority vote and can only
be validly made if a majority of the members have participated in the decision
making.  Any decisions to be made by the Supervisory Board shall require 10 days
prior written notice, in which the matters to be considered have been
specified.
<PAGE>   7
                                                                             -7-

4.3      In the event either SFMT as the class "A" shareholder or Tricor as the
class "B" shareholder wishes to replace any or all of its nominees in the
Management Board or Supervisory Board, or, in case a vacancy occurs in the
Management Board or Supervisory Board, each of SFMT and Tricor shall cast their
votes as Shareholders of the Company in favour of the removal of such nominee
or the appointment of the person(s) selected by the relevant Shareholder to
rill such vacancy or vacancies, as the case may be.

ARTICLE 5.       BOOKS AND RECORDS

5.1      All financial information pertaining to the Company and its
(consolidated) affiliates shall be presented in accordance with generally
accepted accounting principles of the Netherlands consistently applied and
concurrently such financial information shall be kept in accordance with United
States GAAP.

5.2      Moret Ernst & Young (Amsterdam) shall continue as auditors of the
Company.

5.3      The Shareholders will cause the Management Board of the Company to
provide:

(a)      monthly and quarterly progress reports:

(b)      an annual operating plan and budget to be submitted to the
Shareholders for the year 1995 no later than April 30, 1995 and for all
subsequent bookyears no later than November 1 of the year preceding the year to
which the plan and budget relate:

(c)      annual audited financial statements within 60 days after the end of
the book year of the Company;

For the purposes of this clause the term "Annual Accounts" means the balance
sheet as of December 31 of each year and the profit and loss account and cash
flow statement over the period ending on December 31, together with the notes
thereto, drawn up in accordance with Netherlands law and certified by Moret
Ernst & Young.
<PAGE>   8
                                                                             -8-
ARTICLE 6.       PUT OPTION TRICOR

6.1       Tricor shall have the right at any time between the dates specified
below, to sell to SFMT (or its designee, including, without limitation,
CommStruct International B.V.) and upon exercise by Tricor of such right, SFMT
(or its designee) shall be obligated, subject to fulfilment of the conditions
stated hereinafter, to purchase from Tricor options (the "Options"), which will
be exercisable at any time at the sole and absolute discretion of SFMT, to
purchase all such class "B" shares in the capital of the Company, for the
exercise price of $.10 per share, as are equivalent to the percentage interest
of Tricor set forth below:

(i)      in 1997, 83 of the class "B" shares held by Tricor during the period
commencing April 15, 1997, through June 15, 1997. The purchase price for the
Options shall be equal to the product obtained by multiplying (1) the quotient
obtained by a fraction, the numerator of which is equal to 83 and the
denominator of which is equal to the total number of issued ("A" and "B")
shares of the Company, and (2) the sum of: (a) the product of the the 1996 Net
Profits of the Company, as defined in Article 16, and a factor of 6 and (b) the
product of the 1996 Revenues of the Company, as defined in Article 16, and a
factor of 0.5;

and

(ii)     in 1998, 83 of the class "B" shares held by Tricor during the period
commencing April 15, 1998, through June 15, 1998. The purchase price for the
Options shall be equal to the product obtained by multiplying (1) the quotient
obtained by a fraction, the numerator of which is 83 and the denominator of
which is equal to the total number of issued ("A" and "B") shares of the
Company and (2) the sum of: (a) the product of the 1997 Net Profits of the
Company, as defined in Article 16, and a factor of 6 and (b) the product of the
1997 Revenues of the Company, as defined in Article 16, and a factor of 0.5;

and

(iii)    in 1999, either:

         (a) 53 of the class "B" shares held by Tricor, or

         (b) up to a total of 264 of the class "B" shares then held by Tricor
in case (i) Tricor did not exercise its sale option, (ii) SFMT did not exercise
its purchase
<PAGE>   9
                                                                             -9-

option as provided in article 7 in one or more of the preceding years 1997
and/or 1998, and (iii) Tricor did not grant, convey and transfer to SFMT the
Initial Options pursuant to paragraph 2.2, during the period commencing April
15, 1999 through June 15, 1999.

         In case the 53 class "B" shares referred to in (iii)(a) hereof is
offered, the purchase price for the Options shall be equal to the product
obtained by multiplying (1) the quotient obtained by a fraction the numerator
of which is equal to 53 and the denominator of which is equal to the total
number of the issued ("A" and "B") shares in the Company, and (2) and the sum
of (a) the product of the 1998 Net Profits of the Company, as defined in
Article 16, and a factor of 6 and (b) the product of the 1998 Revenues of the
Company, as defined in Article 16, and a factor of 0.5.

         In case a greater portion is offered by Tricor as provided in (iii)(b) 
hereof, the purchase price for the Options shall be equal to the product
obtained by multiplying (1) the quotient obtained by a fraction the numerator
of which is equal to the total number of class "B" shares being sold and the
denominator of which is equal to the total number of class "A" and "B" shares
outstanding, and (2) the sum of (a) the product of the 1998 Net Profits of the
Company, as defined in Article 16, and a factor of 6 and (b) the product of the
1998 Revenues of the Company, as defined in Article 16, and a factor of 0.5.

6.2.     Tricor shall exercise its option rights referred to in 6.1 above by
delivery of written notice to SFMT in the manner specified in article 11
together with the following information:

(a)      a copy of the relevant audited Annual Accounts and relevant financial
statements prepared in accordance with US GAAP;

(b)      an executed agreement granting, conveying and transferring the Options
("Options Agreement") to purchase the number of "B" shares in the capital of
the Company subject to such Options, in the form appended as Exhibit 6.2;

(c)      the purchase price for the Options referred to in 6.2(b) above,

(d)      the date on which, and place in the Netherlands where the Options
shall be transferred to SFMT (or its designee including without limitation
Commstruct
<PAGE>   10
                                                                            -10-

International B.V.), which date shall be no later than 2 months following the
date of the notice of the exercise by Tricor of its sale option. Payment for the
Options shall be made on the date on which the Options are transferred;

(e)      an executed notarial dead of pledge for the number of "B" shares
underlying the Options in form and substance satisfactory to SFMT which shall
include the right for SFMT, as pledgee, to vote such shares.  

Prior to the execution of the Options Agreement as mentioned in 6.2(d) above, 
the Shareholders shall if so requested by the class "A" shareholder, resolve to
convert the class "B" shares to be sold by Tricor and purchased by SFMT, to be
converted into an equal number of class "A" shares.

The costs relating to the transfer of the shares as provided in this article
shall be borne by Tricor.

6.3      The purchase price for the Options to be paid by SFMT in case Tricor
exercises its option rights in accordance with this article 6, shall at the
sole discretion of SFMT be payable in cash or in shares of SFMT or Global
TeleSystems Group, Inc., the parent company to SFMT, provided in the latter
case the SFMT or Global TeleSystems Group Inc., as the case may be, shares are
listed on a recognized exchange, or quoted in the National Association of
Securities Dealers Automated Quotation System (NASDAQ).

ARTICLE 7.       CALL OPTION SFMT

7.1      In case Tricor does not or cannot, or in the year 1999 does not fully,
exercise its option rights between the dates in 1997, 1998 and 1999
respectively specified in article 6.1 above, SFMT shall have the right to
purchase from Tricor, and upon exercise by SFMT of such right, Tricor shall be
obligated to sell to SFMT Options to purchase all the class "B" shares in the
capital of the Company as are equivalent to the number of class "B" shares of
the Company as set forth in article 6.1 sub (i), (ii) and (iii) SFMT shall have
the right to exercise its option rights as provided for in this section 7
during the period commencing June 16 through September 15 of each of the years
1997, 1998 and 1999 respectively.

The purchase price for the Options payable by SFMT in case of the exercise by
it of its purchase option shall be calculated as provided in clause 6.1.
<PAGE>   11
                                                                            -11-
7.2      SFMT shall exercise its option rights referred to in 7.1 above by
delivery of written notice to Tricor in the manner specified in article 11
together with the following information:

(a)      a copy of the relevant audited Annual Accounts and relevant financial
statements prepared in accordance with US GAAP;

(b)      an Options Agreement covering the number of "B" shares in the capital
of the Company subject to the Options,

(c)      the purchase price for the Options referred to in 7.2 (b) above;

(d)      the date on which, and place in the Netherlands where, the Options
shall be transferred to SFMT (or its designee including, without limitation,
CommStruct International B.V.), which date shall be no later than 2 months
following the date of the notice of the exercise by SFMT of its purchase
option. Payment for the Options shall be made on the date on which the Options
are transferred;

(e)      a notarial deed of pledge for the number of "B" shares underlying the
Options in form and substance satisfactory to SFMT, which shall include the
right for SFMT, as pledgee, to vote such shares.

7.3      The purchase price for the Options to be paid by SFMT in case of the
exercise by it of its option rights in accordance with this article 7 shall at
the sole discretion of SFMT be payable in cash or in shares of SFMT or Global
TeleSystems Group, Inc., the parent company to SMFT, provided in the latter
case the SFMT or Global TeleSystems Group, Inc., as the case may be shares are
listed on a recognized exchange, or quoted in the National Association of
Securities Dealers Automated Quotation System (NASDAQ).

7.4      To the extent that Initial Options or Options are purchased by SFMT,
Tricor agrees it shall grant SFMT the irrevocable and unconditional right to
receive any dividends that are declared and paid by the Company with respect to
such shares.

ARTICLE 8.       REPRESENTATIONS AND WARRANTIES

8.1      SFMT represents and warrants:
<PAGE>   12
                                                                            -12-

(a)      it has the corporate power to enter into this Agreement;

(b)      this Agreement has been duly authorized and executed by SFMT and
constitutes a valid and legally binding obligation of SFMT, enforceable in
accordance with its terms.

8.2      Each of Tricor, Essing, Laska and Jennes represent and warrant:

(a)      they have the power to enter into this Agreement;

(b)      the entering into of this Agreement and the compliance with its terms
will not be in breach of any obligation by which any of the undersigned are
bound;

(c)      nothing has occurred which might adversely affect the carrying out of
the purposes of this Agreement,

(d)      that Essing, Laska and Jennes own, and shall during the term of this
Agreement remain the owners of not less than 90% of the issued shares of
Tricor, provided, however, that the additional 10% of the shares of Tricor
shall not be held by more than one person.

ARTICLE 9.       NON COMPETE

9.1      Each of Tricor, Essing, Laska and Jennes severally undertakes towards
SFMT so long as any of them holds shares in the Company or Tricor such person
shall, during a period of one year commencing on the date that such person
ceases to hold shares in the Company or Tricor, not directly or indirectly, for
his/its own account or for the account of others, be engaged or involved in any
way in or with any company, other entity or person which or who, carries on (i)
activities competing with the mobile telecommunications networks or activities
of any of the Russian Companies or (ii) mobile telecommunications activities in
any region where any of them has pursued a development opportunity or License,
except that there shall be excluded from this paragraph any License that was
offered to the Company and SFMT which either SFMT or the Company has declined
pursuant to Section 2.2.
<PAGE>   13
                                                                            -13-

9.2      In case of violation of the obligations arising from 9.1 above, Tricor
or in the case of Essing, Laska or Jennes, the person in breach, shall without
any notice of default being required, forfeit to SFMT liquidated damages for
every breach, the amount of which will be equal to one year's consolidated
revenue of the Company.

ARTICLE 10.      OTHER COVENANTS

10.1     Tricor undertakes towards SFMT, and each of Essing, Laska and Jennes
similarly undertake towards SFMT to procure that Tricor shall not, prior to
October 15, 1999, being the date of expiration of the option rights referred to
in article 7, sell, transfer, assign pledge, mortgage or encumber or in any
other way than as permitted by this Agreement dispose of any of its class "B"
shares.

10.2     SFMT agrees that any expenses, including, without limitation,
administrative or managerial fees and expenses, charged to the Company by GTS
Cellular shall be fair and equitable.

ARTICLE 11.      NOTICES

All notices and other communications hereunder shall be in writing, sent by 
registered  mail (with simultaneous copy sent by fax) at the following
addresses (or such other addresses as may be notified from time to time by any
party hereto).

SFMT-VOSTOK, Inc.

Attn.            :        N.S. Molberger, Vice President General Counsel
Address          :        c/o Global TeleSystems Group, Inc.
                          1751 Pinnacle Drive
                          North Tower, 12th floor
                          McLean, Virginia 22102 USA
Fax No.          :        (1)(703) 918 0338
<PAGE>   14
                                                                            -14-
Tricor/Essing/Laska/Jennes:

Attn.                     :     G. Essing

Address                   :     Lepelblad 8,(1452 VN)
                                Ilpendam, The Netherlands
Fax No.                   :     (31)(2902) 63 154


ARTICLE 12.      CONFIDENTIALITY

12.1     Each of SFMT and Tricor shall (subject to the provisions of this
article) keep confidential all information which is obtained by them under this
Agreement whether that information is

(i)      owned by one of the Shareholders and contributed (whether before or
after the date hereof) to the business of the Company or the companies in which
it participates in the Russian Federation ("proprietary information"); or

(ii)     generated or commissioned (whether before or after the date hereof) by
them or any of them for the Company or the companies in which it participates;
or

(iii)    related to the business affairs of any of SFMT or Tricor.

For the purposes of this article information shall only be regarded as
"proprietary information" if in writing.

12.2     The restrictions in this clause shall not apply to:

(i)      information in the public domain otherwise than by breach of this
Agreement or any previous agreement relating to the subject matter of this
Agreement;

(ii)     information already in the possession of a party before disclosure to
it under this Agreement or any previous agreement relating to the subject
matter of this Agreement and which was not acquired directly or indirectly from
the other shareholder;

(iii)    information lawfully obtained from a third party who is free to
disclose such information;
<PAGE>   15
                                                                            -15-

(iv)     information developed or created by SFMT or Tricor independently of
this Agreement or any previous agreement relating to the subject matter hereof;
or

(v)      information which must be divulged in order to obtain financing for
the benefit of the Company,

provided that the Shareholder seeking to rely on an exemption contained in this
subclause shall provide such evidence as the other party may reasonably require
that the information sought to be exempted falls within the relevant category.

12.3      The restrictions under this article shall apply during the term of
this agreement and for five years thereafter.

ARTICLE 13.      WITHDRAWAL OR ACCESSION

13.1     Without prejudice to clause 10.1, upon a Shareholder ceasing to hold
any shares in the Company it shall cease to be bound by the obligations
contained in this Agreement (except those contained in articles 9 and 12 which
shall continue to have effect) and shall cease to have any rights under this
Agreement.

13.2     If any shares in the Company are transferred to any person who is not
a party to this Agreement, the transferor of those shares shall procure prior
to any such transfer that the transferee agrees to perform and be bound by the
terms of this Agreement by entering into a valid and binding accession
agreement expressed to be supplemental to this Agreement. The parties to this
Agreement undertake to enter into that accession agreement and such further
documents as may be necessary for the purpose of perfecting the accession of
the transferee to this Agreement.

13.3     In the event that SFMT shall sell all of its shares in the Company to
a nonaffillated third party, then as part of such sale, SFMT shall require the
purchaser of its shares in the Company to purchase the shares in the Company
owned by Tricor on the same terms and conditions applicable to the purchase of
the shares owned by SFMT.


ARTICLE 14.      TERMINATION

<PAGE>   16
                                                                            -16-


14.1     SFMT and Tricor intend that this Agreement endure for the duration of
their collaboration in respect of the joint venture for which the Company has
been established. Accordingly this Agreement shall be terminated in case the
Shareholders agree unanimously.

In the circumstances described in this paragraph 14.1 the Shareholders shall
forthwith negotiate in good faith amongst themselves in order to agree
arrangements for either selling or liquidating the Company or otherwise
disposing of the Company's assets and undertaking (including its investment in
Russian partnerships or joint venture companies) provided always that prior to
disposing of the Company or its assets and undertaking the Shareholders shall
first consult with each other with a view to an individual Shareholder
making an offer for the same.

14.2      Should the Shareholders be unable to agree on the disposition of the
Company pursuant to article 14.1 above they shall procure the liquidation of
the Company and either the liquidation of the Russian Companies or the 
disposal of the Company's interest in such Russian Companies and distribution of
their respective assets (in the case of the Company) to the shareholders in
accordance with their interest in the Company.

14.3     This Agreement shall terminate automatically on the date three months
following the disposition or liquidation of the Company or its assets or
business under the preceding sub-clauses.

14.4     Termination of this Agreement shall he without prejudice to the rights
and obligations of the parties accrued prior to termination.

ARTICLE 15.      GOVERNING LAW AND SETTLEMENT OF DISPUTES

15.1     This Agreement shall be governed by the laws of The Netherlands.

15.2     Any dispute arising out of this Agreement shall be settled in good
faith by mutual agreement of the Shareholders. In the event the Shareholders
are unable to reach a settlement within 30 (thirty) days from the date the
dispute has arisen, such disputes shall be settled by arbitration in accordance
with the Rules of the Netherlands Arbitration Institute (Nederlands Arbitrage
Instituut). The arbitral tribunal shall be composed of three arbitrators.  The
place of arbitration shall be Amsterdam and the arbitral procedure shall be
conducted in the English language.
<PAGE>   17
                                                                            -17-

ARTICLE 16.      CERTAIN DEFINITIONS

For purposes of Articles 2, 6 and 7, the term "Net Profits" for any particular
year shall mean net profits after taxes and after minority interests, but
including overhead costs for the Company, calculated in accordance with US
GAAP. It is agreed among the parties that for years in which Net Profits is a
negative number, Net Profits shall be deemed to be zero. For purposes of
Articles 2, 6 and 7, the term "Revenues" for any particular year shall mean
revenues on a consolidated basis, calculated in accordance with US GAAP.

ARTICLE 17.      ENTIRE AGREEMENT

This Agreement represents the entire agreement between the parties with respect
to its subject matter and supersedes all previous understandings, arrangements
and agreements whether such be written or oral relating to the subject matter
and hereof including, without limitation, the Old Agreement.

Signed as of July    , 1995 at New York, New York

/s/ ILLEGIBLE                                   /s/ ILLEGIBLE
- ---------------------------                     ---------------------------
GTS CELLULAR, Inc.                                 TRICOR B.V.
(formerly SFMT-Vostak, Inc.)

/s/ G. ESSIHG                                   /s/ I. LASKA
- ---------------------------                     ----------------------------
G. Essihg                                          I. Laska

/s/ E. JENNES
- ---------------------------
E. Jennes

<PAGE>   1
                                                                   EXHIBIT 10.31


                              AMENDED AND RESTATED

                             SHAREHOLDERS AGREEMENT

                                DATED JULY   ,1997

                                    BETWEEN

                               (1) HIT RAIL B.V.

                               (2) GTS-HERMES, INC

               (3) NATIONALE MAATSCHAPPU DER BELGISCHE SPOORWEGEN
                                  (NMBS/SNCB)

                               (4) TELFORT B. V.

                              (5) AB SWED CARRIER

                                      AND

                         (6) HERMES EUROPE RAILTEL B.V.
<PAGE>   2
                                                                             -2-


                              TABLE OF CONTENTS
                                                                     Page

Article  1 - Definitions . . . . . . . . . . . . . . . . . . . . . . . 5
                                                                
Article  2 - Issue of shares Amendment Articles. . . . . . . . . . . . 6
                                                                
Article  3 - The Business. . . . . . . . . . . . . . . . . . . . . . . 8
                                                                
Article  4 - Representations and Warranties  . . . . . . . . . . . . . 8
                                                                
Article  5 - Covenants . . . . . . . . . . . . . . . . . . . . . . . .13
                                                                
Article  6 - Governance  . . . . . . . . . . . . . . . . . . . . . . .15
                                                                
Article  7 - Conduct of Business . . . . . . . . . . . . . . . . . . .21
                                                                
Article  8 - Issue and Transfer of Shares; Pre-emptive Rights. . . . .23
                                                                
Article  9 - Provide Fibre Capacity  . . . . . . . . . . . . . . . . .25
                                                                
Article 10 - Term and Termination of Agreement . . . . . . . . . . . .26
                                                                
Article 11 - Confidential Information  . . . . . . . . . . . . . . . .26
                                                                
Article 12 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . .26
                                                                
Article 13 - Applicable Law and Choice of Forum  . . . . . . . . . . .29

<PAGE>   3
                                                                             -3-


This AGREEMENT is made by and between:

1.       HIT RAIL B.V., a private limited liability company, registered in
         Almere and having its place of business at Botter 1159, 8232 JS
         Lelystad, The Netherlands (hereinafter "HIT Rail"):

2.       GTS-HERMES, INC., a Delaware corporation having its place of business
         at 477 Madison Avenue, New York, New York 10022, USA, hereinafter "GTS
         Hermes": and

3.       NATIONALE MAATSCHAPPU DER BELGISCHE SPOORWEGEN (NMBS/SNCB), a company
         incorporated according to the laws of Belgium and having its
         registered office at Frankrijkstraat 85, 1060 Brussels, Belgium:

4.       TELFORT B.V., a company incorporated according to the laws of The
         Netherlands, having its registered office at Hoogoorddreef 15, 1101
         BA Amsterdam, The Netherlands;

5.       AB SWED CARRIER, a 100% owned subsidiary of Swedish State Railways, a
         company incorporated according to the laws of Sweden, having its
         office address at 01 Stockholms Lan. 80 Stockholm Kommun, 10 125
         Stockholm, Sweden;

         and

6.       HERMES EUROPE RAILTEL B.V. a private limited liability company,
         registered and having its place of business at Drentesrraat 20, 1083
         HK Amsterdam, hereinafter the "Company";

hereinafter collectively referred to as "the Parties" and individually as a
"Party".
<PAGE>   4
                                                                             -4-

WHEREAS:

a.       in 1990. HIT Rail was incorporated by the National Railways as
         hereinafter defined to carry out telecommunications engineering
         activities in order to construct and exploit a data communications
         network for railway traffic;

b.       HIT Rail established the Company on July 6, 1993 to conduct the
         Business as defined in Article 3 of this Agreement;

c.       GTS Hermes acquired a fifty percent interest in the Company in 1994
         and HIT Rail and GTS Hermes presently own the entire issued share
         capital of the Company;

d.       the Company has in January 1997 launched a capital restructuring plan
         allowing for direct participation of the National Railways and of
         selected other participants in the Company's capital and for the issue
         of additional shares to the existing shareholders of the Company;

e.       it is the intention of HIT Rail to transfer its shares in the Company
         to the HIT Rail Shareholders in proportion to their current indirect
         shareholding in the Company and as a result the HIT Rail Shareholders
         will become direct shareholders in the Company;

f.       with the participation of new parties in the Company's capital there
         will be new Shareholders in the Company.  Pursuant thereto the
         Shareholders wish to amend their existing Shareholders Agreement;

g.       the parties wish to enter into this Agreement for the purposes of
         recording the terms and conditions of their relationship with each
         other and certain aspects of the business and management of the
         Company.

NOW IT IS HEREBY AGREED AS FOLLOWS:
<PAGE>   5
                                                                             -5-

ARTICLE 1 - DEFINITIONS

The following definitions shall apply in this Agreement and in the Appendices
hereto:

Affiliated Company:       in relation to any Shareholder, any subsidiary or
                          holding company of such Shareholder and any
                          subsidiary of such holding company including all
                          National Railways Shareholders of HIT Rail;

Agreement:                this Agreement and all annexes, appendices,
                          attachments, and schedules hereto;

Articles of Association:  the amended articles of association of the Company in
                          the form agreed upon by the Parties and set out in
                          Annex 1 hereto;

Board of Supervisory
Directors:                the board of non-executive directors ("Raad van
                          Commissarissen") of the Company;

Business Plan:            the Business Plan of the Company as adopted by the
                          Management with the prior approval of the Board of
                          Supervisory Directors, including any agreed
                          amendments thereto;

Management Board:         Board of Managing Directors ("Directie") of the
                          Company;

General Assembly:         a General Meeting of Shareholders;

HIT Rail Shareholders:    the parties as listed in Schedule 1;

Licenses:                 permits and authorizations granted by the competent
                          licensing authorities in the countries where the
                          Company carries out its Business;
<PAGE>   6
                                                                             -6-

National Railways:        Osterreichische Bundesbahnen, National Maatschappij
                          der Belgische Spoorwegen (NMBS/SNCB), Danske
                          Statsbaner, Societe Nationale des Chemins de Fer
                          Francais ("SNCF"), Deutsche Bundesbahn, Ente
                          Ferrovie dello Stato, Nederlandse Spoorwegen, Red
                          Nacional de los Ferrocarriles Espanoles, Statens
                          Jarnvagar, Schweizcrische Bundesbahnen, and British
                          Rail provided that other European national railway
                          companies may in the future become shareholders of
                          HIT Rail and for this reason National Railways;
PanEuropean
Telecommunications
Operator:                 an operator of telecom infrastructure facilities
                          within Europe, whose scope is limited to providing
                          cross border services, contracting as a carrier's
                          carrier with (licensed or otherwise authorized)
                          telecom-operators and/or service providers. The
                          providing of telecom services within a country will
                          not belong to the activities of the Company, except
                          where requested by a customer and agreed to by the
                          Participating Shareholder;
Participating
Shareholder:              a Shareholder who provides infrastructure to the
                          Company;

Shareholders:              the holders of the Shares and parties to this
                          Agreement;

Shares:                   any and all issued shares in the capital of the
                          Company;

ARTICLE 2 - ISSUE OF SHARES, AMENDMENT ARTICLES.

2.1      On 15 January 1997, the Board of Supervisory Directors has resolved,
         conditional upon the execution of an amendment of the articles of
         association of the Company in accordance with the draft of Loeff
         Claeys Verbeke, (the "Deed
<PAGE>   7
                                                                             -7-

         of Amendment" dated May 28, 1997) inter alia to issue new shares in the
         Company up to a maximum of 297,000 shares with a nominal value of NLG
         1,000.--. The Shareholders have decided to issue the new shares to the
         following Parties:

         (a)     to HIT Rail 24,007 shares, each share having a par value of
                 NLG 1,000.-- which shares shall be paid up by off-set by the
                 Company of its loan debt in the principal amount of NLG
                 24,007,000,-- owing to HIT Rail;

         (b)     to GTS Hermes 150,592 shares, each share having a par value
                 of NLG 1,000.- which shares shall be paid up to 33% by off-set
                 by the Company of its loan debt in the principal amount of NLG
                 50,197,000.-- owing to GTS Hermes;

         (c)     to NMBS 11,424 shares each share having a par value of NLG
                 1,000.-- which shares shall be paid up both by off-set by
                 Company of its loan debt in the principal amount of the Dutch
                 guilder equivalent of 3,420,000 ECU and by contribution of a
                 lease of dark fibre;

         (d)     to Telfort 5,596 shares each share having a par value of NLG
                 1,000.-- which shares shall be paid up by contribution of a
                 lease of dark fibre;

         (e)     to AB Swed Carrier 4,365 shares each share having a par value
                 of NLG 1,000.-- which shares shall be paid up by off-set by the
                 Company of its loan debt in the principal amount of NLG
                 4,365,000.--

2.2      It is understood by the parties that capital contribution tax will be
         levied on the issue of the shares referred to in 2.1 above, which tax
         shall be paid by the Company;
<PAGE>   8
                                                                             -8-

2.3      Upon the execution of the Deed of Amendment and the issue of the new
         shares to all the Parties (other than the Company), the Shares in the
         Company shall be held as follows:


<TABLE>
<S>              <C>                <C>
HIT Rail          24,047 shares      (12.26%)
GTS Hermes       150,632 shares      (76.83%)
NMBS              11,424 shares       (5.83%)
Telfort            5,596 shares       (2.85%)
Swed Carrier       4,365 shares       (2.23%)
</TABLE>

ARTICLE 3 - THE BUSINESS

The activities of the Company (hereinafter collectively the "Business") shall
be to engage in:

(i)      becoming a PanEuropean Telecommunications Operator offering
         telecommunications services and/or facilities to third parties,
         including the Shareholders and their Affiliated Companies, including
         but not limited to constructing international telecommunications
         network infrastructures (hereinafter referred to as "Hermes
         Longlines") for the provision of those services, and offering
         international leased lines to third parties; and

(ii)     seeking to influence the legal and regulatory climates in the European
         Community, its Member States and adjoining countries and each of the
         jurisdictions where the Company engages or intends to engage in the
         activities described above.

ARTICLE 4 - REPRESENTATIONS AND WARRANTIES

4.1      HIT Rail represents and warrants to the other Parties that:

         (a)     it is the type of entity indicated in the heading of Agreement,
                 duly formed and validly existing under the laws of the
                 jurisdiction indicated in the heading of this Agreement, that
                 is has complied with an its material legal and statutory
<PAGE>   9
                                                                             -9-

                 obligations and that it has power under its constitutive
                 documents to execute and deliver this Agreement and to perform
                 its obligations thereunder;

         (b)     the execution of this Agreement by its undersigned
                 representative and the delivery and performance by it of this
                 Agreement:

                 (1)      have been duly authorized by all necessary action and
                          do not violate any applicable law, statute, rule,
                          regulation, order, ordinance, or requirement of any
                          governmental entity with applicable jurisdiction;

                 (2)      do not and shall not result in the breach of, or
                          constitute a default under, or require any consent
                          under (except for those that have already been
                          obtained) its constitutive documents or any indenture,
                          bank loan or credit agreement, mortgage, or other
                          agreement or instrument to which it is a party or by
                          which it or any of its properties may be bound or
                          affected; and

                 (3)      shall constitute its valid, binding and enforceable
                          obligations in accordance with the terms of this
                          Agreement;

         (c)     HIT Rail's only owners as of the date of this Agreement are
                 the HIT Rail Shareholders and the national railways of
                 Slovenia, Slovakia and Luxemburg;

         (d)     no representation, warranty, or covenant by HIT Rail in this
                 Agreement is inconsistent with, or would cause HIT Rail to
                 breach, any other promise or contractual obligation by HIT
                 Rail; and

         (e)     HIT Rail has not agreed with any entity other than GTS Hermes
                 and the Company to assist or cooperate in the development of
                 the Business or any PanEuropean Telecommunication Operator.
<PAGE>   10
                                                                            -10-


4.2      GTS Hermes represents and warrants to the other Parties that:

         (a)     it is the type of entity indicated in the heading of this
                 Agreement, duly formed and validly existing under the laws of
                 the jurisdiction indicated in the heading of this Agreement,
                 that is has complied with all its material legal and statutory
                 obligations and that it has the power under its constitutive
                 documents to execute and deliver this Agreement and to perform
                 its obligations thereunder;

         (b)     the execution of this Agreement by its undersigned
                 representative and the delivery and performance by it of this
                 Agreement:

                 (1)      have been duly authorized by all necessary action
                          and do not violate any applicable law, statute, rule,
                          regulation, order, ordinance, or requirement of any
                          governmental entity with applicable jurisdiction;

                 (2)      do not and shall not result in the breach of, or
                          constitute a default under, or require any consent
                          under (except for those that have already been
                          obtained) its constitutive documents or any indenture,
                          bank loan or credit agreement, mortgage, or other
                          agreement or instrument to which it is a party or by
                          which it or any of its properties may be bound or
                          affected; and

                 (3)      shall constitute its valid, binding and enforceable
                          obligations in accordance with the terms of this
                          Agreement.

4.3      NMBS represents and warrants to the other Parties that:

         (a)     it is the type of entity indicated in the heading of this
                 Agreement, duly formed and validly existing under the laws of
                 the jurisdiction indicated in the heading of this Agreement,
<PAGE>   11
                                                                            -11-

                 that is has complied with all its material legal and statutory
                 obligations and that it has the power under its constitutive
                 documents to execute and deliver this Agreement and to perform
                 its obligations thereunder;

         (b)     the execution of this Agreement by its undersigned
                 representative and the delivery and performance by it of this
                 Agreement:

                 (1)      have been duly authorized by all necessary action and
                          do not violate any applicable law, statute, rule,
                          regulation, order, ordinance, or requirement of any
                          governmental entity with applicable jurisdiction;

                 (2)      do not and shall not result in the breach of, or
                          constitute a default under, or require any consent
                          under (except for those that have already been
                          obtained) its constitutive documents or any indenture,
                          bank loan or credit agreement, mortgage, or other
                          agreement or instrument to which it is a party or by
                          which it or any of its properties may be bound or
                          affected; and

                 (3)      shall constitute its valid, binding and enforceable
                          obligations in accordance with the terms of this
                          Agreement.

4.4      Telfort represents and warrants to the other Parties that:

         (a)     it is the type of entity indicated in the heading of this
                 Agreement, duly formed and validly existing under the laws of
                 the jurisdiction indicated in the heading of this Agreement,
                 that is has complied with all its material legal and statutory
                 obligations and that it has the power under its constitutive
                 documents to execute and deliver this Agreement and to perform
                 its obligations thereunder.
<PAGE>   12
                                                                            -12-

         (b)     The execution of this Agreement by its undersigned
                 representative and the delivery and performance by it of this
                 Agreement:

                 (1)      have been duly authorized by all necessary action and
                          do not violate any applicable law, statute, rule,
                          regulation, order, ordinance, or requirement of any
                          governmental entity with applicable jurisdiction;

                 (2)      do not and shall not result in the breach of, or
                          constitute a default under, or require any consent
                          under (except for those that have already been
                          obtained) its constitutive documents or any
                          indenture, bank loan or credit agreement, mortgage,
                          or other agreement or instrument to which it is a
                          party or by which it or any of its properties may be
                          bound or affected; and

                 (3)      shall constitute its valid, binding and enforceable
                          obligations in accordance with the terms of this
                          Agreement.

4.5      AB Swed Carrier represents and warrants to the other Parties that:

         (a)     it is the type of entity indicated in the heading of this
                 Agreement, duly formed and validly existing under the laws of
                 the jurisdiction indicated in the heading of this Agreement,
                 that is has complied with all its material legal and statutory
                 obligations and that it has the power under its constitutive
                 documents to execute and deliver this Agreement and to perform
                 its obligations thereunder;

         (b)     the execution of this Agreement by its undersigned
                 representative and the delivery and performance by it of this
                 Agreement:

                 (1)      have been duly authorized by all neccessary action
                          and do not violate any applicable law, statute,
<PAGE>   13
                                                                            -13-



                          rule, regulation, order, ordinance, or requirement of
                          any governmental entity with applicable jurisdiction;

                 (2)      do not and shall not result in the breach of, or
                          constitute a default under, or require any consent
                          under (except for those that have already been
                          obtained) its constitutive documents or any
                          indenture, bank loan or credit agreement, mortgage,
                          or other agreement or instrument to which it is a
                          party or by which it or any of its properties may be
                          bound or affected; and

                 (3)      shall constitute its valid, binding and enforceable
                          obligations in accordance with the terms of this
                          Agreement.

ARTICLE 5 - COVENANTS

5.1      HIT Rail

         HIT Rail covenants and agrees with GTS Hermes and the Company that it
         shall (i) use its best efforts to establish such commercial agreements
         between individual HIT Rail Shareholders and the Company, to obtain
         rights of way from individual HIT Rail Shareholders and to cooperate
         in obtaining such Licenses as may advance the Business and (ii) shall
         use their best efforts to ensure that the HIT Rail Shareholders
         cooperate in obtaining such Licences all in accordance with the
         Business Plan of the Company and as may be necessary or advisable in
         furtherance of the Company's Business, (iii) shall not, so long as
         both HIT Rail and GTS Hermes are Shareholders and for one year after
         HIT Rail ceases to be a Shareholder, agree with any entity other
         GTS Hermes and the Company to assist or cooperate in the development
         of any PanEuropean Telecommunications Operator and (iv) shall use
         their best efforts to obtain on the Company's behalf such materials as
         may be required and arrange inspection visits of selected rights of
         way for the purpose of making initial cost estimates.
<PAGE>   14
                                                                            -14-

5.2      Further Funding

         The Parties understand that further funding of the Company may become
         necessary through loans or additional capitalization and the Parties
         shall do all things reasonably necessary including the waiving of
         pre-emptive rights in accordance with Article 6.2 (c) to facilitate
         such further funding. The Shareholders each shall procure that its
         nominees on the Board of Supervisory Directors of the Company, if any,
         shall not unreasonably oppose additional capitalization and each
         accepts the principle of being diluted in its share holding to the
         extent that it does not participate in the subscription for new shares
         in accordance with the pre-emption provisions set out in the Articles
         of Association. It is the sole discretion of each Shareholder, whether
         to participate in such issue(s) of shares. The period in which
         pre-emption rights can be exercised will be four weeks. The
         Shareholders will inform each other within four weeks of having been
         notified of an issue of shares with a pre-emptive right whether or not
         they will make use of such right, and if so, to what extent.

5.3      Non compete

         So long as GTS Hermes is a Party to the Agreement GTS Hermes shall not
         agree with any other entity than HIT Rail and the Company to assist or
         cooperate in the development of any PanEuropean TeleCommunications
         Operator.

5.4      Waiver statutory forced sale rights

         GTS Hermes hereby unconditionally and irrevocably waives its rights to
         purchase the Shares held by the other Shareholders in the Company
         pursuant to article 201 (a) of Book 2 of the Netherlands Civil Code,

5.5      Employee share options

         The Parties acknowledge that it may be desirable from an incentive
         point of view to issue share options to the management and or
         employees of the Company and, without prejudice to the provision of
         Article 8.2 of this Agreement, the Parties
<PAGE>   15
                                                                            -15-

         agree to vote in favour of options to issue shares pursuant to any
         reasonable and "arms length" share option agreement containing
         customary terms and conditions.

5.6      Dividends

         It is the intention of the Parties to maximize the distributions of the
         Company to its Shareholders, taking into consideration the
         contractual obligations in relation to further funding by issuance
         of shares or notes, as well as to the extent allowed by law and the
         Articles of Association, and subject to the retention in the Company of
         sufficient funds to ensure the continued operation and development of
         the Company in accordance with its Business Plan.  The Parties will
         procure that their representatives in the Board of Supervisory
         Directors will, pursuant to article 20 paragraph 2 of the Articles of
         Association, vote to pay out profits to the Shareholders, taking into
         account the aforementioned principle.

5.7      Articles of Association

         The Parties other than the Company shall procure that the amendment of
         the currently applicable articles of association shall be effected as
         soon as possible following the date of signing of this Agreement and
         pending such amendment the Parties other than the Company agree to be
         bound by the Articles of Association (and GTS shall procure that the
         same be observed by the Company to the extent possible) as if they
         were in force from the date of the signing of the Agreement onwards.

ARTICLE 6        GOVERNANCE

6.1      Structure

         The Shareholders shall hold General Assemblies, and the Company shall
         have a Board of Supervisory Directors and a Management Board.
<PAGE>   16
                                                                            -16-

6.2      General Assemblies

(a)      The Shareholders shall hold an annual General Assembly at the offices
         of the Company's headquarters or at such other place as the
         Shareholders may agree, and may hold extraordinary General Assemblies
         at the request of Shareholders holding at least 10 percent of the
         issued share capital of the Company. The Management Board shall ensure
         that notice of any General Assembly and an agenda are distributed to
         and received by the Shareholders no less than fifteen (15) days prior
         to the date of the General Assembly.  Subject to the provisions of the
         Articles of Association and applicable law, the quorum for any General
         Assembly shall be four fifths (4/5) of the Shares. If the quorum is not
         met, then a second meeting will be called on a date which is at least 5
         business days and not more than 4 weeks after the date of the first
         meeting. In such second meeting resolutions on the subjects put before
         the first meeting can be adopted by a majority of votes cast
         irrespective of the number of shareholders represented such second
         meeting.

(b)      The Shareholders shall each vote in favour of the appointment of all
         Supervisory Directors duly nominated in accordance with the Articles
         of Association and Articles 6.3(d) and 6.5 of this Agreement.

(c)      All decisions of the General Assembly shall be adopted by a simple
         majority of the votes cast, with the exception of the following
         decisions which shall require at least eighty-five (85)% of the votes
         cast:

         (i)     the purchase by the Company of Shares in its own capital and
                 any redemption of Shares;

         (ii)    the exclusion of pre-emptive rights in the case of an issue of
                 new shares and the transfer of Shares held by the Company,
                 except in the event of a public listing of the Shares or of
                 new shares or of an offering of Shares or options on new
                 shares (warrants) to professional investors in order to obtain
                 further funding;

         (iii)   a winding up or dissolution of the Company;

         (iv)    any amendment of the Articles of Association of the Company
                 other than those pertaining to increases in the authorized
                 capital of the Company or
<PAGE>   17
                                                                            -17-

                 to convert the Company into an N.V. ("Naamloze Vennootschap")
                 to enable a public listing of Shares or new shares;

         (v)     any amendment of the scope of business of the Company;

         (vi)    the declaration of dividends; and

         (vii)   the admission of new shareholders to this Agreement.

6.3      Board of Supervisory Directors

(a)      Subject to the provisions of this Agreement and the Articles of
         Association, the Board of Supervisory Directors shall have complete
         and exclusive power to supervise the policy of the Management Board
         and the general course of affairs of the Company and the Business.

(b)      Subject to the provisions set forth below and the Articles of
         Association and unless otherwise agreed by the Shareholders, the
         number of persons comprising the Board of Supervisory Directors shall
         not exceed ten (10) members and shall not be less than four (4)
         members.

(c)      The Board of Supervisory Directors shall designate its Chairman and
         Vice Chairman and the Shareholders shall procure that the Board of
         Supervisory Directors appoints as Chairman and Vice Chairman the
         persons so designated. The Chairman shall prepare an agenda for the
         meetings of the Board of Supervisory Directors, without prejudice to
         the right of the members to put up for discussion at meetings issues
         other than those set out in the agenda. The Chairman, or in his absence
         the Vice Chairman, shall preside the meetings.

(d)      Each Participating Shareholder who holds an interest of at least 6.8%
         in the issued capital of the Company shall be entitled to make a
         binding nomination for the appointment of one (1) Supervisory
         Director, and, the other Participating Shareholders together to the
         extent each holds less than 6.8% shall be entitled by rotation to make
         a binding nomination for the appointment for 2 years of one (1)
         Supervisory Director, provided that, so long as HIT Rail is the legal
         owner of at least one (1) Share, HIT Rail shall be entitled to
         nominate at least one (1) Supervisory Director. If the Participating
         Shareholders together holding less than 6.8% cannot agree on the
         person to be appointed, any one of them may refer the decision to
         appoint a new
<PAGE>   18
                                                                            -18-

         member to the Supervisory Board whose decision shall be binding on the
         Participating Shareholders. So long as GTS Hermes is the legal owner
         of 50% of the Shares, GTS Hermes shall have the right to make a
         binding nomination for appointment of such number of members of the
         Board of Supervisory Directors as matches the number of members
         appointed by the other Shareholders. If GTS Hermes is the Legal owner
         of two-thirds (2/3) or more of the Shares, GTS Hermes shall have the
         right to make a binding nomination for appointment of such number of
         members to the Board of Supervisory Directors equal to one member more
         than appointed pursuant to the nominations by all the other
         Shareholders. The percentage of 6.8% reflects the estimated increase
         of the interest of NMBS in the Company after the HIT Rail Shareholders
         have become direct shareholders of the Company as mentioned in the
         "WHEREAS" clause under e., and consequently, such percentage is
         subject to change if the issued capital of the Company as set forth in
         Article 2, is increased.

(e)      Board of Supervisory Directors shall meet at least quarterly at the
         office of the Company's headquarters, unless the Board agrees to meet
         elsewhere. Notice of Board meetings shall be provided by the Chairman
         no less than four (4) weeks in advance and the proposed agenda for
         such meeting shall be provided by the Chairman no less than two (2)
         weeks in advance. The quorum for meetings of the Board of Supervisory 
         Directors validly convened shall be a simple majority of the members 
         of the Board of Supervisory Directors. If the quorum is not represented
         in such meeting, a second meeting of the Board of Supervisory Directors
         will be called on a date which is at least 5 business days and not
         more than 4 weeks after the date of the first meeting. In such second
         meeting, resolutions on the subjects put before the first meeting can
         be adopted by a majority of the votes cast irrespective of the number
         of Supervisory Directors represented at such second meeting. Each
         Supervisory Director may designate any other Supervisory Director to
         serve as his attorney-in-fact at any such meeting. The Company shall
         bear the reasonable costs and expenses of the attendance of the        
         members at the meetings of the Board of Supervisory Directors.

(f)      At each of its regular meetings, the Board of Supervisory Directors
         shall determine the time and place of the Board's next regular
         meeting. The Chairman may, on his
<PAGE>   19
                                                                            -19-

         own initiative or at the request of any other member, call non-regular
         meetings of the Board of Supervisory Directors.

(g)      The Board of Supervisory Directors may also convene and/or take
         action by telephone or video-conferencing, provided that the quorum
         set out in paragraph (e) above is present thereat. The Board may also
         take action by unanimous written consent.

(h)      Subject to the Articles of Association, issues arising at any meeting
         shall be decided by a simple majority of the members of the Board of
         Supervisory Directors. 

(i)      Each Supervisory Director has one vote.  If an equal number of votes is
         cast in favour of and against a proposal, the Chairman shall not have a
         deciding vote.  In respect of any such proposal:

         (i)     the proposal shall be referred to the Chief Executive Officer
                 of each of the Shareholders or his designee, who shall use
                 their best efforts to reach agreement with respect to such
                 proposal within 30 days of such meeting; their agreement shall
                 be considered a resolution of the Board of Supervisory
                 Directors; and

         (ii)    if they fail to come to an agreement on the proposal, the
                 deadlock mechanism provided for in paragraph 4 of Article 18 of
                 the Articles of Association shall mutatis mutandis apply. The
                 committee of experts appointed in accordance with such
                 provision will be instructed to render a decision within 60
                 days.

6.4      Management Board

(a)      Taking into account the terms of this Agreement and the Articles of
         Association the Management Board shall:

         (1)     carry out the Business Plan of the Company as amended from
                 time to time;

         (2)     organize preparation for carrying out decisions of the Board
                 of Supervisory Directors made in accordance with the relevant
                 provisions of the Articles of Association and submit reports
                 on their accomplishment;
<PAGE>   20
                                                                            -20-

         (3)     prepare a proposed revision to the Business Plan on an annual
                 basis and present it to the Board of Supervisory Directors;

         (4)     prepare a proposed budget setting forth a detailed plan for
                 capital and any other investment, expenses, and projected
                 revenue for the Company in connection with its activities over
                 the fiscal year covered by such budget period, and present the
                 proposed budget to the Board of Supervisory Directors;

         (5)     manage Company property including its cash funds within such
                 guidelines as may be set by the Board of Supervisory
                 Directors;

         (6)     conclude contracts and agreements in the Company's name and
                 ensure their fulfilment;

         (7)     distribute profits in accordance with the relevant provisions
                 of the Articles of Association;

         (8)     adequately insure and keep so insured the Company against all
                 risks usually insured against by companies carrying on the
                 same or similar business;

         (9)     carry out other functions based on the Articles of Association
                 that are not inconsistent with the provisions of this
                 Agreement or the direction of the Board of Supervisory
                 Directors; and

         (10)    subject to Article 12.2, represent the Company in its
                 relations with organizations, state organizations, firms, and
                 institutions concerning the Business.

(b)      GTS Hermes shall procure that the Management Board shall not without
         the prior written approval from the Board of Supervisory Directors
         permit the Company to engage in any dealings with relatives (in the
         case of an individual) of members of the Management Board or enter
         into any contracts with any Shareholder or Affiliated Company which
         are not in the ordinary course of business for the Company or which
         are not on normal commercial terms such as would be offered any
         unrelated third party.

(c)      GTS Hermes shall have the right to nominate for removal or appointment
         of the Managing Director and the other Shareholders agree, subject to
         the provision set out in paragraph (d) below, to vote in favour of any
         such nomination, unless it cannot reasonably be expected to do so, and 
         GTS Hermes agrees to indemnify and
<PAGE>   21
                                                                            -21-

         hold the other Shareholders harmless from and against any liability
         which it might incur as a result of any removal contemplated above.

(d)      Any Managing Director to be appointed in accordance with the above
         shall have submitted to the Shareholders prior to his appointment a
         written statement agreeing to be bound by the confidentiality covenant
         set out in Article 11 of this Agreement in respect of any information
         labelled confidential by the Shareholders.

(e)      GTS Hermes covenants with the other Parties that it shall at all times
         procure that the Company complies with all of its obligations under
         this Agreement and the Articles of Association.

6.5      Removal; Successors

         From time to time during the term of this agreement, any Shareholder
         may request the removal or suspension of a Supervisory Director
         previously nominated by that Shareholder in accordance with Article
         6.3, and, the other Shareholders undertake upon the making of such
         request to exercise their voting rights in favour of such removal or
         suspension and, in case of removal, in favour of the appointment of a
         successor nominated by that Shareholder, which nominee the
         Shareholders undertake to promptly appoint in the place of the removed
         Supervisory Director. Unless the Shareholders agree otherwise, if a
         Shareholder removes a Supervisory Director previously nominated by
         that Shareholder, that Shareholder shall bear any liability for such
         removal and shall indemnify the other Shareholders and the Company
         against any costs that they may incur in connection with such removal.

ARTICLE 7 - CONDUCT OF BUSINESS

7.1      Shareholder Representatives

(a)      Each Shareholder shall appoint one (1) natural person to serve as its
         representative at the General Assemblies and to carry out other
         responsibilities of Shareholders as provided in this Agreement. A
         representative may, after giving reasonable written notice to the
         other representatives, designate any natural person to serve as
<PAGE>   22
                                                                            -22-

         a substitute at any General Assembly and for any other purpose under 
         this Agreement.

(b)      Each Shareholder may remove its representative from time to time. Upon
         the death, disability, resignation, or removal of its representative,
         a Shareholder shall appoint a successor representative and shall
         promptly notify the other Parties of such appointment.

(c)      A person designated as the representative of a Shareholder shall be
         deemed to continue as such unless and until the Company and all the
         other Shareholders receive a written notice signed by the appointing
         Shareholder designating a successor representative. The Company and
         each Shareholder shall be entitled to rely on the authority of the most
         recently appointed representative of whose appointment they have
         received notice with respect to any matter for which a Shareholder's
         representative may act under this Agreement.

(d)      Each Shareholder shall ensure that this representative has appropriate
         authorization to act on its behalf with respect to any actions
         required, permitted, or provided under this Agreement to be taken by
         its appointing Shareholder and noted on the agenda for a particular
         meeting, including without limitation giving or receiving notices,
         offers, acceptances, and other communications provided for in this
         Agreement.

(e)      Unless the Shareholders agree otherwise, if a Shareholder removes its
         representative pursuant to Article 7.l(b) hereof, that Shareholder
         shall bear any liability for such removal and shall indemnify the other
         Shareholders and the Company against any costs that they may incur in
         connection with such removal.

7.2      Award of Licenses

         Each Shareholder agrees to cooperate with the Company in obtaining the
         Licenses and operating the Business in connection therewith in
         accordance with the Business Plan.
<PAGE>   23
                                                                            -23-

7.3      Shareholder Advisory Council (SAC)

         To ensure sufficient Shareholder representation regarding key business
         issues, the Management Board will form a Shareholder Advisory Council
         (SAC) to be populated by a representative from each Participating
         Shareholder. This will not be a voting body or a decision-making
         body, but rather a group of active and interested Shareholders
         willing to both offer advice and counsel to the Management Board as
         well as to ensure awareness within their own organization of Company
         issues and progress. The SAC would normally convene six times per year

ARTICLE 8 - ISSUE AND TRANSFER OF SHARES; PRE-EMPTIVE RIGHTS

8.1      The Shareholders agree to grant their consent pursuant to paragraph 1
         of Article 8 of the Articles of Association to any transfer of Shares
         to a transferee who is and remains an Affiliated Company of the
         transferor Shareholder and the Shareholders may, when entitled under
         this Agreement to be issued additional Shares, designate an Affiliated
         Company to take up such Shares provided that:

         (1)     The obligations of the transferor Shareholder under this
                 Agreement will remain unaffected by the transfer contemplated
                 above; and

         (2)     the Shares will be retransferred to the transferor Shareholder
                 (or in the event there have been a series of transfers between
                 Affiliated Companies, then to the first transferor
                 Shareholder) immediately prior to the ultimate transferee
                 ceasing to be an Affiliated Company of the transferor
                 Shareholder except if the (first) transferor Shareholder has
                 been voluntarily liquidated; and

         (3)     the transferor Shareholder warrants that it shall
                 unconditionally and irrevocably guarantee the performance of
                 the Affiliated Company's obligations under this Agreement.

8.2      Except in case of a public listing or an issue of new shares or Shares
         or options on shares (warrants) to professional investors to obtain
         further funding, it shall be a condition precedent to any issuance of
         shares by the Company to a third party and to the right of any 
         Shareholder to transfer its Shares to any third party (including
<PAGE>   24
                                                                            -24-

         Affiliated Companies) or to designate the allotment of additional
         shares to an Affiliated Company that the transferee or allottee
         becomes a Party to this Agreement.  The joining of such transferee or
         allottee as a Party to this Agreement will take place by means of, and
         as of the date of, the signing of an admittance statement by such
         third party in the format as attached hereto as Annex 2.  The
         transferee or allottee shall send the admittance statement to the
         Company, which shall provide each of the Paries with a copy thereof.
         The Shareholders hereby agree for the future to the amendment of this
         Agreement at any time an admittance statement becomes effective.

8.3      The Shareholders and the Company shall do or procure to be done all 
         such acts and things as may be necessary to give full effect to the
         transfers contemplated in this Article 8 and the registrations thereof.

8.4      Subject to Article 8.1, if a Shareholder transfers all of its Shares,
         the transferor Shareholder shall upon completion of such transfer and
         the transferee becoming a party to this Agreement be released from all
         its obligations and liabilities under this Agreement, with the
         exception of:

         (i)     any liability resulting from antecedent breaches of this
                 Agreement; and

         (ii)    those provisions of this Agreement stated to continue after
                 termination hereof.

8.5      Except where the transfer is in accordance with this Article 8, upon
         the transfer by a Shareholder of all its Shares, such Shareholder
         shall deliver to the Company the written resignations of all those
         Members of the Board of Supervisory Directors nominated by such
         Shareholder pursuant to the provisions of Article 7.

8.6      Notwithstanding any other provision of this Agreement, if any binding
         measure of the Commission or Council of the European Communities or
         any judgement of any court or tribunal or any regulation or
         legislation of any other relevant authority shall prohibit or in any
         way restrict the holding of Shares by a Shareholder (the
<PAGE>   25
                                                                            -25-

         Prohibited Shareholder), then the Prohibited Shareholder may give a
         written notice (the Transfer Notice) to the other Shareholders and the
         Company to transfer some or all of its Shares to a third party and,
         where a prohibited Shareholder shall be entitled under this Agreement 
         to be issued any additional Shares or require or accept a transfer of 
         any Shareholder's Shares, it may designate a third party, in each case,
         acceptable to the other Shareholders to take up such Shares (or the
         rights to be allotted Shares) within thirty-five (35) days of receipt
         of notice that such third party is acceptable provided that if the
         other Shareholders shall not accept such third party within twenty-one
         (21) days of receipt of the Transfer Notice, and unless otherwise
         agreed by the Shareholders, the other Shareholders shall be obliged to
         purchase all of the Shares held by the Prohibited Shareholder on a pro
         rata basis within thirty-five (35) days of receipt of the Transfer
         Notice, failing which the Prohibited Shareholder shall be obliged to
         transfer such Shares (or the rights to be allotted Shares) to such
         third party who shall be deemed to be acceptable to the other
         Shareholders. The purchase price of any transferred Shares shall be
         determined pursuant to the procedures set forth in Article 8 of the
         Articles of Association.

ARTICLE 9 - PROVIDE FIBRE CAPACITY

The Company or its designated vendor will provide fibre capacity in its network
for use by the Shareholders on fair commercial terms, use, quantity and price to
be negotiated on a bilateral basis between the relevant Shareholder and the
Company or its designated vendor.

ARTICLE 10 - TERM AND TERMINATION OF AGREEMENT

Except for obligations under Article 11 which shall survive termination, and
obligations or liabilities not discharged upon termination, this Agreement
shall terminate in respect of all Parties simultaneously pursuant to a decision
to terminate this Agreement as of a certain date, provided that such decision
has been approved in writing by such a number of Parties together holding at
least eighty-five (85)% of the voting Shares. In addition all rights and
obligations
<PAGE>   26
                                                                            -26-

under this agreement (except for obligations and liabilities which have not
been discharged or which survive termination) shall terminate automatically in
respect of any Party, if such Party no longer holds Shares in the Company.

ARTICLE 11 - CONFIDENTIAL INFORMATION

The Parties shall not and shall procure that none of their officers, employees,
Managing or Supervisory Directors, or Affiliated Companies or their officers,
employees, Managing or Supervisory Directors, or the Company or any of its
Managing or Supervisory Directors, or employees shall at any time hereafter,
save when required by law, make use of or disclose or divulge to any third
party any information relating to the Company which has been designated in
writing as confidential by the disclosing Party.

ARTICLE 12 - MISCELLANEOUS

12.1     Government Notification and Information

         If the Shareholders jointly conclude that any applicable antitrust or
         competition regulatory requirement of the European Communities or any
         other governmental body requires a notification or information, or if
         the Shareholders jointly conclude that it would be desirable to submit
         such notification or information, then the Shareholders shall
         cooperate in the preparation and delivery of the notification or
         information.

12.2     Publicity

         For the duration of this Agreement, any formal press, public
         announcement, news release or other form of major publicity relating to
         this Agreement or any of its terms shall be made only after prior
         consultation between the Parties and if the substantive content is
         mutually agreed upon. No party shall unreasonably withhold or delay its
         consent to any formal press, public announcement, news release,
         filings, or other form of major publicity relating to the existence of
         this Agreement or its terms, if such is required by the laws of any
         jurisdiction governing any of the Parties or in connection with the
         procurement of capital.

12.3     Severability
<PAGE>   27
                                                                            -27-

         Each and every obligation under this Agreement shall be treated as a
         separate obligation and shall be severally enforceable as such and in
         the event of any obligation or obligations being or becoming
         unenforceable in whole or in part such part or parts as are
         unenforceable shall be deemed deleted from this Agreement and any such
         deletion shall not affect the enforceability of the remainder of this
         Agreement.

12.4     Force Majeure

         The failure or delay of any Shareholder (the "Affected Shareholder") to
         perform any obligation under this Agreement or the Company being unable
         to conduct its business solely by reason of acts of civil or military
         authority, civil disturbance, war, strikes or other labour disputes (by
         employees of any third party) or disturbances, fire, or laws,
         regulations, acts, or orders of any governmental agency or official
         thereof, other catastrophes, or any other circumstances beyond its
         reasonable control ("Force Majeure") shall not be deemed to be a breach
         of this Agreement so long as the Affected Shareholder or its Affiliated
         Company shall not have contributed to such Force Majeure, shall have
         used its best reasonable efforts to avoid such Force Majeure or to
         ameliorate its effects, and shall continue to take all actions within
         its power to comply to the extent possible with the terms of this
         Agreement. In the event of any such failure or delay, performance of
         the obligations shall be deferred until the Force Majeure ceases to
         affect the performance of obligations hereunder, provided that if the
         Force Majeure affects the performance of a material obligation and has
         not ceased within nine (9) months, any Affected Shareholder may
         withdraw as a Party to this Agreement.

12.5     Entire Agreement

         This Agreement and the agreements to be entered into pursuant to it
         supersede all prior agreements among the Parties with respect to the
         subject matter hereof and contain the entire agreement among the
         Parties with respect to the subject matter hereof, including the
         Annexes. Each party confirms to each of the others that it is not
         relying on any reputation, warranty, or commitment of any kind save as
         set out in or explicitly contemplated by this Agreement and the Annexes
         and, for the avoidance of doubt, the Parties (other than the Company)
         acknowledge that their respective Shareholders are not parties hereto
         and are in no way whatsoever bound by, and will not be held to by the
<PAGE>   28
                                                                            -28-

         Company, any Shareholder or any of their respective Affiliated
         Companies, any of the terms hereof.

12.6     Amendment

         This Agreement may not be amended, supplemented, or discharged, and no
         provision may be modified or waived, except as expressly provided in
         this Agreement or by an instrument in writing signed by such a number
         of Parties together holding at least (eighty-five) (85)% of the voting
         shares in the capital of the Company, in which case the amended
         Agreement shall be effective in respect of all Parties to the Agreement
         as of the date of the signed instrument, notwithstanding the fact that
         any one Party has not approved such amendment. No waiver of any
         provision hereof by any Party shall be deemed a waiver by or in favour
         of any other Party, nor shall any such waiver by any Party be deemed a
         continuing waiver of any matter or a waiver of any other matter by such
         Party. No allowance of time or other indulgence shall constitute a
         waiver or preclude the subsequent assertion or enforcement of the right
         or remedy concerned or any other right or remedy. No exercise of any
         right or remedy shall be deemed to imply a waiver of, or prevent the
         subsequent assertion or exercise of, any other right or remedy in
         respect of the same or any other matter. No amendment, modification,
         supplement, discharge, or waiver hereof or hereunder shall require the
         consent of any person not a Party to this Agreement except as required
         by law.

12.7     Variations Terms and Pronouns

         All terms, pronouns, and any variations thereof, shall be deemed to
         refer to the masculine, feminine, neuter, singular, or plural as the
         identity of the person or persons or entity or entities require.

12.8     Headings

         All captions or headings contained in this Agreement are for
         convenience of the Parties only and shall not affect the interpretation
         of any provision of Agreement.

12.9    Language

<PAGE>   29
                                                                            -29-

         All meetings of the Company and all documentation relating to the
         Company shall be in the English language unless otherwise required by
         applicable law.

12.10    Costs

         The Company shall bear the reasonable legal fees and expenses
         incidental to the registration, preparation and completion of this
         Agreement.

12.11    Counterparts

         This Agreement may be executed and delivered (including by facsimile
         transmission) in one or more counterparts, and by the different
         parties hereto in separate counterparts, each of which when so
         executed and delivered shall be deemed to be an original but all of
         which taken together shall constitute one and the same agreement. This
         Agreement shall be binding as of the date of signing by at least two
         Parties and shall be binding on each other Party as of the date of its
         signing.

ARTICLE 13 - APPLICABLE LAW AND CHOICE OF FORUM

(a)      This Agreement shall be governed by and construed in accordance with
         the laws of The Netherlands.

(b)      In the event that disagreements or disputes arise with respect to the
         interpretation or performance of this Agreement or any of its
         provisions, the Parties will use their best efforts to resolve them
         through consultation. Disagreements or disputes that have not been
         settled by such consultation within thirty (30) days after the first
         notification thereof by one Party to the other will, at the request of
         either Party, be submitted to and finally settled by arbitration in
         accordance with the Rules of The Netherlands Arbitration Institute.
         The arbitration shall be conducted in Amsterdam, The Netherlands, in
         the English language.



Signed in six counterparts

HIT RAIL B.V.                      GTS HERMES, INC.

<PAGE>   30
                                                                            -30-



/s/ SVEND LAURSEN                 
- ----------------------------      ---------------------------
By:  Svend Laursen                By: [ILLEGIBLE]     

Title:  M.D. of Hitrail B.V.      Title:  Chief Executive Officer

Date:  July 16, 1997              Date:  7/19/97       



NMBS/SNCB                         TELFORT B.V.


- ----------------------------      ---------------------------
By:                               By:

Title:                            Title:

Date:                             Date:


AB SWED CARRIER                   HERMES EUROPE RAILTEL B.V.

                                  /s/ [ILLEGIBLE]
- ----------------------------      ---------------------------
By:                               By:

Title:                            Title:

Date:                             Date:  






<PAGE>   31
                                                                      ANNEX 1

Draft July 3, 1997 (amendments from current articles reflect decisions in HER
recapitalization plan and Hit Rail/GTS Hermes consensus on amended 
shareholders agreement of May 23, 1997)

                    AMENDMENT TO THE ARTICLES OF ASSOCIATION
                         OF HERMES EUROPE RAILTEL B.V.



                            ARTICLES OF ASSOCIATION:
                                Name and Office.
                                   Article 1.

The Company shall bear the name of: Hermes Europe Railtel B.V. and shall have
its principal office in Amsterdam.

                                    Objects.
                                   Article 2.

1.   The objects of the Company are:
     
     a.   to promote, develop, implement and turn to account digital
          communication networks and systems, particularly in the area of
          and/or, inter alia, departing from railway infrastructure;

     b.   to participate in, to administer and/or manage and finance other
          enterprises and to have an interest, in whatever way, in other 
          enterprises, as well as to guarantee the debts of third parties;

     c.   all that is related or may be conducive to the objects mentioned
          under a. and b.

2.   When performing activities in the general course of affairs in the
     company, the working language is the English language.

                                   Duration.
                                   Article 3.

The Company has been established for an indefinite period of time.

                                    Capital.
                                   Article 4.

1.   The authorized share capital of the Company amounts to two hundred and
     ninety-seven million Dutch guilders (NLG 297,000,000), and is divided 
     into twenty-nine point seven billion (29,700,000,000) shares of a 
     nominal value of one Dutch cent (NLG 0.01) each.

2.   Upon an issue of new shares, the full nominal amount of each share must
     be paid in. It may be stipulated by the board of supervisory directors 
     that a part of the nominal value not exceeding three quarters thereof, 
     need only be 
<PAGE>   32
                                                                               2



     paid after the company has called it in. The board of supervisory directors
     has the authority to resolve that further payments on the shares not
     exceeding the full nominal amount thereof, have to be made. The claim for
     further payment is not transferable and cannot be pledged.

     Prior to each single issuance the right of pre-emption as set forth in
     sub-section 3. hereof may be limited or excluded in a general meeting of
     shareholders.

     Payment in foreign currency of shares, to be issued after the
     incorporation, can only be made with the approval of the Company.

3.   Shareholders shall have a pre-emption right to the shares to be issued and
     options on shares to be issued in proportion to the total nominal value of
     the shares held by each of them.

     However, individual shareholders shall not have a pre-emption right to
     shares or options issued to employees of the Company or of a group company.

4.   Issue of shares with a pre-emption right and the term, during which it may
     be exercised, shall be notified in writing by the Company to all
     shareholders. A pre-emption right can be exercised during at least four
     weeks after the day the notice was received by all shareholders.

     If a shareholder has not complied with his obligation to pay the shares in
     time, he cannot execute the rights to meet and to vote in respect of his
     shares as long as he is default, and his right to dividends is deferred.

5.   In order to subscribe or acquire shares in its capital or certificates of
     beneficial ownership thereof, the Company may only grant loans not 
     exceeding the amount of the payable reserves and provided that the general
     meeting has granted its approval; the Company shall then keep a
     non-payable reserve to the amount of the outstanding loans.

6.   The Company shall not cooperate in the issue of depositary receipts of
     shares in the Company.

7.   Shares not yet issued shall be issued pursuant to a resolution of the Board
     of Supervisory Directors setting out all the terms of such issue.

                                     Shares.
                                   Article 5.

1.   All shares shall be registered and shall be numbered consecutively from 1
     on.

2.   Neither share-certificates nor bearer certificates of beneficial ownership
     shall be issued in respect of shares.

                           Register of shareholders.
                                   Article 6.

1.   The Board of Managing Directors shall keep a register into which the names
     and addresses of all the holders of shares are entered together with the
     nominal amount paid on every share, and the quantity and the numbers of the
<PAGE>   33
                                                                               3



     on every share, and the quantity and the numbers of the shares, held by
     every shareholder.

2.   The register shall likewise contain the names and addresses of those who
     have a right of usufruct or a pledge with regard to such shares, stating
     to which rights attached to the shares they are entitled pursuant to
     paragraphs 7 and 8 of this article.

3.   Every shareholder usufructuary and pledgee, shall have the obligation to
     take care that his address is known to the Company.

4.   The register should be kept up regularly.

     Any entry in the register and any extract, as referred to in paragraph 5,
     shall be signed by the managing director.

5.   Upon request, the Board of Managing Directors shall provide a shareholder,
     usufructuary or pledgee with a free extract from the register concerning
     his rights with respect to the shares.

     In case a right of usufruct or a pledge is established on a share, the
     register shall indicate who shall be entitled to the rights referred to in
     paragraphs 7 and 8  of this article.

6.   The Board of Managing Directors shall deposit the register at the office of
     the Company for inspection by shareholders as well as by usufructuaries
     and pledgees.

7.   The shares may be encumbered with usufruct and a pledge. The voting right
     in respect of the shares shall, however, remain vested in the shareholder.

8.   The usufructuary and the pledgee shall not have the rights conferred by
     law to the holders of depositary receipts of shares issued with the
     co-operation of the Company.

9.   Rights ensuing from a share and aiming at the acquisition of shares, shall
     belong to the shareholder, provided that he shall compensate the
     usufructuary for the value thereof as far as the latter is entitled to
     such compensation pursuant to his right of usufruct. 

                                   Article 7.

If a share is held jointly by more than one person, the Company may require that
the joint holders shall grant one person a written power of attorney to
represent them in their relations to the Company.

             Transfer and transition of shares (Blocking rules).
                                  Article 8.

1.   Every transfer of one or more shares by a shareholder may only be
     effectuated in the way and with due observance of the provisions of this
     article and article 9. These provisions need not to be observed, if
     within a period of thirty days after the shareholder who wants to
     transfer, has request for the permission, all shareholders have granted
     written permission for the transfer and moreover, the transfer is effected
     within three months after the approval has been granted by all   
<PAGE>   34
                                                                               4


     shareholders.

2.   A shareholder intending to alienate one or more of his shares shall give
     notice thereof to the Board of Managing Directors and to the Board of
     Supervisory Directors, which notice shall be considered to be an offer for
     sale.

3.   As soon as possible but no later than five working days after receipt of
     that notice, the Board of Managing Directors shall give notice to all
     shareholders.

4.   Within one month after the date of the notice to the shareholders, the
     shareholders shall inform the Board of Managing Directors, if they wish to
     take over either all the shares offered or part thereof.

5.   If shareholders apply for a number of shares exceeding the number that is
     available, shares shall be allocated by the Board of Managing Directors as
     far as possible in proportion to the total nominal amount of shares held
     by each applicant and, insofar as proportional distribution is impossible,
     to several applicants jointly.

6.   As soon as it becomes clear that not all the shares offered are taken over
     by other shareholders, the offeror shall have the rights as hereinafter
     referred to in paragraph 13.

     Without the offeror being bound thereto in whatever way, within thirty days
     after receipt of the notice referred to in paragraph 2 the Board of
     Managing Directors may apply for the shares that are not taken over, on
     behalf of the Company.

     If the offeror wishes to accept, he may do so on the condition that the
     price to be paid be increased by the additional income tax due he has to
     pay as compared with the income tax to be paid in case of a sale to a
     third party.

7.   Within thirty days after receipt of the notice referred to in paragraph 2,
     the Board of Managing Directors shall inform the offeror whether or not
     application was made for the shares and in the affirmative, inform him of
     the name(s) of the applicant(s) and the number of shares he/they wish(es)
     to buy, while at the same time the Board of Managing Directors shall
     inform the applicant(s) of the number of shares allocated to him/them for
     the time being, pursuant to paragraph 5.

8.   The price at which shares are to be transferred shall be fixed by the
     offeror and the applicant(s) by common agreement. If they fail to reach an
     agreement on the price within one month after the date of the informing
     notice referred to in the preceding paragraph, the price shall be the
     value of the offered shares as determined by an independent expert, to be
     appointed by the Chairman of the Chamber of Commerce and Industry of the
     district in which the Company has its principal office, upon request of the
     most diligent party. The expert so appointed shall take into account any
     bona fide offer made by a third party to purchase the shares, including
<PAGE>   35
                                                                               5



     the price and any other conditions of such offer.

9.   The costs of valuation shall be paid by the Company except in case the
     price determined by the expert is equal to or more than the price
     originally offered by the offeror, in which case the costs shall be borne
     by the party requesting the independent valuation.

     If the right referred to in paragraph 12 of the present article is made
     use of, half of the valuation costs shall be paid by the person who
     withdraws.

     The Company is obliged to provide the expert(s) with all the data relevant
     for the valuation upon first request and without any delay, including the
     price and the conditions of the offer of a bona fide third party.

10.  The expert shall inform the Board of Managing Directors of his decision.
     Within five working days after receipt of that decision, the Board of
     Managing Directors shall notify the same to the offeror and the 
     applicant(s).

11.  After the price of all the shares has been determined, the offeror may
     demand that each of the applicants provides security - by means of an
     irrevocable bank guarantee or otherwise - for the payment of the purchase
     price within a reasonable period of time.

12.  The offeror shall always be entitled to withdraw his offer, provided he
     does so within one month after having been informed of the applicant(s) to
     whom he may transfer all the shares offered and at which price.

     Shares should be transferred within one month after the expiration of the
     term within which the offeror may withdraw, against payment of the purchase
     price.

13.  If not all the shares offered are taken over or the above mentioned
     security, demanded by the offeror for the payment to him of the purchase
     price of all his shares, has not been granted, the offeror shall be 
     entitled to withdraw in respect of all the shares offered, he may consider 
     the purchase agreements and any transfer with respect to part of the 
     shares as cancelled and he shall be free to transfer all the shares 
     offered to whatever party he wishes, within three months after having 
     been informed of the fact that there are no or not sufficient applicants 
     or after it appeared that the security referred to above was not granted 
     within the term fixed, provided that the transfer price is not lower than 
     the price for which the shares were originally offered; in the event that 
     the transfer price is lower, the shares shall be offered to the other
     shareholders first, in accordance with the rules as mentioned in this
     article and in article 9.

14.  In case the offeror fails to co-operate with the transfer, notwithstanding
     payment or security for payment of the purchase price, the Company shall be
     irrevocably authorized to effectuate the transfer and to record the
     transfer in the register of shareholders.

15.  All notices and communications referred to in this
<PAGE>   36
                                                                               6



     article shall be made by registered mail with postal receipt or by means
     of service of a writ.

16.  The Board of Managing Directors is obliged to keep the Board of
     Supervisory Directors informed of the progress and the results of the
     actions meant in the present article.

                                   ARTICLE 9.

1.   The shares of a shareholder, being a legal entity which is dissolved,
     adjudicated bankrupt or has obtained a provisional official moratorium, and
     the shares being part of any community which is dissolved, shall be offered
     for sale by the person or persons entitled to transfer, within two months
     after the decease or dissolution referred to above or after any of the 
     other events referred to above is irrevocably established, respectively 
     after expiry of the term of two years referred to in paragraph 4 without 
     the allotment mentioned therein being effectuated.

     As long as the transfer has not been effectuated, all the rights in
     respect of the shares involved may not be exercised.

2.   The relevant provisions of article 8 - including paragraph 1 of that
     article - shall be applicable to the offer referred to above and the
     subsequent effectuation thereof, on the understanding however, that the
     offeror shall not be entitled to withdraw as mentioned in paragraph 12 of
     article 8 and in case no offer is made the Company shall also be
     irrevocably authorized to make an offer and to effectuated the transfer. 

     If not all the shares thus offered are taken over, the shareholder shall be
     bound, however, to keep his shares and he shall be deprived of the right,
     provided for in paragraph 13 of article 8, to alienate the shares to
     whomever he wishes.

3.   The obligation to make an offer shall not apply in case of allotment to
     the person who contributed the share or the shares to the community which
     has been dissolved.

4.   The allotment referred to in the preceding paragraph shall be effectuated
     within two years after the dissolution and the Company shall be informed
     of the allotment within one month.

5.   If, owing to the same legal fact, several persons are bound to offer, they
     shall be entitled to offer the shares concerned as one package.

                              TRANSFER OF SHARES.
                                  ARTICLE 10.

1.   The transfer of shares shall be effected in accordance with the applicable
     statutory regulations.

2.   In case of allotment of shares as a result of a division of a community
     and in case of establishment and transfer of a right of usufruct or pledge
     on shares, paragraph 1 shall apply accordingly.

3.   The provisions of this article can be only applied with
<PAGE>   37
                                                                               7



     regard to a transfer and allotment of shares and division of any
     community, if the provisions of article 8 and 9 have been observed.

              Acquisition and possession of shares by the Company.
                                  Article 11.

1.   Unless the Company acquires shares for no value or under an universal
     title, the Company may, subject to prior authorization of the Board of
     Supervisory Directors and pursuant to a resolution of the general meeting,
     only acquire fully paid-up shares in its own capital, if:

     a.   the shareholders' equity of the Company, decreased with the
          acquisition price, is not less than the paid-up and claimed part of
          the capital, increased with the reserves to be kept in accordance with
          the law or the Articles of Association;

     b.   the nominal amount of the shares to be acquired and those already
          held by the Company and its subsidiaries jointly, amounts to no more
          than half of the issued share capital;

     c.   in the event that the current financial year has ended more than six
          months ago - the annual accounts of the preceding year have been
          adopted.

          In this paragraph shares also include depositary receipts of shares.

          A subsidiary of the Company may not subscribe or cause the
          subscription for shares in the Company's capital for its own
          account. A subsidiary of the Company may only acquire such shares for
          its own account and on a particular basis of title insofar as the
          Company itself may acquire shares in its own capital pursuant to the
          provisions of this paragraph.

2.   The Company cannot exercise voting rights in respect of shares, held by the
     Company itself, or of which it has a right of usufruct or a pledge.

     Such shares shall not be taken into consideration when calculating the
     distribution of profits or liquidation balance, unless a right of usufruct
     or a pledge has been established on those shares in favour of another
     person than the Company.

     The provision of the first sentence of this paragraph is accordingly
     applicable to shares held by subsidiaries of the Company or on which
     subsidiaries have a right of usufruct or a pledge.

3.   Cancellation of shares held by the Company in its capital and cancellation
     after refunding of shares drawn by lot after drawing, is possible; 
     resolutions with respect to cancellation shall be adopted in a general 
     meeting of shareholders, convened with notification of the purpose of the 
     cancellation and its procedure. A cancellation is not allowed to result in 
     a paid and claimed part of the capital being lower than one/fifth part of 
     the authorized capital or than the minimal capital prescribed by law at
<PAGE>   38
                                                                               8



     the moment of the resolution.

4.   Shares held by the Company itself can only be alienated in the manner
     prescribed for issue of shares not yet issued.
     The articles 8 and 9 do not apply to this alienation.

                                     Boards
                                   Article 12

1.   The Company shall have a Board of Managing Directors and a Board of
     Supervisory Directors, the members of which shall be appointed by the
     general meeting which may at all times suspend or remove them from office.
     The number of Supervisory Directors, to be determined by the general
     meeting, shall be at least four and at most ten; there shall be one
     managing director.  

     The general meeting shall determine the conditions of employment of the
     managing director and the remuneration of the managing director. The
     remuneration and/or compensation of Supervisory Directors shall also be    
     determined by the general meeting.  
        
     A legal entity can be a managing director but cannot be a Supervisory
     Director.
        
2.   A person who has reached the age of seventy-two, cannot be appointed
     Supervisory Director. A Supervisory Director shall retire at the latest on
     the moment of the closing of the annual general meeting held in the
     financial year, in which he will be seventy-two years old.

3.   The nomination or recommendation for the appointment of a Supervisory
     Director shall comply with the legal requirements.

                  Board of Managing Directors; representation.
                                  Article 13.

1.   The Board of Managing Directors, having one managing director, shall be
     charged with the management of the Company in accordance with the Business
     Plan of the Company.

2.   The managing director shall be fully qualified to represent the Company in
     court and otherwise.

3.   The Company may grant one or more persons a limited or unlimited mandate
     to represent it.

4.   The Board of Managing Directors needs the prior approval of the Board of
     Supervisory Directors for resolutions/actions:

     a.   to adopt and amend the Business Plan of the Company;

     b.   to adopt and amend the annual budget of the Company;

     c.   to incur expenses in excess of the adopted or amended annual budget; 
     
     d.   to take up loans to the charge of the Company outside the ordinary
          business activities, with the exception of drawings on the Company's
          account with a bank designated by the Board of Supervisory Directors,
          as a result of which the account is
<PAGE>   39
                                                                               9



          overdrawn to a sum not exceeding the amount previously determined by
          the Board of Supervisory Directors and communicated by it to that
          bank;

     e.   to lend money outside the ordinary business activities insofar as in
          consequence thereof any one debtor becomes indebted to the Company on
          account of money borrowed for a sum exceeding an amount to be
          determined by the Board of Supervisory Directors;

     f.   to commit the Company for debts of third parties under a guaranty or
          otherwise outside the ordinary business activities;

     g.   to extend the Company's business by a new line of business and to
          discontinue - including the transfer of ownership or enjoyment of -
          the business of the Company or any part thereof;

     h.   to alienate a considerable part of the assets of the Company, which
          for the purposes hereof shall include the alienation, in each
          individual case, except as part of the ordinary business activities,
          of assets which individually or jointly represent a value from time
          to time to be determined by the Board of Supervisory Directors.

5.   In the event of a conflict of interest between the company and the
     managing director, the company shall be represented by a supervisory
     director to be appointed by the Board of Supervisory Directors.

                                  Article 14.

1.   The office of the sole managing director, being vacated or the sole 
     managing director being prevented from acting, the Board of Supervisory 
     Directors shall be charged temporarily with the entire management and 
     may appoint one or more Supervisory Directors to represent the Company 
     solely or jointly.

2.   Save insofar as the employment conditions of the managing director are
     concerned, the Company may not enter into agreements with the managing
     director in his private capacity or with his (personal) relatives; for the
     purposes hereof, relatives shall include: the person with whom the
     managing director cohabits, whether or not in matrimony, and blood
     relations and relations by marriage of the managing director or those with
     whom he cohabits up to four times removed;

3.   Transactions of the Company vis-a-vis the holder of all shares in the
     capital of the Company or vis-a-vis a co-owner of a community of
     matrimonial property to which all shares in the capital of the Company
     belong, in which the Company is represented by that shareholder or by one
     of the joint owners shall be recorded in writing; shares held by the
     Company or its subsidiaries shall not be taken into account.

     This paragraph shall not apply to transactions which under the agreed
     terms thereof are part of the normal
<PAGE>   40
                                                                              10



     course of business of the Company.

                        Board of Supervisory Directors.
                                  Article 15.

1.   The Board of Supervisory Directors shall supervise the management of the
     Board of Managing Directors and the general course of affairs in the
     Company and the Company's business.

     It shall assist the Board of Managing Directors and the general meeting on
     an advisory basis. When fulfilling their tasks the Supervisory Directors
     shall conform to the Company's interest and business.

2.   One or more Supervisory Directors, to be appointed thereto by the Board of
     Supervisory Directors, shall always have access to the offices and premises
     of the company and shall be entitled to inspect all its books and
     documents; the Board of Managing Directors is obliged to furnish the board
     of Supervisory Directors with all data and information desired.

     The Board of Managing Directors shall timely furnish the Board of
     Supervisory Directors all information necessary to fulfil its task.

3.   Unless the general meeting of shareholders has provided for it, the Board
     of Supervisory Directors shall charge an auditor - at the expense of the
     Company - with the auditing of the annual accounts, which auditor shall
     report the result of his audit in a statement and further shall inform the
     Board of Supervisory Directors the Board of Managing Directors about his 
     audit.

4.   The Board of Supervisory Directors shall elect a chairman and vice chairman
     from among its members. The election as chairman shall be for one year.

5.   The Board of Supervisory Directors shall meet four times a year at the
     office of the Company, unless the Board of Supervisory Directors should
     decide to meet elsewhere. 

     The Board shall furthermore meet at the request of the chairman or at the 
     request of the Board of Managing Directors.

     Meetings shall be called by the chairman of the Board of Supervisory
     Directors while enclosing an agenda in the English language. The two
     obligatory meetings shall be called at least four weeks in advance; other
     meetings shall be called within a reasonable term.

     The costs of the meetings and the transportation and subsistence costs of
     the Supervisory Directors incurred in connection with these meetings shall
     be reimbursed by the Company.

6.   Proposals to be dealt with by the Board of Supervisory Directors may be
     submitted to the chairman by every Supervisory Director and by the Board of
     Management.

7.   The Board of Supervisory Directors shall adopt resolutions at meetings by
     an absolute majority of votes in a meeting in which a majority of the 
     Supervisory Directors is present or represented, but in the event

<PAGE>   41
                                                                              11



     that there are less than seven Supervisory Directors, the quorum shall be
     at least four Supervisory Directors, unless these Articles of Association
     require or allow a different form of decision-making: for the purposes
     hereof "meeting" shall include meeting by telephone or by video, provided
     the decision-making is recorded in writing before the resolution is
     implemented. Resolutions may be adopted outside meetings only if it has
     been shown that all the Supervisory Directs have stated to be in favour
     of the proposal concerned in writing; for the purposes hereof "in writing"
     shall also mean a message by telefax, telegram or any other means of
     communication, capable of transmitting written texts.

8.   In case of one or more vacancy/vacancies in the Board of Supervisory
     Directors, the general meeting shall promptly fill such vacancy/vacancies.

                               General meetings.
                                  Article 16.

1.   General meetings must be held in the municipality where the Company has
     its principal office (Amsterdam) or Haarlemmermeer; resolutions adopted in
     a general meeting held elsewhere in or outside the Netherlands, can only be
     adopted validly, if the entire issued share capital is represented.

2.   The annual meeting shall be held ultimately within six months after expiry
     of the financial year. In the annual meeting shall be adopted inter alia:
     the balance sheet and the profit and loss account with explanatory notes -
     hereinafter to be called jointly: the annual accounts -, covering the
     past financial year, and the distribution of profits, while the general
     meeting shall also deal with the written business report of the Board of
     Managing Directors on the past financial year, to be presented to it by 
     that board, unless section 403, Volume 2 of the Civil Code is applicable.

3.   Extraordinary general meetings shall be held as often as the Board of
     Managing Directors or the Board of Supervisory Directors desires, or upon
     written request of one or more shareholders, together representing at least
     one/tenth part of the issued capital, addressed to the Board of Managing
     Directors and stating exactly the subjects to be dealt with. In that case
     the Board of Managing Directors or the board of Supervisory Directors
     shall be obliged to call a general meeting to be held within six weeks
     after receipt of this request.

     If no calling notification is sent within three weeks after receipt of the
     request, each requesting party may send a notification himself with due
     observance of the provisions of the law and this article.

4.   If the annual meeting is not called, each shareholder may do so himself,
     likewise with due observance of the provisions of the law and this article.

5.   Without prejudice to the provisions of the paragraphs 3.
<PAGE>   42
                                                                              12



     and 4., the notification, convening a general meeting, shall be sent by
     registered mail by the Board of Managing Directors to the addresses of the
     shareholders, as mentioned in the shareholders' register, at least fifteen
     days before the meeting is to be held. The day of mailing shall be
     regarded as the day of notification.

     Notifications shall contain the agenda.

     The receipt issued by the post office shall serve as evidence that the
     notification has been mailed.

6.   Meetings shall be presided by the chairman of the Supervisory Board.

7.   Unless a notarial report of the business of the meeting is drawn up,
     minutes shall be drawn up of the business, transacted in each meeting. This
     secretary needs not to be a shareholder.

     The minutes shall be confirmed at the same or at the next meeting and are
     to be signed by the chairman and the secretary in office.

     The chairman of the meeting and each managing director or Supervisory
     Director can order at any time that a notarial report of the meeting shall
     be made for account of the Company.

8.   The minute book shall be available at the offices of the Company for
     inspection by the shareholders. A copy of or an extract from the minutes of
     any meeting shall be supplied to each of them upon request and at a
     charge not exceeding cost.

9.   Shareholders may also adopt resolutions without holding a meeting,
     provided the resolutions are adopted unanimously and votes are cast in
     writing by all shareholders. A resolution adopted in this way shall be
     deemed to be a resolution of the general meeting.

     In this paragraph votes cast by telefax, telegram or any other means of
     communication capable of transmitting written texts, shall likewise be
     considered as votes cast in writing.

                                  Article 17.

1.   Shareholders may only be represented at meetings by proxy, duly authorized
     in writing.

2.   With respect to the adopting of resolutions whereby the Company will grant
     rights or a release from obligations to particular persons, otherwise than
     in their capacity of shareholder or member of a body of the Company, valid
     votes on such resolutions may be cast by said persons, their spouses and
     their blood relatives in the direct line.

                                  Article 18.

1.   Every share shall represent the right to cast one vote. Blank and invalid
     votes shall be deemed not to be cast. When determining to what extent
     shareholders vote, are present or represented, or to what extent the share
     capital is furnished or represented, shares, in respect of which the
     Articles of Association prescribe that in
<PAGE>   43
                                                                              13



     respect of those shares no vote can be cast, are not taken into account.

2.   Voting in respect to business shall be verbally, voting in respect of
     persons by unsigned ballots, unless the meeting determines a different
     way of voting. Voting by acclamation shall be allowed as long as nobody is
     opposed thereto.

3.   All resolutions shall be adopted by a majority of votes in a meeting in
     which at least four/fifths of the issued capital is present or represented,
     unless the law or the Articles of Association prescribe a larger majority.
     If the quorum is not represented in such meeting, a second meeting of
     shareholders will be called on  a date which is at least five business days
     and no more than four weeks after the date of the first meeting of
     shareholders; in such second meeting resolutions on the subjects put
     before the first meeting of shareholders can be adopted by a majority of
     the votes cast irrespective of the number of shareholders attending such
     second meeting.

4.   In case votes are equally divided with regard to a proposal, the following
     rules shall apply:

     a.   Within two weeks after the meeting referred to under (b) was held,
          the Board of Managing Directors of the Company shall be bound -
          unless the proposal hereinafter stated under (b) is adopted - to
          request the President of the Chamber of Commerce and Industry, within
          the jurisdiction of which the Company is situated, to appoint a
          committee of three experts which shall decide whether the proposal on
          which votes were equally divided, shall be adopted or rejected.

     b.   As soon as there is an equal division of votes during a general
          meeting, the chairman of the meeting shall be obliged to bring up for
          discussion a new proposal aiming at not submitting the proposal, in
          respect of which during the discussions the votes were equally
          divided, to the committee of experts referred to under (a).

          In case such new proposal is adopted, the proposal on which the votes
          were equally divided shall be rejected and, therefore shall not be
          submitted to the committee of experts referred to above for decision;
          
          in case votes are equally divided on the new proposal, made by the
          chairman, that proposal shall be deemed to be rejected and the Board
          of Managing Directors of the Company shall therefore have the
          obligation referred to under (a).

     c.   When taking its decision the committee shall first of all take into
          account the interest of the Company.
     
     d.   Its fees shall be paid entirely by the Company.
<PAGE>   44
                                                                              14



     e.   After being appointed the committee shall render its decision as soon
          as possible and shall inform every shareholder and the Company of its
          decision in writing.

          The committee shall not take a decision before having heard all
          parties involved in the relevant proposal or at least before having
          summoned them properly.

          The members of the committee of experts shall render their decision
          as good men in equity. They shall establish proceeding rules
          themselves and may extend the term of their mandate. They may take
          advice from third parties. The members of the committee of experts
          shall have access to the offices and to other rooms of the Company
          and they shall be entitled to inspect all books, registers and other
          documents of the Company; moreover, the Board of Managing Directors
          is obliged to provide the members of the  committee with every
          information they ask.

     f.   The decision of the committee of experts shall be recorded in the
          minute book of the Company. A decision taken in the way described
          above, shall be considered as a resolution of the general
          meeting.

               Financial year, annual accounts and annual report.
                                  Article 19.

1.   The financial year of the Company coincides with the calendar year.

2.   The Board of Managing Directors shall submit a budget for each financial
     year to the Board of Supervisory Directors for its approval.

3.   Within five months after the expiration of each financial year, except in
     case of extension of this term by no more than six months by the general
     meeting based on extraordinary circumstances, the Board of Managing
     Directors shall draw up the annual accounts, and shall submit the same -
     provided with an advice thereto it took from the Board of Supervisory
     Directors - and the annual report to the general meeting within that,
     possibly extended, term.

4.   The annual report and the annual accounts, signed by the managing director
     and Supervisory Directors, together with, in any case, besides other
     information prescribed by the law:

     a.   the statement of the auditor;
     
     b.   a statement on the distribution of the profits or the assimilation of
          the losses, or as long as not yet determined, the proposal thereto,
          shall be available at the offices of the Company for inspection by
          all shareholders as from the day on which the annual meeting was
          called.
     
     Shareholders may obtain free copies of these documents.
<PAGE>   45
                                                                              15



5.   The provisions of the paragraphs 3 and 4 of this article concerning the
     annual report and the information prescribed in virtue of the law, are not
     applicable, if section 403, Volume 2 of the Civil Code applies to the
     Company.

6.   In case a signature of the managing or a Supervisory Director is missing
     on the annual accounts, the reason thereof shall be mentioned in that
     document.

7.   Unconditional adoption of the annual accounts shall discharge the Board of
     Managing Directors in respect of its acts the past financial year and
     shall discharge the Board of Supervisory Directors in respect of the
     fulfillment of its task.

                      Profits and distribution of profits.
                                  Article 20.

1.   Profits shall be established in accordance with generally accepted
     accounting standards.

2.   The general meeting shall determine whether profits made in any financial
     year shall be paid out partly or wholly, or added to the reserves.

3.   The general meeting can only resolve to pay out profits and/or reserves
     and the Company may only make payments out of profits and/or reserves open
     to payment, as far as the shareholders' equity of the Company exceeds the
     amount of the paid-up and claimed part of the capital, increased with
     reserves, to be kept according to the law;

4.   Dividends shall be made payable within one month after the adoption of the
     annual account. The general meeting may determine that dividends shall be
     paid, wholly or partly, otherwise than in cash.

5.   The general meeting or, subject to approval of general meeting, the Board
     of Managing Directors is authorized to decide to make interim payments out
     of profits and/or reserves with due observance of the provisions of
     paragraph 3.

6.   The claim to pay dividend shall lapse five years after the dividend was
     made payable.

                              Special Resolutions.
                                  Article 21.

1.   Resolutions to amend the Articles of Association, to merge the Company or
     to liquidate the Company require prior approval of the Supervisory Board.

2.   When a proposal to amend the Articles of Association, to merge the Company
     or to dissolve the Company is made to the general meeting, this must be
     mentioned in the notification of the general meeting.

3.   As regards an amendment of the Articles of Association, a copy of the
     proposal including the text of the proposed amendment must at the same
     time be deposited at the Company's offices for inspection by the
     shareholders and held until the end of that meeting.


                                 Liquidation
                                 Article 22.

<PAGE>   46
                                                                              16



1.   In case of dissolution of the Company the liquidation shall be executed by
     the Board of Managing Directors, unless the general meeting decides
     otherwise.

2.   The remuneration, which shall be granted to liquidator(s) and persons
     lending assistance, if any, shall be determined simultaneously.

3.   During the liquidation the provisions of the present Articles of
     Association shall exist in force as much as possible. The relevant
     provisions in respect of the managing director are then applicable to the
     liquidator(s) and the provisions in respect of supervisory directors are 
     applicable to the persons lending assistance.

4.   Any assets of the Company remaining after the liabilities of the Company
     have been satisfied shall be transferred to the shareholders in such a way
     that, as far as possible, first the nominal amount paid on each share
     shall be paid on that share to a maximum of the nominal value of that
     share, and any surplus then remaining shall be paid to the shareholders in
     proportion to the amount paid up by each of them in respect of the shares.

5.   After the liquidation the books and other documents of the Company shall be
     kept by the person, thereto appointed by the liquidator(s), for the term,
     determined by law.

                                Final provision.
                                  Article 23.

In all cases not provided for in the present Articles of Association and/or the
law, the general meeting shall decide.
<PAGE>   47
                                    ANNEX 2

                          FORM OF ADMITTANCE STATEMENT

To:       Hermes Europe Railtel B.V.
Attn:     Board of Managing Directors
From:     [new shareholder]
Date:     [date of signing]

Amended and Restated Shareholders Agreement dated July ___, 1997 (the
"Agreement").

We refer to Article 8 (Issue and Transfer of Shares; Pre-emptive Rights), and
in particular to Article 8.2.

1.   We [   ] (the "New Party") hereby agree with the Shareholders (as defined
     in the Agreement) to join as a Party to the Agreement.

2.   The date of the New Party becoming effectively a Party to the Agreement is
     the date set out above in this Admittance Statement.

3.   This Admittance Statement shall be read as one with the Agreement so that
     any reference therein to "this Agreement", "hereunder" and similar shall
     include and be deemed to include this Admittance Statement.

4.   The address for notices of the New Party are set out as follows: [address
     for notices].

5.   This Admittance Statement is governed by Dutch law. As regards the choice
     of forum, Article 13(b) of the Agreement applies accordingly to this
     Admittance Statement.



[Name New Party]



- ---------------------------
By:
Title:



                                        Signed for receival by
                                        HERMES EUROPE RAILTEL B.V.



                                        ------------------------------------
                                        By:
                                        Title:

<PAGE>   48
                                                                      SCHEDULE 1



Specification of National Railways who are the shareholders of HIT Rail.



(to follow)

<PAGE>   1
                                                                   EXHIBIT 10.32


COMPANY AGREEMENT

This Company Agreement is made as of July      1995, by and

BETWEEN:

The Societe Nationale de Financement
a societe anonyme monegasque
headquartered in Monaco
registered with the Monaco R.C.I

Hereinafter referred to as "SNF",

                                                              ON THE FIRST PART,

AND:

GTS S.A.M.
a societe anonyme monesgasque
headquartered in Monaco
registered with the Monaco R.C.I

Hereinafter referred to as "GTS",

                                                             ON THE SECOND PART,

AND:

The Principality of Monaco
represented by Mr. the Administrator of the Domaine

Hereinafter referred to as "OMT",

                                                              ON THE THIRD PART.

RECITALS

WHEREAS, the GTS group has substantial expertise and capability in the
provision of telecommunications services, marketing telecommunications
services, procurement of equipment, design of systems, engineering and
consulting services, and in the provision of management, financial and
technical support in the telecommunications field;




                                                                     [SEAL OF 
                                                                  JEAN ROUCHAUD]
<PAGE>   2
                                      2

WHEREAS, SNF is a societe anonyme monegasque engaged in investment activities,
the capital of which is owned by the Principality of Monaco;

WHEREAS, OMT is the public operator of the Principality of Monaco, a signatory
of the International Telephone Union and other similar international
organizations, possessing significant infrastructure, technical resources and
advanced technology, whose participation hereto is the main reason for the
parties to enter into this Agreement and to create the Company;

WHEREAS, the OMT wants to develop its international activity through the
Company;

WHEREAS, GTS and SNF desire to combine their efforts through the formation of
the Company with the purposes set forth in Article 3 of the by-laws of the
Company; and

WHEREAS, the by-laws of the Company are being filed concurrently with the
execution of this Agreement for authorization.

NOW THEREFORE, GTS, SNF and OMT mutually covenant and agree as follows:

ARTICLE 1.                PURPOSE OF THE AGREEMENT

1.1.     This Agreement involves the creation of a joint venture the name of
which shall be "Monaco Telecom International" (the "Company"), having the
by-laws of a societe anonyme monegasque, operating in the Principality of
Monaco (GTS and SNF together being defined as the "Stockholders" and each
individually as "Stockholder"), and the determination of the terms and
conditions of the cooperation between the parties.

1.2      GTS and SNF commit to forthwith form the Company in the form of a
Societe Anonyme Monegasque pursuant to the laws of the Principality of Monaco.
The Stockholders shall take all actions necessary and appropriate to organize
the Company in accordance with this Agreement.

ARTICLE 2.                PURPOSE OF THE COMPANY

2.1.     The purpose of the Company is:

         (a)      to provide international voice telephony, data and other
         communications services through the facilities and infrastructure
         owned and/or leased and operated by OMT, including, terrestrial and
         submarine cable, satellite links and wireless systems;
        
         (b)      to provide advanced carrier services, communications related
         engineering, marketing, and technical support services to the foreign
         customers of the Company;
        
         (c)      to provide training, installation, consulting, billing, and 
         other related services to customers of the Company;


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                                       3

(d)      to design, install and maintain wide area networks and local area
networks for the customers of the Company;
        
(e)      to import, export, rent, lease, procure, exploit and resell
telecommunications and other equipment;
        
(f)      to acquire, manage, develop and sell, patents, trademarks and licenses
relating to the activities of the Company;
        
(g)      to acquire, own, lease, rent or sell assets, securities and/or real
estate, deal in or engage in, commercial transactions that relate to the
business of the Company, or otherwise enhance the development of the Company and
its business;
        
(h)      to own shares, in Monaco and outside of Monaco, in any company having
an activity in the communications field; and
        
2.2.     The service provisions relative to the development, operation and
marketing of telecommunications services shall be provided in conformity with
the regulations applicable to Monegasque public operator issued by the and the
Monegasque department of telecommunications, division of the State of Monaco in
charge of telecommunication regulations.

ARTICLE 3.       SHARE CAPITAL - CAPITAL CONTRIBUTIONS

3.1.     The initial capital of the Company shall be eight million French
Francs (8,000,000 FRF), consisting of eight thousand shares of capital stock
par value one thousand FRF.

3.2.     SNF and GTS shall each subscribe in cash to one half of all the
capital shares on the date that the by-laws of the Company are approved.

3.3.     SNF and GTS shall transfer one share to each of their respective
nominees to the Board of Directors of the Company, to the extent required by
the laws and regulations of the Principality of Monaco.

3.4.     Approval of the general assembly is required in order to increase the
capital of the Company. In the event that the Company requires additional
capital or other funds for current account and one stockholder does not agree
to make such contribution to the capital or current account in cash, then the
other stockholder shall have the right to extend to the Company a loan in the
full amount of the proposed additional capital or other funds.

         On January 15 of the calendar year following the date of the loan, the
stockholder who did not make the loan shall have the right to contribute an
amount equal to one half of the principal amount of the loan. If such
stockholder does so, then the stockholder that made the loan shall be repaid
one half the principal amount of the loan and all accrued


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                                       4

interest on the entirety of the principal of the loan and shall convert into
capital the other half of the principal amount of the loan.

         The loan made by the stockholder shall bear interest at the rate of
LIBOR plus 2.5% per year on the basis of a 360 day year from the date the loan
is made to the date it is either converted into capital or repaid in full. For
the purposes of this Agreement, LIBOR shall be the average French Franc London
Interbank Offered Rate per annum for a period approximately equal to that of
the loan and an amount approximately equal to that of the loan, as recorded by
Banque Nationale de Paris, Credit Agricole and Societe Generale at about 11:00
a.m. in Paris on the date of the loan.  

        In the event that the loan is not converted into capital and not fully
repaid by the Company on January 15 of the calendar year following the date the
loan is made, the loan shall be converted automatically into a six month term
loan and principal and interest shall mature on July 15 of the calendar year
following the date the loan is made, and shall be amortized in six equal
installments of principal and interest.

         In the event that the Company does not repay the loan in full on its
maturity date, then the stockholders shall get together to discuss an equitable
settlement of the loan, including converting the loan into equity by the
lending stockholder.

         In the event that any capacity procured by the OMT (including cable and
satellite) shall be funded or financed by GTS, then the OMT and SNF agree that
all such capacity shall be used exclusively by, or for the benefit of, the
Company.
        
ARTICLE 4.       GENERAL ASSEMBLIES

4.1.     General assemblies shall be held as described in the Company's
by-laws. Stockholders can validly vote in ordinary and extraordinary meetings
only if holders representing at least seventy five percent of the capital
shares are present or represented ("Quorum"). In the event that a Quorum is not
present at the General Assembly upon first convocation, then the Board shall
reconvene the General Assembly with 15 days notice. Such second General
Assembly shall not require that a quorum be met.

4.2.     Except as provided hereafter, all decisions of the General Assembly
shall be decided by a seventy five percent majority. Unanimous approval of the
General Assembly shall be required before any decisions are made concerning the
following major issues: (1) amendment of the by-laws of the Company; (2)
termination and dissolution of the Company; (3) merger of the Company with
other legal entities; (4) transfers of a substantial part of the Company's
assets or of its business; and (5) distributions of profits.


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                                       5

ARTICLE 5.       BOARD OF DIRECTORS - ADMINISTRATEUR DELEGUE

5.1      Board of Directors

         The business and affairs of the Company shall be managed under the
direction of the Board of Directors. The Board of Directors shall consist of
four or six directors appointed by the Stockholders, of which one half shall be
appointed from a list presented by SNF, and the other half shall be appointed
from a list presented by GTS.  

        The Chairman of the Board shall be elected from those directors on the 
list presented by SNF.  

        The term of mandate of the Directors and the Administrateur Delegue 
shall be six years; their mandate may be renewed by nomination of the
Stockholders from a list presented by the Stockholder having presented the
departing Director. 

        In the event of revocation, resignation or death, the director in 
question may be replaced by a director appointed from a list presented by the
Stockholder on whose list the departing director was. The General Assembly
voting on the replacement of such director shall be convened as soon as
practicable.

         All decisions of the Board of Directors shall be validly voted if
seventy five percent of the directors are present or represented ("Quorum"). In
the event that a Quorum is not present at the Board of Directors upon first
convocation, then it shall be reconvened with 15 days notice and no quorum
shall be required. The decisions shall be adopted by a majority of seventy five
percent of the members of the Board of Directors, subject to what is mentioned
below.

         The Board of Directors shall delegate all of its powers to the
Administrateur Delegue, except for the following decisions:

         -    establishing the annual accounts;
         -    nominating and removing the Administrateur Delegue;
         -    authorizing expenditures that are not included in the annual
              budget or business plan that exceed 2,000,000 FRF;

decisions for which the Board of Directors shall retain its power and shall
rule on as described above; and

         -    adoption of the budget;
         -    adoption of annual business plan or annual financial plan;
         -    recommendation of distribution of profits to the Stockholders;
         -    possibility of creating an Advisory Committee and designating
              its members.
            
for which the Board of Directors shall rule on in unanimity of the Directors
present or represented. In the event of disagreement within the Board of
Directors, such decisions


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                                       6

shall be submitted to the approval of the General Assembly by the Board of
Directors as soon as possible.

5.2.     Administrateur Delegue

         The Company shall have an Administrateur Delegue chosen among the
directors appointed from the list presented by GTS, who shall be the chief
officer of the Company responsible for the management of the day-to-day
operations of the Company.

         (a)     The Administrateur Delegue of the Company shall be appointed
by the Directors among those appearing on the list presented by GTS. The
Administrateur Delegue shall assume general management of the Company.

         The Stockholders have agreed to propose to have Mr. Thomas E. Bonetti
elected, a Director appointed from the list presented by GTS, to serve as the
first Administrateur Delegue.

         (b)     After consultation with GTS and the OMT, the Head of
Engineering shall be appointed by the Administrateur Delegue. Under the
supervision of the Administrateur Delegue, the Head of Engineering shall be
responsible for the design and development of all elements of the network, the
systems and sub-systems necessary for the Company (including satellite,
fiber-optic, commutation and elements of network management);

          (c)    After consultation with GTS and the OMT, the Head of
Operations shall be appointed by the Administrateur Delegue. Under the 
supervision of the Administrateur Delegue, the Head Operations shall be
responsible for the installation and monitoring of the equipment, contracts and
provision for services, in particular the billing, network management and
systems support activities;

         (d)     After consultation with SNF and the OMT, the Head of Finance
shall be appointed by the Administrateur Delegue. Under the supervision of the
Administrateur Delegue, the Head of Finance shall be responsible for the
financial and accounting forecasts, timely preparing the financial statements
and the relationships with accounting firms, credit establishments and
governmental bodies.

         (e)     After consultation with SNF and the OMT, the Head of Marketing
and Sales shall be appointed by the Administrateur Delegue. Under the
supervision of the Administrateur Delegue, the Head of Marketing and Sales
shall be responsible for the marketing, sales, and for defining objectives, in
particular, market studies, price setting, development of the sales and
distribution networks, client service and all aspects concerning services
quality and client satisfaction.

5.3.     Personnel

         Expenses for personnel working for the Company shall be assumed by the
Company whether directly or through external services. The Administrateur
Delegue



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<PAGE>   7
                                       7

shall approve of the employees and related costs prior to their starting their
work with the Company.

5.4.     Financial Records

         All appropriate accounting records and statements of the Company shall
be prepared and kept in the French language and in accordance with Monegasque
Generally Accepted Accounting Principles. Furthermore, in order to satisfy GTS'
reporting requirements in the United States, such accounting records and
statements shall also be prepared in the English language and converted to
separate records and statements that are consistent with United States
Generally Accepted Accounting Principles, and shall be audited by the
independent auditors of the parent company of GTS.

5.5      Invoicing

         All invoices sent by the parties to the Company shall be subject to
the prior approval of the Administrateur Delegue.

         The parties hereto agree that a director chosen from the directors on
the list presented by SNF or a person outside the Company chosen by SNF, shall
be responsible to accept, together with the Administrateur Delegue, those
expenses to be incurred by the Company which relate to the services mentioned
in Article 6 of the Agreement to be rendered by the parties to the Agreement to
the Company, that would not have been contemplated in the annual business plan.

         Any refusal to incur these expenses will have to be justified in
writing. In case of disagreement over incurring an expense between the
Administrateur Delegue and the person designated by SNF, such expense shall
have to be authorized by the Board of Directors at a majority of seventy five
percent.

Article 6.       Provision of Services

         The commitment of the parties in the Company shall be reflected by the
provision of the following contributions to achieving the optimal functioning
of the Company.

6.1.     Services Provided by GTS

         (a)     GTS shall provide to the Company marketing services to
potential customers of the services provided by the Company, in all
non-Monegasque geographic regions where the Company can offer competitive
prices.

         (b)     GTS shall provide transit traffic from its affiliated
companies in the Czech Republic and in the Russian Federation, provided that
the rates charged by the Company are competitive to rates otherwise available
to such affiliates. GTS also agrees to offer the services of the Company to
other affiliates of GTS.



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<PAGE>   8
                                       8

         (c)     GTS shall provide its know-how in view of developing and
educating the personnel working for the Company.

         (d)     GTS shall be responsible for the development of new business
opportunities for the Company.

         (e)     GTS shall be responsible for the design and planning of the
network and interconnectivity among systems served by the Company through OMT.
        
6.2.     Services Provided by SNF/OMT

         (a)     SNF and OMT shall provide to the Company, through the OMT,
open access to all telecommunications infrastructure, equipment, facilities and
capacity that is owned, leased, operated or available to OMT.

         (b)     SNF and the OMT shall provide to the Company through the OMT,
open access to and all of the advantages associated with the OMT's status as
the public operator, in particular to the United Nations International
Telephone Union and other internationally recognized organizations in the
telecommunications field, and the ability through the OMT to negotiate and
enter into transit and correspondent agreements with other signatories to the
United Nations International Telephone Union and such other internationally
recognized organizations on behalf of the Company.

         (c)     SNF and the OMT shall provide services to the Company through
the OMT, including maintaining all infrastructure, equipment and facilities
available to the OMT.

         (d)     SNF and the OMT shall allow the Company to obtain through the
OMT the most competitive operator accounting rates available to and paid by the
OMT with the different network operators and to provide sufficient capacity for
all of the Company's traffic. When customer traffic requires transit through
the OMT international switch, then the price charged by the OMT to the Company
shall be, as above, plus the best operator accounting transit rates offered to
operators. The parties hereto agree to negotiate on this basis in good faith,
case by case, the prices between them upon the actual utilization of capacity.

ARTICLE 7.       TRANSFER OF SHARES

         7.1      Except for the transfer of shares to Directors in an amount
necessary for them to be Directors, a Stockholder who wishes to proceed with the
sale of the shares of the Company (hereafter the "Seller"), must notify such
intent to the other Stockholder and to the Company by registered letter with
return receipt requested (hereafter the "Initial Notification"). Such
notifications will have to indicate the name, first name and domicile or name
and registered office of the buyer(s) beneficiary of the sale, together with, if
legal entities, the names and first names of the controlling individuals, the
number of shares the sale of which is envisaged, the offered price, the payment


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                                                                  JEAN ROUCHAUD]
<PAGE>   9
                                       9

conditions and the modalities which would accompany the sale, as well as any
justification attesting the reality of the envisaged offer for sale.

7.2      The non selling Stockholder may, in the conditions provided for
hereunder. exercise a right of first refusal on the shares offered for sale by
the Seller.

7.3      Any Stockholder wishing to exercise its right of first refusal must,
within a delay of 45 days from the Initial Notification, inform the Seller that
it wishes to exercise its right of first refusal.  A failure to answer within
the above delay shall be deemed to be a waiver of the right of first refusal.

7.4      In case of non exercise of the right of first refusal at the expiry of
the delays defined in this Article, the ordinary General Assembly shall vote
upon the approval or not of the purchaser within 45 days of the expiration of
the 45 days mentioned above.

7.5      After such period, the General Assembly shall notify to the Seller
whether the purchaser is or not approved. If the Seller is GTS, SNF shall
withhold its approval only if the financial and technical capacities of the
purchaser proposed by GTS are not equivalent to those of GTS. In case of
refusal of the proposed purchaser, the General Assembly shall within 45 days
following such refusal find a purchaser who will purchase all the shares to be
sold, for the price proposed by the Seller and expressly agreed to by the
initial purchaser presented by it. It is hereby understood that the Seller
shall not vote against the purchaser presented by the General Assembly.

         If at the end of such three months period, the purchaser proposed by
the General Assembly has not effectively purchased the shares, then the
approval of the initial purchaser shall be deemed granted.

7.6      The right of first refusal and the prior approval defined in this
Article also apply without limitation, to any form of transfer of the property
of the shares of the Company (exchange, donation, partial or total sale of the
full ownership, the bare ownership or the beneficial ownership) to the
contribution in kind of the shares, in particular in case of merger or spin off
and public auction.

      Each Stockholder undertakes not to pledge its shares of the Company.

         In case of sale by public auction, an injunction will have to be
delivered by the Seller to purchaser, to become familiar with the
Specifications Conditions with an indication of the dates, places and hours set
for the auction.

7.7      The word "share" as used in this Agreement shall apply to all shares
of the Company which the signatories hold and all those which could be granted
for any reason whatsoever (sale, exchange, donation, legacy, free allocation,
merger or spin off) as well as all rights or subscription rights attached to
such shares or to any security issued by the Company and representing or giving
the right to a fraction of the share capital or the voting rights.


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                                       10

7.8      For any form of transfer of shares for which the delays provided for
in this article would be incompatible with the delay for the realization of the
envisaged transfer, and in particular in case of sale of the subscription
rights relating to an increase in capital, the signatories of this Agreement
undertake to accommodate the precited delays so that the beneficiary of the
right of first refusal may be in a position to exercise its right of first
refusal within the legal delays applying to each type operation and that the
prior approval procedure be followed.

ARTICLE 8.       STOCKHOLDER STABILITY DURING THE START-UP PHASE

         SNF and GTS agree, for the duration of the Company start-up, as to the
importance of their respective presence in the Company. Consequently, they
agree to not transfer their respective ownership interests in the capital of
the Company for a period of five (5) years counting from the signing of the
Agreement.

ARTICLE 9.       REPRESENTATIONS

         The execution of this Agreement by the undersigned and the delivery
and performance by each of them of this Agreement: do not and shall not result
in the breach of, or constitute a default under, or require the consent under,
its constitutive documents.

         Furthermore, the execution of this Agreement by the undersigned and
the delivery and performance by each of them shall not breach any other
agreement or instrument to which it is a party or by which it or any of its
properties may be bound or affected.

         Moreover, the execution of this Agreement by the undersigned and the
delivery and performance by each of them shall not breach any applicable law or
regulation.

         Finally, this Agreement shall constitute each undersigned's valid,
binding and enforceable obligation in accordance with the term of this
Agreement upon the authorization of the Company.

ARTICLE 10.      CONFIDENTIALITY

         (a)     All technology, know-how, trade secrets and proprietary and
other information belonging to any Stockholder or the OMT and made available to
the Company ("Confidential Information") shall continue to be the property of
the Stockholder or the OMT making such available to the Company, and shall be
used by the other Stockholders and the OMT exclusively for the purposes of the
business of the Company, unless the Stockholder making the Confidential
Information available to the Company provides its express prior written
permission for use by any other Stockholder for any purpose other than the
business of the Company.

         (b)     Each Stockholder and/or the OMT who has received the
Confidential Information shall, and shall require that its employees, agents,
consultants or other representatives shall, keep confidential and use all
Confidential Information only for the


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<PAGE>   11
                                       11

benefit of the Company, and preserve all Confidential Information for the
benefit of the party which provided the Confidential Information.

         (c) No Protection shall be granted to Confidential Information that is
or becomes: (i) generally available to the public, other than through
disclosure by a Stockholder or the OMT; (ii) rightfully obtained from a third
party without restriction of confidentiality; (iii) released in writing from 
the obligation of confidentiality by the Stockholder or the OMT to which the 
Confidential information belongs; or (iv) which is required to be disclosed 
by law or judicial process or any other required publicity.

Article 11.      Press Releases - Announcements

         No Stockholder nor the OMT shall make any formal press release, public
announcement, news release, or other form of publicity relating to the Company
or its business, without prior consultation with the other Stockholders and
their consent to the substantive content of such release, announcement. Neither
Stockholder nor the OMT shall unreasonably withhold its consent to any formal
press or news release, public announcement, or other publicity relating to the
Company or its business.

Article 12. Compliance with this Agreement

12.1     It is explicitly agreed that the provisions of this Agreement apply to
all Company in instruments held by the undersigned, and to all Company
instruments that could be allocated thereto for any reason whatsoever
(assignment, donation, bequest, attribution, merger or split), as well as to
all subscription rights or bonds attached to such instruments or to any
investment security or bond issued by the Company representing or giving right
to a share of capital stock.

12.2     In addition to other transfer restrictions herein contained, the
parties hereto undertake to not assign or transmit, in any form whatsoever, the
ownership, usufruct, or bare ownership of their instruments except to
individuals or legal entities that first explicitly agree to submit to the
provisions of this Agreement, and who shall, to this effect, be incorporated
among the signatories of this Agreement.

Article 13.      Liability

         Each party promises the others to comply with and have their appointed
representatives in the company bodies comply with, the Provisions of this
Agreement.

         Each party agrees to indemnify and guaranty the other parties and
their representatives against all loss or damage borne by the others in the
event of neglect or violation of any of its obligations under this Agreement
subject to this violation not being dictated by law.


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                                       12

Article 14.      Amendments

         No amendment, notification or addition to this Agreement may be
legally valid except by means of an additional clause signed by the parties
bound by this Agreement.

Article 15.      Notifications

         Any notification or serving of writ mentioned in this Agreement must
be made by certified letter with return receipt requested, to the respective
corporate head offices of the parties with a copy addressed to the General
Counsel of GTS-Europe South, Inc., 1751 Pinacle Drive North Tower, 12th floor,
McLean, Virginia 22102, United States. The parties can change their
notification address by notifying such new address to the other parties hereto

Article 16.      Severability

         In the event that one or several provisions of this Agreement are
invalid or subsequently become invalid. in whole or in part, the validity of
the other provisions of the Agreement shall not be affected. The parties must
then replace the invalid provision by a provision as closely related as
possible to the objective of the invalid provision.

Article 17.      Disputes - Applicable Law

         This Agreement is subject to Monaco law. Any dispute arising in
connection to this Agreement shall be addressed to the competent monegasque
courts.

Article 18.      Term

         The term of this Agreement shall be twenty five years.

Article 19.      Company Agreement Governs

         In the case of any discrepancies between this Agreement and the
by-laws of the Company, the provisions of this Agreement shall control the
relationship among the Stockholders, and the Articles of Association of the
Company shall be modified in such a manner as to be consistent with this
Agreement.

Article 20.      Enter into Force

         The provisions of this Agreement relating to the management of the
Company shall become enforceable upon the authorization of the by-laws.


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<PAGE>   13

                                       13





Signed in four originals.

The Societe Nationale de Financement           GTS S.A.M.
                                          
                                          
                                          
                                          
- --------------------------------------         ---------------------------------
Title:                                         Title: Administrateur Delegue 
Name:                                          Name: Thomas E. Bonetti




                          The Principality of Monaco


                          ----------------------------------------------
                          Title: Monsieur l'Administrateur des Domaines
                          Name:






   [SEAL OF 
JEAN ROUCHAUD]
<PAGE>   14
[ILLEGIBLE]

Signe en quatre originaux.

La Societe Nationale de Financement           GTS S.A.M.



- -----------------------------------           ------------------------------ 
Titre:                                        Titre: Administrateur Delegue 
Nom:                                          Nom:   Thomas E. Bonetti



                   La Principaute de Monaco


                   ---------------------------------------------
                   Titre: Monsieur l'Administrateur des Domaines
                   Nom:

<PAGE>   1
                                                                  EXHIBIT 10.33


                            JOINT VENTURE AGREEMENT

     THIS AGREEMENT is made by and between SFMT-Hungaro, Inc., c/o SFMT, Inc.,
a corporation organized under the State of Delaware, having a corporate seat at
477 Madison Ave., 8th fl., New York, NY 10022, USA, ("SFMT") and Montana
Holding Vagyonkezelo, Kft., a corporation organized under the laws of the
Republic of Hungary, having a corporate seat at H-1054 Budapest, Steindl Imre
u. 6., Hungary ("Montana") (hereinafter referred to individually as a "Party",
and together as "Parties");

     WHEREAS, the Parties desires to participate in the establishment and
operation of the telecommunications networks;

     WHEREAS, Montana owns the entire capital of Montana Telecom Tavkozlesi
Informaciovedelmi, Kereskedelmi, Szolgaltato es Tanacsado Kft ("Telecom"), have
a corporate seat at H-1054 Budapest, Steindl Irme u. 6., Hungary, founded with
an initial capital of HUF One Million (HUF 1,000,000), which has licenses and
the rights for the construction and operation of telecommunications networks in
Hungary;

     WHEREAS, Montana Computer Consulting GmbH (the "GmbH"), which owns fifty
percent (50%) of the capital of Montana has the right to build an AT&T Tridom
telecommunications hub in Hungary and purchase and resell related AT&T Tridom
equipment, which rights it is transferring simultaneously herewith;

     WHEREAS, the Parties have formed SFMT-Montana Telecom Kft. (the
"Company"), which the Parties agree will have a capital of not less than HUF
Eighty Million, as of December 31, 1993;

     WHEREAS, simultaneously with the execution and delivery of this Agreement,
the Company is purchasing all of the capital of Telecom.

     WHEREAS, in connection with the purchase of the quotas of Telecom, Montana
agrees that GmbH and Montana will, and will cause Telecom to, assign and
transfer to the Company all rights and privileges set forth in the contracts
set forth on Schedule to the Agreement for the Sale and Purchase of Quotas of
Montana Telecom Kft. between Montana and the Company; and

     WHEREAS, the Parties desire to specify their relationship as quotaholders
of the Company;

     NOW, THEREFORE, the Parties agree to the following:



<PAGE>   2
                                   ARTICLE 1
                                  DEFINITIONS

1.1. In this Agreement the following expressions shall have the following
meanings:

     "AEA" shall mean the Hungarian Act VI of 1988 on Economic Associations, as
amended.

     "Articles of Association" shall mean the Articles of Association of the
Company, as may be amended from time to time.

     "Company" shall mean the Hungarian Corporation, SMFT-Montana Telecom Kft.

     "GmbH" shall mean Montana Computer Consulting GmbH, a company formed under
the laws of Germany, having a corporate seat at D-8000 Munchen 2,
Sonnenstrasse 27, Germany.

     "HUFs" shall mean Hungarian Forints, being the legal tender in Hungary.

     "Party" shall mean any person who, or entity which, becomes a party to
this Agreement.

     "Montana Group" shall mean Montana Computer Consulting GmbH,
Montana-Holding Vagyonkezelo Kft, and any company or other entity in which
either of them may now or hereafter own, directly or indirectly, 90% of all the
equity capital, or any company or other entity in which 90% of the equity
capital is owned or controlled by GmbH, Montana or Kover Gyorgy or Shahlne
Somlo Klara, directly or indirectly, together with Vadasz Pal and/or Kover
Hedvig or any entity which is otherwise so owned or controlled by Vadasz Pal
and/or Kover Hedvig.

     "Montana" shall mean Montana Holding Vagyonkezelo Kft, a company formed
under the laws of Hungary, having a corporate seat at H-1054 Budapest, Steindl
Imre u. 6.






                                       2
<PAGE>   3
     "Proportionate Share" shall mean with respect to each Offeree who is
entitled to receive a particular offer the total amount of Quotaholding of the
Company offered for sale under Article 5, multiplied by a fraction, the
numerator of which shall be the amount of Quotas of the Company then owned by
the Offeree, and the denominator of which shall be the total amount of Quotas
of the Company owned by all Offerees.

     "Quotaholder" shall mean any person who, or entity which, owns capital in
the Company.

     "Quota or Quotaholding" shall mean the proportion of the primary capital
of the Company owned by each Quotaholder.

     "SFMT" shall mean SFMT-Hungaro, Inc., a corporation formed under the laws
of the State of Delaware.

     "Supermajority" shall mean the affirmative vote of 75% of the quotas
represented at a Quotaholders' Meeting in connection with any matter presented
to the Quotaholders.

     "Telecom" shall mean Montana Telecom Kft., a company formed under the laws
of Hungary, having a corporate seat at H-1054 Budapest, Steindl Imre u. 6.

                                   ARTICLE 2
                                  THE COMPANY

     2.1  The Company was founded by the Articles of Association of
SMFT-Montana Telecom Kft, signed on even date, and shall be registered at the
Budapest Court of Registration.

     2.2  The Quotaholders agree and hereby approve the increase in the capital
of the Company to a minimum of HUF 80,000,000.00 (Eighty Million) prior to
December 31, 1993.  This approval, however, does not create an obligation for
any of the Quotaholders to participate in the completion of the capital
increase referred to in 3.2 below.

                                   ARTICLE 3
                                  QUOTAHOLDING

     3.1  The initial capital of the Company shall be 1,000,000 HUF.  SMFT
shall contribute to the entire HUF 1,000,000 (One Million), and the
Quotaholdings of the Company will be owned as follows:


<TABLE>
<CAPTION>                  
     Ownership      Quota          Quota
     Name           percentage     in HUFs.
    
     <S>            <C>            <C> 
     SFMT           75.00          750.000.00
     Montana        25.00          250.000.00
                    =====          ==========

     TOTAL          100.00%        1.000.000.00
</TABLE>




                                       3
<PAGE>   4
     3.2  Pursuant to a Quotaholders' Resolution and an Amendment to the
Article of Association that shall be enacted by the Parties immediately after
the execution of this Agreement, the capital of the Company shall be increased
by 79.000.000 HUFs as follows:


<TABLE>
<CAPTION>                  
     Ownership      Quota          Quota
     Name           percentage     in HUFs
    
     <S>            <C>            <C> 
     SMFT           99.69          79,750,000.00
     Montana         0.31             250,000.00
                    =====          =============

     TOTAL          100.00%        80,000,000.00
</TABLE>

     3.3  SFMT shall make its capital contributions in freely convertible
currency.  Montana shall make its capital contributions in HUFs.

     3.4  Any potential purchaser of quotas in the Company must undertake in
writing to become a party to this Agreement and to adhere strictly to the terms
and conditions hereof, prior to being permitted to purchase a Quotaholding.

                                   ARTICLE IV
                               CAPITAL STRUCTURE

     4.1  Upon the approval of a capital increase after even date, the
Quotaholders shall have the right to contribute to the capital increase in
proportion to their respective Quotaholdings.

     4.2  In the event that Montana does not, at the time of any call for a
capital increase, make its pro rata contribution to the capital increase or buy
the new quota due to it in proportion to its Quota, then, SFMT shall elect to
do one of the following: (a) make a contribution to the capital increase in
accordance with the AEA; or (b) extend a loan to the Company having a maturity
date not to exceed one year from the date of such proposed capital increase,
upon such financial terms and conditions as may be generally commercially
available to the Company at the time of the loan, provided that the prior
approval of the National Bank of Hungary, if necessary, has been received.

     4.3  In the event that SFMT shall contribute the capital increase pursuant
to 4.2 (a) above, the Quotaholding of Montana in the Company shall be
proportionately reduced, subject to its right to contribute pari passu in
accordance with 4.4 below.

     In the event that SMF shall extend a loan to the Company pursuant to
4.2(b) above, SMFT may convert such loan to an equity interest in the Company
in the principal amount of the loan at any time to and including the date of
maturity of the loan.  The means of such conversion shall be a contribution of
funds by SFMT, from which the loan amount may be repaid.  At the time of such
conversion to equity and capital increase by SFMT, the percentage of Montana's
Quotaholding in the Company shall be proportionately reduced, subject to its
right to contribute pari



                                       4
<PAGE>   5
passu in accordance with 4.4 below.

     4.4  For twelve (12) months following the date of such capital increase to
which Montana does not contribute its pro rata share, Montana shall have the
right to contribute its pro rata share of the capital increase.  In the event
that Montana exercises its right to make its pro rata contribution to the
capital increase, Montana's Quotaholding shall be proportionately increased
to the percentage of Montana's Quotaholding prior to the call for the capital
increase in question.  Montana's rights in respect of each call for a capital
increase shall be treated separately and the right to contribute shall occur on
a rolling basis in a manner that:

     (a)  with respect to the first capital increase, contemplated by 3.2
     above, it shall permit Montana to purchase an amount equal to 25.1% of the
     capital increase within 12 months; and

     (b)  in connection with subsequent capital increases Montana shall be
     permitted to purchase such Quotas in the Company as would be equal to the
     percentage of Quotas Montana owned, or had the right to purchase, prior to
     such increase, subject to 4.4(c) below.

     (c)  If Montana does not purchase the proportional quota referred to in
     4.4 (a) or (b) above within the applicable twelve (12) month period after
     any capital increase, Montana's right to purchase Quotas in connection
     with any subsequent outstanding call within the given twelve (12) month
     period shall be reduced to a percentage of Quotas equal to that which
     Montana would have been able to purchase had Montana's failure to
     contribute to the increased capital within the applicable twelve (12)
     month period occurred prior to the subsequent call for an increase in
     capital.

     4.5  Montana's rights under this Article 4 to make any capital
contribution within twelve (12) months of a capital increase and maintain its
Quotaholding shall not be transferable to any party, except to a member of the
Montana Group (not including Shahlne Somlo Klara and Kover Gyorgy), and then
only with the prior written approval of SFMT, which shall not be unreasonably
withheld, and must remain within a member of the Montana Group.

     4.6  In the event that an additional Quotaholder(s) is admitted to the
Company, Montana's rights under this Article 4 to purchase additional Quotas in
the Company shall be limited to maintain a Quotaholding equalling to the
non-diluted Quotaholding that would have existed prior to the admission of the
new Quotaholder.  This Quotaholding, however, shall be subject to dilution to
the extent of the capital contribution made by the 



                                       5


<PAGE>   6
additional Quotaholder(s).  The Quotaholders agree not to exercise their
respective preemptive rights under Article V of this Agreement in connection
with the admission of an additional Quotaholder which purchases its Quotas from
the Company.

                                   ARTICLE V
                 RESTRICTIONS ON DISPOSITIONS OF QUOTAHOLDINGS.

     5.1  During the term of this Agreement, no Quotaholder shall, either
directly or indirectly, sell, assign, mortgage, hypothecate, transfer, pledge,
create a security interest in or lien upon, encumber, give, place in trust, or
otherwise, voluntarily or involuntarily, whether by operation of law, or in
case of insolvency, or otherwise, dispose of any Quotaholding of the Company
now owned or hereafter acquired, except as hereinafter provided.

     5.2  Upon the occurrence of a bankruptcy, liquidation, final settlement or
insolvency of a Quotaholder, the other Quotaholder(s) shall be deemed to have
received a bona fide offer to purchase all of such Quotaholder's Quotaholding
at a price equal to the last price per quota received for the sale of quotas,
and such Quotaholder shall be required to offer its Quotaholding in accordance
with 5.3 and 5.4 below.

     5.3  In the event that any Quotaholding receives a bona fide offer (the
"Offer") to purchase any or all of its Quotaholding (the "Offered Quota"), and
such Quotaholder (the "Offeror") desires to sell the Offered Quota pursuant to
the terms and conditions of the Offer, the Offeror shall notify the other
Quotaholder(s) (the "Offeree(s)") in writing, disclosing the terms of the Offer
and the name of the proposed purchaser. The Offeror shall offer to sell the
Offered Quota at the price and conditions of the Offer, to the Offerees in
their Proportionate Shares. Each Offeree shall have a period of fifteen (15)
days to accept the Offer.  The acceptance must be for all of the Offered Quota
and must be made in writing to the Offeror.

     5.4  In the event that any Offeree does not purchase its Offered Quota
pursuant to 5.3 above, then a succeeding written offer of the remaining part of
the Offered Quota shall be made to the Offeree(s) who elected to purchase the
Offered Quota due to them in accordance with their Proportionate Shares.  Each
successive offer shall be made immediately upon the expiration of the fifteen
(15) day deadline referred to in 5.3. above, and each subsequent offer shall
state the amount of Offered Quota previously accepted by each Offeree.  Each
Offeree shall have a period of ten (10) days after the receipt of each
subsequent offer to accept such subsequent offer.

     5.5  In the event that the Offerees do not purchase all of the Offered
Quota pursuant to 5.3 and 5.4 above, the Offeror shall make a written offer to
sell such Quotaholding to the Company.  The Company shall have a period of
fifteen (15) days to accept the Offer, provided that the Company has funds
legally available therefor and that the Quotaholders' Meeting has 


                                       6
<PAGE>   7
approved the purchase, and for this purchase the selling Quotaholder shall be
deemed to have voted in favour.

     5.6  No purchase shall be effective unless the Offeree(s) and/or the
Company pursuant to 5.3 - 5.5 purchases the entire Offered Quota.

     5.7  In the event that neither the Offerees nor the Company purchases the
entire Offered Quota, the Offeror may sell the entire Offered Quota to the
person who made the bona fide offer, within three (3) months from the date that
the last offer expires hereunder, provided, however, that such sale shall not
be made at a lower price or upon less favourable terms to the seller than the
original bona fide offer.  If the price should be decreased or the terms made
more favourable to the proposed purchaser, then the Offered Quota must be
reoffered pursuant to subsections 5.3 - 5.6 above.

     5.8  No sale to a third party shall be effective if the third party has
not executed a counterpart of, and become subject to, this Agreement.

     5.9  The purchases price of the Offered Quota shall be the amount equal
to that offered by the bona fide third party.  The fact of the purchase shall
be reported to the Court of Registration.

                                   ARTICLE VI
                                     VOTING

     6.1  Unless the AEA, the Articles of Association or this Agreement
requires a greater percentage, all decisions of the Quotaholders' Meeting shall
be taken by simple majority.

     6.2  If Montana's rights to purchase a percentage of the capital increase
granted under Article IV of this Agreement has not been reduced to a right to
purchase less than 25.1% of the capital increase at or prior to any call for a
a capital increase, Montana shall have the right to veto any action at a
Quotaholders' Meeting relating to:

     (a)  changes in the Articles of Association that would adversely affect
     Montana's interests in the Company, provided, however, that calls for
     capital increases shall not be deemed to be adverse to Montana's interest
     unless, the only purpose of the capital increase is to dilute Montana's
     Quotaholding; any capital call reasonably related to the operation of the
     Company shall not be deemed to adversely affect Montana's interest;
     provided, further, that an amendment to the Articles of Association
     related to the admission of a new Quotaholder shall not be deemed to
     adversely affect Montana's interest.

     (b)  the approval of a related party transactions, excluding renewals,
     replacements, and extensions of agreements relating to relationships that
     already existed; or


                                       7
<PAGE>   8
     (c)  Material changes in the scope of the business of the Company beyond
that set forth in the Articles of Association.

                                  ARTICLE VII
                                   MANAGEMENT

     7.1  For three years, the Company shall have a management board (the
"Board") which shall consist of three or five members, one of whom shall be the
General Manager.  The General Manager shall serve as the head of the Board. The
first Board shall have three managers, two executive managers with voting rights
and one non-executive manager without a voting right.

     7.2  The procuration of the Company shall be effected as follows:  the
General Manager may sign independently or two employees jointly, duly
authorized in writing by the Quotaholders.

     7.3  SFMT shall select the General Manager, and if there are five
managers, SFMT shall select two additional managers. Montana shall select two
managers.

     7.4  In the event there are only three managers, the General Manager's
vote shall be decisive.

     7.5  The Parties shall exercise their voting rights so as to elect and/or
to revoke the managers of the Board in line with the selection rights of each
Party.

     7.6  The Parties shall cause the Company to enter into an Agreement for
Management Services between the Company and SFMT, in the form attached hereto
as Exhibit 1, and shall vote accordingly in the Quotaholders' Resolution of
even date.

     7.7  Board Meetings may be called by the General Manager.  Board meetings
shall be called on not less than five (5) days notice, in writing, indicating
the date, place and agenda of the meeting.  The meeting shall have a quorum if
the General Manager is present.

     7.8  Minutes must be kept at the Board Meeting, including the resolutions
passed and any other matter which any of the parties considers important.  The
minutes must be certified by a Board member who participated in the
decision-making.

                                  ARTICLE VIII
                               SUPERVISORY BOARD

     8.1  The Supervisory Board of the Company shall consist of three (3)
members, two (2) of whom shall be appointed by SFMT and one (1) who shall be
appointed by Montana.

     8.2  The Parties shall exercise their voting rights so as to elect and/or
revoke the members of the Supervisory Board in line with the selection rights
of each Party.


                                       8

<PAGE>   9
                                   ARTICLE IX

     For as long as GmbH has payment obligations under the lease
agreement dated October 15, 1993, by and between GmbH and CWAG-Leasing (the
"Lease Agreement", the Company shall guarantee to GmbH that Telecom will fulfil
its obligations under the Sublease Agreement between Telecom and GmbH, to make
the payments set out in the attached schedule not later than five days before
the due date for each payment provided, that if the approval of the National
Bank of Hungary, if necessary to give effect to this guarantee, has not been
obtained, then payments due under this guarantee shall be made to Montana.

                                   ARTICLE X
                                    AUDITOR

     The Company shall maintain two sets of books and records that meet the
requirements of (i) Hungarian law and (ii) United States generally accepted
accounting principles.  The auditing of the Company shall be performed by Ernst
and Young, or such other internationally recognized firm of independent
accountants as the Parties shall agree.

                                   ARTICLE XI
                        PREFERENCE GIVEN TO QUOTAHOLDERS

     Pursuant to an applicable Quotaholders' resolution, the Company shall give
preference to the Parties or their wholly owned subsidiaries and affiliates for
the supply of goods and services to the Company; provided, however, that all
and any interests whether direct or indirect, of a Party have been fully
disclosed, and such contracts for the supply of goods or services to the
Company have been made on an arm's-length commercial basis.  The Parties hereby
confirm and ratify that the Agreement for Management Services by and between
the Company and SFMT-Hungaro, Inc., and the Agency Agreement by and between the
Company and SFMT-Montana Telecom KFt.  The Quotaholders shall approve the
Agreement for Management Services and the Agency Agreement.

                                  ARTICLE XII
                                CONFIDENTIALITY

     12.1 The relevant technology, know-how, expertise, trade secrets and any
other kind of information exchanged between the Parties ("Confidential
Information") shall be used by the Parties and the Company only and exclusively
for the purposes of the Company, unless the Party conveying the Confidential
Information provides its express written permission for use for any other
purpose.

     12.2 During the existence of the Company, its successor and three (3)
years following the termination of the Company or its successor, whichever is
later, any Party or former Quotaholder who has received access to Confidential
Information in connection with its participation in the Company shall, and
shall procure



                                       9


<PAGE>   10
that its employees, agents and consultants will keep confidential and use the
Confidential Information only for the mutual benefit of the Parties.  The
receiving Party shall take all reasonable measures available to it in order to
avoid disclosure to any third party of Confidential Information.

     12.3 No protection is granted to any information which is: (a) publicly
available; (b) rightfully in the possession of the receiving party or known to
it other than by reason of its participation in the Company; (c) rightfully
obtained from a third party without restriction of confidentiality; (d)
released from obligation by the conveying party in writing; (e) for which
disclosure is required by law or legal process.

                                  ARTICLE XIII
                              CONFLICT OF INTEREST

     13.1 In order to induce SMFT to enter into this Agreement, Montana shall
not, and Pal Vadasz and Hedvig Kover agree that they shall not, and shall cause
the Montana Group not to, engage in any activity that competes directly or
indirectly with the VSAT Business of the Company in Hungary, so long as any
member of the Montana Group or their affiliates owns any quota in the Company,
and for a period of one (1) year thereafter but in no event for less than three
(3) years from the date hereof.

     13.2 Both parties agree that any VSAT business they conduct in Hungary
shall be conducted through the Company.

     13.3 So long as, and for a period of one (1) year thereafter, that any
member of the Montana Group owns any Quotas in the Company, the Company shall
have the right to use the name Montana, and the logo associated therewith
subject to an obligation not to act or fail to act in any way likely to bring
the name Montana into disrepute.

                                  ARTICLE XIV
                               DISPUTE RESOLUTION

     14.1 In the event of dispute in the interpretation or performance of this
Agreement, the parties shall use their best efforts to resolve the dispute
through consultation.  Disputes that have not been settled by such consultation
within ninety (90) days after first notification thereof by one party to the
other may be submitted to and finally settled by binding arbitration.  Such
arbitration must be commenced within 30 days after such request.

     14.2 Any dispute, controversy, or claim arising out of or relating to any
provision of this Agreement or the interpretation, enforceability, performance,
breach, termination, or validity hereof (including, without limitation, this
arbitration clause) shall be exclusively and finally settled by arbitration in
accordance with the Rules of the Stockholm Chamber of Commerce, as modified by
the provisions of this Article.  The arbitration shall be conducted in
Stockholm, Sweden, in the 


                                       10


<PAGE>   11
English language.

                                   ARTICLE XV
                                 GOVERNING LAW

     This Agreement shall be governed by the laws of Hungary.

                                  ARTICLE XVI
                             TERM OF THIS AGREEMENT

     16.1 Unless terminated earlier by the mutual consent of the Parties, the
Agreement shall be valid so long as both Parties are party to this Agreement.

     16.2 Notwithstanding any termination of this Agreement, Article XII, XIII
and XIV shall survive.

                                  ARTICLE XVII
                            MISCELLANEOUS PROVISIONS

     17.1 The Parties agree that neither they nor the Company shall export,
directly or indirectly, any U.S. source technical data acquired from a Party or
any of its affiliated companies, or any products utilizing any such data to any
country for which the U.S. Government or any agency thereof at the time of
export requires an export license or other governmental approval, without first
obtaining the written consent of the Department of Commerce, or other agency of
the U.S. Government, when required by an applicable statute or regulation.

     17.2 The Company shall pay due consideration for services provided by
Montana.

     17.3 In the event that any provision of this Agreement is or is held to be
invalid, the validity of the remaining provisions shall not be affected.  The
Parties shall replace the invalid provision by a legally permissible and valid
provision.

     17.4 This Agreement, the Articles of Association and the Agreement to
Management Services constitute the whole agreement between the Parties relating
to the project.  No Party has relied on any representation made by any other
Party which is not a term of the Articles of Association, Agreement for
Management Services, the Agreement for the Sale and Purchase of Quotas of
Montana Telecom or this Agreement.

     17.5 This Agreement shall be signed in 4 (four) copies, each of which when
so executed and delivered shall be an original and which shall all together
constitute one and the same instrument.

     17.6 In case of any discrepancies between this Agreement and the Articles
of Association of the Company or any successor corporation, the provisions of
this Agreement shall prevail in the relationship of the Parties.  In the event
of any inconsistency between this Agreement and the Articles of Association,
the Articles of Association shall be modified to bring then into



                                       11


<PAGE>   12
consistency with this Agreement.  In the event the Court of Registration shall
refuses to register the Articles of Association, the Parties shall modify the
Articles of Association, and if necessary, this Agreement to reconcile the
commercial intention of the Parties and the requirements of the Court of
Registration.

     17.7 The Parties undertake to cause all their successors, transferees and
assigns to become a party to this Agreement and to strictly adhere to its
provisions.

     17.8 This Agreement may not be amended except by an instrument in writing
signed by all the parties.

     17.9 The Parties shall cause the Company to comply with the terms and
conditions of this Agreement and shall assist the Company in enforcing the
terms of this Agreement.

     17.10  Pal Vadasz and Hedvig Kover, as controllers of the Montana Group,
have recognized, acknowledged, agreed and accepted the obligations imposed upon
them by this Agreement, it being understood that neither Pal Vadasz nor Hedvig
Kover have made representations in their individual capacities.

Budapest, December      , 1993


     SFMT-Hungaro, Inc.      Montana-Holding Vagyonkezelo Kft.



by:  /s/ [ILLEGIBLE]               by:  /s/ [ILLEGIBLE]     
     -----------------------            --------------------------


Agreed and accepted:



by:  /s/ VADASZ PAL                by:  /s/ KOVER HEDVIG    
     -----------------------            --------------------------
         Vadasz Pal                         Kover Hedvig




                                      12





<PAGE>   13
                                                             [CWAG-LEASING LOGO]



04/11/93 Zahlungsplan

          Z A H L U N G S P L A N

<TABLE>
<CAPTION>

LV   Kunde  Angnr  Kursname   Referenz        Wrg   V/N  DA  St  Garantie
- ---  -----  -----  ---------- --------------  ---   ---  --  --  ---------
1100 270    1368   Montana    BRD             USD   N    N   H

Rate Tr KZ  Plandatum       Planrate von      bis      Istdatum    Istrat
- ---- -- --  --------- -------------- -----    -----    ---------  --------
 <C> <C>   <C>             <C>       <C>      <C>                      <C>
   1 01     31/12/93       71,800.00 01/10/93 31/12/93                 0.00
   2 01     31/03/94       71,800.00 01/01/94 31/02/94                 0.00
   3 01     30/06/94       71,800.00 01/04/94 30/06/94                 0.00
   4 01     30/09/94       71,800.00 01/07/94 30/09/94                 0.00    
   5 01     31/12/94       71,800.00 01/10/94 31/12/94                 0.00    
   6 01     31/03/95       71,800.00 01/01/95 31/03/95                 0.00    
   7 01     30/06/95       71,800.00 01/04/95 30/06/95                 0.00    
   8 01     30/09/95       71,800.00 01/07/95 30/09/95                 0.00    
   9 01     31/12/95       71,800.00 01/10/95 31/12/95                 0.00    
  10 01     31/03/96       71,800.00 01/01/96 31/03/96                 0.00 
  11 01     30/06/96       71,800.00 01/04/96 30/06/96                 0.00     
  12 01     30/09/96       71,800.00 01/07/96 30/09/96                 0.00
  
</TABLE>

<PAGE>   1

                                                                 EXHIBIT 10.34


===============================================================================


                    JOINT VENTURE AND SHAREHOLDERS' AGREEMENT

                                     among

                   GERARD AIRCRAFT SALES AND LEASING COMPANY,

                               SFMT-HUNGARO INC.

                                      and

                            MICROSYSTEM TELECOM RT.


                                 August 5, 1994


================================================================================
<PAGE>   2
                               TABLE OF CONTENTS

                                                                     Page No.
                                                                     --------
Recitals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.    Definitions . . . . . . . . . . . . . . . . . . . . . . . 3
                                                                
Section 2.    Organization of the Company; Management;          
              Operational Responsibilities, etc.      . . . . . . . . . 6
 2.1    Organization  . . . . . . . . . . . . . . . . . . . . . . . . . 6
 2.2    Board of Directors  . . . . . . . . . . . . . . . . . . . . .   6
 2.3    Supervisory Board . . . . . . . . . . . . . . . . . . . . . .   7
 2.4    Operational Responsibilities, etc.  . . . . . . . . . . . . .   8

 2.4.1  System Development  . . . . . . . . . . . . . . . . . . . . . . 8
 2.4.2  System Operation and Performances   . . . . . . . . . . . . . . 8
 2.4.3  SFMT Services and Products  . . . . . . . . . . . . . . . . . . 9
 2.4.4  Other Third Party Contracts . . . . . . . . . . . . . . . . .   9
 2.4.5  SFMT Assistance   . . . . . . . . . . . . . . . . . . . . . . . 9
                                                                
 2.5    System Financing  . . . . . . . . . . . . . . . . . . . . . .   9
                                                                
 2.5.1  General . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
 2.5.2  Capital Contributions . . . . . . . . . . . . . . . . . . . .   9
 2.5.3  Debt Financing  . . . . . . . . . . . . . . . . . . . . . . .  10
 2.5.4  Equipment Financing . . . . . . . . . . . . . . . . . . . . .  10
 2.5.6  Microsystem Interest  . . . . . . . . . . . . . . . . . . . .  10
                                                                
 2.6    Business Plan   . . . . . . . . . . . . . . . . . . . . . . .  11
 2.7    Dividend Policy   . . . . . . . . . . . . . . . . . . . . . .  11
                                                                
Section 3.    Disposition of Shares by Gerard . . . . . . . . . . . .  11
                                                                
 3.1    Transfer Restrictions . . . . . . . . . . . . . . . . . . . .  11
 3.2    Right of First Refusal  . . . . . . . . . . . . . . . . . . .  12
                                                                
Section 4.    Disposition of Shares by SFMT . . . . . . . . . . . . .  12
                                                                
 4.1    Transfer Restrictions . . . . . . . . . . . . . . . . . . . .  12
 4.2    Tag-Along Rights of Gerard  . . . . . . . . . . . . . . . . .  13
                                                                
Section 5.    Disposition of Shares by a Hungarian              
              Shareholder . . . . . . . . . . . . . . . . . . . . . .  14

 5.1    Transfer Restriction  . . . . . . . . . . . . . . . . . . . .  14
 5.2    Eligible Hungarian Buyer  . . . . . . . . . . . . . . . . . .  14
 5.3    Transfer of Interest to H Corporation . . . . . . . . . . . .  15
                                                                
Section 6.     Piggyback Registration Rights of                 
               Shareholders . . . . . . . . . . . . . . . . . . . . .  15
                                                                
 6.1    Public Offering . . . . . . . . . . . . . . . . . . . . . . .  15
 6.2    Piggyback Registration  . . . . . . . . . . . . . . . . . . .  16
 6.3    Registration Expenses   . . . . . . . . . . . . . . . . . . .  16
 6.4    Maximum Number of Shares  . . . . . . . . . . . . . . . . . .  16
 6.5    Indemnification . . . . . . . . . . . . . . . . . . . . . . .  17


<PAGE>   3


Section 7.     Certain Rights of Gerard . . . . . . . . . . . . . . .  18

 7.1    Gerard Premium  . . . . . . . . . . . . . . . . . . . . . . .  18
 7.1.1  General . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
 7.1.2  Preferential Dividend Distributions . . . . . . . . . . . . .  18
 7.1.3  Limitation  . . . . . . . . . . . . . . . . . . . . . . . . .  19
 7.1.4  Confirmation of Entitlement . . . . . . . . . . . . . . . . .  19

 7.2    Repayment of Concession Fee and Expenses  . . . . . . . . . .  20
 7.3    Bid Guaranty  . . . . . . . . . . . . . . . . . . . . . . . .  20
 7.4    Certain Voting Rights Afforded to Gerard  . . . . . . . . . .  20
                                                                      
 7.4.1  C Share . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
 7.4.2  Capital Calls . . . . . . . . . . . . . . . . . . . . . . . .  21
 7.4.3  Additional Voting Rights  . . . . . . . . . . . . . . . . . .  21
 7.4.4  Confirmation of Entitlement . . . . . . . . . . . . . . . . .  22

Section 8.     Concession Contract . . . . . . . . . . . . . . . . .   22

Section 9.     Assumption of Obligations, etc. . . . . . . . . . . .   23

Section 10.    Representations, Warranties and Covenants             
               of Shareholders . . . . . . . . . . . . . . . . . . .   24
                                                                     
 10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
 10.2 SFMT  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
 10.3 Gerard  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
 10.4 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . .  24
                                                                      
Section 11.     Term; Termination   . . . . . . . . . . . . . . . . .  24

Section 12.     Assignment  . . . . . . . . . . . . . . . . . . . . .  25

Section 13.     Confidentiality . . . . . . . . . . . . . . . . . . .  25

Section 14.     Public Announcements  . . . . . . . . . . . . . . . .  27

Section 15.     Expenses, etc.  . . . . . . . . . . . . . . . . . . .  27

Section 16.     Governing Law and Dispute Resolution  . . . . . . . .  27

Section 17.     Waiver  . . . . . . . . . . . . . . . . . . . . . . .  27

Section 18.     Notices . . . . . . . . . . . . . . . . . . . . . . .  27

Section 19.     Entire Agreement  . . . . . . . . . . . . . . . . . .  29

Section 20.     Amendments and Modifications  . . . . . . . . . . . .  29

Section 21.     Further Assurances  . . . . . . . . . . . . . . . . .  29

Section 22.     Severability  . . . . . . . . . . . . . . . . . . . .  29




                                     -2-
<PAGE>   4
EXHIBITS

Exhibit  1.6      Approved Business Plan
Exhibit  1.15     Deed of Foundation (Hungarian and English)
Exhibit  5.3.2    Voting Trust Agreement
Exhibit  7.1.2    Example of Calculation of Preferential Dividend Distributions
Exhibit  8.1      Concession Contract
Exhibit  10.1     Representations and Warranties
Exhibit  10.3     Certain Liabilities/Obligations




                                     -3-
<PAGE>   5
                  JOINT VENTURE AND SHAREHOLDERS' AGREEMENT

This Joint Venture and Shareholders' Agreement is entered into on this 5th day
of  August, 1994 among:

GERARD AIRCRAFT SALES AND LEASING COMPANY ("Gerard"), a company incorporated
under the laws of the State of Delaware, having its address at 1013 Centre Road,
Wilmington, Delaware ___________ USA, represented by James Monaghan;

SFMT-Hungaro INC. ("SFMT"), a company incorporated under the the State of
Delaware, having its address at 9 East __________ Street, Dover, Delaware 19901,
USA, represented by ____________ Toth; and

MICROSYSTEM TELECOM ("Microsystem"), a company limited by shares incorporated 
under the laws of Hungary, having its address at 1122 Budapest, Varosmajor u.
78, Hungary, represented by Mr. Peter Maros; 

Gerard SFMT and Microsystem are hereinafter collectively referred to as the
"Shareholders".

                                    RECITALS

A.       The Magyar Paging Consortium (the "Consortium") originally consisting
         of Gerard and Microsystem, has been selected by the Ministry (as
         defined in Section 1.27) as the winner of a concession (the
         "Concession") to provide nationwide public paging services in Hungary,
         by establishing, implementing, maintaining and operating one ERMES
         system pursuant to the standard No. ETS 300 133...1-7 (the "System").

B.       On May 6, 1994, the Consortium entered into a concession agreement
         (the "Concession Agreement") with the Minister (as defined in Section
         1.27), pursuant to which the Consortium was granted the Concession.
         The Concession Agreement provides, inter alia, that the Consortium is
         responsible for establishing a concession company to carry out the
         Concession within 90 days from the date of the Concession Agreement
         (i.e. by August 6, 1994).

C.       SFMT has, with the consent of the Minister, agreed to join as a member
         of the Consortium, effective May 6, 1994.

D.       In connection with the execution of this Agreement, the members of the
         Consortium are signing the Deed of Foundation of the Company ("Deed of
         Foundation") providing for the establishment of the concession
         company, which shall be known as EURO Szemelyhivo Magyarorszag
         Koncesszios Rt. (EURO Paging Hungary Concession Company Limited by
         Shares) (the "Company"), a





<PAGE>   6
         company limited by shares incorporated under the laws of Hungary,
         having its address at 1134 Budapest, Vaci ut 37, A/502, Hungary.

E.       The Deed of Foundation of the Company provides that the Company has a
         share capital of HUF 200,000,000 (two hundred million Hungarian
         Forints), consisting of A Shares (as defined in Section 1.1), B Shares
         (as defined in Section 1.5), one C Share (as defined in Section 1.8)
         and D Shares (as defined in Section 1.14).

F.       The members of the Consortium desire that the initial share capital of
         the Company will be owned as follows:

Gerard:                   Shares, the aggregate nominal value of which equals
                          HUF 51,000,000 (fifty-one million Hungarian Forints),
                          consisting of 44 A Shares, 6 B Shares and one C
                          Share;

SFMT:                     Shares, the aggregate nominal value of which equals
                          HUF 98,000,000 (ninety-eight million Hungarian
                          Forints), consisting of 98 A Shares; and

Microsystem:              Shares, the aggregate nominal value of which equals
                          HUF 10,000,000 (ten million Hungarian Forints),
                          consisting of 10 A Shares.

         In addition, the members of the Consortium desire that a Hungarian
         company which is majority-owned by Hungarian interests ("H
         Corporation") shall own share capital of the Company, as follows:

H Corporation:   Shares, the aggregate nominal value of which equals HUF
                 41,000,000 (forty-one million Hungarian Forints), consisting
                 of 41 A Shares; provided that such shares will be held in
                 trust by Istvan Pesti, as contemplated by Section 5.3.2;
                 provided, further, that upon the transfer of such shares to H
                 Corporation (as contemplated by Section 5.3.3), the term
                 "Shareholders" shall, for the purposes hereof, be deemed to
                 mean and include H Corporation from and after the date of
                 transfer.

G.       The members of the Consortium further desire that the initial voting
         interests in respect of the share capital of the Company will be as
         follows:

Gerard                    45 voting shares (consisting of the 44 A Shares and
                          one C Share); 

SFMT                      98 voting shares (all A Shares);





                                     -2-
<PAGE>   7
Microsystems               10 voting shares (all A Shares); and

H Corporation              41 Voting shares (all A Shares, which will initially
                           be held by Istvan Pesti)

H.       The Shareholders desire to regulate certain matters relating to the
         management of the Company and their shareholdings in the Company, and
         further desire to outline the manner in which they contemplate the
         Company's establishment, implementation, maintenance and operation of
         the System shall take place.

                                  AGREEMENTS

NOW, THEREFORE, the parties hereby agree as follows:

1.       DEFINITIONS.

         For the purposes of this Agreement, the following terms shall have the
         following definitions:

1.1      "A Shares" shall mean registered ordinary Series A Common Voting
         Shares, having a face value of HUF 1,000,000 (one million Hungarian
         Forints) each, as described in the Deed of Foundation;

1.2      "affiliate" means any person or entity which directly or indirectly,
         through one or more intermediaries, controls, is controlled by or is
         under common control with, a party to this Agreement (and "control" of
         an entity means (i) direct or indirect ownership of at least 50% of
         the equity of such entity or (ii) the power to elect a majority of the
         Board of Directors (or similar management committee or body) of the
         entity controlled);

1.3      "Agreement" shall mean this entire joint venture agreement, including
         the Exhibits attached hereto, which shall be deemed a part hereof;

1.4      [intentionally deleted]

1.5      "B Shares" shall mean registered Series B Non-Voting Preference
         Shares, having a face value of HUF 1,000,000 (one million Hungarian
         Forints) each, as described in the Deed of Foundation;

1.6      "Business Plan" shall mean the business plan developed by the Board of
         Directors reflecting their joint expectations of the investment
         required and of the operation of the Company, as the same may be
         changed or modified from time to time with the approval of the
         Shareholders (as provided in Section 2.6); a copy of the initial
         approved Business Plan prepared by the Consortium is attached as
         Exhibit 1.6;





                                      -3-
<PAGE>   8
1.7      "Buyer" shall mean any person or entity (including a Shareholder) to
         whom Gerard proposes to make a particular Disposition under Section 3,
         SFMT proposes to make a particular Disposition under Section 4, or a
         Hungarian Shareholder proposes to make a particular Disposition under
         Section 5, as the case may be;

1.8      "C Share" shall mean the one registered Series C Voting Preference
         Share, having a face value of HUF 1,000,000 (one million Hungarian
         Forints), as described in the Deed of Foundation;

1.9      "Company" is defined in Recital C;

1.10     "Concession" is defined in Recital A; and "Concession Agreement" is
         defined in Recital B;

1.11     "Concession Contract" means the concession contract to be entered into
         between the Minister and the Concession Company;

1.12     "Confidential Information" is defined in Section 13;

1.13     "Consortium" is defined in Recital A;

1.14     "D Shares" shall mean Series D Non-Voting Common Shares, having a face
         value of HUF 1,000,000 (one million Hungarian Forints) each, as
         described in the Deed of Foundation;

1.15     "Deed of Foundation" is defined in Recital D; a copy of the Deed of
         Foundation (in Hungarian and in English) is attached as Exhibit 1.15;

1.16     "Disposition" shall mean any sale, transfer, pledge or other
         disposition, whether voluntary or involuntary, of shares of the
         Company, except a disposition (i) which occurs by reason of a Public
         Offering; (ii) in the case of Gerard, to an affiliate of Gerard
         (subject to the restrictions contemplated by Section 8.2 (ii)); or
         (iii) in the case of SFMT, to an affiliate of SFMT (subject to the
         restrictions contemplated by Section 8.2 (ii)); provided that
         transfers referred to in items (ii) and (iii) above shall be permitted
         only upon compliance with the provisions of Section 9;

1.17     "Distributable Amount" is defined in Section 7.1.1 (ii);

1.18     "Eligible Hungarian Buyer" shall mean any person or entity who
         qualifies under the Concession Contract and applicable law (as
         contemplated by Section 8.2 (ii)) to whom a Hungarian Shareholder
         proposes to make a Disposition;





                                      -4-
<PAGE>   9

1.19             "Gerard" is defined in the introductory paragraph of this
                 Agreement;

1.20             "Gerard Premium Amount" is defined in Section 7.1.1;

1.21             "H Corporation" is defined in Recital F;

1.22             "Hungarian Shareholder" shall mean H Corporation and
                 Microsystem, collectively, or either H Corporation or
                 Microsystem, individually, as appropriate in the context;

1.23             "HUF" shall mean Hungarian Forints;

1.24             "Installation Contractor" shall mean the installation
                 contractor for the installation of the System to be retained
                 by the Company;

1.25             "Maximum Number" is defined in Section 6.4.1;

1.26             "Microsystem" is defined in the introductory paragraph of this
                 Agreement;

1.27             "Ministry" shall mean the Ministry for Transport,
                 Communications and Water Management, or any successor thereto
                 responsible for public telecommunications in Hungary; and the
                 term "Minister" shall mean the Minister in charge of the
                 Ministry;

1.28             "party" shall mean a party to this Agreement (i.e. the
                 Shareholders and, for purposes of certain Sections, the
                 Company);

1.29             "Preferential Dividend Distribution" is defined in Section
                 7.1.1(i);

1.30             "Price" shall mean the terms and conditions (including price)
                 specified for or allocable to each of the shares that are the
                 subject of the proposed Disposition under a good faith written
                 offer received from the Buyer by the Shareholder that intends
                 to make the particular Disposition (i.e. by Gerard in the case
                 of a Disposition under Section 3, by SFMT in the case of a
                 Disposition under Section 4, or by a Hungarian Shareholder in
                 the case of a Disposition under Section 5);

1.31             "Public Offering" shall mean any offering of shares of the
                 Company on the Budapest Stock Exchange or on any other bona
                 fide exchange in Europe;

1.32             "SFMT" is defined in the introductory paragraph;

1.33             "Shareholders" is defined in the last sentence of the
                 introductory paragraph; 

                                      -5-
<PAGE>   10
1.34             "shares" shall mean A Shares, B Shares and D Shares, and the
                 one C Share, collectively, or either A Shares or B Shares or D
                 Shares, or the one C Share, individually, as appropriate in
                 the context (such term shall also include such other classes
                 as may be issued by the Company);

1.35             "System" is defined in Recital A;

1.36             "Third Party" shall mean a person or entity who, at the
                 particular point of time, is not a Shareholder;

1.37             "Trust Agreement" is defined in Section 5.3.2;

1.38             "US $" shall mean United States Dollars; and

1.39             "Year" shall mean the calendar year.

2.               ORGANIZATION OF THE COMPANY; MANAGEMENT; OPERATIONAL 
                 RESPONSIBILITIES, ETC.

2.1              Organization. In connection with the execution of this
                 Agreement, the parties will execute the Deed of Foundation.
                 The Board of Directors of the Company shall take such steps as
                 are appropriate or necessary in order for the Company to be
                 organized under the laws of Hungary.

2.2              Board of Directors.

2.2.1            The Shareholders agree that, for so long as each of Gerard,
                 SFMT, H Corporation and Microsystem owns at least 5% of the
                 shares having voting rights, the Board of Directors of the
                 Company shall consist of six directors, of whom (i) three
                 shall be nominees of SFMT, including the Chairman of the Board
                 of Directors; (ii) one shall be the nominee of Gerard; (iii)
                 one shall be the nominee of H Corporation; and (iv) one shall
                 be the nominee of Microsystem. In the event of any tie vote,
                 the Chairman of the Board of Directors shall have the casting
                 (deciding) vote. The Board of Directors shall be responsible
                 for selecting the General Manager and the management of the
                 Company.

2.2.2            In the case of any Disposition of all of the shares held by a
                 Shareholder to another Shareholder or to a third party (who
                 will then become a Shareholder for purposes of this
                 Agreement), such transferee shall be entitled to the number of
                 nominees to the Board of Directors as the transferor was
                 previously entitled to. In the case of any Disposition of less
                 than all of the shares held by a Shareholder to another
                 Shareholder or to a third party, the transferor shall be
                 entitled to the same number of nominees to the Board of
                 Directors as provided in Section 2.2.1, unless the transferor
                 and the transferee shall agree otherwise.

                                      -6-
<PAGE>   11
2.2.3            In the event of the removal, resignation or death of
                 any member of the Board of Directors, the vacancy thereby
                 created shall be filled by a nominee of the Shareholder whose
                 nominee was the director so removed, resigned or deceased.

2.2.4            The Shareholders hereby agree to vote their shares in
                 accordance with the provisions of this Section 2.2. In the
                 event a Shareholder desires to remove one of its nominees from
                 the Board of Directors, such Shareholder shall so notify the
                 other Shareholders in writing of such desire, and the
                 Shareholders agree that they shall vote their shares in
                 accordance with the direction of the Shareholder providing
                 such notice.

2.3              Supervisory Board.

2.3.1            The Shareholders agree that, for so long as each of Gerard,
                 SFMT, H Corporation and Microsystem owns at least 5% of the
                 shares having voting rights, the Supervisory Board of the
                 Company shall consist of six members, of whom (i) three shall
                 be nominees of SFMT, including the Chairman of the Supervisory
                 Board; (ii) one shall be the nominee of Gerard; (iii) one
                 shall be the nominee of H Corporation; and (iv) one shall be
                 the nominee of Microsystem. In the event of any tie vote, the
                 Chairman of the Supervisory Board shall have the casting
                 (deciding) vote.  

2.3.2.           In the case of any Disposition of all of the shares held by a  
                 Shareholder to another Shareholder or to a third party (who 
                 will then become a Shareholder for purposes of this
                 Agreement), such transferee shall be entitled to the number of
                 nominees to the Supervisory Board as the transferor was
                 entitled to.  In the case of any Disposition of less than all
                 of the shares held by a Shareholder to another Shareholder or
                 to a third party, the transferor shall be entitled to the same
                 number of nominees to the Supervisory Board as provided in
                 Section 2.3.1, unless the transferor and the transferee shall
                 agree otherwise.
        
2.3.3            In the event of the removal, resignation or death of any
                 member of the Supervisory Board, the vacancy thereby created
                 shall be filled by a nominee of the Shareholder whose nominee
                 was the director so removed, resigned or deceased.

2.3.4            The Shareholders hereby agree to vote their shares in
                 accordance with the provisions of this Section 2.3. In the
                 event a Shareholder desires to remove one of its nominees from
                 the Supervisory Board, such Shareholder shall notify the other
                 Shareholders in writing of such desire, and the Shareholders
                 agree that they shall vote their shares in accordance with the
                 direction of the Shareholder providing such notice.


                                     - 7 -
<PAGE>   12
2.4              Operational Responsibilities Etc.

2.4.1            System Development.   SFMT, working together with the
                 Installation Contractor, shall be responsible for
                 accomplishing the development and implementation of the
                 System, in accordance with the Business Plan.  Promptly after
                 the date of this Agreement, the Company shall enter into a
                 contract with the preferred Installation Contractor. SFMT
                 shall use its best efforts to obtain a performance
                 guaranty/bond from the Installation Contractor securing the
                 performance of its obligations to install the System, for an
                 amount equal to the price of the contract with the
                 Installation Contractor. The parties expressly agree that no
                 Shareholder, or individual acting on behalf of a Shareholder,
                 shall have any responsibility or liability for the terms of
                 the contract with the Installation Contractor.

2.4.2            System Operation and Performance.  Subject to the requirements
                 of Hungarian law (and without limiting the responsibilities
                 delegated to the management of the Company under Hungarian
                 law), throughout the life of the Concession, as among the
                 Shareholders, SFMT shall be responsible for the overall
                 operations and management of the Company. To this end, SFMT
                 shall be responsible for ensuring that the Company operates on
                 a purely commercial, profit-oriented basis, in accordance with
                 the Business Plan approved by the Shareholders, in a manner
                 that maximizes the return on the investments by the
                 Shareholders. In addition, and without limiting the generality
                 of the foregoing, SFMT shall use its best efforts throughout
                 the life of the Concession to ensure that the System will
                 comply in all material respects with, to the maximum extent
                 possible, the then prevailing Concession Contract, applicable
                 laws, including governmental and ministerial decrees, and
                 applicable standards and related requirements (including
                 without limitation any general or specific development and
                 service quality assurance conditions).

                 In the event SFMT were to transfer operational control of the
                 Company pursuant to a Disposition in accordance with the
                 provisions of this Agreement (as contemplated by Section 4.2),
                 the transferee who shall then become responsible for
                 operational control shall expressly assume SFMT's obligations
                 under this Section 2.4.2.

                 Subject to the provisions of applicable law, in the event SFMT
                 undergoes a bankruptcy proceeding, Gerard (or its designee)
                 shall, upon the occurrence of such event (and only upon the
                 occurrence of such event), select an experienced
                 telecommunications operator to take over responsibility for
                 operational control of the Company. For the purposes of the
                 foregoing sentence,

                                     - 8 -
<PAGE>   13
                 SFMT shall be deemed to "undergo a bankruptcy proceeding" in
                 the event (i) it files a petition in bankruptcy or for an
                 arrangement pursuant to any present or future bankruptcy,
                 winding-up or insolvency Act; (ii) is adjudicated to be
                 insolvent or bankrupt; (iii) makes any general assignment for
                 the benefit of its creditors; (iv) admits in writing its
                 inability to pay its debts generally as they become due; (v)
                 consents to the appointment of a receiver, trustee or
                 liquidator of itself or of the whole or a substantial part of
                 its property; or (vi) is involuntarily dissolved.

2.4.3            SFMT Services and Products. SFMT hereby agrees that all
                 services and products offered by it to the Company shall be
                 offered on terms and conditions (including price) that are at
                 least equal to the most favorable terms and conditions on
                 which similar services and/or products are made available to
                 its customers, based upon volume of node sites.

2.4.4            Other Third Party Contracts. Subject to the requirements of
                 Hungarian law, SFMT shall ensure that all contracts that the
                 Company enters into with third parties shall be on an
                 arms-length basis.

2.4.5            SFMT Assistance. The parties acknowledge that, from time to
                 time, the Company may desire to utilize the expertise and
                 assistance of employees of affiliates of SFMT. In the event
                 such assistance requires travel to Hungary, the Company shall
                 pay for the reasonable expenses relating to air travel and
                 hotel accommodation which are incurred by such personnel in
                 the performance of work on behalf of the Company.

2.5              System Financing.

2.5.1            General. The Business Plan attached to this Agreement sets
                 forth the anticipated total amount and the scheduling of the
                 financing needs of the Company as it exists today. Subject to
                 the provisions of this Agreement, the Business Plan may be
                 modified in accordance with the dictates of the Company's
                 business.

2.5.2            Capital Contributions. Subject to Sections 2.5.5 and 7.2, each
                 Shareholder shall be responsible for making the contribution
                 to the Company's capital in proportion to such Shareholder's
                 ownership of the share capital of the Company. Subject to the
                 foregoing, the amount and form of the initial capital
                 contributions of the Shareholders shall be set out in the Deed
                 of Foundation.

                 In the event of any increase of the share capital of the
                 Company (including an increase by way of a capital call), each
                 Shareholder shall be responsible for making

                                     - 9 -
<PAGE>   14
                 such capital contributions as are necessary in order to
                 achieve the following ownership structure:

Gerard:                           Shares representing 25% of the registered
                                  share capital of the Company plus an amount
                                  equal to the face value of one A Share;

SFMT:                             Shares representing 50% of the registered
                                  share capital of the Company minus an amount
                                  equal to (i) the face value of one A Share
                                  multiplied by (ii) two;

Microsystem:                      Shares representing 5% of the share capital
                                  of the Company (subject to Section 2.5.5);
                                  and

H Corporation:                    Shares representing 20% of the registered
                                  share capital of the Company plus an amount
                                  equal to the face value of one A Share.

                 The Shareholders expressly acknowledge that they intend for
                 the share capital of the Company to be held as set out above,
                 and that, in the event of an increase in the share capital of
                 the Company, they will take such actions as are appropriate in
                 order to achieve this ownership structure.

2.5.3            Debt Financing. Subject to Section 2.5.4 and to Section 7.4.3,
                 SFMT shall be primarily responsible, with the input and
                 assistance of Gerard, for arranging all debt financing
                 necessary, subject to the achievement of reasonable terms and
                 conditions, for the investments required by the Company, in
                 excess of its share capital, during the course of development
                 of the System, in accordance with the Business Plan.

2.5.4            Equipment Financing. Gerard agrees that it will use its best
                 efforts, working with the Installation Contractor, to obtain
                 equipment financing for the products sold by the Installation
                 Contractor to the Company (it being expressly understood that
                 the foregoing does not in any way constitute a guaranty by
                 Gerard that any such financing may be available). SFMT shall
                 provide such assistance as may be reasonably required in
                 connection with the foregoing.

2.5.5            Microsystem Interest. In connection with the execution of this
                 Agreement, SFMT (or one of its affiliates) and Microsystem
                 shall enter into a loan agreement, pursuant to which SFMT
                 shall be responsible for advancing the funds required for
                 Microsystem's 5% ownership interest in the Company, as
                 contemplated by the initial Business Plan. Such loan agreement
                 shall provide that repayment

                                     - 10 -
<PAGE>   15
                 of such advances from SFMT to Microsystem, with interest,
                 shall come from Microsystem's proportionate share of dividends
                 in respect of its A Shares. In the event the equity of the
                 Company shall be increased to an amount which exceeds the
                 amount contemplated by the initial Business Plan (i.e. an
                 amount in excess of US $4,009,309), Microsystem shall have the
                 right to acquire its pro rata portion of the increased amount
                 of equity out of its own funds, it being understood that SFMT
                 shall have no obligation to advance funds required for such
                 acquisition under the foregoing loan agreement.

2.6              Business Plan.

                 The Shareholders confirm their approval of the initial
                 Business Plan attached to this Agreement. In the event the
                 Board of Directors proposes to make any material changes in or
                 modifications to the Business Plan with respect to any year
                 (beginning with the year ending December 31, 1995), the Board
                 shall supply each Shareholder, for its consideration, with a
                 draft of the proposed changes or modifications at least 30
                 days prior to the relevant meeting of Shareholders. Such
                 changes or modifications shall be considered by the
                 Shareholders and the Business Plan, as modified, shall be
                 approved by the Shareholders after such changes or
                 modifications have been made that are reasonably acceptable to
                 the Shareholders.

2.7              Dividend Policy.

                 The General Meeting of Shareholders shall have responsibility
                 for declaring dividends in respect of any year. It shall be
                 the policy of the Company to distribute the profits of the
                 Company to the Shareholders by way of dividends (or by other
                 means acceptable to the Shareholders) as soon as practicable,
                 subject always to the relevant provisions of Hungarian law,
                 and subject to the general proposition that dividends shall be
                 distributed after the reserve of sufficient funds to pay for
                 the operations of the Company.

3.               DISPOSITION OF SHARES BY GERARD.

3.1              Transfer Restrictions.

                 No Disposition shall be made by Gerard prior to July 1, 1997.
                 Thereafter, Gerard may not make a Disposition without
                 complying with the procedures set forth in Section 3.2, and
                 unless Gerard has complied with the provisions in the
                 Concession Contract relating to share transfers (as discussed
                 in Section 8.2 (ii)).

                                     - 11 -
<PAGE>   16
3.2              Right of First Refusal.

3.2.1            In the event Gerard desires to sell any of its shares, it
                 shall give written notice of its intention to make a
                 Disposition to SFMT (with a copy to each of the other
                 Shareholders and to the Board of Directors of the Company).
                 Such notice shall state the nature of the Disposition proposed
                 to be made, the number of shares that are the subject of the
                 proposed Disposition, the identity of the Buyer and the Price.
                 Such notice shall include a copy of the substantiated and firm
                 offer received from the Buyer.

3.2.2            SFMT shall have the right to purchase the shares that are the
                 subject of the proposed Disposition, at the Price. Such right
                 to purchase may be exercised by SFMT within 30 days following
                 the giving of the notice referred to in Section 3.2.1 by SFMT
                 giving written notice to Gerard (with a copy of such notice
                 being given to each of the other Shareholders and to the Board
                 of Directors of the Company) of SFMT's election to exercise
                 such right to purchase. Gerard shall thereafter promptly (and
                 in any event within 45 days after the expiration of such
                 30-day period) transfer and deliver to SFMT the shares which
                 SFMT has elected to purchase, free and clear of all liens,
                 charges and encumbrances, against payment by SFMT, in
                 immediately available funds, of the purchase price for such
                 shares (at the Price).

3.2.3            If following the expiry of the 30-day period referred to in
                 Section 3.2.2 SFMT has not indicated its desire to purchase
                 the shares that are the subject of the proposed Disposition,
                 Gerard may, within 30 days following the close of such 30-day
                 period, make the Disposition to the Buyer, for not less than
                 the Price, of such shares. If the Disposition to the Buyer is
                 not made within such 30-day period, no Disposition may be made
                 by Gerard without again complying with the terms of this
                 Section 3. In the event SFMT does not accept the offer to
                 purchase shares that are the subject of the proposed
                 Disposition, Gerard will not make a Disposition to the Buyer
                 on terms that are more favorable than the Price without first
                 offering such shares to SFMT.

4.               DISPOSITION OF SHARES BY SFMT.

4.1              Transfer Restrictions.

                 No Disposition shall be made by SFMT prior to July 1, 1997.
                 Thereafter, SFMT may not make a Disposition without complying
                 with the procedures set forth in Section 4.2, and unless SFMT
                 has complied with the

                                     - 12 -
<PAGE>   17
                 provisions in the Concession Contract relating to share
                 transfers (as discussed in Section 8.2 (ii)).

4.2              Tag-Along Rights of Gerard.

4.2.1            In the event SFMT desires to sell any of its shares, it shall
                 give written notice of its intention to make a Disposition to
                 Gerard (with a copy to each of the Hungarian Shareholders and
                 to the Board of Directors of the Company). Such notice shall
                 state the nature of the Disposition proposed to be made, the
                 number of shares that are the subject of the proposed
                 Disposition, the identity of the Buyer and the Price. Such
                 notice shall include a copy of the substantiated and firm
                 offer received from the Buyer. In addition, such notice shall
                 indicate whether, in SFMT's reasonable determination, SFMT
                 shall remain in operational control of the Company in the
                 event the proposed Disposition is to be completed.

4.2.2            In the event of any proposed Disposition by SFMT under Section
                 4.2.1 which results in SFMT relinquishing operational control
                 of the Company, Gerard shall have the right to sell all of its
                 shares to the Buyer, at the Price. In the event of any
                 proposed Disposition by SFMT under Section 4.2.1 which does
                 not result in SFMT relinquishing operational control of the
                 Company, Gerard shall have the right to sell such number of
                 its shares to the Buyer as represents the proportion of SFMT's
                 interest in the Company being transferred to the Buyer (being
                 the aggregate number of shares owned by Gerard multiplied by
                 the quotient of (i) the number of shares being sold by SFMT
                 and (ii) the number of shares owned by SFMT immediately prior
                 to the effectiveness of the Disposition).

                 For purposes of this Section 4.2, SFMT shall be deemed to
                 relinquish operational control of the Company in the event
                 that, as a result of any Disposition by it, SFMT no longer has
                 (i) the right to cast the deciding vote in the event of the
                 deadlock vote of the Board of Directors (as provided in
                 Section 2.2.1) or (ii) the ability to designate the general
                 manager of the Company. SFMT shall have the burden of
                 demonstrating to Gerard that any sale of its interest in the
                 Company does not result in SFMT relinquishing operational
                 control of the Company.

4.2.3            The right to sell referred to in Section 4.2.2 may be
                 exercised by Gerard within 30 days following the giving of the
                 notice referred to in Section 4.2.1 by Gerard giving written
                 notice to SFMT (with a copy of such notice being given to each
                 of the other Shareholders and to the Board of Directors of the
                 Company) of Gerard's election to exercise such right to sell.
                 Gerard shall thereafter promptly (and in any event

                                     - 13 -
<PAGE>   18
                 within 45 days after the expiration of such 30-day period)
                 transfer and deliver to the Buyer the shares which Gerard has
                 elected to sell under this Section 4.2.2, free and clear of
                 all liens, charges and encumbrances, against payment by the
                 Buyer, in immediately available funds, of the purchase price
                 for such shares (at the Price). Such sale shall take place
                 simultaneously with the sale by SFMT of the shares designated
                 by it under Section 4.2.1 to the Buyer. SFMT covenants that,
                 in no event, shall it make any Disposition under this Section
                 4.2, with respect to which Gerard has elected to exercise its
                 right to sell, unless Gerard also successfully completes its
                 transfer of the shares which Gerard has elected to sell under
                 this Section 4.2.2.

4.2.4            If following the expiry of the 30-day period referred to in
                 Section 4.2.3 Gerard has not indicated its desire to sell all
                 or part of its shares (as appropriate), SFMT may, within 30
                 days following the close of such 30-day period, make the
                 Disposition to the Buyer, for not less than the Price, of such
                 shares.  If the Disposition to the Buyer is not made within
                 such 30-day period, no Disposition may be made by SFMT without
                 again complying with the terms of this Section 4.

5.               DISPOSITION OF SHARES BY A HUNGARIAN SHAREHOLDER.

5.1              Transfer Restriction

                 No Disposition shall be made by a Hungarian Shareholder prior
                 to July 1, 1997. Thereafter, no Hungarian Shareholder may make
                 a Disposition unless (i) such Disposition is made to an
                 Eligible Hungarian Buyer and (ii) the selling Hungarian
                 Shareholder has complied with the restrictions on transfer set
                 forth in the Concession Contract (as described in Section
                 8.2(ii)).

5.2              Eligible Hungarian Buyer

                 In the event a Hungarian shareholder desires to make a
                 Disposition of any of its shares, it shall give written notice
                 of its intention to make a Disposition to the other
                 Shareholders and to the Board of Directors of the Company at
                 least 30 days prior to the effectiveness of the transaction.
                 Such notice shall state the nature of the Disposition proposed
                 to be made, the number of shares that are the subject of the
                 proposed Disposition, the identity of the Eligible Hungarian
                 Buyer and the Price at which the Selling Hungarian Shareholder
                 is willing to sell the shares. Such notice shall include a
                 copy of the substantiated and firm offer received from the
                 Eligible Hungarian Buyer.

                 If requested by the Board of Directors of the Company, the
                 Hungarian Shareholder shall procure, prior to the

                                     - 14 -
<PAGE>   19
                 completion of the Disposition, an unqualified written opinion
                 by a lawyer qualified to practice law in Hungary who is
                 acceptable to the Board of Directors to the effect that the
                 proposed Buyer will qualify as an Eligible Hungarian Buyer
                 under the terms of the Concession Contract and applicable law,
                 and that the proposed Disposition will not adversely affect
                 the existence of the Concession. The reasonable legal fees
                 relating to the preparation associated with such opinion shall
                 be borne by the Company.

5.3              Transfer of Interest to H Corporation.

5.3.1            SFMT shall be responsible for the selection of H Corporation,
                 which entity shall be subject to the prior written approval of
                 Gerard and Microsystem (such approval not to be unreasonably
                 withheld). In the event that a binding commitment has not been
                 received by a Hungarian entity acceptable to SFMT, Gerard and
                 Microsystem by August 1, 1995, these three Shareholders shall,
                 promptly after such date, consult with a view to reach a
                 mutually satisfactory resolution of the Hungarian ownership
                 position.

5.3.2            SFMT, Gerard and Microsystem expressly agree that, in
                 connection with the execution of this Agreement, these
                 Shareholders will enter into a voting trust agreement in the
                 form of Exhibit 5.3.2 (the "Trust Agreement") with Mr. Istvan
                 Pesti, pursuant to which Mr. Pesti will hold 41 A Shares in
                 trust for the benefit of the Company, until such time as H
                 Corporation shall acquire such shares. The Trust Agreement
                 shall provide, inter alia, that, at the written direction of
                 SFMT, Gerard and Microsystem, Mr. Pesti shall transfer such
                 shares to H Corporation.

5.3.3            The transfer referred to in Section 5.3.2 shall be conditioned
                 upon H Corporation entering into such documents and assurances
                 as may be reasonably required by SFMT, Gerard and Microsystem,
                 including (without limitation) (i) a share subscription
                 agreement, (ii) an agreement whereby H Corporation agrees to
                 be bound by the provisions of this Agreement (as a Hungarian
                 Shareholder hereunder) and (iii) a confirmation to the effect
                 that H Corporation has read the Concession Contract, and is
                 aware of the provisions of the Concession Contract.

6.               PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS.

6.1              Public Offering

                 The Shareholders agree that the Company may, upon the
                 recommendation by the Board of Directors and with the approval
                 of the Shareholders, make a Public offering of any or all of
                 the A Shares (or any other class(es) of

                                     - 15 -
<PAGE>   20
                 shares created after the date hereof, other than B shares or
                 the one C Share) at any time after July 1, 1997 (subject to
                 the receipt of any required approval from the Minister).

6.2              Piggyback Registration

                 Subject to the terms and conditions of this Section 6,
                 whenever the Company proposes to register any shares for sale
                 by the Company in connection with a Public Offering (or make
                 any similar registration under applicable law), the Company
                 will give prompt notice to the Shareholders of its intention
                 to make such a Public offering, and will use reasonable
                 efforts, subject to the provisions of this Section 6, to
                 include in such public offering the shares then held by such
                 Shareholders with respect to which the Company has received
                 written requests for inclusion therein within fifteen (15)
                 days after the giving of the Company's notice referred to
                 above. Notwithstanding the foregoing, the Shareholders
                 expressly acknowledge and agree that the rights of the
                 Hungarian Shareholders under this Section 6 shall be limited
                 to the sale of shares, pursuant to such a Public Offering, of
                 their shares to Eligible Hungarian Buyers.

6.3              Registration Expenses

                 The Company shall bear all expenses of each Shareholder
                 participating in a Public Offering covered by Section 6.2
                 (including without limitation the Company's registration and
                 filing fees, fees and expenses of compliance with securities
                 laws and fees of outside advisors for the Company (but
                 excluding fees of any outside advisor retained by a
                 Shareholder)).

6.4              Maximum Number of Shares

6.4.1            If a Public Offering is an underwritten registration on behalf
                 of the Company, the managing underwriters shall be selected by
                 the Company in its sole discretion. If the managing
                 underwriters advise the Company in writing that in their
                 opinion the number of shares requested to be included in such
                 registration (including without limitation shares requested to
                 be registered by Shareholders pursuant to Section 6.2) (i)
                 exceeds the maximum number of shares which can be marketed at
                 a price reasonably related to the then current market value of
                 such shares or (ii) materially and adversely affects such
                 underwriters' ability to effect an orderly distribution of the
                 shares intended to be offered by the Company, the number of
                 shares to be registered in such Public Offering shall be
                 reduced to such number (the "Maximum Number") which the
                 managing underwriters advise the Company in writing is the
                 maximum number of shares of Stock which can be registered
                 without being


                                     - 16 -
<PAGE>   21
        covered by clauses (i) and (ii) of this sentence. In such event, the
        Company will include in such registration (1) first, such number
        of shares which the Company proposes, in its absolute discretion,
        to sell, and (2) second, such number, if any, of shares requested
        pursuant to Section 6.2 to be included by any Shareholder's pro
        rata share (being a percentage equal to the percentage then held by
        such Shareholder requesting registration of the total number of shares
        which are held by all Shareholders so requesting such registration) of
        the excess, if any, of the Maximum Number over the number of shares
        referred to in item (1) of this sentence.

6.4.2   In the event the number of shares requested to be included by
        Hungarian Shareholders in such registration might result in a breach
        of the provision in the Concession Contract relating to Hungarian    
        ownership (as discussed in Section 8.2(i)), the Company will use its
        best efforts to structure such registration to include the maximum
        number, if any, of shares requested pursuant to Section 6.2 to be
        included by any Hungarian Shareholder, on a pro rata basis (being a
        percentage equal to the percentage then held by each Hungarian
        Shareholder requesting registration of the total number of shares which
        are held by all Hungarian Shareholders so requesting such
        registration); provided that the Shareholders agree that the Company
        (working with the managing underwriters and its other advisors) shall
        have sole discretion in determining the terms and conditions of any
        registration that are necessary or appropriate to ensure compliance
        with the Concession Contract's provision relating to Hungarian
        ownership (as discussed in Section 8.2.2(i)).
        
6.5     Indemnification

6.5.1   The Company agrees to indemnify, to the extent permitted by Hungarian
        law, each Shareholder, its officers and directors against all losses,
        claims, damages, liabilities and expenses caused by any untrue or
        alleged untrue statement of a material fact contained in any
        registration statement, prospectus or preliminary prospectus or any
        omission or alleged omission to state therein a material fact required
        to be stated therein or necessary to make the statements therein not
        misleading, except insofar as the same are caused by or contained in
        any information furnished in writing to the Company by such Shareholder
        expressly for use therein.
        
6.5.2.  In connection with any registration statement in which a Shareholder is
        participating, each such Shareholder will furnish to the Company in
        writing such information and affidavits as the Company reasonably
        requests for use in connection with any such registration statement     


                                   - 17 -
<PAGE>   22
        or prospectus and agrees to indemnify, to the extent permitted by law,
        the Company, its directors and officers against any losses, claims,
        damages, liabilities and expenses resulting from any untrue or 
        alleged omission of a material fact required to be stated in the 
        registration statement or prospectus or any amendment thereof or 
        supplement thereto or necessary to make the statements therein not 
        misleading, but only to the extent that such untrue statement or 
        omission is contained in any information or affidavit so furnished in
        writing by such Shareholder.
        
7.      CERTAIN RIGHTS OF GERARD.

7.1     Gerard Premium.

7.1.1   General. The Shareholders agree that Gerard shall be rewarded for the
        value of the Concession through payment of Preferential Dividend
        Distributions in respect of the B Shares up to the cumulative aggregate
        amount of US $3,000,000 (the "Gerard Premium Amount").
        
        For the purposes of this Section 7.1:

        (i)   all amounts payable as preference dividends in respect of the B 
              Shares under this Section 7.1 shall be deemed to be "Preferential
              Dividend Distributions"; and
        
        (ii)  the amount which the Board of Directors determines is properly 
              distributable as dividends in respect of any year (prior to
              deduction to reflect the premium that Gerard is entitled to under
              this Section 7) shall be referred to as the "Distributable
              Amount".
        
7.1.2   Preferential Dividend Distributions. Until such time as Gerard 
        has received Preferential Dividend Distributions in an aggregate amount
        equal to the entire Gerard Premium Amount, dividends shall be
        distributed to the Shareholders for each year in respect of which the
        Board of Directors declares that any dividends shall be payable, in the
        following manner:
        
        (i)     the amount equal to the first 40% of the Distributable Amount
                for any year shall be payable to Gerard as Preferential
                Dividend Distributions; and

        (ii)    the amount equal to the remaining 60% of the Distributable
                Amount shall be payable to the shareholders (including Gerard)
                in proportion to their respective ownership interests of the A


                                     - 18 -
<PAGE>   23
                Shares, together with the C Share (in the case of Gerard);
        
        provided, that if in a particular year the outstanding balance of the
        Gerard Premium equals an amount which is less than 40% of the
        Distributable Amount for that year (on account of payments in respect
        of the Gerard Premium Amount over the course of prior years), then:
        
        (x)     Gerard shall be entitled to receive such amount under item 
                (i) above as would equal the outstanding balance of the Gerard
                Premium Amount, thereby resulting in Gerard's receipt of 
                Preferential Dividend Distributions in an aggregate amount 
                equal to the Gerard Premium Amount (when added to all prior 
                preferential distributions); and
        
        (y)     the balance of the Distributable Amount for that year shall be
                payable to the Shareholders in proportion to their respective 
                ownership interests of the A Shares, together with the C Share 
                (in the case of Gerard).


        Upon any payment of Preferential Dividends Distributions under this
        Section 7.1.2, the Gerard Premium Amount shall be deemed reduced by an
        amount equal to the amount of the Preferential Dividend Distributions
        that Gerard has received. For purposes of this Section 7.1, all 
        calculations as to the amount of Preferential Dividend Distributions 
        shall be made in US Dollars, as of the date of payment of each such 
        Preferential Dividend Distribution.

        Exhibit 7.1.2 sets forth an example of how the premium contemplated by
        this Section 7.1 is to be paid to Gerard.

7.1.3   Limitation. The Shareholders agree that, once Gerard has received  
        Preferential Dividend Distributions under this Section 7.1 in a
        cumulative aggregate amount equal to the Gerard Premium Amount, the B
        Shares shall no longer carry preferential dividend rights (and shall
        automatically be converted to D Shares) and thereafter all amounts
        payable to the Shareholders as dividends shall be payable in proportion
        to their respective ownership interests in the Company, with Gerard
        being entitled to receive dividends in respect of A Shares, the one C
        Share and D Shares.
        
7.1.4   Confirmation of Entitlement. The Shareholders acknowledge that Section
        4.3 of the Deed of Foundation reflects the foregoing. The Deed of
        Foundation has been submitted to the Budapest Court of Registration.
        The Shareholders specifically agree that if the Court were to withhold
        registration on account of the


                                     -19 -
<PAGE>   24
        language of Section 4.3, and were to thus require modification of
        Section 4.3 of the Deed of Foundation as a condition to registration of
        the Company (e.g. if the Court were to require that the Gerard Premium
        Amount be expressed in HUF rather than in US $), then the Shareholders
        will, as soon as possible after the receipt of notice of the foregoing,
        work together to develop a mechanism that enables Gerard to receive the
        full economic benefit of the premium contemplated by this Section 7.1,
        it being understood that the parties shall agree on such a mechanism
        prior to the submission of any modification to the Deed of Foundation   
        with respect to Section 4.3.
        
7.2     Repayment of Concession Fee and Expenses.

        The Shareholders acknowledge that Gerard has, to date, paid US
        $1,200,000 for the one-time upfront fee for the Concession and has
        incurred US $300,000 in out-of-pocket expenses to obtain the Concession.
        By August 15, 1994 SFMT shall arrange for payment, by wire transfer, to
        an account designated in writing by Gerard, the amount of US $750,000,
        representing reimbursement for 50% of the foregoing US $1,500,000
        amount.
        
        The Shareholders agree that, for accounting/bookkeeping purposes, the
        above US $1,500,000 Concession acquisition cost shall be deemed as a
        contribution to the Company's capital, and the Company's internal
        capital accounts shall reflect same. Accordingly, the Shareholders
        acknowledge and agree that Gerard shall not be required to pay any
        amounts in respect of the Company's capitalization until such time as
        the Company's internal capital accounts have been so equalized, on      
        a pro rata basis.
        
7.3     Bid Guaranty.

        The Shareholders acknowledge that Gerard has posted a bid guaranty in
        the amount of US $100,000. Such amount shall be returned to Gerard when
        the bid guaranty is replaced by the performance guaranty required by the
        Concession Contract, it being understood that the performance guaranty
        will be provided by the Company.
        
7.4     Certain Voting Rights Afforded to Gerard.

7.4.1   C Share. The Shareholders agree that, although Gerard's voting
        rights in the Company shall not equal its ownership interest in the
        Company, Gerard shall be entitled to the same voting rights as a
        shareholder owning at least 25% plus one share in a company limited by
        shares would generally be entitled to under Hungarian law.  Without
        limiting the generality of the foregoing, Section 4.4 and Article 11
        of the Deed of
        

                                     - 20 -
<PAGE>   25
        Foundation specify certain corporate actions that may not be taken
        without the approval of Gerard, throughout its ownership of one Class C
        Share; provided that in the event Gerard makes a Disposition of any
        portion of its shares, the result of which would be that its ownership
        of share capital of the Company would fall below an amount representing
        25% of the registered share capital plus an amount equal to the face
        value of one A Share, Gerard shall no longer be entitled to the
        foregoing voting rights, and the one Class C Share shall be transferred
        to one Class A Share. 
        
7.4.2.  Capital Calls. The parties agree that Gerard shall have an absolute
        veto right in respect of (i) any request by SFMT for an increase, by 
        way of a capital call, of the amount of equity contemplated by the 
        initial Business Plan (i.e. US $4,009,309) by more than 50% over
        the amount of the then current share capital of the Company and (ii) any
        request by any other Shareholder for an increase in the share capital
        of the Company.
        
        In the event SFMT proposes any increase of the Company's equity by way  
        of a capital call, which would result either in (i) an increase of the
        amount of the Company's share capital to an amount which does not
        exceed US $4,009,309, or (ii) in the event the Company's share capital
        equals or exceeds $4,009,309, to an amount which does not exceed 50% of
        the amount of the then current share capital of the Company, Gerard will
        not unreasonably withhold its vote in favor of the capital call
        requested by SFMT; provided that SFMT can demonstrate that the capital
        call is (i) a good faith request reasonably related to the profitable
        operation of the Company, taking into account the Business Plan (as the
        same may be modified from time to time in accordance with the provisions
        of this Agreement); and (ii) will result in maximizing the return on the
        investment to the Shareholders generally. In the event the foregoing
        criteria are met, Gerard shall approve the proposed amendment to the
        deed of foundation effectuating such capital call, in the requested
        amount.
        
7.4.3.  Additional Voting Rights. In addition, the Shareholders agree that the
        following actions may not be taken unless approved in advance in
        writing by Gerard:

        (i)   the incurrence of any indebtedness (or other obligation) with
              recourse to Gerard (or any of its affiliates);

        (ii)  any material change or modification to the Business Plan (as
              provided in Section 2.6);


                                     - 21 -
<PAGE>   26

        (iii) any Public Offering (as provided in Section 6.1); or

        (iv)  except as expressly contemplated by the Business Plan and/or by
              Section 2.4.3, any agreement or material transaction between the
              Company and a Shareholder or a member of the Board of Directors
              or the Supervisory Board, or any person or entity that is an
              affiliate of such Shareholder or such member, that is either (i) 
              outside the ordinary course of business or (ii) on terms less 
              favorable than could be obtained from a nonaffiliated third party.

7.4.4   Confirmation of Entitlement. The Shareholders acknowledge that Section  
        4.4 of the Deed of Foundation grants the Class C Share veto rights with
        respect to the matters referred to in Section 7.4.1. The Deed of
        Foundation has been submitted to the Budapest Court of Registration. The
        Shareholders specifically agree that if the Court were to withhold
        registration on account of the language of Section 4.4, and were to thus
        require modification of Section 4.4 of the Deed of Foundation as a
        condition to registration of the Company (e.g. if the Court were to find
        the veto right unacceptable), then the Shareholders will amend the Deed
        of Foundation to provide that the Class C Share will carry the minimum
        number of additional votes so that Gerard will shall be entitled to the
        same voting rights referred to in the first sentence of Section 7.4.1.
        In the event such a change is made to the Deed of Foundation, the
        Shareholders agree that, in the event of any increase of the capital of
        the Company, they will vote their shares in favor of any change in the
        minimum number of additional voting rights necessary in order to enable
        Gerard to receive the full benefit of the voting rights contemplated 
        by this Section 7.4.
        
8.      CONCESSION CONTRACT.

8.1     The Shareholders acknowledge that, on or before August 5, 1994, the
        Consortium and the Company will endeavour to execute the Concession
        Contract. The final version of the Concession Contract will be
        attached to this Agreement as Exhibit 8.1, upon its signature.

8.2.    Each of the Shareholders specifically acknowledges that Section 2 of
        the Concession Contract shall contain the restrictions on share
        transfers along the lines of the following:

        (i)  throughout the life of the Concession not less than 25% plus one
             voting share of the share capital of the Company shall remain in
             the ownership of Hungarian economic associations with


                                     - 22 -
<PAGE>   27
             a Hungarian majority or of Hungarian natural and legal entitles;

        (ii) any transfer of more than 5% of a Shareholder's interest in the
             Concession Company shall require the prior approval of the
             Minister, which approval shall be conditional upon the Minister
             being satisfied with the capability of the Company both legally
             and financially as well as professionally to perform the
             liabilities under the Concession; and

       (iii) without the prior approval of the Minister, the participation of
             Gerard, SFMT and Microsystem in the Concession Company shall not
             be decreased under 50% plus one voting share.

8.3     Each of the Shareholders hereby covenants and agrees that, throughout   
        the life of the Concession, such Shareholder will not take any action,
        or omit to take any action, the result of which would be a material
        breach of the Concession Contract. Without limiting the generality of
        the foregoing, no Disposition shall be made by a Shareholder which, if
        completed, may result in a breach of the terms of the Concession
        Contract relating to restrictions of the transfer of shares in
        the Concession Company (as discussed in Section 8.2(ii)).
        
8.4     Each of the Shareholders acknowledges that it shall be jointly and
        severally liable for the obligations of the Company under the
        Concession Contract.

9.      ASSUMPTION OF OBLIGATIONS, ETC.

        The Shareholders expressly agree that no transfer of shares to a third
        party pursuant to Section 3, 4 or 5, or in accordance with Section 1.16
        (ii) and (iii), may be completed unless the Buyer or the affiliate, as
        the case may be, shall have executed such documents as reasonably
        required by the other Shareholders to assure that such third party shall
        undertake the same responsibilities to the Shareholders as did the
        Shareholder making the Disposition and to be bound by the provisions of
        this Agreement, including any applicable restrictions on transfer of
        shares. Upon the execution of such documents, such third party shall be
        deemed to be a "Shareholder" for all purposes of this Agreement in place
        of the Selling Shareholder, or SFMT or Gerard, as the case may be.
        


                                     - 23 -
<PAGE>   28
10.     REPRESENTATIONS, WARRANTIES AND COVENANTS OF SHAREHOLDERS.

10.1    General.

        Each of the Shareholders hereby makes the representations and
        warranties to each of the other Shareholders that are set forth on
        Exhibit 10.1.

10.2.   SFMT.

        SFMT specifically warrants to the other Shareholders that it possesses 
        the skills and experience in telecommunications (but not in paging),
        technology in the area of telecommunications and, in particular, in
        satellite communications, knowledge of the Hungarian market and capacity
        necessary for the due and proper performance of its obligations
        under this Agreement.
        
10.3.   Gerard.

        Gerard warrants to the other Shareholders that, except as set out on
        Exhibit 10.3, to the best of its knowledge, the Consortium has not
        incurred any material liabilities or obligations that would be binding
        upon the Company.

10.4    Covenants.

        The Shareholders expressly acknowledge that (i) they have entered into  
        the transactions contemplated by this Agreement taking into account
        certain special characteristics of the ownership structure of the
        Company, and (ii) in view of the foregoing, the restrictions on transfer
        set forth in this Agreement and the special rights granted to Gerard
        under this Agreement reflect the parties' intentions, considerations and
        mutual expectations. Accordingly, each of the Shareholders hereby waives
        with final and irrevocable effect its right to challenge any of the
        provisions in this Agreement relating to the transfer of shares
        (including without limitation Sections 3, 4, 5 and 9). In addition, each
        of the Shareholders hereby waives with final and irrevocable effect any
        right to challenge the provisions in this Agreement or in the Deed of
        Foundation relating to the rights specifically granted to Gerard
        under Section 7.
        
11.     TERM; TERMINATION.

11.1.   Unless sooner terminated as provided in Section 12.2, this Agreement 
        shall continue in full force and effect until 29 April 2009; provided
        that, in the event the Concession is extended under Section 1.3.2 of the
        Concession Contract, this Agreement shall continue in full force and
        effect throughout such  extended period.
        

                                     - 24 -
<PAGE>   29
11.2    This Agreement shall terminate, without notice to any party hereto,     
        forthwith upon the occurrence of any one of the following events
        or conditions: (i) notwithstanding the good faith efforts on the part of
        the Shareholders, the Company has not entered into the Concession
        Contract by October 1, 1994; provided that such date may be extended by
        the mutual agreement of the parties in the event that negotiations
        regarding the Concession Contract are ongoing; (ii) the termination of
        the concession in accordance with the provisions of Sections 13.4 and
        13.5 of the Concession Contract; (iii) SFMT shall purchase at least 70%
        of the shares of the Company; or (iv) any Public Offering (in which case
        the Shareholders shall enter into a stock-bloc agreement reflecting the
        provisions of this Agreement, as appropriate).
        
11.3    The termination of this Agreement shall not affect the respective    
        rights and obligations of the Shareholders in respect of any
        right or obligation that arose prior to such termination, it being
        understood and agreed that any such right may be exercised (and any such
        obligation shall be fulfilled), as if this Agreement had not terminated.
        Without limiting the generality of the foregoing, the termination of
        this Agreement shall not affect Gerard's right to receive Preferential
        Dividend Distributions under Article 7 (except in the case of a
        termination under item (i) of Section 11.2 or item (ii) of Section
        11.2; provided that this exception shall not be applicable with respect
        to such item (ii) to the extent that Gerard is entitled to receive
        Preferential Dividend Distributions as a result of dividends declared by
        the Board of Dividends prior to a termination under such item (ii), and
        such dividends have not been received by Gerard prior to the date of
        termination).
        
12.     ASSIGNMENT.

        No right or obligation under this Agreement may be assigned by a
        Shareholder unless such assignment occurs in connection with the
        transfer of shares of the Company to the proposed transferee in
        accordance with the provisions of this Agreement. Subject to the
        foregoing sentence, all the terms of this Agreement shall be binding
        upon and be enforceable by the successors and permitted assigns of
        each of the Shareholders.

13.     CONFIDENTIALITY.

        The parties shall not disclose to any other person or entity or use or
        exploit for any other purpose whatsoever any of the information
        contained in the Business Plan, and related materials, any information
        contributed by a Shareholder and/or any other


                                     - 25 -
<PAGE>   30
        information which they obtain or had heretofore obtained in relation to
        the transactions contemplated by this Agreement or the proposed business
        activities of the Company ("Confidential Information") , except (i) with
        the prior written consent of the other parties, (ii) as may be required
        by law (and then only to the extent such announcement is required in
        order to comply with applicable law), and (iii) to the extent expressly
        permitted by this Agreement. For the purposes of this Section 13,
        Confidential Information shall not include any information which:
        
        (i)   is available to the general public at the time of use or
              disclosure through no action of the disclosing party;

        (ii)  becomes available to the general public, other than by manner of
              unauthorized disclosure or use; or

        (iii) is provided by a third party who is lawfully in possession of
              such information and has the lawful right to disclose or use it.

        All Confidential Information belonging to any Shareholder and made
        available to the Company shall continue to be the property of the
        Shareholder making such available to the Company, and shall be used by
        the other Shareholders exclusively for the purposes of the business of
        the Company, unless the Shareholder making Confidential Information
        available to the Company provides its express written permission for use
        by any other Shareholder for any purpose other than the business
        of the Company.
        
        Each Shareholder who has received Confidential Information shall, and
        shall require that its affiliates, counsel, accountants, consultants,
        employees, agents and representatives shall, (1) keep confidential and
        not disclose to any person or exploit for any purpose whatsoever the
        Confidential Information (except as expressly permitted in this
        Section 13), (2) use all Confidential Information for the benefit of
        the Company and (3) preserve all Confidential Information for the
        benefit of the Shareholder which provided the Confidential
        Information.

        Subject to the foregoing, each of the Shareholders  shall have
        complete access to the Company's documents, books and records upon
        reasonable notice during normal business hours. Each Shareholder shall
        be entitled, upon written request to the Company, to receive promptly
        one copy of all such documents, books and records at the expense of
        the Company.


                                     - 26 -
<PAGE>   31

14.     PUBLIC ANNOUNCEMENTS.

        No party shall make any public announcement or disclosure relating in
        any way to the transactions contemplated by this Agreement or any
        agreement executed in connection with this Agreement, except (i) with
        the prior written consent of the other Shareholders or (ii) as may be
        required by law (and then only to the extent such announcement is
        required to comply with applicable law).

15.     EXPENSES, ETC.

        Whether or not the transactions contemplated by this Agreement are
        consummated, each of the parties shall pay its own costs and expenses
        and the fees and expenses of its counsel and accountants and other
        representatives incurred in connection with the transactions
        contemplated by this Agreement.

16.     GOVERNING LAW AND DISPUTE RESOLUTION.

16.1    This Agreement and the rights of the parties hereunder shall be
        construed and interpreted in accordance with the laws of the State of
        New York, without giving effect to its conflicts of laws principles.

16.2    In the event that disagreements or disputes arise with respect to the   
        interpretation or performance of this Agreement or any of its
        provisions, the parties will use their best efforts to resolve them
        through consultation. Disagreements or disputes that have not been
        settled by such consultation and conciliation within ninety (90) days
        after first notification thereof by one party to the other will, at the
        request of either party, be submitted to and finally settled by binding
        arbitration in accordance with the Rules of the Stockholm Chamber of
        Commerce. The arbitration shall be conducted in Stockholm, Sweden in
        the English language.
        
17.     WAIVER.

        None of the terms of this Agreement shall be deemed to have been waived
        by any party, unless such waiver is in writing and signed by that party.
        The waiver by any party of a breach of any provision of this Agreement
        shall not operate or be construed as a waiver of any other provision of
        this Agreement.
        
18.     NOTICES.

        All notices and other communications required or permitted to be given
        under this Agreement shall be in writing and shall be deemed to have
        been duly given if delivered personally, or by registered mail (return


                                     - 27 -
<PAGE>   32
        receipt requested), or sent by international courier delivery or by
        facsimile transmission, to the other party or parties at the
        respective address sat forth below (or to such other address as a
        party shall designate for itself by notice given in accordance
        herewith):

        18.1     if to Gerard:


                 Gerard Aircraft Sales and Leasing Company
                 c/o Monaghan Company
                 6617 N. Scottsdale Road
                 Suite 102 
                 Scottsdale, Arizona 85250
                 U.S.A.

                 Attention:  Mr. James G. Monaghan,
                             President


                 Fax:        (1 602) 922 8144
        
        with a copy to:

                 James D. Simpson, Jr., Esq.
                 Dewey Ballantine Theodore Goddard
                 H-1054 Budapest
                 Vadasz u. 31

                 Fax:        (36 1) 112 2272


         18.2    if to SFMT:

                 c/o SFMT, Inc.
                 477 Madison Avenue, 8th Floor
                 New York, NY 10022
                 U.S.A.

                 Attention:  N. S. Molberger, Esq.
                             Vice President and General Counsel

                 Fax:        (1 212) 371 9552


         18.3    if to Microsystem: 

                 Microsystem Telecom Rt.
                 H-1122 Budapest
                 Varosmajor u. 78
                 Hungary

                 Attention:  Mr. Peter Maros
                             President


                 Fax:        (36 1) 202 7041



                                     - 28 -

<PAGE>   33
         18.4    if to the Company:

                 EURO Szemelyhivo Magyarorszag Koncesszios Rt.
                 c/o SFMT-Montana Telecom Kft.
                 H-1134 Budapest
                 Vaci ut 37. A/502
                 Hungary

                 Attention:  Mr. Istvan Pesti
                             Managing Director
                 
                 Fax:        (36 1) 270 4045


         Any notice or other communication shall be deemed to have been given
         on the date of receipt, as indicated by the receipt of confirmation.

19.      ENTIRE AGREEMENT.

         This Agreement, together with the Deed of Foundation (and the
         agreement contemplated by Section 5.2.3(ii), once signed), contains
         the entire agreement, and supersedes all prior agreements and
         understandings and arrangements, oral or written, among the parties
         hereto with respect to the subject matter hereof. The parties
         expressly agree that, as between themselves, in the event of any
         conflict between any term or provision of this Agreement and any term
         or provision of the Deed of Foundation, (i) the relevant term and/or
         provision of this Agreement shall prevail and (ii) subject to the
         requirements of Hungarian law (and the other provisions of this
         Agreement), the Shareholders will endeavour to amend the Deed of
         Foundation to resolve such conflict.

20.      AMENDMENTS AND MODIFICATIONS.

         This Agreement may not be modified, amended or changed in any respect
         except in writing duly signed by the parties.

21.      FURTHER ASSURANCES.

         The parties hereto undertake, generally, to execute all such
         agreements and other instruments and to do all such other acts as are
         necessary or appropriate to give full effect to the terms, conditions
         and provisions of this Agreement and to make them binding on the
         parties.

22.      SEVERABILITY.

         Should any provision of this Agreement be rendered invalid or no
         longer applicable, the remaining provisions of this Agreement shall
         remain in full force and effect. In such an event, the provision of
         this Agreement that has been rendered invalid or



                                     - 29 -
<PAGE>   34
          inapplicable shall be deemed amended in such a manner that facilitates
          the achievement of the parties' intentions and the economic and legal
          objectives that the parties desired to accomplish by the invalid or
          inapplicable provision.

IN WITNESS WHEREOF, this Joint Venture and Shareholders' Agreement has been 
signed by or on behalf of each of the parties in Budapest on the date first
above written.

GERARD AIRCRAFT SALES AND LEASING COMPANY



/s/ JAMES G. MONOGHAN
- --------------------------------
By:     James G. Monaghan

Title:  President


SFMT-HUNGARO INC.



/s/ LOUIS T. TOTH
- --------------------------------
By:     Louis T. Toth

Title:  President


MICROSYSTEM TELECOM RT.


/s/ PETER MAROS
- --------------------------------
By:     Peter Maros

Title:  Chairman


For purposes of Sections 2, 6, 7, 11 and 13-22:

EURO SZEMELYHIVO MAGYARORSZAG KONCESSZIOS RT.


/s/ LOUIS T. TOTH
- --------------------------------
By:     Louis T. Toth

Title:  Chairman of the Board of Directors




                                      -30-






<PAGE>   35

                              [HEADING ILLEGIBLE]

<TABLE>
<CAPTION>

<S>                               <C>        <C>        <C>        <C>        <C>        <C>        
                                     1994       1995       1996       1997       1998       1999       
                                  ---------- ---------- ---------- ---------- ---------- ----------
Tone only                                                                                              
 Average annual rent                       0          0          0          0          0          0    
 Necessary receivers                       0          0          0          0          0          0    
 New pager from growth                     0          0          0          0          0          0    
 New pagers (replacement)                  0          0          0          0          0          0    
                                  ---------- ---------- ---------- ---------- ---------- ----------
 Total new pagers                          0          0          0          0          0          0    
Numeric                                                                                                
 Average annual rent                       0          0          0          0          0          0    
 Necessary receivers                       0          0          0          0          0          0    
 New pager from growth                     0          0          0          0          0          0    
 New pagers (replacement)                  0          0          0          0          0          0    
                                  ---------- ---------- ---------- ---------- ---------- ----------
 Total new pagers                          0          0          0          0          0          0    
Alphanumeric                                                                                           
 Average annual rent                       0          0          0          0          0          0    
 Necessary receivers                       0          0          0          0          0          0    
 New pager from growth                     0          0          0          0          0          0    
 New pagers (replacement)                  0          0          0          0          0          0    
                                  ---------- ---------- ---------- ---------- ---------- ----------
 Total new pagers                          0          0          0          0          0          0    
Total New Pagers                           0          0          0          0          0          0    
                                  ========== ========== ========== ========== ========== ==========
</TABLE>   

<TABLE>
<CAPTION>


<S>                               <C>        <C>        <C>        <C>        <C> 
                                     2000       2001       2002       2003       2004
                                  ---------- ---------- ---------- ---------- ----------
Tone only
 Average annual rent                       0          0          0          0          0
 Necessary receivers                       0          0          0          0          0
 New pager from growth                     0          0          0          0          0
 New pagers (replacement)                  0          0          0          0          0
                                  ---------- ---------- ---------- ---------- ----------
 Total new pagers                          0          0          0          0          0
Numeric
 Average annual rent                       0          0          0          0          0
 Necessary receivers                       0          0          0          0          0
 New pager from growth                     0          0          0          0          0
 New pagers (replacement)                  0          0          0          0          0
                                  ---------- ---------- ---------- ---------- ----------
 Total new pagers                          0          0          0          0          0
Alphanumeric
 Average annual rent                       0          0          0          0          0
 Necessary receivers                       0          0          0          0          0
 New pager from growth                     0          0          0          0          0
 New pagers (replacement)                  0          0          0          0          0
                                  ---------- ---------- ---------- ---------- ----------
 Total new pagers                          0          0          0          0          0
Total New Pagers                           0          0          0          0          0
                                  ========== ========== ========== ========== ==========
</TABLE>

<PAGE>   36
                              [HEADING ILLEGIBLE]

<TABLE>
<CAPTION>

<S>                               <C>        <C>        <C>        <C>        <C>        <C>     
                                     1994       1995       1996       1997       1998       1999    
                                  ---------- ---------- ---------- ---------- ---------- ---------- 
Cost of pagers ($US/unit)                                                                           
 Tone only                               130        130        120        110        100         90 
 Numeric                                 140        140        130        120        110        100 
 Alphanumeric                            180        160        145        135        130        125 
                                 -----------  --------- ---------- ---------- ---------- ----------                
Total Cost of Pagers ($US/unit)
Entry costs                                     
 Custom duty                           50.00%                                                       
 Custom clearance                       2.00%                                                       
 Statistical                            3.00%                                                       
 Other                                  5.00%                                                       
                                       60.00%                                                       

Cost of pagers (HUF/unit)
 Tone only                            21,216     21,216     19,584     17,952     16,320     14,688 
 Numeric                              22,848     22,848     21,216     19,584     17,952     16,320 
 Alphanumeric                         29,376     26,112     23,664     22,032     21,216     20,400 
                                  ---------- ---------- ---------- ---------- ---------- ---------- 
Total cost of pagers (HUF/unit)       73,440     70,176     64,464     59,568     55,488     51,408 

Sales price of pagers (HUF/unit)
 0 Margin
   Tone only                          21,216     21,216     19,584     17,952     16,320     14,688 
   Numeric                            22,848     22,848     21,216     19,584     17,952     16,320 
   Alphanumeric                       29,376     26,112     23,664     22,032     21,216     20,400 
                                  ---------- ---------- ---------- ---------- ---------- ---------- 
Total Sales Price of                  73,440     70,176     64,464     59,568     55,488     51,408 
  Pagers (HUF/unit)                            

Gross Margin (HUF/unit)
 Tone only                                 0          0          0          0          0          0 
 Numeric                                   0          0          0          0          0          0 
 Alphanumeric                              0          0          0          0          0          0 
                                  ---------- ---------- ---------- ---------- ---------- ---------- 
Total Gross Margin (HUF/unit)              0          0          0          0          0          0 

Total Sales Price of                     720        688        632        584        544        504 
  Pagers ($US/unit)
Total Cost of Pagers ($US/Unit)         (720)      (688)      (632)      (584)      (544)      (504)
                                  ---------- ---------- ---------- ---------- ---------- ---------- 
Total Gross Margin ($US/unit)              0          0          0          0          0          0      
</TABLE>
                                                                 

<TABLE>
<CAPTION>

<S>                               <C>        <C>        <C>        <C>        <C>       
                                     2000       2001       2002       2003       2004      
                                  ---------- ---------- ---------- ---------- ----------   
Cost of pagers ($US/unit)         
 Tone only                                85         80         80         80         80
 Numeric                                  95         90         90         90         90
 Alphanumeric                            120        120        120        120        120
                                  ---------- ---------- ---------- ---------- ----------   
Total Cost of Pagers ($US/unit)
Entry costs                       
 Custom duty                                                           
 Custom clearance                                                      
 Statistical                                                           
 Other                                                                 
                                                                       
Cost of pagers (HUF/unit)
 Tone only                            13,872     13,056     13,056     13,056     13,056
 Numeric                              15,504     14,688     14,688     14,688     14,688
 Alphanumeric                         19,584     19,584     19,584     19,534     19,584
                                  ---------- ---------- ---------- ---------- ----------   
Total cost of pagers (HUF/unit)       48,960     47,328     47,328     47,328     47,328

Sales price of pagers (HUF/unit)
 0 Margin
   Tone only                          13,872     13,056     13,056     13,056     13,056
   Numeric                            15,504     14,688     14,688     14,688     14,688
   Alphanumeric                       19,584     19,584     19,584     19,584     19,584
                                  ---------- ---------- ---------- ---------- ----------   
Total Sales Price of                  48,960     47,328     47,328     47,328     47,328
Pagers (HUF/unit)               

Gross Margin (HUF/unit)
 Tone only                                 0          0          0          0          0
 Numeric                                   0          0          0          0          0
 Alphanumeric                              0          0          0          0          0
                                  ---------- ---------- ---------- ---------- ----------   
Total Gross Margin (HUF/unit)              0          0          0          0          0

Total Sales Price of                     480        464        464        464        464
  Pagers ($US/unit)
Total Cost of Pagers ($US/Unit)         (480)      (464)      (464)      (464)      (464)
                                  ---------- ---------- ---------- ---------- ----------   
Total Gross Margin ($US/unit)              0          0          0          0          0
</TABLE>

<PAGE>   37
                              [HEADING ILLEGIBLE]


<TABLE>
<CAPTION>

<S>                               <C>        <C>           <C>         <C>         <C>         <C>       
                                     1994       1995          1996        1997        1998        1999      
                                  ---------- -----------   ---------   ---------   ---------   ----------   
Income From Basic Services
 Tone Only                                 0           0           0           0           0            0   
  Sales of Pagers                          0           0           0           0           0            0   
  Subscription Rate                        0           0           0           0           0            0   
  Registration Fee                         0           0           0           0           0            0   
  Rent                                     0           0           0           0           0            0   
                                  ---------- -----------   ---------   ---------   ---------   ----------   
   Total Tone Only                         0           0           0           0           0            0   
Numeric
 Sales of Pagers                           0     268,800     280,800     352,512     439,824      445,536   
 Subscription Rate                         0      70,588     217,059     393,618     628,937      908,290   
 Registration Fee                          0      23,529      26,471      36,000      49,000       54,600   
 Rent                                      0           0           0           0           0            0   
                                  ---------- -----------   ---------   ---------   ---------   ----------   
  Total Numeric                            0     362,918     524,329     782,130   1,117,761    1,408,426   

Alpha Numeric
 Sales of Pagers                           0   2,764,800   1,774,800   1,586,304   1,559,376    1,670,760   
 Subscription Rate                         0     889,412   2,364,353   3,480,935   4,529,089    5,607,994   
 Registration Fee                          0     264,706     187,500     160,000     183,750      204,750   
 Rent                                      0           0           0           0           0            0   
                                  ---------- -----------   ---------   ---------   ---------   ----------   
  Total Alphanumeric                       0   3,918,918   4,326,653   5,247,239   6,272,215    7,483,504   
                                  ---------- -----------   ---------   ---------   ---------   ----------   
 Total Income From Basic Service           0   4,281,835   4,850,982   6,029,369   7,389,975    8,891,930   
                                  ---------- -----------   ---------   ---------   ---------   ----------   

Other Income
 Income from extra services                0     249,647     559,076     818,111   1,078,155    1,355,127   
 Income from other services                0      24,965      55,908      81,811     107,816      135,513   
                                  ---------- -----------   ---------   ---------   ---------   ----------   
  Total Other Income                       0     274,612     614,984     899,922   1,185,971    1,490,639   
                                  ---------- -----------   ---------   ---------   ---------   ----------   
Total Income                               0   4,556,447   5,465,966   6,929,291   8,575,946   10,382,570   
                                  ==========  ==========  ==========  ==========  ==========   ==========   

</TABLE>


<TABLE>
<CAPTION>

<S>                               <C>          <C>          <C>          <C>          <C>    
                                     2000         2001         2002         2003         2004   
                                  ----------   ----------   ----------   ----------   ----------
Income From Basic Services
 Tone Only                                 0            0            0            0            0
  Sales of Pagers                          0            0            0            0            0
  Subscription Rate                        0            0            0            0            0
  Registration Fee                         0            0            0            0            0
  Rent                                     0            0            0            0            0
                                  ----------   ----------   ----------   ----------   ----------
   Total Tone Only                         0            0            0            0            0
Numeric
 Sales of Pagers                     440,895      400,982      230,565      121,041      121,047
 Subscription Rate                 1,197,300    1,471,860    1,656,252    1,717,072    1,730,113
 Registration Fee                     56,875       54,600       31,395       16,482       16,482
 Rent                                      0            0            0            0            0
                                  ----------   ----------   ----------   ----------   ----------            
  Total Numeric                    1,695,070    1,927,443    1,918,212    1,854,601    1,867,641

Alpha Numeric
 Sales of Pagers                   1,670,760    1,603,930      922,260      484,186      484,186
 Subscription Rate                 6,732,179    7,800,155    8,493,685    8,672,255    8,653,998
 Registration Fee                    213,281      204,750      117,731       61,809       61,809
 Rent                                      0            0            0            0            0
                                  ----------   ----------   ----------   ----------   ----------
  Total Alphanumeric               8,616,221    9,608,835    9,533,675    9,218,251    9,199,994
                                  ----------   ----------   ----------   ----------   ----------
 Total Income From Basic Service  10,311,291   11,536,278   11,451,888   11,072,851   11,067,635
                                  ----------   ----------   ----------   ----------   ----------

Other Income
 Income from extra services        1,639,927    1,906,273    2,059,813    2,093,524    2,092,480
 Income from other services          163,993      190,627      205,981      209,352      209,248
                                  ----------   ----------   ----------   ----------   ----------
 Total Other Income                1,803,920    2,096,900    2,265,794    2,302,876    2,301,728
                                  ----------   ----------   ----------   ----------   ----------
Total Income                      12,115,211   13,633,178   13,717,682   13,375,727   13,369,364
                                  ==========   ==========   ==========   ==========   ==========
</TABLE>

<PAGE>   38
                              HEADING ILLEGIBLE

<TABLE>
<CAPTION>

<S>                               <C>         <C>         <C>         <C>         <C>         <C>           
                                     1994        1995        1996        1997        1998        1999       
                                  ----------  ----------  ----------  ----------  ----------  ----------    
Central Equipment
 ERMES software                            1           0           0           0           0            0   
 TAU/VMS                                   1           0           0           0           0            0   
 Data access unit                          1           0           0           0           0            0   
 PNC (50 thousands subsc.)                 1           0           0           0           0            0   
 PAC                                       0           0           0           0           0            0   
 OMC                                       1           0           0           0           0            0   
 Spare parts                               1           0           0           0           0            0   
 Training, installation                    1           0           0           0           0            0   
 Documentation                             1           0           0           0           0            0   
 Central equipment replacement             0           0           0           0           0            0   
Base Stations
 Antenna                                   4          76          20           0           0            0   
 Base station hardware                     4          76          20           0           0            0   
 VSAT receiver                             4          76          20           0           0            0   
Data Transmission 
 Rented line inst. for BS                  3           8           2           0           0            0   
 Rented line inst. for DAU                 4          10           3           1           1            1   
Pagers to rent                             0           0           0           0           0            0   
Vehicles                                   2           4           2           0           0            2   
Computers, fax, telecom per new staff     22          32          13           6           4            4   
Telephone main line per staff             11          16           6           3           2            2   
</TABLE>


<TABLE>
<CAPTION>


<S>                               <C>           <C>          <C>          <C>          <C>               
                                      2000         2001         2002         2003         2004       Total
                                  -----------   ----------   ----------   ----------   ----------  ---------
Central Equipment
 ERMES software                             0            0            0            0            0
 TAU/VMS                                    0            0            0            0            0
 Data access unit                           0            0            0            0            0
 PNC (50 thousands subsc.)                  0            0            0            0            0
 PAC                                        0            0            0            0            0
 OMC                                        0            0            0            0            0
 Spare parts                                0            0            0            0            0
 Training, installation                     0            0            0            0            0
 Documentation                              0            0            0            0            0 [Master Illegible]
 Central equipment replacement              0            0            0            0            0
Base Stations
 Antenna                                    0            0            0            0            0          1
 Base station hardware                      0            0            0            0            0          1
 VSAT receiver                              0            0            0            0            0          1
Data Transmission 
 Rented line inst. for BS                   0            0            0            0            0
 Rented line inst. for DAU                  0            1            0            0            0
Pagers to rent                              0            0            0            0            0
Vehicles                                    4            2            0            0            2
Computers, fax, telecom per new staff       2            1            1            0            0          1
Telephone main line per staff               1            1            0            0            0

</TABLE>

<PAGE>   39
                              [HEADING ILLEGIBLE]

<TABLE>
<CAPTION>
                                         1994          1995          1996          1997          1998          1999
                                       ---------     ---------     ---------     ---------     ---------     ---------
<S>                                    <C>           <C>           <C>           <C>           <C>           <C>   
Central Equipment
        ERMES software                   289,540             0             0             0             0             0
        Tau/VMS                          265,050             0             0             0             0             0
        Data access unit                  85,560             0             0             0             0             0
        PNC (50 thousands subsc.)        209,250             0             0             0             0             0
        PAC                                    0             0             0             0             0             0
        OMC                               26,040             0             0             0             0             0
        Spare parts                       72,354             0             0             0             0             0
        Training, installation           124,000             0             0             0             0             0
        Documentation                     24,800             0             0             0             0             0
        Central equipment replacement          0             0             0             0             0             0
Base Stations
        Antenna                            7,440       141,360        37,200             0             0             0
        Base station hardware             29,760       565,440       148,800             0             0             0
        VSAT receiver                     12,400       235,600        62,000             0             0             0
Data Transmission
        Rented line inst. for BS           6,000        16,000         4,000             0             0             0
        Rented line inst. for DAU          4,000        10,000         3,000         1,000         1,000         1,000
Pagers to rent                                 0             0             0             0             0             0
Vehicles                                  40,000        80,000        40,000             0             0        40,000
Computers, fax, telecom                   66,000        96,000        39,000        18,000        12,000        12,000
Telephone main line                        9,900        14,400         5,400         2,700         1,800         1,800
                                       ---------     ---------     ---------     ---------     ---------     ---------
        TOTAL                          1,272,094     1,158,800       339,400        21,700        14,800        54,800
                                       =========     =========     =========     =========     =========     =========

<CAPTION>
                                         2000          2001          2002          2003          2004          Total
                                        -------       -------       -------       -------       -------       -------
<S>                                     <C>           <C>           <C>           <C>           <C>                
Central Equipment
        ERMES software                        0             0             0             0             0       289,540
        TAU VMS                               0             0             0             0             0       265,050
        Data access unit                      0             0             0             0             0        85,560
        PNC (50 thousands subsc.)             0             0             0             0             0       209,250
        PAC                                   0             0             0             0             0             0
        OMC                                   0             0             0             0             0        26,040
        Spare parts                           0             0             0             0             0        72,354
        Training, installation                0             0             0             0             0       124,000
        Documentation                         0             0             0             0             0        24,800
        Central equipment replacement         0             0             0             0             0             0
Base Stations
        Antenna                               0             0             0             0             0       186,000
        Base station hardware                 0             0             0             0             0       744,000
        VSAT receiver                         0             0             0             0             0       310,000
Data Transmission
        Rented line inst. for BS              0             0             0             0             0        26,000
        Rented line inst. for DAU             0         1,000             0             0             0        21,000
Pagers to rent                                0             0             0             0             0             0
Vehicles                                 80,000        40,000             0             0        40,000       360,000
Computers, fax, telecom                   6,000         3,000         3,000             0             0       255,000
Telephone main line                         900           900             0             0             0        47,800
                                        -------       -------       -------       -------       -------       -------
        TOTAL                            86,900        44,900         3,000             0        40,000      3E[Illeg]
                                        =======       =======       =======       =======       =======       =======
</TABLE>


<PAGE>   40
                              [HEADING ILLEGIBLE]


<TABLE>
<CAPTION>
                                            1994         1995         1996         1997         1998         1999
                                           -------      -------      -------      -------      -------      -------
<S>                                        <C>          <C>          <C>          <C>          <C>          <C> 
Depreciation for Year Placed In Service
Central Equipment
        ERMES software                      41,363            0            0            0            0            0
        TAU/ VMS                            37,864            0            0            0            0            0
        Data access unit                    12,223            0            0            0            0            0
        PNC (50 thousands subsc.)           29,893            0            0            0            0            0
        PAC                                      0            0            0            0            0            0
        OMC                                  3,720            0            0            0            0            0
        Spare parts                         10,336            0            0            0            0            0
        Training, installation              17,714            0            0            0            0            0
        Documentation                        3,543            0            0            0            0            0
        Central equipment replacement            0            0            0            0            0            0
Base Stations
        Antenna                              1,063       20,194        5,314            0            0            0
        Base station hardware                4,251       80,777       21,257            0            0            0
        VSAT receiver                        1,771       33,657        8,857            0            0            0
Data Transmission
        Rented line inst. for BS               857        2,286          571            0            0            0
        Rented line inst. for DAU              571        1,429          429          143          143          143
        Pagers to rent                           0            0            0            0            0            0
        Vehicles                             8,000       16,000        8,000            0            0        8,000
        Computers, fax, telecom             22,000       32,000       13,000        6,000        4,000        4,000
        Telephone main line                  1,414        2,057          771          386          257          257
Incremental Depreciation Expense           196,585      188,400       58,200        6,529        4,400       12,400
                                           -------      -------      -------      -------      -------      -------
        Annual Depreciation Expense        196,585      384,985      443,185      427,713      400,113      391,513
                                           =======      =======      =======      =======      =======      =======

<CAPTION>
                                             2000           2001           2002           2003           2004
                                           -------        -------        -------        -------        -------
<S>                                        <C>            <C>            <C>            <C>            <C> 
Depreciation for Year Placed In Service
Central Equipment
        ERMES software                           0              0              0              0              0
        TAU/ VMS                                 0              0              0              0              0
        Data access unit                         0              0              0              0              0
        PNC (50 thousands subsc.)                0              0              0              0              0
        PAC                                      0              0              0              0              0
        OMC                                      0              0              0              0              0
        Spare parts                              0              0              0              0              0
        Training, installation                   0              0              0              0              0
        Documentation                            0              0              0              0              0
        Central equipment replacement            0              0              0              0              0
Base Stations
        Antenna                                  0              0              0              0              0
        Base station hardware                    0              0              0              0              0
        VSAT receiver                            0              0              0              0              0
Data Transmission
        Rented line inst. for BS                 0              0              0              0              0
        Rented line inst. for DAU                0            143              0              0              0
        Pagers to rent                           0              0              0              0              0
        Vehicles                            16,000          8,000              0              0          8,000
        Computers, fax, telecom              2,000          1,000          1,000              0              0
        Telephone main line                    129            129              0              0              0
Incremental Depreciation Expense            18,129          9,271          1,000              0          8,000
                                           -------        -------        -------        -------        -------
        Annual Depreciation Expense        387,642        218,329         74,929         35,729         34,200
                                           =======        =======        =======        =======        =======
</TABLE>

<PAGE>   41
                              [HEADING ILLEGIBLE]


<TABLE>
<CAPTION>
                                      1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004
                                      ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----
<S>                                   <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C>    <C> 
General Management
        General Manager                  1      1      1      1      1      1      1      1      1      1      1
        Secretary                        1      1      1      1      1      1      1      1      1      1      1
                                      ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----
        Total staff                      2      2      2      2      2      2      2      2      2      2      2
Finance Division
        Finance Director                 1      1      1      1      1      1      1      1      1      1      1
        Secretary                        0      0      0      0      0      0      0      0      0      0      0
        Accounting, invoicing            1      2      2      2      3      3      4      4      5      5      5
        Other staff                      0      0      0      0      0      0      0      0      0      0      0
                                      ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----
        Total staff                      2      3      3      3      4      4      5      5      6      6      6
Technical Division
        Technical Director               1      1      1      1      1      1      1      1      1      1      1
        HW development engineer          0      0      0      0      0      0      0      0      0      0      0
        SW development engineer          0      0      0      0      0      0      0      0      0      0      0
        Production engineer              1      1      1      2      2      2      2      2      2      2      2
        Head of operators                1      1      1      2      2      2      2      2      2      2      2
        Operator                        10     40     50     52     55     58     59     60     60     60     60
        Secretary                        1      1      1      1      1      2      2      2      2      2      2
        Other staff                      0      0      0      0      0      0      0      0      0      0      0
                                      ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----
                                        14     44     54     58     61     65     66     67     67     67     67
        Total staff
Marketing Division
        Marketing Director               1      1      1      1      1      1      1      1      1      1      1
        Marketing                        0      0      0      0      0      0      0      0      0      0      0
        Head of Customer Service         1      1      1      1      1      1      1      1      1      1      1
        Customer service                 1      2      5      7      7      7      7      7      7      7      7
        Secretary                        1      1      1      1      1      1      1      1      1      1      1
        Other staff                      0      0      0      0      0      0      0      0      0      0      0
                                      ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----
        Total staff                      4      5      8     10     10     10     10     10     10     10     10
                                      ----   ----   ----   ----   ----   ----   ----   ----   ----   ----   ----

Total Staff                             22     54     67     73     77     81     83     84     85     85     85
                                      ====   ====   ====   ====   ====   ====   ====   ====   ====   ====   ====
</TABLE>


<PAGE>   42
                              [HEADING ILLEGIBLE]
<TABLE>
<CAPTION>
                                      1994        1995        1996        1997        1998        1999 
                                     -------     -------     -------     -------     -------     -------
<S>                                   <C>         <C>         <C>         <C>         <C>         <C>   
General Management
        General Manager               37,500      75,000      75,000      75,000      75,000      75,000
        Secretary                      4,590       9,180       9,180       9,180       9,180       9,180
                                     -------     -------     -------     -------     -------     -------
        Total Salaries                42,090      84,180      84,180      84,180      84,180      84,180

Finance Division
        Finance Director              10,000      40,000      40,000      40,000      40,000      40,000
        Secretary                          0           0           0           0           0           0
        Accounting, invoicing          3,825      30,600      30,600      30,600      45,900      45,900
        Other staff                        0           0           0           0           0           0
                                     -------     -------     -------     -------     -------     -------
         Total Salaries               13,825      70,600      70,600      70,600      85,900      85,900

Technical Division
        Technical Director                 0      40,000      40,000      40,000      40,000      40,000
        HW development engineer            0           0           0           0           0           0
        SW development engineer            0           0           0           0           0           0
        Production engineer            5,100      15,300      15,300      30,600      30,600      30,600
        Head of operators              2,833       8,500       8,500      17,000      17,000      17,000
        Operator                      20,000     240,000     300,000     312,000     330,000     348,000
        Secretary                      3,060       9,180       9,180       9,180       9,180      18,360
        Other staff                        0           0           0           0           0           0
                                     -------     -------     -------     -------     -------     -------
        Total Salaries                30,993     312,980     372,980     408,780     426,780     453,960

Marketing Division
        Marketing Director            20,000      40,000      40,000      40,000      40,000      40,000
        Marketing                          0           0           0           0           0           0
        Head of Customer Service       2,833       8,500       8,500       8,500       8,500       8,500
        Customer service               1,000      12,000      30,000      42,000      42,000      42,000
        Secretary                      1,530       9,180       9,180       9,180       9,180       9,180
        Other staff                        0           0           0           0           0           0
                                     -------     -------     -------     -------     -------     -------
        Total Salaries                25,363      69,680      87,680      99,680      99,680      99,680
                                     -------     -------     -------     -------     -------     -------
Total Salaries                       112,272     537,440     615,440     663,240     696,540     723,720
                                     =======     =======     =======     =======     =======     =======

        Averages:
          Salary                                   9,953       9,186       9,085       9,046       8,935
          Social Security                          4,379       4,042       3,998       3,980       3,931
          Unemployment/Vocational                    896         827         818         814         804

<CAPTION>
                                       2000        2001        2002        2003        2004
                                     -------     -------     -------     -------     -------
<S>                                  <C>         <C>         <C>         <C>         <C>    
General Management
        General Manager               75,000      75,000      75,000      75,000      75,000
        Secretary                      9,180       9,180       9,180       9,180       9,180
                                     -------     -------     -------     -------     -------
        Total Salaries                84,180      84,180      84,180      84,180      84,180

Finance Division
        Finance Director              40,000      40,000      40,000      40,000      40,000
        Secretary                          0           0           0           0           0
        Accounting, invoicing         61,200      61,200      76,500      76,500      76,500
        Other staff                        0           0           0           0           0
                                     -------     -------     -------     -------     -------
         Total Salaries              101,200     101,200     116,500     116,500     116,500

Technical Division
        Technical Director            40,000      40,000      40,000      40,000      40,000
        HW development engineer            0           0           0           0           0
        SW development engineer            0           0           0           0           0
        Production engineer           30,600      30,600      30,600      30,600      30,600
        Head of operators             17,000      17,000      17,000      17,000      17,000
        Operator                     354,000     360,000     360,000     360,000     360,000
        Secretary                     18,360      18,360      18,360      18,360      18,360
        Other staff                        0           0           0           0           0
                                     -------     -------     -------     -------     -------
        Total Salaries               459,960     465,960     465,960     465,960     465,960

Marketing Division
        Marketing Director            40,000      40,000      40,000      40,000      40,000
        Marketing                          0           0           0           0           0
        Head of Customer Service       8,500       8,500       8,500       8,500       8,500
        Customer service              42,000      42,000      42,000      42,000      42,000
        Secretary                      9,180       9,180       9,180       9,180       9,180
        Other staff                        0           0           0           0           0
                                     -------     -------     -------     -------     -------
        Total Salaries                99,680      99,680      99,680      99,680      99,680
                                     -------     -------     -------     -------     -------
Total Salaries                       745,020     751,020     766,320     766,320     766,320
                                     =======     =======     =======     =======     =======
        Averages:
          Salary                       8,976       8,941       9,016       9,016       9,016
          Social Security              3,950       3,934       3,967       3,967       3,967
          Unemployment/Vocational        808         805         811         811         811
</TABLE>
<PAGE>   43
                                                                    EXHIBIT 1.6


                              [HEADING ILLEGIBLE]


<TABLE>
<S>                              <C>               <C>          <C>             <C>          <C>       <C>       <C>       <C>
INPUTS:
First Fiscal Year                                             MIRR                  0.08      0.16       0.3                       
        Starts                     1-Jan-94                   NPV Rates              0.1                                           
        Ends                      31-Dec-94                                         0.12                                           
Population of Hungary [thousands]                                                   0.14                                           
        Start                        10,600                                         0.16                                           
        Growth Factor                  0.00%                                                                                       
Input for Schedule A                                                                                                               
Yearly:                                                                                                                            
        Growth rate                                                                                                                
        Attrition rate                                   5.00%       5.00%          5.00%     5.00%     5.00%     5.00%     5.00% 
        Rental rate                                      0.00%       0.00%          0.00%     0.00%     0.00%     0.00%     0.00% 
                                                                                                                                   
        Subscriber base                                                                                                            
                                                                                                                                   
        Utilization of Rented Pagers  50.00% NA                                                                                    
                                                                                                                                   
Interest Rates                                                                                                                     
        Working Capital Loan           0.00%             0.00%       0.00%          0.00%     0.00%     0.00%     0.00%     0.00%  
                                                                                                                                   
Inflation Rates                                                                                                                    
        Inflation (HUF)               23.00%            20.00%      15.00%         15.00%    10.00%    10.00%    10.00%    10.00%  
        Inflation (USD)                5.00%             5.00%       5.00%          5.00%     5.00%     5.00%     5.00%     5.00%  
        Hungarian Inflation Factor     1.00              1.00        1.00           1.00      1.00      1.00      1.00      1.00   
        US Inflation Factor            1.00              1.00        1.00           1.00      1.00      1.00      1.00      1.00   
                                                                                                                                   
Exchange Rate                                                                                                                      
        HUF:USD                         102               102         102            102       102       102       102       102   
                                                                                                                                   
Hungarian Income Tax rate             40.00%                                                                                       
                                                                                                                                   
Acquisition Costs                                                                                                                  
        Legal & Accounting       $  120,000        $        0   $       0       $      0     $   0     $   0     $   0     $   0   
        Travel Costs             $   80,000        $        0   $       0       $      0     $   0     $   0     $   0     $   0   
                                                                                                                                   
Concession Acquisition           $1,200,000        $        0   $       0       $800,000                                           
                          Due                      $        0 Premium                                                      
        Award Date                  4/29/94        $        0 Bid Deposit                                                  
                      14            5/13/94        $1,200,000 First Payment                                                
                      30            5/29/94        $  500,000 Bond                                                         
                      30            5/29/94        $        0 Return of Bid Deposit                                        
                 1095.75            4/28/97        $  800,000 Second Payment                                               
        Bond                     $  500,000        $        0   ($500,000)      $      0     $   0     $   0     $   0     $   0  
Annual concession fee annual %         1.00%             1.00%       1.00%          1.00%     1.00%     2.00%     2.50%     3.00% 

<S>                                     <C>      <C>        <C>  
INPUTS:                                
First Fiscal Year                      
        Starts                         
        Ends                           
Population of Hungary [thousands]      
        Start            
        Growth Factor    
Input for Schedule A                   
Yearly:                                
        Growth rate                    
        Attrition rate                  5.00%     5.00%      5.00%
        Rental rate                     0.00%     0.00%      0.00%

        Subscriber base

        Utilization of Rented Pagers  

Interest Rates
        Working Capital Loan            0.00%     0.00%      0.00%

Inflation Rates
        Inflation (HUF)                10.00%    10.00%     10.00%
        Inflation (USD)                 5.00%     5.00%      5.00%
        Hungarian Inflation Factor      1.00      1.00       1.00
        US Inflation Factor             1.00      1.00       1.00

Exchange Rate
        HUF:USD                          102       102        102

Hungarian Income Tax rate             

Acquisition Costs
        Legal & Accounting            $   0      $   0      $   0
        Travel Costs                  $   0      $   0      $   0

Concession Acquisition   
                         
        Award Date    
                      
                      
                      
                 
        Bond                          $   0      $   0      $   0
Annual concession fee annual %         3.50%      4.00%      5.00%
</TABLE>
<PAGE>   44
                                                                    EXHIBIT 1.15

                               DEED OF FOUNDATION

                                       OF

                         EURO PAGING HUNGARY CONCESSION
                           COMPANY LIMITED BY SHARES

RECITALS

         WHEREAS the Minister of Transportation, Communications and Water
Management (the "Minister") of the Republic of Hungary ("Hungary") exercising
the power vested in him by Act No. XVI of 1991 on Concessions (the "Concession
Act"), and Act No. LXXII of 1992 on Telecommunications (the "Telecommunications
Act") as well as the other relevant laws on telecommunications, issued an
international concession tendering for the provision of Hungarian nationwide
public paging services on the territory of Hungary,

         WHEREAS the Magyar Paging Consortium (the "Consortium"), consisting of
Gerard Aircraft Sales and Leasing Company, SFMT-Hungaro, Inc. and Microsystem
Telecom Tavkozlesfejleszto es Kereskedelmi Rt. has won the tender and signed
the Concession Agreement with the Minister on May 6, 1994,

         WHEREAS the Consortium has to establish a concession company within
ninety (90) days after the signing of the Concession Agreement,

         THEREFORE the founders

    o    GERARD AIRCRAFT SALES AND LEASING COMPANY, a corporation organized and
         existing under the laws of the State of Delaware, having its
         registered office at 1013 Centre Road, Wilmington, Delaware 19805, USA
         (hereinafter referred to as "Gerard"), and duly represented by Mr.
         James Monagham, President;

    o    SFMT-HUNGARO, INC., a corporation organized and existing under the
         laws of the State of Delaware (hereinafter referred to as "SFMT")
         having its registered office at 15 North Street, Dover, Delaware
         19901, USA, and duly represented by Mr. Louis T. Toth, President;

    o    MICROSYSTEM TELECOM TAVKOZLESFEJLESZTO ES KERSEKEDELMI RT, a company
         limited by shares organized and existing under the laws of the
         Republic of Hungary ("Hungary"), having its registered office at 1122
         Budapest, Varosmajor u. 78, Hungary (hereinafter referred to as
         "Microsystem"), registration No.: 01-10-042383, and duly represented by
         Mr. Peter Maros, Chairman; and

    o    PESTI ISTVAN, a Hungarian citizen, resident of 2120 Dunakeszi, Mihaly
         u.7;
<PAGE>   45
                                                                               2

(together referred to as "Founders" or "Shareholders") have established
EURO-Paging Hungary Concession Company Limited by Shares (hereinafter referred
to as the "Company") in accordance with the provisions of the Concession Act,
the Telecommunications Act and Act No. VI of 1983 on Business Organizations
(the "Company Act").

The Founders have established the Company in the form of a closed company
limited by shares ("zartkoru alapitasu reszvenytarsasag4) in accordance with
Section 260 of the Company Act.

This Deed of Foundation serves as the founding document of EURO Paging Hungary
Concession Company Limited by Shares as well as the Articles of Associations
thereof, and provides as follows:

                                   ARTICLE I
                             FORM, NAME AND SEAT

1.1      The Company's name is in Hungarian EURO Szemelyhivo Magyarorszag
         Koncesszios Reszvenytarsasag, in English EURO Paging Hungary
         Concession Company Limited by Shares; it can also participate in
         business transactions under the abbreviated name of EURO-Hivo Rt. and
         EURO-Call Ltd.

1.2      The Company's registered office shall be 1134 Budapest, Vaci ut 37.
         A/502.

1.3      The Company is a company limited by shares and its operation shall be
         governed by Hungarian law.

                                   ARTICLE 2
                                    DURATION

2.1      The Company shall be established for fifteen (15) years counted from
         April 29, 1994.

2.2      Unless sooner terminated, the Company shall continue to operate until
         29 April 2009, provided, that the Concession is not extended for an
         additional seven and one half (7,5) years.
<PAGE>   46
                                                                               3

                                   ARTICLE 3
                             OBJECT AND ACTIVITIES

3.1      The Company has been formed to create the conditions, set up a network
         for, and provide nationwide public paging services within the
         framework of the Telecommunication Act, Act No. LXII of 1993 on
         Frequency Management (the "Frequency Act") as well as the relevant
         rules of Hungarian law.

         The Minister has entitled the Company to provide ERMES nationwide
         public terrestrial telecommunications paging services on the whole
         territory of Hungary through the ERMES channel 11 (169,675 Mhz)
         according to the standard No. ETS 300 133-1...7 and to set up and
         operate its own telecommunication network necessary therefor.

3.2      The objectives of the Company primarily are to:

         (i)     set up its own telecommunication network necessary for the
                 provision of nationwide public paging services and the
                 provision of public paging services with the timing,
                 technical, quality, quantity as well as pricing requirements
                 included in the Concession Contract;

         (ii)    enter into contracts with subscribers of the nationwide public
                 paging services and collect fees for services rendered as
                 provided in the Concession Contract;

         (iii)   enter into interconnection agreements with other
                 telecommunication networks, which interconnections are
                 necessary for the provision of the paging services as required
                 by the Concession Contract;

         (iv)    to join the ERMES MoU by signing the MoU Agreements and become
                 the member of ERMES MoU; and

         (v)     establish the technical conditions for supplying international
                 roaming services and enter into agreements with other ERMES
                 service providers for the provision of domestic and
                 international roaming.

3.3      The Company's scope of activity, expressed in accordance with uniform
         statistical nomenclature ("TEAOR") and Section 5(4) of the
         Telecommunications Act will be as follows:

4540     Maintenance and modernization of buildings

         -       including the organization, implementation and general
                 construction activities relating to investment projects and
                 building maintenance

5190     Foreign trade activity

5243     Retail trade of electronic and telecommunication equipments
<PAGE>   47
                                                                               4

6420     Telecommunication

         -       including setting up the paging network for, and provision of
                 nationwide paging services;

         -       the provision of other telecommunication services, including

                 (a) local, regional and nationwide paging services;

                 (b) data transmission;

                 (c) voice mail services;

                 (d) other value added services;

         -       computer application;

         -       measurement and safety engineering services;

         -       telecommunications research and development;

         -       general technical development services;

8040     Adult education

         -       including telecommunication courses and other forms of
                 telecommunication training.

3.4      If the pursuance of a specific activity is bound to official license,
         the activity shall be pursued by the Company only after the receipt of
         such official license.

                                   ARTICLE 4
                             SHARE CAPITAL, SHARES

4.1      The Company's registered share capital, all by way of cash
         contributions, amounts to two hundred million Hungarian Forints (HUF
         200,000,000) as of the date of signing of this Deed of Foundation and
         is divided into one hundred and ninety three (193) registered common
         shares with a face value of one million Hungarian forints (HUF
         1,000,000) each and six (6) dividend preferred, non voting registered
         shares with a face value of one million Hungarian forints (HUF
         1,000,000) each and one (1) voting preferred share with a face value
         of one million Hungarian forints (HUF 1,000,000).

         The Company has, as assets above the share capital, a concession
         rights to provide nationwide public paging services for fifteen 
         (15) years having a value of the HUF equivalent of 2 million USD.
<PAGE>   48
                                                                               5

4.2      The shares of the Company are divided into three classes of shares:

         (i)     common, registered, voting shares, with a face value of one
                 million Hungarian forints (HUF 1,000,000) (Class "A" Shares);
                 and

         (ii)    registered, dividend preferred, non-voting shares with a face
                 value of one million Hungarian forints (HUF 1,000,000) (Class
                 "B" Shares); and

         (iii)   registered, voting preferred shares with a face value of one
                 million Hungarian forints (HUF 1,000,000) (Class "C" Shares).

4.3      The proportion of the Class "B" Shares shall not exceed three percent
         (3%) of the share capital of the Company. Until such time as the
         holder of the Class "B" Shares has received Preferential Dividend
         Distributions in an aggregate amount equal to 3 million US dollars,
         dividends shall be distributed to the Shareholders for each year in
         respect of which the Board of Directors declares that any dividends
         are properly payable, in the following manner:

         (i)     the amount equal to the first forty per cent (40%) of the
                 Distributable Amount for any year shall be payable, to the
                 holder of the Class "B" Share as Preferential Dividend
                 Distributions; and

         (ii)    the amount equal to the remaining sixty per cent (60%) of the
                 Distributable Amount shall be payable to the Shareholders in
                 proportion to their respective ownership interests of the
                 share capital of the Company;

         Upon any payment of Preferential Dividends Distributions the USD 3
         million shall be deemed reduced by an amount equal to the amount of
         the Preferential Dividend Distributions that the holders of Class "B"
         Shares has received. All calculations as to the amount of Preferential
         Dividend Distribution shall be made in US Dollars, as of the date of
         payment of each such Preferential Dividend Distribution. After the
         holder of the Class "B" shares has received three million US dollars
         in preferred dividends, such shares shall be converted into Class "D",
         non-voting common registered shares.

4.4      The following rights are attributable to the Class "C" Share:

         No valid resolution can be passed without the approval of the owner of
         the Class "C" Shares in the following cases:

         (i)     establishment of modification of the Deed of Foundation;

         (ii)    increase and decrease in share capital;

         (iii)   modification or establishment of rights assigned to any given
                 class of shares;
<PAGE>   49
                                                                               6

         (iv)    decision on merger with any other legal entity, on the
                 dissolution or termination of the Company or transformation 
                 to any other form of association;

         (v)     decision about the transformation of the types of shares by
                 means of change of shares and overprint of them;

4.5      The Company shall not issue any other kind of shares apart from those
         mentioned in Section 4.2, 4.3 and 4.4 above, without the unanimous
         approval of the Shareholders Meeting.

4.6      The cash contributions to the initial share capital shall be paid in
         accordance with the following schedule:

         (i)     before filing the registration documents with the Court of
                 Registration, the Shareholders shall pay in at least 30% of
                 their capital contributions; and

         (ii)    within one (1) year after the registration of the Company at
                 the Court of Registration, the Shareholders shall pay in the
                 balance of their cash contributions at the written request of
                 the Board of Directors.

4.7      The Shareholders shall pay in the following cash contributions:

4.7.1    Gerard

         The cash contribution of Gerard is fifty one million Hungarian forints
         (HUF 51,000,000). Gerard shall pay its capital contribution in US
         dollars, (USD) and shall be kept by the Company in US dollars in the
         Company's foreign currency capital account.

         The amount of Gerard's capital contribution shall be calculated on the
         middle exchange rate of US dollars quoted by the National Bank of
         Hungary on the value date of transfer.

         Gerard shall receive fourty four (44) Class "A" Shares, six (6) Class
         "B" Shares and one (1) Class "C" Share in return for its cash
         contribution.

4.7.2    SFMT

         The cash contribution of SFMT is ninety eight million Hungarian
         forints (HUF 98,000,000). SFMT shall pay its capital contribution in
         US dollars, (USD) and shall be kept by the Company in US dollars in
         the Company's foreign currency capital account.

         SFMT shall receive ninety eight (98) Class "A" Shares in return for
         its cash contribution.
<PAGE>   50
                                                                               7

4.7.3    Microsystem

         The cash contribution of Microsystem is ten million Hungarian forints
         (HUF 10,000,000).

         Microsystem shall receive ten (10) Class "A" Shares in return for its
         cash contribution.

4.7.4    Pesti Istvan

         The cash contribution of Pesti Istvan is fourty one million Hungarian
         forints (HUF 41,000,000).

         Pesti Istvan shall receive fourty one (41) Class "A" Shares in return
         for its cash contribution.

4.8      The initial ownership structure of the Company shall be as follows:

         Gerard:       25% plus 1 share, representing 23% of the voting rights;

         SFMT:         50% less two shares, representing 51% of the voting 
                       rights;

         Microsystem:  5%, representing 5% of the voting rights; and

         Pesti Istvan: 25% plus 1 share, representing 21% of the voting rights.

4.9      The Board of Directors may issue shares with aggregate denominations
         or may divide them at the request and sole cost of the shareholders.

4.10     The Company, may acquire, up to one-third (1/3) of its own, fully
         paid-up shares from the assets above its share capital in accordance
         with Section 247 of the Company Act.

4.11     The Board of Directors may issue share certificates
         ("reszvenyutalvany") on the already paid in amount of the capital 
         already paid in before the registration of the Company at the Court 
         of Registration. The share certificates are not transferable.

4.12     Shares can be issued only after the full payment of the capital
         contributions. The Board of Directors may issue temporary shares
         ("ideiglenes reszveny") after the registration of the Company on the
         Trade Register upon the already paid in amount of the shares. The
         temporary shares are transferable.
<PAGE>   51
                                                                               8


                                   ARTICLE 5
                            REGISTER OF SHAREHOLDERS

5.1      The Board of Directors shall keep a Register of Shareholders including

         (i)     the name and address (corporate seat) of each shareholder,

         (ii)    the serial numbers of their shares;

         (iii)   the amount paid up on every share; and

         (iv)    any transfer of shares.

5.2      All entries and notes in the Register of Shareholders shall be signed
         by the Chairman of the Board of Directors individually or by any other
         two members of the Board of Directors acting jointly.

5.3      Any transfer of shares is effective with regard to the Company if the
         name of the new shareholder is recorded in the Register of
         Shareholders.

                                   ARTICLE 6
                             OWNERSHIP RESTRICTIONS

6.1      In accordance with Section 2.2 of the Concession Contract, by the end
         of the period defined in Section 2.1 and 2.2 of this Deed above, the
         following ownership restrictions shall be obeyed by the Shareholders:

         (i)     no Shareholder of the Company can be a shareholder of Easy
                 Call Hungary Concession Company Limited by Shares at the same
                 time. If such a case occurs, the Shareholder holding the
                 shares of both companies obligated to sell the shares of one
                 of such companies within thirty (30) days following the
                 occurrence of such event;

         (ii)    during the period defined in Section 2.1 above, at least
                 twenty five per cent (25%) plus one (1) share of the Company
                 shall remain in the ownership of Hungarian majority owned
                 business organization, registered in Hungary or Hungarian
                 natural persons;

         (iii)   the initial and Substantial Shareholding Position defined in
                 Section 4.8 above may not be changed without the prior
                 approval of the Minister. The Minister shall only approve a
                 change in ownership, i.e., transfer or assignment, only if he
                 is satisfied with the capability of the Company, both legally
                 and financially as well as professionally to perform the
                 obligations of the Company under the Concession Agreement.
<PAGE>   52
                                                                               9

6.2      "Substantial Shareholding Position" is considered to be any change in
         the ownership structure involving more than five percent (5%) of the 
         voting shares of the Company. This definition covers all cases as well
         when the amount of the subsequent transfers exceeds the five percent
         (5%) level as defined above. This stipulation covers all the cases as
         well when the amount of transfers following one another exceeds the
         five percent (5%) level as permitted.

6.3      Non-voting shares of the Company may be transferred or otherwise
         assigned without the prior approval of the Minister; however, the
         Minister must be notified of any such transfer or assignment including
         more than five percent (5%) of the share capital.

6.4      Without the prior approval of the Minister the participation of
         Gerard, SFMT and Microsystem in the Company shall not be decreased
         under 50% plus 1 voting share.

6.5      The Company shall continuously control whether its ownership structure
         corresponds to the conditions contained in this Deed of Foundation.
         Based on the authorization of the Minister, the Telecommunications
         Chief Inspectorate is entitled to examine the composition of ownership
         at any time. If either of Company or the Telecommunications Chief
         Inspectorate observes any change in the composition of ownership
         according to which the Company fails to meet the Hungarian ownership
         ratio of at least twenty five per cent (25%) plus one (+1) share, the
         Minister shall oblige the Company - setting a deadline of two (2) years
         to provide for the appropriate change in the proportions of the
         structure of ownership.

                                   ARTICLE 7
                         INCREASE IN THE SHARE CAPITAL

7.1      The share capital can be increased by virtue of a resolution of the
         Shareholders' Meeting in accordance with Section 7.3 on the terms and
         conditions and with such rights and privileges to be decided upon by
         such resolution. 

7.2      The share capital can only be increased after the existing shares of
         the Company have been fully paid-in, and the increase as well as the
         new shareholders, if any, has been approved by the Minister.
<PAGE>   53
                                                                              10

7.3      The Shareholders' Meeting shall decide on an increase in capital on
         the basis of the recommendation of the Board of Directors. The
         following information shall be included in the notice calling a 
         Shareholders' Meeting at which any increase in the share capital is 
         to be voted upon;

         (i)     the reason for, the manner and the minimum value of the
                 increase in share capital;

         (ii)    the draft of the Deed amended to reflect the increase in
                 capital;

         (iii)   the number and issued value of the new shares;

         (v)     if new classes of shares are to be issued, the rights to be
                 attached to such shares, the rights of previously issued
                 shares which are affected and the manner in which such rights
                 are affected;

         (v)     in the case of an increase in capital by subscription, the
                 opening and closing date for such subscription; and

         (vi)    in the case of an increase in capital by an in-kind
                 contribution, the proposal relating to such contribution.

7.4      Pursuant to Section 301(3) of the Company Act, no capital increase can
         be made by way of issue of new shares within one calendar year of the
         establishment of the Company.

7.5      When new shares are issued, only the persons designated by the
         Shareholders and approved by the Ministry, have a right to subscribe
         to the new shares in the proportion as defined in the resolution
         passed on the increase in the share capital.

7.6      The Board of Directors of the Company is entitled to increase the
         share capital of the Company by transforming the assets exceeding the
         share capital of the Company into a share capital up to ten percent
         (10%) of the share capital of the Company at the time of the proposed
         increase. In the latter case the Board of Directors shall offer the
         newly issued shares free-of-charge on a pro-rata basis to the
         shareholders of the Company existing at the time of the capital
         increase.

7.7      The resolution of the Shareholders' Meeting pursuant to Article 7.3
         relating to any increase in capital shall be reported to the Court of
         Registration within thirty (30) days of passing such resolution.

7.8      The completion of an increase in capital shall be reported to the
         Court of Registration by the Board of Directors for the purpose of
         registration and publication.
<PAGE>   54
                                                                              11

                                   ARTICLE 8
                   ORGANIZATION AND MANAGEMENT OF THE COMPANY

8.1      The governing bodies of the Company are:

         (i)     the Shareholders' Meeting;

         (ii)    the Board of Directors; and

         (iii)   the Supervisory Board.

                                   ARTICLE 9
                             SHAREHOLDERS' MEETING

9.1      The Shareholders Meeting, made up of the entirety of the shareholders,
         is the highest decision-making body of the Company.

9.2      The Shareholders' Meeting may either be annual or extraordinary and
         shall be called by the Board of Directors, unless the Company Act
         provides otherwise.

9.3      The annual Shareholders' Meeting shall be held each year, no later
         than 4 (four) months after the end of the business year of the
         Company.

9.4      The Shareholders' Meeting shall be held at the place where the
         Company has its corporate seat or any other place as may be determined
         by the Supervisory Board, the Board of Directors or the Shareholders.

9.5      The Board of Directors shall publish notification of the Shareholders'
         Meeting at least thirty (30) days before the date of the meeting.

         The announcement of the calling of the Shareholders' Meeting shall
         contain the following:

                 (i)      the name and seat of the Company;

                 (ii)     the date and place of the Shareholders' Meeting;

                 (iii)    the agenda of the Shareholders' Meeting; and

                 (iv)     the conditions of voting prescribed by the Deed of
                          Foundation.

         Holders of registered shares shall be notified personally regarding
         the calling of the Shareholders' Meeting.
<PAGE>   55
                                                                              12

         Furthermore, each shareholder may request the Board of Directors,
         within eight (8) days from the date of publication of the notice of a
         Shareholders' Meeting, to introduce additional matters on the agenda.

         If such proposal is not added to the agenda of the forthcoming
         Shareholders' Meeting, and published as aforesaid within eight (8)
         days, upon the request of such shareholders, the Court of Registration
         shall do so.

9.6      A shareholder holding at least five percent (5%) of the voting shares
         may request to call an extraordinary Shareholders' Meeting. Such a
         request should be submitted in advance to the Board of Directors,
         which shall immediately call the Shareholders' Meeting.

         If such an extraordinary Shareholders' Meeting is not called within
         thirty (30) days from the date of submitting the request to the Board
         of Directors, the Court of Registration shall call such an
         extraordinary Shareholders' Meeting.

                                   ARTICLE 10
                      POWERS OF THE SHAREHOLDERS' MEETING

         The exclusive powers of the General Meeting are the following:

         (i)     establishment of the annual balance sheet;

         (ii)    approval of the reports of the Supervisory Board and of the
                 Board of Directors regarding the previous business year's
                 activities of the Company, as well as approval of proposals
                 made by these boards regarding the annual balance sheet and
                 the distribution of profits;

         (iii)   discussion and acceptance of the reports of the Auditor;

         (iv)    decide on the distribution of profits and creation of
                 reserves therefrom as well as on the settlement of losses
                 including possible equity losses;

         (v)     election or removal of the members of the Board of Directors,
                 the Supervisory Board, except for any member of the
                 Supervisory Board chosen by the employees pursuant to section
                 13 of the Act, and the Auditor and determination of their
                 remuneration;

         (vi)    increase or decrease of the share capital other than as
                 described in Articles 7.6 and 17.2(o);

         (vii)   approval of the by-laws of the Supervisory Board;
<PAGE>   56
                                                                              13


         (viii)  decision on merger with any other legal entity, on the 
                 dissolution or termination of the Company or transformation 
                 to any other form of association;

         (ix)    establishment and modification of the Deed of Foundation;

         (x)     decision about the transformation of the types of shares by
                 means of exchange of shares or overprint of them;

         (xi)    the modification of rights assigned to any given class of
                 shares;

         (xii)   issuance of convertible bonds or bonds ensuring preferential
                 or preemptive rights;

         (xiii)  any public offering of securities of the Company;

         (xiv)   decisions in any other issues which the Company Act or this
                 Deed of Foundation reserves for the sphere of authority of the
                 Shareholders' Meeting.

                                   ARTICLE 11
                  QUORUM AND VOTES AT THE SHAREHOLDERS MEETING

11.1     A Shareholders' Meeting is considered to be duly held if it is called
         in accordance with Article 9 and is attended by shareholders holding
         not less than fifty-one percent (51%) of the share capital entitled
         to vote.

         If the quorum is not present at the Shareholders' Meeting, a second
         Shareholders' Meeting called within Fifteen (15) days may decide on
         all items included in the agenda of the previous meeting, irrespective
         of the number of those present.  

11.2     Each voting share is entitled to one vote at a Shareholders' Meeting.

11.3     Every shareholder may attend the Shareholders' Meeting or send a
         representative holding a written power of attorney authorizing the
         representative to attend the meeting and, insofar as this power gives
         the representative a voting right, to exercise such voting right. Such
         a power of attorney must be deposited at the latest by the time and at
         the place indicated in the notice of the Shareholders' Meeting
         specified in Article 9.5.

11.4     Any shareholder affected by a decision to be made - namely a
         shareholder who pursuant to such decision would be entitled or held
         liable to the Company in a manner that the entitlement or liability
         thus deriving would not at the same time and to the same degree be
         applicable to all shareholders -- shall be excluded from taking part in
         the voting on such decision; his vote thereupon shall be disregarded
         for the purposes of verifying the quorum and for the effectiveness of
         the decisions.
<PAGE>   57
                                                                            14

11.5     In case of a tie vote, the largest shareholder present shall cast the
         deciding vote.

                                   ARTICLE 12
                   THE CHAIRMAN OF THE SHAREHOLDERS' MEETING

12.1     The Chairman of the Shareholders' Meeting shall be elected by the
         Shareholders' Meeting.

12.2     All matters concerning the admission of anyone to the Shareholders'
         Meeting, the exercise of voting rights and all other matters connected
         with the conduct of the meeting shall be decided by the Chairman of
         the Shareholders' Meeting, who shall also accept the admission to the
         Shareholders' Meeting of representatives or other persons duly
         authorized according to Article 11.3 or otherwise entitled to attend
         pursuant to the law.  The Chairman has no right to remove, on his own,
         matters from the agenda or change the agenda.

                                   ARTICLE 13
                      MINUTES OF THE SHAREHOLDERS' MEETING

13.1     The Chairman shall appoint a secretary who shall keep the minutes of
         the Shareholders' Meeting. The minutes shall be signed by the
         Chairman, the secretary and by two shareholders elected by the
         Shareholders' Meeting.  The Board of Directors shall enter the minutes
         in a minute book. The minutes shall be kept in English and Hungarian
         languages and shall be made available at the offices of the Company
         for shareholders and officials of the Company.

         In addition, the Board of Directors shall submit within thirty (30)
         days from the date of the Shareholders' Meeting, to the Court of
         Registration in Budapest, a certified copy of the minutes of the
         Shareholders' Meeting, the copies of the gazettes containing the
         announcement on the convening of the Shareholders' Meeting and of the
         attendance list of the participants pursuant to Article 13.2 below.

13.2     An attendance list shall be made for each Shareholders' Meeting,
         containing the names of shareholders and their representatives, their
         addresses, the number of shares they represent and the voting
         rights they are entitled to, and shall be signed by the Chairman and
         secretary of the Shareholders' Meeting.
<PAGE>   58
                                                                              15


                                   ARTICLE 14
                       VOTES AT THE SHAREHOLDERS' MEETING

14.1     Except as required in Articles 14.2 and 14.3 below and subject to
         Articles 4.4 and 4.5 above resolutions of the Shareholders' Meeting
         shall require the favorable vote of shareholders holding at least
         fifty one per cent (51%) of the shares of the Company entitled to
         vote.

14.2     Resolutions of the Shareholders' Meeting concerning the matters
         referred to in Article 10 (vii), (ix), (x),(xi) and (xii) shall
         require the favourable vote of shareholders holding at least
         seventy-five per cent (75%) of the registered shares of the Company
         entitled to vote.

14.3     Any resolution which adversely affects any rights attached to certain
         classes of shares shall be valid only with the approval of
         shareholders holding these shares.

                                   ARTICLE 15
                 METHOD OF VOTING AT THE SHAREHOLDERS' MEETING

15.1     Voting concerning business matters shall take place viva voce. Voting
         concerning persons shall take place by secret ballot. Secret ballot
         shall also be held at the request of at least one of the shareholders
         present.  Abstentions and votes recorded on signed slips shall not be
         counted as votes.

15.2     In the event of an election of persons where an absolute majority of
         votes has not been obtained by any one person, a second ballot shall
         be held between the two persons who obtained the largest number of
         votes. If at the second ballot there is a tie of votes, the decision
         shall be arrived at by the drawing of lots.

                                   ARTICLE 16
                                    AUDITOR

16.1     The Shareholders' Meeting shall elect one auditor employed by an
         independent internationally recognized auditing firm and qualified
         under the Hungarian regulations to supervise regularly the accounting
         and other operations of the Company, audit the annual financial
         statements and the report on the Company's activities drawn up by the
         Board of Directors and present a written report expressing an opinion
         thereon. The Shareholders' Meeting can remove the auditor at any time.
<PAGE>   59
                                                                              16

16.2     The Auditor shall examine all reports to be submitted for approval to
         the Shareholders' Meeting. No decision can be passed relating to these
         reports without the written opinion of the Auditor.

16.3     With the exception of the first Auditor, all Auditors shall be
         elected for a duration of three (3) business years; The Auditor for
         the first business year of the Company is listed in Annex 1.

                                   ARTICLE 17
                               BOARD OF DIRECTORS

17.1     The Board of Directors shall consist of at least three (3) and at most
         eleven (11) members who shall be elected by the Shareholders' Meeting.

17.2     The Board of Directors shall be vested with the management of the
         Company and shall have the right to exercise those powers of the
         Company that are not required to be exercised by the Shareholders' 
         Meeting.

         Within this authority, the Board of Directors primarily

         (a)     continuously performs management tasks;

         (b)     ensures the formal safekeeping of the Company's records;

         (c)     convenes the Shareholders' Meeting according to these Articles
                 of Association,

         (d)     prepares a written report on the management and business
                 plan of the Company once a year for the Shareholders' Meeting;

         (e)     determines the mid-term business plan, and provides for the
                 supervision of its implementation;

         (f)     has the balance-sheet, the statement of assets and the
                 division of profits proposal prepared, presents them to the
                 Supervisory Board, and brings them forward to the regular
                 annual Shareholders' Meeting along with the report of the
                 Supervisory Board and the Auditor's report;

         (g)     publishes important information from the balance-sheet, the
                 division of profits proposal;

         (h)     formulates opinions and proposals for the items placed on the
                 agenda of the Shareholders' Meeting and brings them forward
                 to the Shareholders' Meeting;
<PAGE>   60
                                                                              17


         (i)     upon request on the part of the shareholders presented in
                 writing not later than eight (8) days prior to the
                 Shareholders' Meeting gives the shareholders appropriate
                 information regarding items placed on the agenda of the
                 Shareholders' Meeting;

         (j)     upon request provides the shareholders with an excerpt or with
                 a copy of the minutes of the Shareholders' Meeting;

         (k)     executes resolutions approved at the Shareholders' Meeting;

         (1)     fulfils its regular and special obligation of providing
                 information regarding publicly issued shares of the Company;

         (m)     in special cases changes the type of shares according to the
                 provisions of Article 240 para 3 of the Company Act,

         (n)     safekeeps the Share Register of registered shares according to
                 the legal regulations and the Deed of Foundation;

         (o)     decides upon the increase of capital by 10% a year at the most
                 through issuing new Class "A" shares or by transforming the
                 Company's assets above its registered capital into registered
                 capital;

         (p)     decides upon the consolidation or division of shares, and if
                 the alteration is requested by a shareholder, carries it out
                 at his or her expense;

         (q)     executes the increase of capital determined by the
                 Shareholders' Meeting;

         (r)     defines the Company's policy concerning the re-purchase and
                 sale of Company's shares;

         (s)     prepares the By-laws of the Board of Directors;

         (t)     prepares and supervises the implementation of the annual
                 business plan;

         (u)     prepares the Company's regulation business conduct;

         (v)     approves the organizational and operational rules of the
                 Company;

         (w)     approves the Company's management directives;

         (x)     delegates the Company's employees authorized to sign in the
                 name of the Company;

         (y)     collectively exercises employer rights over the Chief
                 Executive, the Deputy Chief Executive and the Managing
                 Directors of the Company.
<PAGE>   61
                                                                             18

17.3     The Board of Directors is composed of a Chairman and members of the
         Board; the Chairman shall be elected by the Board of Directors from
         its members.

17.4     With the exception of the first Board of Directors, all Directors
         shall be elected for a duration of three (3) business years; the
         duration of the first Board of Directors shall be the first business
         year of the Company.  Members of the Board of Directors may be
         re-elected.

17.5     The Board of Directors shall meet at such times as it may determine,
         and shall also meet whenever called by the Chairman.

17.6     The Chairman shall call the meetings and shall inform all members of
         the Board of Directors of the meeting date, place, hour and agenda at
         least twenty-four (24) days before the date of the meeting, not
         counting the day of the notice and that of the meeting, all this
         without prejudice to what has been or will be provided thereon by
         law.

17.7     The Board of Directors may pass its resolutions by correspondence,
         provided, that the votes on each items of the agenda are confirmed by
         tested telex, cable or by registered mail.

17.8     The detailed regulations of the organization and activity of the Board
         of Directors shall be established by the Board of Directors in the
         By-laws of the Board of Directors.

17.9     The members of the Board of Directors for the first business year of
         the Company are listed in Annex 2.

                                   ARTICLE 18
                               SUPERVISORY BOARD

18.1     The Supervisory Board shall consist of at least five (5) members and
         at most eleven (11) members, elected by the Shareholders' Meeting for
         three (3) business years, except the first Supervisory Board
         designated by the founders. The duration of the first Supervisory
         Board shall be the first business year of the Company. Members of the
         Supervisory Board may be re-elected.

         No member of the Board of Directors nor persons employed by the
         Company, except for the case provided for in section 12 (l) of the
         Company Act, can be elected to the Supervisory Board.

18.2     The members of the Supervisory Board shall elect a Chairman among
         themselves. The Chairman shall be elected for a period of one (1)
         business year and may be re-elected. The Supervisory Board shall also
         elect one Deputy-Chairman from their midst.
<PAGE>   62
                                                                              19


18.3     The Supervisory Board may be called by the Chairman, either on his
         own initiative, at the request of the Board of Directors or at the 
         request of two members of the Supervisory Board. The Supervisory
         Board shall meet at least once a year.

18.4     The Supervisory Board may pass resolutions by correspondence provided
         that all members confirm their vote on such resolutions by tested
         telex, cable or registered mail.

18.5     The Supervisory Board shall deliver a report on its observations and
         proposals at least once a business year to the Shareholders' Meeting.
         The Supervisory Board shall assume the obligation of reviewing the
         annual balance sheet and provide its opinion thereon to the
         Shareholders' Meeting.

18.6     The Supervisory Board shall establish its own by-laws subject to the
         approval of the Shareholders' Meeting.

18.7     The members of the Supervisory Board for the first business year of
         the Company are listed in Annex 3.

                                   ARTICLE 19
                        POWERS OF THE SUPERVISORY BOARD

19.1     The Supervisory Board shall supervise whether the activities of the
         Company are in compliance with the laws in force, the Deed of
         Incorporation and the resolutions of the Shareholders' Meeting.

                                   ARTICLE 20
                              CONFLICT OF INTEREST

20.1     Should the interests of the Company be or become in conflict with the
         personal interest of a member of the Supervisory Board or of the Board
         of Directors, his/her spouse, relative or any shareholder with which
         he/she has an employment relationship, such member shall not
         participate in deliberating on such matters and, further, shall
         request the board meeting to take note of such conflict of interest in
         the minute.

20.2     A member of the Board of Directors may not, without the Supervisory
         Board's consent, engage in a competitive business or participate in a
         competitive company as a partner or member of the governing body.
<PAGE>   63
                                                                              20


                                   ARTICLE 21
                         REPRESENTATION OF THE COMPANY

21.1     The representation of the Company shall be made in such a manner that
         the person entitled to represent the Company shall undersign his or
         her name to the written, pre-typed or pre-printed name of the Company,
         according to his or her authenticated specimen signature as filed with
         the Court of Registration.

21.2     The following persons may represent the Company:

         (i)     the Chairman of the Board of Directors and the Chief Executive
                 Officer of the Company acting individually;

         (ii)    any other two members of the Board of Directors acting
                 jointly;

         (iii)   any member of the Board of Directors acting together with an
                 employee so authorized by the Chairman of the Board of
                 Directors; or

         (iv)    any two employees acting jointly authorized by the Chairman of
                 Board of the Directors to represent the Company in certain
                 matters.

                                   ARTICLE 22
              BUSINESS YEAR, BALANCE SHEET AND STATEMENT OF INCOME

22.1     The business year of the Company shall coincide with the calendar
         year. The first business year shall commence on the date of approval
         of this Deed of Foundation by the founders and shall end at December
         31 of that same year.

22.2     The Board of Directors shall draw up a balance sheet for approval of
         the Shareholders' Meeting, a statement of income and explanatory notes
         for the preceding business year, which documents shall form the annual
         financial statements, as well as a detailed written report on the
         Company's activities for that period and a proposal for the allocation
         of the profit and distribution of dividends. These documents shall be
         drawn up in Hungarian and English languages and shall be in accordance
         with Article 23 and the generally accepted international accounting
         principles and practices. Furthermore the Board of Directors shall
         submit the annual financial statements as well as the report on the
         Company's activities to the Auditor of the Company for examination.

22.3     The annual financial statements shall be signed by all members of the
         Board of Directors.

22.4     The Board of Directors shall submit the annual financial statements,
         the written report on the Company's activities for that period, the
         proposal for the allocation of

<PAGE>   64
                                                                              21

         the profits and distribution of dividends, as well the report thereon
         by the Auditor for examination to the Supervisory Board, no later than
         March 15 following the completion of each business year.

22.5     Copies of the above-mentioned documents under Article 22.4 together
         with a copy of the report of the Supervisory Board and the Auditor
         shall be provided to the Shareholders no later than thirty (30) days
         before the annual Shareholders' Meeting.

22.6     The Board of Directors shall publish the annual financial statement
         within fourteen (14) days from tile date on which the Shareholders'
         Meeting has approved the annual financial statements.

                                   ARTICLE 23
                         THE ACCOUNTING OF THE COMPANY

23.1     The accounting of the Company shall be made in Hungarian language in
         accordance with the Hungarian Act XVIII of 1991 on Accounting.  In
         addition, the Board of Directors shall also issue financial statements
         in accordance with the generally accepted international accounting
         principles and practices in English and Hungarian languages as
         provided for in Article 24.2 above.

23.2     The books of the Company shall be kept in Hungarian Forints.

                                   ARTICLE 24
                           DIVIDENDS - RESERVE FUNDS

24.1     The Shareholders' Meeting held within one hundred and twenty (120) 
         days after the end of each business year shall approve the annual
         financial statements of the Company, allocate profits and declare
         dividends.

24.2     The dividend, subject to the provisions in Article 4.3 above, shall be
         distributed in proportion to the nominal value of shares; if shares
         are not fully paid up, the dividends shall be distributed
         proportionally to payments made on shares.

24.3     The Shareholders' Meeting may decide to make payable one or more
         interim dividends during each year.

24.4     The Shareholders' Meeting shall decide upon the disposition of the
         reserve fund according to the applicable Hungarian legislation.

24.5     The raising and use of other reserve funds in general shall be
         determined by the Shareholders' Meeting.
<PAGE>   65
                                                                              22

                                   ARTICLE 25
                          ANNOUNCEMENTS OF THE COMPANY

25.1     The announcements of the Company shall be published in the daily
         newspaper Nepszabadsag and in cases established by law in the Official
         Gazette.

                                   ARTICLE 26
                                  TERMINATION

26.1     Unless the term specified in Section 2.1 above shall be extended in
         accordance with Section 2.2 above, the Company will be terminated on
         the fifteenth anniversary of the signing date of the Concession
         Agreement.

26.2     Regardless of the term specified in Section 26.1 above the Company
         terminates in case of:

         (i)     early termination of the Concession Contract; or

         (ii)    the Company goes bankrupt or is liquidated.

26.3     The assets of the Company remaining after the satisfaction of
         creditors shall be paid back to the Shareholders in proportion to
         their contribution to the share capital of the Company.

                                   ARTICLE 27
                                 INITIAL COSTS

27.1     Any fees and expenditures incurred in connection with the
         establishment of the Company and with its registration shall be
         reimbursed by the Company.

                                   ARTICLE 28
                              LAW AND JURISDICTION

28.1     In the event of a dispute arising in connection with this Deed of
         Foundation shall be finally settled by three arbitrators appointed and
         proceeding according to the rules of the permanent Arbitration Court
         of the Hungarian Chamber of Commerce.

28.2     The governing law shall be the Hungarian Law.
<PAGE>   66
                                                                              23

28.3     The language of the procedure shall be English.

                                   ARTICLE 29
                                OTHER PROVISIONS

29.1     The present Deed of Foundation and its Annexes were prepared both in
         English and Hungarian languages. In case of dispute, the Hungarian
         version shall prevail.

29.2     All documents, convening notices and other communications regarding
         the matters as set out in the present Deed of Foundation shall be in
         English and Hungarian languages and shall be delivered personally or
         by registered mail, tested telex or cable to all parties concerned. In
         case of dispute, the English version shall prevail.


Budapest, August 4, 1994



- ------------------------------------      -----------------------------
On behalf of Gerard Aircraft Sales        On behalf of SFMT-Hungaro, Inc.
and Leasing Company                       Louis T. Toth
James Monagham                            President
President



- ------------------------------------      -----------------------------
On behalf of Microsystem Telecom Ltd.     Pesti Istvan
Maros Peter
President



Countersigned by:
<PAGE>   67
                                           ANNEX I
                                           AUDITOR

         Ernst & Young Kft.
         1146 Budapest
         Hermina ut. 17.
         Licence No.: KE-0016/92/XI
<PAGE>   68
                                    ANNEX 2
                       MEMBERS OF THE BOARD OF DIRECTORS

                  The first members of the Board of Directors

1.)      Pesti Istvan
         2120 Dunakeszi
         Mihaly utca 7.
         Hungary

2.)      Louis T. Toth
         1410 Waterloo
         Dreve Richelle 171.
         Belgium

3.)      Garth Self
         231 East 88 Street
         New York, NY 10128
         USA

4.)      Maros Peter
         1121 Budapest
         Hunyadlejto utca 44.
         Hungary

5.)      James Monagham
         5452 East Morrison Line
         Paradise Valley
         Arisona 85253
         USA

6.)      Nell S. Molberger
         10 Surrey Drive
         Riverside, Ct 06878
         USA
<PAGE>   69
                                       1


                              CONCESSION CONTRACT

                                      FOR

                                 THE PROVISION

                                       OF

                    ERMES NATIONWIDE PUBLIC PAGING SERVICES

                           IN TEE REPUBLIC OF HUNGARY

                            
                               EURO PAGING HUNGARY

                               CONCESSION COMPANY
<PAGE>   70
                                       2

                                                               August 5th, 1994.

                              CONCESSION CONTRACT

              FOR THE PROVISION OF ERMES NATIONWIDE PUBLIC PAGING
                                    SERVICES

                  IN THE TERRITORY OF THE REPUBLIC OF HUNGARY
<PAGE>   71
                                       3

                              CONCESSION CONTRACT

              FOR THE PROVISION OF ERMES NATIONWIDE PUBLIC PAGING
                                    SERVICES

                  IN THE TERRITORY OF THE REPUBLIC OF HUNGARY

         This Concession Contract dated 15 August 1994 is entered into between
         the Minister of Transport, Communications and Water Management acting
         on behalf of the State of Hungary (hereinafter referred to as
         "Minister") and the Euro Paging Hungary Concessions Company Limited by
         Shares (hereinafter referred to as "Concession Company") founded by
         the majority of members of Magyar Paging Consortium as the winner of
         the ERMES Concession Tender, according to the terms and conditions set
         forth below:

                            INTRODUCTORY COMMENTS

         WHEREAS creation of conditions to implement and provide nationwide
         public paging by way of subscriber's contracts is desirable within the
         framework of the Act LXXII of 1992 on Telecommunications and the Act
         LXXIII of 1993 on Frequency Management as well as the additional rules
         of law,

         WHEREAS the country needs, besides employing the domestic technics and
         working sources, the involvement of foreign capital and the high
         technical and management levels connected thereto in order to assure a
         high technical level of nationwide public paging service to provide a
         wide range service in order to join the ERMES International network,

         WHEREAS the Minister of Transport, Communications and Water
         Management of the Republic of Hungary exercising the power vested in
         him by the Act XVI of 1991 on Concessions as well as the valid laws on
         telecommunications, issued an international concession tender on
         February 4, 1994 for two service providers according to which the
         winners of the tender shall be liable by way of a Concession Company
         established by them to provide two independent nationwide public
         paging services of ERMES type for a period of fifteen (15) years, and
         to create the technical, economic and financial conditions needed
         thereto.
<PAGE>   72

                                       4

         WHEREAS the Minister evaluated the tenders submitted according to the
         tender invitation and announced the result thereof on April 29, 1994 in
         the presence of a notary public where Magyar Paging Consortium has
         been declared as one of the winners of the tender and was requested to
         conclude the relevant Concession Agreement latest by May 6, 1994.

         WHEREAS the Concession Agreement was duly concluded on May 6, 1994,
         between the Minister and Magyar Paging Consortium which took legal
         effect from April 29, 1994, on the basis of which Magyar Paging
         Consortium has duly transferred the sole concession fee payable under
         the Concession Agreement for the Concession rights,

         WHEREAS the Magyar Paging Consortium, pursuant to its obligations
         under the Concession Agreement, created the Concession Company with
         its own majority participation which has duly accepted the Declaration
         of Assignment of the Magyar Paging Consortium countersigned by the
         Minister at the time of conclusion of the Concession Agreement, and
         consequently the Concession Company became the legally entitled holder
         of the concession rights and obligations,

         WHEREAS the Concession Company is entitled and liable to conclude
         Concession Contract with the Minister under the laws on concession and
         telecommunication as well as on the basis of the Concession Agreement,
         tender invitation and documentation, and approved offer of the Magyar
         Paging Consortium by observing the fulfillment of the above listed
         conditions.

         NOW THEREFORE, in consideration of the foregoing contained herein,
         the Minister on the one hand and the Concession Company on the other,
         conclude the following:

                             CONCESSION CONTRACT
                                      
                                  SECTION I
                      CONCESSION RIGHTS AND OBLIGATIONS


         1.1     IMPLEMENTATION OF THE PROJECT AND PROVISION OF NATIONWIDE
         PUBLIC PAGING SERVICES.

         1.1.1   The Minister entitles the Concession Company by the present
                 Concession Contract to provide ERMES (European Radio Message
                 System) nationwide public terrestrial telecommunications
                 paging services on the territory of the Republic of Hungary
                 through the ERMES channel 11 (169,675 MHz) according to the
                 standard No. ETS 300 133-1....7, to implement and establish in
                 its own financing, the
                        
<PAGE>   73
                                       5

         telecommunications network most suitable to operate it and provide the
         services on the basis of contracts with subscribers (hereinafter 
         called "Project").

1.1.2    The concession period is fifteen (15) years as specified in Section
         1.3.1.

1.1.3    The Concession Company, as a company duly authorized by the Minister,
         is entitled and obliged to:

         (i)     enter into subscribers' contracts with the customers of
                 nationwide public paging services and collect the fees for the
                 services contracted in this way,

         (ii)    enter into network contracts concerning the necessary
                 interconnections with other telecommunication networks,

         (iii)   announce its intent to join the ERMES MoU within thirty (30)
                 days from the signing of the present Concession Contract, and
                 then to duly undersign the MoU Agreement as soon as possible,
                 as well as to comply with the rights and obligations under
                 such membership,

         (iv)    establish the technical conditions for supplying international
                 roaming services and enter into agreements with other ERMES
                 service providers to offer domestic and international roaming
                 under the conditions set forth by the ERMES MoU.

1.2      FREQUENCY USAGE DURING THE CONCESSION PERIOD

         The Concession Company shall be exclusively entitled to use the ERMES
         11 channel on the 169,675 MHz transmission frequency during the period
         stipulated in Section 1.3.1

1.2.2    For the effective use of this frequency specified in Section 1.2.1,
         the Concession Company shall apply for all the necessary licenses on
         the basis of the Act on Frequency Management, and shall comply with
         the conditions on use and control of frequencies as detailed in
         Section 3.3 of the Concession Contract as well as to pay the fees
         therefor.

1.2.3    The Concession Company may claim other frequencies (channels) for
         ERMES use depending on the requirement of ERMES traffic and/or in case
         of eventual collisions between the frequency coordination in the
         border area, or in case of difficulties. In such cases, the Concession
         Contract shall also be extended appropriately following the proposal
         of the Concession Company.
<PAGE>   74
                                      6


1.3      THE CONCESSION PERIOD

1.3.1    The Concession Company is granted the concession rights for fifteen
         (15) years for providing the services specified in Section 1.1.1. The
         concession period commenced on April 29, 1994, and will expire on April
         29, 2009.

1.3.2    In case of satisfactory services, the Minister shall not issue a new
         concession tender and may extend the validity of the Concession
         Contract by the half of the period specified in Section 1.3.1 without
         any tender invitation. The procedure, prior to the extension is
         regulated in Section 14.2 of the Concession Contract. 

         For the purposes of the present Section 1.3.2, "Satisfactory Services"
         shall be deemed to have been provided if (i) the service provided has
         met the requirements of the standard No. ERMES 300 ETS 133-1...7, (ii)
         the Concession Company has met the coverage requirements specified in
         Section 4.1 and (iii) the Concession Company's subscriber contracts
         are in accordance with the TT Telecommunications Act and the PT
         Hungarian Civil Code.
        
1.4      THE CONCESSION FEE

1.4.1    With regard to the liability specified in Section 4.1 of the
         Concession Agreement, the Concession Company and/or the Magyar Paging
         Consortium undertakes to pay the concession fee in a lump sum of the
         amount of 2,000,000 USD latest by May 6, 1997, to the account of the
         Communications Fund in the following installments:

         (i)     1,200,000 USD has been paid by the Consortium in May 1994; and

         (ii)    800,000 USD shall be paid by the above deadline.

                 Account Number:
                 Orszagos Takarekpenztar es Kereskedelmi Bank Rt.
                 Pest-Buda
                 Kereskedelmi Banki Fiok, Vallalkozasi Iroda 
                 1051 Budapest,
                 Bajcsy-Zsilinszky ut 24. 
                 MNB 217-98089/580-006-003

1.4.2    Over and above the lump sum concession fee, the Concession Company
         shall pay a yearly concession fee for the use of the concession rights
         to the relevant account number of the Communications Fund as follows:
<PAGE>   75
                                       7

         (i)     From the start of the first year to the end of the fifth year
                 of the Concession, an amount equal to one per cent (1%) of the
                 Concession Company's yearly Gross Revenue (VAT not included)
                 earned by the provision of nationwide public paging services.

         (ii)    From the beginning of the sixth year to the end of the
                 Concession period, an amount equal to three per cent (3%) of
                 the Concession Company's yearly Gross Revenue (VAT not
                 included) earned by the provision of nationwide public paging
                 services, including the possible execution thereof.

         The Concession Company will pay the above concession fees yearly to
         the account number of the Telecommunications Fund mentioned above.

         For the purposes hereof, the term "Gross Revenues" shall mean the
         aggregate amount of subscribers' fees and revenues earned by the
         provision of nationwide public paging services less the costs
         associated with the provision of such services as computed according
         to the Hungarian accounting rules.

                                   SECTION 2
                             THE CONCESSION COMPANY

2.1      PRINCIPAL DATA OF THE CONCESSION COMPANY


2.1.1    The Concession Company has been created by way of a closed
         foundation process. The responsible manager of the Concession Company
         submitted the Deed of Foundation thereof for registration at the Court
         of Registration on August 4, 1994 under No.01-10-04-26-29.

2.1.2    The initial registered capital of the Concession Company is 
         200,000,000 HUF, by way of a cash contribution.

<PAGE>   76
                                       8

2.1.3    Share of the members of the Magyar Paging Consortium in the Concession
         Company are as follows:

         Gerard Aircraft Sales and Leasing Company Ltd.: 25% 51 shares

         Microsystem Telecom Rt.: 5% 10 shares

         SFMT-Hungaro Inc.: 50% 98 shares

         Total: 80% 159 shares

2.1.4    Over and above the activity for providing nationwide public paging
         services subject to concession, the Concession Company may include in
         its sphere of activity the following activities:

         *       other telecommunications services including local and regional
                 paging, data transmission and voice mail services,

         *       sale, maintenance and repair of telecommunications and
                 computer equipment, 
                
         *       computer and application services,

         *       measurement and safety engineering services, 

         *       general technical development services,

         *       telecommunications research and development, 

         *       organization, implementation and general construction 
                 activities relating to investment projects and building
                 maintenance,

         *       telecommunications courses and other related forms of
                 telecommunications training.

2.2      RESTRICTIONS REGARDING PARTICIPATION IN THE CONCESSION COMPANY,
         CHANGES IN THE OWNERSHIP SHARE IN THE CONCESSION COMPANY.

2.2.1    The Concession Company covenants to meet the following restrictions
         and stipulations up to the end of the concession period.
<PAGE>   77
                                       9

         (i)     Neither any natural person nor legal entities and economic
                 associations being shareholder in the Concession Company can
                 be a shareholder at the same time in the

                      "EasyCall Hungary Concession Company"

         (ii)    At least 25 percent (25%) + 1 (one) share of the stock capital
                 of the Concession Company shall remain in the ownership of
                 legal entities or economic organizations owned by a
                 Hungarian majority or natural persons registered in Hungary
                 till the end of the concession period.

         (iii)   The initial and substantial shareholding position should not
                 be transferred or otherwise assigned without the prior
                 approval of the Minister. The Minister shall only approve such
                 transfer or assignment if he is convinced of the capability of
                 the Concession Company both legally and financially as well as
                 professionally to perform the liabilities under the Concession
                 Agreement.

                 It is considered to be a substantial change incurred in the
                 ownership share and structure which affects more than five
                 percent of the voting shares in the Concession Company. This
                 stipulation is also valid in case if the total amount of the
                 consecutive transfers of shares reaches the permitted 5
                 percent level.

2.2.2    Non-voting shares of the Concession Company may be transferred or
         otherwise assigned without the prior approval of the Minister.
         However, the Minister must be notified of any such transfer or
         assignment involving more than five percent (5%) of the share capital.

2.2.3    The Concession Company shall continue to control whether its ownership
         structure corresponds to the conditions contained in this Concession
         Contract. Based on the authorization of the Minister, the Communication
         Chief Directorate is at any time entitled to examine the structure of
         ownership. If either the Concession Company or the Communication Chief
         Directorate observe any change in the structure of ownership in which
         the Concession Company fails to meet the conditions contained in the
         tender relating to Hungarian ownership ratio of at least 25% plus one
         share, the Minister shall oblige the Concession Company - setting a
         deadline of two (2) years - to effect appropriate change in the 
         structure of ownership. If the Concession Company fails to meet its 
         obligation to report on time, the Minister may include the period of 
         delay in the non-extendable deadline of two (2) years. If the 
         Concession Company fails to comply to the notice of the Minister 
         issued in this respect, the Minister may terminate this Concession 
         Contract.
<PAGE>   78
                                       10

2.3      LIABILITIES OF THE CONCESSION COMPANY IN CONNECTION WITH PROVIDING
         INFORMATION AND DATA.

2.3.1    The Concession Company shall be liable to inform the Minister prior to
         any essential change in the company's ownership structure and/or any
         change in the position of General Manager or Financial Manager as well
         as in the position of any responsible managers.

2.3.2    Within at least 180 days from the end of the fiscal year the
         Concession Company will be liable to submit to the Minister all
         financial statements and audit reports stipulated by the Hungarian
         accounting laws, containing details of:

         (i)     financial results of the Concession Company 
         (ii)    issues on debt services 
         (iii)   changes in the Company's assets

         for the relevant fiscal year.

2.3.3    The Concession Company will be liable to inform the Minister by
         quarterly periodical reports within 60 (sixty) days after the relevant
         quarter on the quantity of services to be rendered upon the concession
         rights, the degree of territorial coverage (with services), and any
         factors materially and adversely affecting or which could so affect
         the Concession Company's business and operations, or its financial
         status.

2.3.4    For the purpose of the Minister's supervision regarding the
         fulfillment of network contracts, the Concession Company will be
         liable to perform the following:

         (i)     keeping continuous records on the performance data of the
                 ERMES network and providing data for the relevant 
                 communications authorities.

         (ii)    assuring access to the quantitative and qualitative data base
                 of the nationwide public paging service to the communications
                 authorities and be of assistance to them by providing 
                 technical and other means in the course of their controlling
                 activities.

2.3.5    The Minister is entitled to publish his statements relating to the
         quality of the nationwide public paging services.

         (i)      Before publishing these statements, the Concession Company 
                  has to be informed thereof. The Concession Company is
                  entitled to make its own comments on the proposed statements.
                  The statements will not be published without prior approval
                  of the Concession Company.

<PAGE>   79
                                      11



         (ii)     Other statements in connection with the operation of the 
                  Concession Company shall only be published with prior
                  approval of the Concession Company unless, publication is
                  necessary according to the Minister's opinion because of
                  public interest on the provision of public paging services.

2.3.6    The Concession Company shall inform the public about the development
         of implementation of the project at least in two national daily papers
         and in one daily paper published in the region where the actual
         implementation is taking place.

2.4      LIABILITIES IN CONNECTION WITH THE OPERATION OF THE CONCESSION COMPANY

2.4.1    The Concession Company shall be operated according to the Hungarian
         Laws and Regulations.

2.4.2    The Minister (his Representative) confirmed that the Deed of
         Foundation as a document of incorporation of the Concession Company
         includes the following requirements as stipulated in Section 5.
         subparagraph 2 of Act No. LXXII on Telecommunications:

         (i)     restrictions and requirements relating to the ownership
                 structure of the Concession Company,

         (ii)    the timing of the quality, quantity, technical performance and
                 requirements as well as any other changes thereof

         (iii)   the terms of cooperation with other telecommunications service
                 providers

         (iv)    methods for fixing tariffs and terms and conditions of any
                 changes which are not regulated by law,

         (v)     nationwide and permanent character of performing activity
                 (providing services),

         (vi)    majority share ownership of the members of Magyar Paging
                 Consortium existing till the end of the concession period.

2.4.3    Financial resources required for the construction and operation of the
         Project shall be raised by the financing of the Concession Company by
         way of registered capital and shareholder's loans and/or bank loans
         without obtaining any governmental assistance.
<PAGE>   80
                                       12

2.4.4    Concession rights are prohibited;

         (i)     to be transferred to any third person

         (ii)    to be allowed for anybody's temporary use in advance

         (iii)   to be debited or given as collateral or mortgaged

         Incomes and future revenues of the Concession Company may cover the
         creditors' claims and/or collaterals. Except for the concession right,
         all assets, revenues, and/or shares of the Concession Company may be
         mortgaged, pledged, charged or assigned to third parties. 

         The above prohibitions do not exclude the employment of
         subcontractors. Economic activities associated with the exercising of
         any of the concession rights may be subcontracted (e.g. marketing,
         commercial distribution, sales, technical services, repair and         
         maintenance).   

2.4.5    Not later than four (4) months after the effective date of this
         Concession Contract, the Concession Company shall submit a proposal
         for the system of accounts to the Minister in accordance with Act No.
         XVIII of 1991 on Accounting.

2.4.6    The Concession Company shall provide access to the Minister to control
         the earnings and expenditures in connection with performing the
         activity, subject of the concession, serving for the basis of the
         payment of the yearly concession fee.

2.4.7    If the Concession Contract for the Provision of Nationwide Public
         Paging Services terminates for any reason as specified in Sections 13.4
         and 13.5 of the Concession Contract, the then current shareholders of
         the Concession Company shall liquidate the Concession Company
         according to the rules set forth in Act VI of 1988 on Economic
         Associations and Act No. IL of 1992 on Bankruptcy, Liquidation and
         Final Settlement. The Concession Company, however, shall not be
         liquidated and the Nationwide Public Paging Services shall
         continuously be rendered on the same standard until the new Service
         Provider nominated by the Minister commences to provide the services.
         This obligatory period (for carrying on the service provision), should
         not exceed six (6) months starting from the termination of the
         Concession, and in no event shall the Concession Company be
         responsible for payment of a concession fee with respect to the
         obligatory period, unless the Parties agree otherwise.

         In case of expiry or termination of the Concession Contract for any
         reason as specified in Sections 13.4 and 13.5 of this Concession
         Contract, the equipment provided for the Concession Company and placed
         at the network's disposal by the members of the Concession Company
         shall remain in the ownership of the Concession Company.
<PAGE>   81
                                       13

                                   SECTION 3
            ESTABLISHEMENT OF THE NATIONWIDE PUBLIC PAGING NETWORK,
                    INFRASTRUCTURE OF THE ERMES NETWORK AND
              ITS INTERCONNECTION WITH OTHER NETWORKS, PERMITS OF
                                  AUTHORITIES,
                      RIGHTS TO USE REAL ESTATE PROPERTY.

3.1      ESTABLISHMENT OF PUBLIC PAGING NETWORK

3.1.1    The Concession Company shall, at its own cost and risk, implement
         (design, construct) the network composed of the elements PNC (Paging
         Network Controller), PAC (Paging Area Controller), BS (Base Station)
         and other necessary equipment as specified in the standard No. ETS 300
         133-1...7 and necessary for the provision of the Nationwide Public
         Paging Services.

3.1.2    The Concession Company shall, at its own cost, establish the technical
         infrastructure providing fix placed interconnections between the
         single elements of the ERMES network either by use of the existing
         telecommunications network on a contractual basis (network contracts),
         and/or by implementation of its own network providing a fix placed
         interconnection. The Concession Company as an ERMES Service Provider
         may share its fixed placed telecommunications network equipment with
         other service providers, and the transfer ways of connecting them,
         under the condition that this sharing may not result in a significant
         restriction in the competition.

3.2      INTERCONNECTION OF THE ERMES NETWORK WITH OTHER NETWORKS

3.2.1    In order to establish the ERMES network, the Concession Company shall,
         in time, initiate with the service provider of the backbone
         telecommunications network operating in the given area the
         interconnections between the access points of the Paging Network
         Controller(s) (PNC) and the secondary exchange(s) of the
         telecommunications backbone network located nearest to the PNC. The
         interconnection shall be effected through a line established between
         the secondary exchange and the ERMES Paging Network Controller and
         leased by the ERMES Concession Company from the service provider of
         the backbone telecommunications network under network contracts to be
         entered into under legal liability on the part of such a service
         provider.
<PAGE>   82
                                       14

         Interconnection and commissioning costs of the rental lines shall be
         borne by the Concession Company. Access to the ERMES networks cannot
         entail the change of the associated other public telecommunications
         networks except for the establishment of the interconnection
         conditions of the fix placed ERMES network (connection circuit and
         switching field capacity).

         The 158/1993 Governmental Decree shall apply to the interconnections.

3.2.2    The Minister shall do his best efforts to assist the Concession
         Company in obtaining such a number of high quality digital lines as
         the Concession Company believes is reasonably appropriate for the
         provision of services. In addition, the Minister shall assist the
         backbone telecommunications service provider to issue such offers
         which shall be identical in service and tariff conditions for both
         ERMES Concession Companies when entering into the network contracts
         for the interconnection on a rented line basis between the ERMES
         networks and the backbone networks.

3.3      PERMIT OF AUTHORITIES

3.3.1    The Concession Company agrees that the Concession Contract does not
         replace either the frequency assignment decision, radio license as
         well as the conceptual and final construction permits needed for the
         provision of the services as stipulated or the type approval needed
         for the subscribers' equipments.

3.3.2    At the time of the establishment of the ERMES network, the Concession
         Company shall obtain the following permits from the Chief
         Communications Directorate:

         (i)     Frequency assignment decision specified in the present
                 Concession Contract for the ERMES channel 11 through the
                 169,675 MHz frequency. The Concession Company shall
                 simultaneously present, with the application for a frequency
                 assignment, a frequency plan containing the following data in
                 accordance with the CEPT T/R 25-07 recommendations to the
                 Chief Communication Directorate for approval:

                 *   radio frequency
                 *   place
                 *   effective radiated power (ERP)
                 *   reception region
                 *   height of the antenna
                 *   radiation direction
<PAGE>   83
                                       15

         (ii)    Radio license for use and operation of the implemented Base
                 Station.

         (iii)   Type approval for the subscribers' equipment used in the ERMES
                 network. Under this obligation, the Concession Company shall
                 apply for issuing Hungarian type approval (in the form of a
                 certificate), for the subscriber's equipment to be used in the
                 ERMES network, marketed and distributed by the same.

3.3.3    For the fixed placed, wired and wireless ERMES network, the Concession
         Company shall obtain the following:

         (i)     the conceptual construction permit
         (ii)    final construction permit
         (iii)   permit for use

3.4      RIGHTS OF USE OF REAL ESTATE PROPERTY AND BUILDING

         To enable the Concession Company to fulfil its obligations with
         respect to the introduction and provision of the ERMES nationwide
         public paging services, the Concession Company shall be granted the
         following special rights in accordance with paragraphs 26-28 of Act
         LXXII of 1992 on Telecommunications.

         (i)     Upon prior notice the owner (trustee or occupant) of the real
                 estate property shall endure that:

                 (a)      the authorized representative of the ERMES
                          telecommunications service provider enters the
                          territory of the real estate to carry out maintenance
                          and eliminating failures, defects.

                 (b)      the ERMES public telecommunications service provider
                          may, if no other technical solution is possible, 
                          (as certified by an authorized declaration), install
                          communication equipment, wires and antennas on, 
                          above or under the real estate building or 
                          establishment concerned;

                 (c)      in connection with the above subparagraph (a), the
                          owner of the real estate is entitled to an
                          indemnification corresponding to the extent of the
                          restriction, and as stipulated in subparagraph (b),
                          the owner may enforce the rights fixed in Section
                          108, subsection (2) of the Hungarian Civil Code. The
                          applicant for expropriation shall also procure the
                          opinion of the communication authority concerned;

<PAGE>   84



                                   ANNEX 3

                       MEMBERS OF THE SUPERVISORY BOARD

                  The first members of the Supervisory Board


1.)      Philip Lee
         1134 Budapest
         Vaci ut 37.
         Hungary

2.)      Bela Merisch
         1055 Budapest
         Balaton utca 22-24.
         Hungary

3.)      dr. Andrea Gyuracz
         1138 Budapest
         Bodor utca 12.
         Hungary

4.)      James D. Simpson, Jr.
         1125 Budapest
         Arnyas utca 38-40.
         Hungary

5.)      dr. Polgar Miklos
         1136 Budapest
         Hollan utca 46.
         Hungary

6.)      Dan Benderly
         West End Ave. 875
         New York, NY 10025
         USA
<PAGE>   85
                                                                   Exhibit 5.3.2

                             VOTING TRUST AGREEMENT

         THIS AGREEMENT is entered into is of August 5, 1994, among
SFMT-Hungaro Inc. a Delaware, U.S.A. corporation having its principal offices
at 9 East Lockerman Street, Dover, Delaware 19805, USA ("SFMT"), Gerard Aircraft
Sales and Leasing Company, a Delaware, U.S.A. corporation having its principal
offices at 1013 Centre Road, Wilmington, Delaware 19901, USA ("Gerard"),
Microsystem Tavkozlesfejleszt es Szolgaltato Telecom Rt., a Hungarian company
limited by shares with its principal offices at 1122 Budapest, Varosmajor u.
78, Hungary ("Microsystem"), and Mr. Istvan Pesti, a Hungarian citizen
residing at 21-20 Dunakeszi, Mihaly utca 7 ("Mr. Pesti").

         WHEREAS: SFMT, Gerard and Microsystem (together the "Founders")
have entered into a Joint Venture and Shareholders Agreement as of August
5, 1994, (the "Shareholders Agreement") to establish a Hungarian company limited
by shares to be called EURO Szemelyvhivo Magyarorszag Koncesszios Rt. (the
"Concession Company"), for the purpose of signing a Concession Contract with
the Minister of Transport, Communications and Water Management for the
provision of a nationwide public paging service in Hungary, and the Deed of
Foundation of said Concession Company must be filed with the Budapest Court of
Company Registration on this same date;

         WHEREAS: pursuant to the applicable Hungarian law and the tender
invitation, 25% plus one share of the Concession Company must be held by
Hungarian majority owned legal entities and/or natural persons of Hungarian
nationality ("Hungarian Shareholder(s)");

         WHEREAS: a Hungarian Shareholder whose shares in the Concession
Company together with those of Microsystem would make up the required 25% plus
one share has not been able to subscribe to the Deed of Foundation by the filing
deadline:

         AND

         WHEREAS: the Founders have requested Mr. Pesti, and Mr. Pesti has
agreed, to subscribe to the required shares as a trustee for the eventual final
Hungarian Shareholder(s):

         IN CONSIDERATION of the foregoing premises and the mutual undertakings
hereinbelow set forth, the parties hereto hereby agree as follows:

1.       Mr. Pesti will sign the Deed of Foundation of the Concession Company
         as a cofounder, subscribing to forty one (41) ordinary Class A voting
         shares (the "Shares"), and pay in 30% of the nominal value of the
         Shares amounting to HUF 12,300,000 (twelve million, three hundred
         thousand Hungarian forints).

2.       SFMT will cause its Hungarian subsidiary, SFMT-Montana Telecom Kft
         ("SFMT-Montana") having its principal offices at 1134 Budapest, Vaci
         utca 37, to advance the 30% of the nominal value of the Shares which
         must be paid in at the time of the foundation on behalf of Mr. Pesti
         (i.e., HUF 12,300,000). Similarly, SFMT-Montana will advance the
         remaining 70% of the value of the Shares (i.e., 28,700,000) in the
<PAGE>   86
                                       2


         event it becomes payable before the Shares are transferred to the
         Final Purchaser in accordance with clause (b) of Section 4. Such
         advances will constitute an interest free loan to Mr. Pesti which
         shall be repaid as further set forth below.

3.       Mr. Pesti will hold the Shares in trust for the benefit of the
         eventual Hungarian Shareholder(s) who shall be designated to Mr. Pesti
         in writing by all three Founders (the "Final Investor"). Mr. Pesti
         expressly declares that he has no interest whatsoever in the Shares
         held by him in trust for the Final Investor other than that of a bare
         trustee, and that any right or income in respect of such Shares, do
         not in any manner belong to Mr. Pesti but are the property of the
         Final Investor.

4.       Mr. Pesti agrees irrevocably and unconditionally to assign and
         transfer the Shares to the Final Investor within three working days
         from the date of the designation referred to in Section 3, provided
         that the Shares are then in transferable form (e.g. interim shares of
         Final shares). If at that time the Shares are still in a form not
         transferable under Hungarian law (e.g. share subscription vouchers),
         Mr. Pesti will within the same deadline of three (3) working days from
         the date of the written designation under Section 3, (a) issue to the 
         Final Investor in valid and binding form a use right (or usufruct,
         i.e., "haszonelvezeti jog" in Hungarian) to the Shares effectively 
         allowing the Final Investor to receive all dividends and vote the 
         Shares at all corporate meetings of the Concession Company, and (b) 
         within three working days of the date the Shares become freely 
         transferable, assign and transfer full legal ownership with all 
         rights, title and interest in the Shares to the Final Investor,
         in valid and binding form.

         As an alternative to the provisions of clause (a) above, at the
         request of the Founders Mr. Pesti shall (i) within the three day
         deadline referred to in Section 4, assign to the Final Investor the
         right to receive all dividends that may be declared and distributed
         with respect to the Shares since the establishment of the Concession 
         Company, and (ii) promptly upon request, issue to the Final Investor 
         a proxy in due time for each corporate meeting, authorizing the Final
         Investor to vote the Shares as it deems fit at each such meeting.

5.       Mr. Pesti hereby covenants and agrees that except as contemplated by
         this Agreement (or as directed by all of the Founders), Mr. Pesti
         shall not, and shall not offer or agree to, sell, transfer, tender,
         assign, hypothecate or otherwise dispose of, grant a proxy or power
         of attorney with respect to, create or permit to exist any security
         interest, lien, claim, pledge, option, right of first refusal,
         agreement, limitation on voting rights, charge or other encumbrance of
         any nature whatsoever with respect to, the Shares, or, directly or
         indirectly, initiate, solicit or encourage, any person to take any
         action that could reasonably be expected to lead to the occurrence of
         any of the foregoing.
<PAGE>   87
                                       3

6.       Mr. Pesti hereby further covenants and agrees that until such time as
         the Final Investor is designated and assigned the rights as foreseen
         under clause (a) of Section 4, Mr. Pesti will vote the Shares at any
         corporate meeting of the Concession Company in accordance with the
         instructions of SFMT, and whenever requested he will promptly execute
         and deliver to SFMT or its appointee an individual proxy in valid and
         binding form allowing SFMT or its appointee to vote the Shares as SFMT
         may deem fit at any single corporate meeting.

7.       The SFMT will require the Final Investor on the date of the transfer
         to it of the Shares or of the assignment of use rights (whichever is
         earlier) pursuant to Section 4, to pay the purchase price of the
         Shares, which shall be equal to the amount of the subscription price
         already paid in up to that date on behalf of Mr. Pesti, directly to
         SFMT/Montana, whereupon the corresponding loan to Mr. Pesti pursuant
         to Section 3 shall be fully satisfied and cancelled.

8.       SFMT hereby undertakes to reimburse Mr. Pesti for all costs and
         expenses, and to hold him harmless and indemnify him for any and all
         damages, losses, claims and liabilities of any kind whatsoever, with
         the sole exception of penal liability for wilful personal misconduct,
         that he may incur as a result of or in connection with his performance
         of any provision of this Agreement.

         Such reimbursement or indemnification shall include, without
         limitation, full compensation for any and all excess tax liability (on
         a "grossed up basis") that Mr. Pesti may incur as a consequence of
         this Agreement.

         The parties expressly confirm that neither Gerard nor Microsystem
         shall have any liability under this agreement.

9.       This Agreement, upon its signature by all parties, shall enter into
         effect as of the date first above written, and it shall continue in
         full force and affect until all of the Shares are effectively
         transferred to the Final Investor(s) as contemplated under Section 4.

10.      This Agreement may not be terminated by any party as long as the
         Shares are held by Mr. Pesti, provided however, that the Founders
         acting jointly may order Mr. Pesti at any time to transfer the Shares
         to one of them or to another person, with which order Mr. Pesti shall
         promptly comply, and the Founders may then terminate this Agreement
         effective as of the date of such transfer. The payment of the purchase
         price and settlement of Mr. Pesti's loan hereunder will in such case
         be handled in accordance with the principle laid down in Section 7,
         and the provisions of Section 8 shall in any case survive the
         termination or expiration of this Agreement for a period of three
         years.

11.      All notices and other communications required to be given under this
         Agreement shall be in writing and deemed to have been duly given if
         delivered personally, or by registered mail (return receipt
         requested), or sent by intrenational courier delivery or facsimile
         transmission, to the other parties at the respective address set forth
         above (or
<PAGE>   88
                                       4

         to such other address as a party shall designate for itself by notice
         of given in accordance herewith). 

         Any notice or other communication shall be deemed to have been given 
         on the date of receipt, as indicated by the receipt of confirmation.

12.      Any dispute or disagreement between any of the parties arising out of
         or in connection with this Agreement that cannot be amicably resolved,
         shall be exclusively decided and finally settled by the Court of
         Arbitration attached to the Hungarian Chamber of Commerce in
         accordance with its Rules of Procedure. The place of the arbitration
         shall be Budapest and the language English.

13.      This Agreement shall be generally governed by Hungarian law, provided,
         however, that to the extent the applicable Hungarian rule fails to
         give full effect to any specific provision hereof, such provision
         shall be interpreted, decided and enforced in accordance with the law
         of New York State, without giving effect to its conflict of law
         principles.

         IN WITNESS WHEREOF the parties have executed this Agreement by their 
         duly authorized representatives, in Budapest, as of the date first 
         above written.

[ILLEGIBLE]                       [ILLEGIBLE]                  

SFMT-Hungaro, Inc                 Gerard Aircraft Sales
                                  and Leasing Company

[ILLEGIBLE]                       
Microsystem Telecom Rt            Pesti Istvan

<PAGE>   89
                                       


                                                                   Exhibit 7.1.2

                      Preferential Dividend Distributions

Following is a sample calculation of the payment of the Gerard Premium Amount.

1.       Assume (for purposes of illustration only) that the Company does not
declare a dividend in the first three years of operations. In year four the
Company is in a position to declare dividends, and the Distributable Amount
equals the HUF equivalent of $1,000,000. (US $ will be utilized for the
purposes of this illustration.)

2.       $400,000, representing the first 40% of the distributable amount,
would be paid to Gerard. The remaining $600,000 would be distributed according
to the following ratios:

         Gerard           45/194

         SFMT             98/194

         Microsystem      10/194

         H Corporation    41/194

Accordingly, the $600,000 would be paid as follows:

         Gerard           $139,175

         SFMT             $303,093

         Microsystem      $ 30,928

         H Corporation    $126,804
                          --------

                 TOTAL    $600,000

3.       After payment of the foregoing dividend, the Gerard Premium Amount
would be deemed reduced by $400,000 to $2,600,000.

4.       The above procedure would be followed each year thereafter until such
time as Gerard has received the aggregate amount of $3,000,000. Thereafter,
dividends shall be distributed according to the following ratios:

         Gerard           51/200

         SFMT             98/200

         Microsystem      10/200

         H Corporation    41/200

<PAGE>   90
                                       16



         (d)     in the case of subsection (b), upon request of the ERMES
                 public paging service provider the authority - in public
                 interest - may establish easement or other rights of use;

         (e)     the representative of the ERMES public paging service
                 provider, being in charge of tasks connected with the entrance
                 to real estate properties, shall be supplied with the
                 documents needed for identifying themselves and verifying
                 their task;

         (f)     the ERMES public paging service provider is entitled to
                 provide ground mobile telecommunication service in the
                 territory of the country (Hungary), namely, on the surface, on
                 the rivers, on natural lakes and in their beds, as well as in
                 the tunnels of the railway, roads and underground.

(ii)     If the construction, renewal, renovation or destruction of a building
         requires the removal of telecommunication equipment - taking into
         consideration the stipulations of separate legal rules - installed by
         the ERMES public service provider, from the building or affixed land,
         the ERMES service provider shall execute these works at its own cost

(iii)    The permit of the municipalities, in Budapest the permit of City
         Council shall be required for the construction of high rise facilities
         for telecommunications purposes and during the process aspects of
         landscape protection and historical-environmental preservation shall be
         considered.

3.5      CERTAIN CONSEQUENCES DUE TO LACK OF LICENSES.

         The parties agree that the unsuccessful procedure of obtaining the
         above licenses can temporarily hinder the execution of the agreement
         as described in Section 1.5. In such case the deadline schedule will
         be extended accordingly by a time period corresponding to the
         hindrance described above and the Minister will then act appropriately
         at the time of the modification of the schedule.

<PAGE>   91
                                       17

                                   SECTION 4.
                    REQUIREMENT ON PROVIDING ERMES SERVICES

4.1      COVERAGE OF THE TERRITORY OF THE REPUBLIC OF HUNGARY BY THE PAGING
         SERVICES


4.1.1    The Concession Company shall cover not less than 80% of the territory
         of the Republic of Hungary by ERMES public paging services within 3
         years from the conclusion of the present Concession Contract according
         to the following schedule:

<TABLE>
<CAPTION>
         Coverage                                  Deadline
         --------                                  --------
        <S>                                        <C>
         Budapest                                  31.01.1995
         Balaton and its environs                  31.05.1995
         County seats                              30.09.1995
         Highways, motor roads,
         one-numbered main roads                   31.01.1996

         86% of the territory of the country
         all cities                                30.04.1996
</TABLE>

4.1.2    The professional services, however, have to include the provision of
         the international roaming criteria from the very beginning both for
         domestic subscribers and for foreign subscribers residing in the
         territory of the Republic in Hungary from countries where the ERMES
         system is in operation, subject to the technical compatibility as
         interpreted by the ERMES MoU.

4.1.3    The Minister may agree to provisional postponement of the performance
         of the international service provision obligations if, in the course
         of the international coordination, restrictions in the frequency
         applications become necessary by reason of any provisional
         difficulties.

4.2      LIABILITIES IN CONNECTION WITH PROVIDING OF SERVICES

4.2.1    The services shall be provided for the subscribers for 24 hours on
         each day of the week.

4.2.2    The Concession Company shall be liable to provide and make its
         functioning and already licensed services available without any
         distinction for those applicants who are either in the possession of
         receivers, type-approved by the competent Hungarian authorities, or
         intend to purchase or rent such receivers and conclude the
         subscriber's contract. The roamer subscribers can use any ERMES
         receivers in the territory of the Republic of Hungary, provided that
         the type thereof has been approved in the country where the ERMES
         subscription is situated.

<PAGE>   92
                                       18

4.2.3    The Concession Company undertakes that in the periods of implementation
         of the ERMES network as specified in Section 4.1.1 rate of the calls
         interpreted on the basis of the standard ETS 300 133-1...7 shall be
         above the minimum criteria declared in the standard No. ETS 300
         133-1...7.

4.2.4    The ERMES Concession Company shall be liable to enter into
         subscriber's contracts with proper contents concerning the subscribers
         utilizing the ERMES Nationwide Public Paging Services satisfying the
         provisions of paragraphs 8 to 13 of Act LXXII. of 1992 on
         Telecommunications and the relevant legal rules.

         The ERMES Concession Company as service provider shall publish its
         general contractual terms and conditions and regulations concerning
         the services following their approval by the Chief Communications
         Directorate together with the fees to be charged for the subscribers
         and not specified by the price-law.

4.2.5    If not stipulated otherwise by the law, the ERMES Concession Company
         shall provide equal treatment to subscribers being in equal position,
         requesting the provision of the services in the same time, in
         connection with conditions and fees of the nationwide public paging
         services.

4.2.6    The ERMES Concession Company may interrupt the provision of ERMES
         nationwide public paging services only with prior written consent of
         the Minister and giving notice to the subscribers except those cases
         when such interruption occurs due to reasons beyond the reasonable
         control of the ERMES Concession Company.

4.2.7    The ERMES Concession Company covenants to carry on maintenance works
         on the ERMES network without causing any disturbance for the
         customers.

4.2.8    In order to overcome martial law, emergency or natural disasters and
         the consequences thereof jeopardizing the personal and material safety
         of the citizens, the Minister may, upon specific authorization by the
         Parliament temporarily restrict or suspend the radio
         telecommunications services. The ERMES Concession Company shall
         cooperate with state organs, other telecommunications service
         providers and telecommunications network operators, in accordance with
         the provision of the law under guidance of the Minister and other
         ministers concerned in the setting up and execution of an active plan
         to be applied under such circumstances. 

         In case of emergency, war or provisional emergency, as well as in the
         interest of public security, the Concession Company shall act 
         according to the instructions of the Minister within the framework 
         defined by law.

<PAGE>   93

                                       19

4.2.9    The ERMES Concession Company shall provide technical facilities for
         the control of voice and non-voice communication of certain groups of
         subscribers in compliance with the prevailing laws and Section 8.2.5
         of the present Contract. This control shall possibly cover the whole
         service area covered by this Contract for the service provider with
         all categories of subscribers and all communication services which are
         included in the facilities given to the subscribers.

4.3      PERMANENT PROVISION OF TECHNICAL AND PERSONNEL CONDITIONS, QUALITY OF
         THE SERVICES

4.3.1    In the interest of smooth operation of the services, the Concession
         Company shall provide the necessary personnel and material conditions
         thereof, and make possible the continuous and reliable use of the
         services for both domestic and foreign subscribers.

4.3.2    The Concession Company shall implement and operate the network of the
         ERMES services in a way, regarding both the methodical and operational
         point of view that it could meet the requirements of standard ETS 300
         133-1...7, as well as the norms and recommendations of ERMES MoU.

4.3.3    The Nationwide Public Paging system to be implemented by the
         Concession Company shall be suitable to provide the basic services
         ("voice" only, "numeric", "alphanumeric" and "transparent" data),
         messages and the supplementary services as specified in the standard
         ETS 300 133-1...7. The mandatory and optional scope of the basic and
         supplementary services as well as the phases of their implementation
         are defined by the ERMES MoU (Memorandum of Understanding), on the
         basis of the ETS 300 133-1...7 norm.

4.3.4    The Concession Company shall include the scope of available ERMES
         services in the subscribers' contract to be concluded with the
         customers. The quality of the services shall be determined by the
         ratio of message delivery time and the call success rate interpreted
         on the basis of the ETS 300 133-1...7 Norm.

4.3.5    The Concession Company shall, in accordance with the service
         availability individually defined in the subscriber's contracts in
         accordance with the actual geographical coverage of the ERMES services
         and within the framework of its nationwide public paging services
         actually provide paging services within the following territories.

         *       local accessibility
         *       regional accessibility
         *       nationwide accessibility
         *       international accessibility

<PAGE>   94
                                       20



         The subscriber utilizing paging services on the basis of the
         subscriber's contracts shall also be able to utilize roaming services
         in the areas of other ERMES providers, where the ERMES Service
         Providers concerned have already concluded the network contracts with
         each other on basis of provisions and instructions of the ERMES MoU
         and EC ONP (European Communities Open Network Provision).

4.4      BASIC REQUIREMENTS CONCERNING THE ERMES RECEIVERS.

4.4.1    The ERMES Concession Company being the Hungarian distributor of the
         subscribers' receivers, shall have to have the appropriate permits and
         licenses required and issued by the Hungarian Authorities for a
         distributor, as well as a technical services network to supply the
         maintenance and repair services established in proportion to the
         number of the purchased receivers within the area covered by the ERMES
         paging telecommunications services.

4.4.2    The Concession Company shall not be entitled to sell or otherwise
         commercialize for the use in its own ERMES network any paging
         receivers manufactured by any economic association which has any
         direct or indirect shareholding in the ERMES Concession Company.


         Except those paging receivers in the price of which the added value of
         Hungarian origin is or above 50% of the net price of the final
         product.

4.4.3    The Concession Company shall not be entitled to introduce or propose
         restricting measures either directly or indirectly in order to prevent
         the utilization in its ERMES network, of any such paging receiver
         equipment type-approved for the utilization in the territory of the
         Republic of Hungary.

4.4.4    The Concession Company may distribute subscriber's receivers without
         any restrictions, and taking into account the issues specified in 
         Section 4.4.2, but the following shall be kept:

         (i)     Supply of any ERMES service should not be dependent upon the
                 purchase or rental of a specific type of receiver or,

         (ii)    Costs and fees of receivers provided by the Concession Company
                 shall not be part or portion of the costs and fees of any
                 ERMES paging service.

<PAGE>   95
                                       21



4.5      THE MANDATORY CHARACTER OF TECHNICAL SPECIFICATIONS

4.5.1    The document on "Service, technical and network interconnection
         requirements for the establishment and provision of nationwide public
         paging services" shall be an integral part to the present Concession
         Contract during the entire concession period.

4.5.2    The Concession Company covenants that it shall, for the entire period
         of the validity of the Concession Contract comply with and enforce the
         requirements put forward in the norms of standard ETS 300 133-1...7
         and in the documents of ERMES MoU in the course of implementation,
         provision and development of the ERMES paging telecommunications
         services.

4.5.3    Any change or modification of the service, technical and network
         interconnection requirements attached as Annex 1. to the present
         Concession Contract, as well as the requirements of documents as
         specified in Section 4.5.2, shall only be effective with the written
         consent of the parties hereto, and without any harm in the interests
         of the other ERMES Paging Telecommunications Service Providers.  

         Only international recommendations, standards and specifications, as 
         well as significant changes occurred in the structure and/or system of
         the telecommunications networks interconnected with the ERMES service
         provider can served for basis for this change.

                                  SECTION 5
             FEES PAYABLE TO THE AUTHORITIES IN CONNECTION WITH
                             THE ERMES SERVICES

5.1      FEES CONNECTED TO THE FREQUENCIES

         Over and above the concession fees, the Concession Company shall be
         liable to pay a yearly frequency reservation and frequency usage fee
         for the Telecommunication Chief Directorate as specified in the ERMES
         concession tender documentation (see Annex 2.) which shall be later
         regulated by law, by a governmental decree or by the order of the
         Minister of Transport, Communication and Water Management and
         eventually by the order of the Minister of Finance.

<PAGE>   96
                                       22


5.2      OTHER LICENSE, INSPECTION AND PARTICIPATION FEES PAYABLE TO
         AUTHORITIES

5.2.1    The ERMES Concession Company shall pay the following fees during the
         implementation and operation of the Network:

         (i)     the fees and duties in connection with the conceptual
                 construction permits, the final construction permits as well
                 as the permits for use needed for the implementation of the
                 network,

         (ii)    the control fees in connection with the quality supervision of
                 the ERMES public paging telecommunications network.

5.2.2    The yearly fees shall be payable to the Telecommunication Chief
         Directorate for its relevant bank account latest by 31st March of
         the year following the relevant one. The Concession Company shall be
         liable to quarterly provide all background data used for calculating
         the relevant fees, for the Minister and the Telecommunication Chief
         Directorate.

5.2.3    Taking into account that both ERMES Concession Companies shall join
         the ERMES MoU within six (6) months after their registration and
         participate in its activity until the end of the concession period,
         the Concession Company shall duly pay the proportionate participation
         fees.

                                  SECTION 6
                  REGULATION ON OFFICIAL TARIFFS AND FEES,
                         NETWORK AND SUBSCRIBER FEES
                          OF ERMES PAGING SERVICES

6.1      LEGAL BACKGROUND FOR REGULATION ON OFFICIAL FEES AND TARIFFS, CHANGE
         IN FEES AND TARIFFS.

6.1.1    According to the Act No. LXXXVII of 1990 on Price Management, the
         tariffs concerning the telecommunications services are officially
         maximalized within the frame of which the Concession Company is
         entitled to calculate fees and packages on fees and following the
         approval of the Minister to put them forward in the subscribers'
         contracts.

         According to subparagraph (1) of Section 40 of Act No. LXXII of 1992
         on Telecommunications, the tariffs of public paging telecommunication
         services subject to concession and the methods of their modification 
         shall be stipulated in a common order issued by the Minister and the 
         Minister of Finance.

<PAGE>   97


                                       23

         The Minister takes the obligation that during preparing the order he
         will take into consideration the fees and tariffs proposed in the      
         approved offer regarding the fact that at the time of signing the
         Agreement, there was no legal rules stipulating the fee of such a
         service.

6.1.2    The modification of official tariffs valid at the commencement of the
         ERMES paging services may be effected on the basis of cost analysis as
         well as of economic profitability study prepared by the service
         provider in compliance with legal rules relating to the official
         pricing.

         The intention for such modification in tariffs shall be submitted to
         the Minister sixty (60) days prior to the date of the planned entry
         into force - along with the detailed supporting calculations -.  The
         Minister may refuse to approve the proposed tariffs if:

         (i)     the calculations are numerically incorrect

         (ii)    the proposed tariffs are in conflict with the relevant legal
                 rules on pricing.

         The approved tariffs shall be announced in a decree by the Minister,
         in agreement with the Minister of Finance, which shall be published by
         October 31, 1994.

6.2      NETWORK AND SUBSCRIBER'S FEES OF ERMES SERVICES.

6.2.1    On the basis of the network contract, the ERMES Public Paging Services
         Concession Company shall pay a one-time and a monthly interconnection
         fee for the leased (rented) line service to the service provider of
         the telecommunications backbone network, in the value corresponding to
         the method of calculation specified by the Minister, considering the
         30/1991 (XI.21.) KHVM order as a base.

6.2.2    Depending on the circulation and on the basis of a network contract, a
         connection fee may be charged for the Concession Company for the
         transfer - i.e. transfer fee of the telecommunication-way through
         which the caller using the ERMES services matches the automatic and/or
         dispatch center of the ERMES paging network - shall be paid to the
         economic organizations in the portion specified in order no. 30/1993
         (XI. 21) KHVM. The concession fee shall be paid by the caller.

         Remarks: In the legal rules to be issued on the tariffs of public
         paging services the Minister shall observe the proposals of the
         Concession Company issued on the basis of its preliminary negotiations
         held with the Service Provider of PSTN/ISDN (MATAV Ltd) relating to
         the network contracts.

<PAGE>   98

                                       24

6.2.3    On the basis of the subscriber's contract, the ERMES public paging
         service provider shall be entitled to collect fees consisting of the
         following elements:

         (i)     one-time subscriber's fee

         (ii)    monthly subscription fee

         (iii)   actual (calling) utilization fee

6.2.4    Due to the fact that the official regulation concerning the tariffs
         for the public nationwide services has not been issued, the present
         Concession Contract has been entered into by the partners being aware
         of the fact that the new legal rule will be based on the following
         view-points:

         (i)     Those who use ERMES receivers shall pay a monthly fee to the
                 Concession Company on the basis of subscriber's contract
                 dependent on the type of ERMES services but independent upon
                 the number of calls.

         (ii)    The method of inflation adjusting shall be similar to the
                 present price regulations as promulgated. The inflation
                 adjusting criteria shall be computed on the basis of the
                 Production Price Index (PPI).

         (iii)   The regulation shall be of "price maximazing" ("price cap")
                 type i.e. the highest level of the price elements shall be
                 restricted by the order. The Concession Company may have a
                 choice (option) either to offer direct price packages or price
                 packages being calculated on the basis of fixed priced
                 elements.

         (iv)    If the Concession Company chooses the second alternative
                 (tariff packages calculated on the basis of fixed priced
                 elements) the restriction shall be similar to the price
                 regulation on public mobile radio telephone services specified
                 in the KHVM Decree No. 13/1994.

         (v)     If the Concession Company offers a complex fee-structure
                 (subscriber's monthly fee, subscriber's monthly fee combined
                 with the calls), the whole fee package should not exceed the
                 limitation (restriction) to be stipulated in the new order as
                 a reasonable comparison basis.

         (vi)    The tariffs and fees shall be made public.

<PAGE>   99

                                       25

6.2.5    In accordance with the offer of the Concession Company, the amount and
         structure of the initial subscriber's fee, which shall be taken into
         consideration by the Minister when creating the final regulations is
         as follows:

                          Estimated ERMES service fees

<TABLE>
<CAPTION>
         Type of service  Monthly fee      Subscriber's fee
         ---------------  -----------      ----------------

         <S>              <C>              <C>
         Tone             1,500 HUF        2,000 HUF
         Numeric          3,000 HUF        3,500 HUF
         Alphanumeric     4,500 HUF        5,000 HUF
</TABLE>

         Remark: The monthly fee includes no more than 20 messages. As the
         Concession Company does not have a full market knowledge of the new
         ERMES paging services, the prices mentioned and estimated above are
         only indicative and not binding.

         The initial subscriber's fee which will be replaced by the new price
         order, is valid till May 31, 1995.

6.2.6    In case of domestic as well as international roaming, the invoicing
         between the Concession Company and the foreign ERMES service providers
         shall be settled according to the recommendations of the EC NP
         (European Communities Open Network Provisions) and the ERMES MoU.

                                  SECTION 7
                 LIABILITIES AND COMPETENCY OF THE MINISTER

7.1      ENTITLEMENT FOR PROVISION OF NATIONWIDE PUBLIC PAGING SERVICES

         The Minister hereby informs the Concession Company according to point
         g.) in subsection (2) of Section 8 of Act No. XVI of 1991 on
         Concessions, that in case of satisfactory level and quality of ERMES
         nationwide public paging services according to point 1.3.2 hereabove,
         he shall not authorize any other economic entity or natural person to
         commence carrying on public paging services connected with frequency
         use, subject to concession on a commercial basis.

<PAGE>   100

                                       26

7.2      PUBLIC, CLEAR AND CONTROLLABLE PROCEDURE

7.2.1    The Minister warrants that all regulatory and administrative
         proceedings relating to the rights, obligations or activities of the
         Concession Company under this Concession Contract shall be public,
         clear and controllable.  The Minister shall do his best efforts in
         order that the regulations of laws and orders being applied to the
         nationwide public paging services shall not be modified to adversely
         affect the Concession Company.

7.2.2    In his scope of activity, the Minister shall do his best efforts in
         order to ensure that the ERMES Concession Company should be granted
         all permits, approvals and authorization required for the due
         performance of its obligations under this Contract, in the frame of
         the valid legal rules within the shortest possible time, including the
         processes specified in Section 3.3.

7.3      SETTLEMENT OF THE LEGAL DISPUTES

7.3.1    The Minister warrants within the framework and competency vested in
         him under the law that the Concession Company shall be treated both in
         the administrative procedures and as a participant of the
         telecommunications market in a way that the Concession Company:

         (i)     shall be able to duly perform its liabilities under the
                 present Contract, and,

         (ii)    shall not be discriminated as compared to any other lawful
                 participant on the telecommunications market.

7.3.2    The Minister acknowledges the contents of the present Contract as
         binding for the Hungarian State represented by himself and hereby
         declares that in case of legal dispute, the Hungarian State shall not
         refer to its sovereign immunity by supreme power with regard to the
         authority of the court, but shall accept the court named in this
         Concession Contract voluntarily carrying out its judgements. The
         Concession Company shall also voluntarily carry out the judgement of
         the Court.

7.4      AUTHORITY OF THE MINISTER IN INTERNATIONAL ISSUES

         The Minister shall, as specified in the Governmental Decree declaring
         his tasks and competency as well as in the Act No. LXXII of 1992 and
         No. LXII of 1993 on Frequency Management, provide the setting of
         directives for the relations between the Hungarian telecommunication
         branch and the international frequency management. Furthermore he
         shall provide the representation of the Republic of Hungary, the
         participation of the Ministry in the activity of the International
         telecommunication's

<PAGE>   101

                                     27
         forms and bodies, being essential in respect of the performance of its
         official and international cooperation tasks. In performing all the
         above the Minister shall act in a way which ensures the smooth
         operation of the telecommunication providers working on the basis of
         the concession agreements concluded by him.

         The Minister undertakes to make the international announcement as
         stipulated in the CEPT T/R25-07 recommendation pursuant to the
         international frequency coordination.

                                       SECTION 8
                   RULES CONCERNING THE BUSINESS AND MARKET ACTIVITY
                          AND LIABILITIES TO THE SUBSCRIBERS
                               OF THE CONCESSION COMPANY

8.1      REQUIREMENT OF FAIR BUSINESS ACTIVITY

8.1.1    The ERMES Concession Company, carrying on its business activity and
         providing the nationwide public paging services, shall not exercise
         the concession rights vested on it by the Minister in such a way that
         would offend the concession rights of other telecommunications service
         providers.

8.1.2    Within the scope of fair market activities the Concession Company:

         (i)     shall abstain from discriminating or making any preferences
                 between any telecommunications service providers.

         (ii)    in calculating and introducing the fees and tariffs of its
                 services and conditions thereof, it shall not make any
                 distinction between the subscribers using similar types of
                 services and being in a similar consumer position.

         (iii)   shall not make a sales combination between the
                 commercialization (lease) of ERMES receivers and the
                 utilization of any ERMES service.

         (iv)    shall not make the price and/or rental fee of the subscriber's
                 receivers as a component of the tariffs or fees of the ERMES
                 services.

<PAGE>   102

                                     28

8.2      RIGHTS AND LIABILITIES IN CONNECTION WITH THE ERMES SUBSCRIBERS.

8.2.1    The Concession Company, parallel with the establishment of the ERMES
         network shall be liable to conclude subscriber's contracts for the
         already implemented sections and to occasionally modify and extend
         these simultaneously with the enlargement of the network and/or
         services and furthermore, to duly fulfil the subscriber's agreements.

8.2.2    The Concession Company shall be entitled to provide professional
         information to the population and to carry out the marketing of the
         communication activity aiming at the introduction and promotion of the
         ERMES services.

8.2.3    The Concession Company shall be liable to organize and maintain a
         service network of ERMES receivers used in its ERMES network and
         distributed by the Concession Company and for its continuous and high
         level operation according to the ERMES technical norms concerned, and
         to provide the warranties as specified in the Civil Code.

         The Concession Company shall warrant that all type-approved ERMES
         receivers should be connected into its ERMES network and the radio
         connection should be established and continuously operated according
         to the approved business conditions and the included price list.

8.2.4    In accordance with the nationwide public paging services provided by
         itself, the Concession Company shall be liable to establish and
         operate the information and repair services and furthermore a client
         service dealing with the questions of subscribers relating to the
         orders, operation, services, accounting and advisory activities.

8.2.5    The Concession Company shall publish a register containing the data
         and call numbers of subscribers switched into the ERMES services. In
         this context, the Concession Company shall proceed pursuant to the
         rules of Act on Data Protection as well as those of telecommunications
         law. The Concession Company shall provide for the protection of the
         confidentiality of business secrets and personal data that comes to
         its knowledge in connection with the business activity, and use
         effective procedures of data protection therefor.

8.2.6    Legal relations between the Concession Company and the subscribers
         shall be governed by Act No. LXXII of 1992 on Telecommunications along
         with the relevant governmental and ministerial regulations, the 
         subscriber contracts and the approved business conditions of the 
         Concession Company.

<PAGE>   103


                                       29

8.2.7    The business terms and conditions of the Concession Company shall be
         submitted to the Minister for approval and after approval these shall
         be published.

         If the Minister or the organization acting under appointment of the
         Minister, verifies the business conditions issued by the Concession
         Company concerning the provision of ERMES services as well as the
         implementation and operation of the network, are not in compliance
         with the relevant rules of law and/or the present Concession Contract,
         he shall immediately notify the Concession Company to supplement
         and/or modify its business conditions accordingly. The Concession
         Company shall publish its valid business conditions as well as any
         modification thereof and continuously inform its subscribers thereon.

                                  SECTION 9
             CO-OPERATION WITH OTHER TELECOMMUNICATIONS NETWORKS
                            AND SERVICE PROVIDERS

9.1      CO-OPERATION WITH OTHER TELECOMMUNICATIONS NETWORKS

9.1.1    The ERMES Concession Company shall equally treat all public
         telecommunications service providers connected with them, including
         its own economic entities, as to the conditions and requirements of
         interconnection as well as the repair, maintenance and securing of
         interconnection equipment.

9.1.2    The ERMES Concession Company shall be entitled to initiate the
         interconnection with networks of other public telecommunications
         networks and establishment thereof under the conditions set forth in
         the valid legal rules according to the principle of equality as well
         as the published technical specifications.

9.2      CO-OPERATION WITH OTHER TELECOMMUNICATION SERVICE PROVIDERS

         The Concession Company providing the ERMES nationwide public paging
         services and implementing the network thereof shall co-operate with
         other telecommunications service providers in the following areas:

         (i)     supply of technical information and data necessary for the
                 smooth operation and interconnection of the network,

<PAGE>   104


                                       30

         (ii)    harmonization of maintenance systems,

         (iii)   measurements connected to the operation of the networks,

         (iv)    elimination of failures occurred during providing services.

         The Minister shall make all reasonable efforts in the frame of his
         scope of activity in order to ensure the co-operation of other
         concession companies as well as telecommunication service providers.

9.3      PREVENTION AND ELIMINATION OF TECHNICAL FAILURES.

9.3.1    The partners to this Concession Contract are aware of the fact that,
         in the countries where the ERMES paging system has already been
         implemented, the radio base stations (BS) of the paging service
         network may produce incidental interferences on some television and
         land mobile service channels and cable television networks. The
         research team formed upon demand of CEPT issued a report in October
         1993 on the compatibilities between ERMES and PMR System and TV E-5 in
         Montreaux.

9.3.2    The Minister and the Concession Company agreed that they shall take
         all reasonable measures to secure ERMES nationwide public services
         through the frequency channel specified in Section 1.1.1 of this
         Contract free of any interference on other networks and shall supply
         among others, the following measures:

         (i)     the careful selection of the site of ERMES transmitters, as
                 well as of the radiation capacity and characteristics thereof,
                 undertaking appropriate regional trials, using the data basis
                 of the Chief Communications Directorate,

         (ii)    supplementary application of technological means and
                 equipments, discussions between the Concession Company and the
                 service providers concerned,

         (iii)   agreeing in filtering options,

         (iv)    appropriate shifting of the applied transmission frequencies,

         (v)     other options appropriately proven by the theory or practice
                 of radio-telecommunication.
<PAGE>   105
                                       31

                                   SECTION 10
                     USE OF HUNGARIAN GOODS AND SERVICES


10.1     USE OF HUNGARIAN GOODS AND SERVICES

10.1.1   The Concession Company agrees to use as much Hungarian goods,
         equipment and services as financially feasible, taking into account the
         qualitative and quantitative terms and conditions available on the
         Hungarian market.

         The Concession Company will do its best efforts to increase the ratio
         of Hungarian participation during the concession period, including
         participation in the management of the Concession Company.

10.1.2   The Minister is entitled to supervise the execution of the above and
         may request any reasonable information needed for the evaluation.

10.2     NOTIONS OF "GOODS OF HUNGARIAN ORIGIN" AND "HUNGARIAN PARTICIPATION"

10.2.1   Goods shall be treated as of Hungarian origin if at least 25 percent
         of the aggregate value of their components have been manufactured in
         Hungary and/or their value has been raised by at least 25 percent
         derived from any manufacturing activity that can be proved to be
         executed in Hungary.

10.2.2   It shall be treated as "Hungarian participation" when the Concession
         Company and/or any member thereof transfers technologies for
         manufacturing in Hungary and realization of domestic manufacturing and
         supply of certain elements, equipment of the ERMES network.
<PAGE>   106
                                       32

                                   SECTION 11
                  RESPONSIBILITIES OF THE CONCESSION COMPANY,
          FINANCIAL SECURITIES TO BE PROVIDED BY THE CONCESSION COMPANY

11.1     RESPONSIBILITIES OF THE CONCESSION COMPANY IN CONNECTION WITH THE
         IMPLEMENTATION OF THE PROJECT

11.1.1   In the course of implementation and operation of the Project as well
         as of the provision of nationwide public paging services, the
         Concession Company shall act with care and due diligence as is
         expected from a telecommunications service provider.

11.1.2   The Concession Company shall be solely and exclusively responsible for
         damages, death and personal injury suffered by and caused to anybody
         in connection with the construction, operation and maintenance of the
         Project caused by the Concession Company's gross negligence or willful
         misconduct. The Concession Company shall be liable to effect insurance
         at its own costs and benefits against such risk in the broadest
         possible way:

         (i)     for the entire Project
 
         (ii)    for the construction of the Project

         (iii)   for the employees of the Project

         (iv)    for responsibilities in connection with the Project

         (v)     for the operation and maintenance of the Project

11.2     RESPONSIBILITIES OF THE CONCESSION COMPANY IN CONNECTION WITH THE
         EXECUTION OF THE CONCESSION CONTRACT

11.2.1   The Concession Company shall be responsible for the due performance of
         the liabilities under the present Concession Contract in accordance
         with the laws and regulations on concession, telecommunications and
         frequency management and the Civil Code of the Republic of Hungary.

11.2.2   The Concession Company shall be relieved from the responsibilities
         either in whole or in part if the competent Hungarian Court acting in
         accordance with the applicable laws, declares that such
         responsibilities either do not exist in whole or in part.
<PAGE>   107
                                       33

11.3     SECURITIES

11.3.1   To secure the performance of liabilities under the Concession
         Contract, The Concession Company shall be liable to submit to the
         Minister, or a duly authorized person or organization, a bank
         guarantee in the amount of 500,000 USD issued by the Hungarian Foreign
         Trade Bank for the Ministry of Transport, Communications and Water
         Management of the Republic of Hungary as beneficiary, within 30
         (thirty) days after the signing of the Concession Contract in
         accordance with the wording of the letter of guarantee attached in
         Annex 3. hereto.

11.3.2   The bank guarantee shall be valid for 4 (four) years plus 30 (thirty)
         days after the date of issue.

11.3.3   The performance guarantee shall secure the implementation of the
         Project in good quality and in due time, as well as the provision of
         reliable services. The security shall be obtained either completely or
         in part as the case may be. The lawfulness of the utilization of the
         performance guarantee or any part thereof, may be examined by the
         court proceeding as stated in section 17.1.

         Upon request of the Concession Company, the Minister may return the
         performance guarantee submitted to him earliest by April 30, 1996 or
         90 (ninety) days thereafter, if he is convinced that the
         implementation of the Project has met the coverage as well as the
         quality requirements specified in Section 4.1.1. and 4.3. However, the
         Concession Company agrees either to issue a new bank guarantee in the
         original amount or to submit a security of the same value acceptable
         to the Minister, within 90 (ninety) days after that the coverage
         provided by the Concession Company has ceased either to meet the
         quality requirements as specified in Section 4.3. or the standard of
         the services do not correspond permanently to the quality requirements
         as specified in Section 4.3.

11.3.4   The members of Magyar Paging Consortium as the founders of the
         Concession Company shall jointly and separately provide guarantee for
         the Concession Company's performances concerning the following:

         (i)     the majority participation in the Concession Company as well
                 as the voting rights thereon shall be exercised primarily in
                 the interest of due performance of the Concession Contract.

         (ii)    the Concession Company shall not transfer the concession
                 rights without the prior approval of the Minister.
<PAGE>   108
                                       34

         (iii)   in case of termination of the Concession Contract by notice or
                 due to other reason, the Concession Company shall continue the
                 provision of services for at least six months.

11.3.5   The Minister may demand the performance from the guarantors if,
         according to the decision of the court, it shall be proved that the
         Concession Company breached any of the obligations wholly or partially
         specified in Section 11.3.4 and the bank guarantee specified in
         Section 11.3.1, and the assets of the Concession Company shall not
         provide enough coverage for damages resulting from such a breach.
         Legal disputes in connection with the guarantorship shall be settled
         exclusively by the court as specified in Section 17.1.

                                   SECTION 12
                                 FORCE MAJEURE

The ERMES Concession Company shall only be excused from performing its
liabilities wholly or partially under this contract to the extent and for such
a time period as its performance is substantially hindered or is considered
impossible by Force Majeure, such as war, civil uprising, strikes, natural
disasters or any other such unavoidable emergencies.

If such events cause damages to the ERMES Public Paging Network operated by the
ERMES Concession Company, the Concession Company shall be liable to elaborate
proposals for the repair and reconstruction of the network and take the
necessary steps on the basis of the plan co-ordinated with the Minister.

Regarding the obligations of the Minister in case of Force Majeure, the
regulations of valid laws shall apply.

Regarding the occurrence, expected duration and effects on the performance of
the Concession Contract of the events qualified as Force Majeure, the Party
noticing it and referring hereto, must inform the other Party in writing
without delay.

The subject of the Force Majeure is to be evidenced without delay by the Party
referring hereto by the declaration of the competent authority pursuant to the
place and character of the Force Majeure event.
<PAGE>   109
                                       35

                                   SECTION 13
            MODIFICATION, EXPIRY AND TERMINATION OF THE CONTRACT

13.1     MODIFICATION OF THE CONTRACT

13.1.1   The Contracting Parties may modify the present Contract at any time in
         writing in any way as permitted by the relevant rules of law.

13.1.2   According to Section 5, subsection (1), para e.), of Act No. LXXII of
         1992 on Telecommunications, the Minister shall be entitled to
         supervise the Concession Contract periodically from the point of view
         of the consumer's interests and/or of the due development criteria
         and/or of the international liabilities meanwhile agreed and to modify
         it accordingly.

         (i)     In the process of application and interpretation of the
                 present Contract under the term "modification under consumer's
                 interest" there shall be deemed such modification which shall
                 be initiated by the Minister following and based upon the
                 motivated proposals of the Telecommunications Reconciliation
                 Forum.

         (ii)    In the process of application and interpretation of the
                 present Contract under the term "modification under due
                 development criteria" there shall be deemed such modification
                 which shall be initiated by the Minister in the competency
                 specified as state functions under the laws on
                 telecommunications and/or frequency management.

         (iii)   In the process of application and interpretation of the
                 present Contract under the term "modifications under the
                 international liabilities meanwhile agreed" there shall be
                 deemed such modifications initiated by the Minister on the
                 basis of international liabilities undertaken by the Hungarian
                 State. Eventual modifications in recommendations and decisions
                 of ERMES MoU or in the norms of ETS 300 133-1...7 standard.
                 shall be deemed as necessary reasons for the modification of
                 the present Contract accordingly.

13.1.3   Any modification initiated by the Minister:

         (i)     may not change the basic rights and liabilities as to the
                 subject matter of the concession, duration and the fees
                 thereof to the disadvantage of the Company,

         (ii)    may not infringe the material and lawful interests of the
                 Concession Company in connection with the concession, the use
                 of frequency or the reasonable operation of the Concession
                 Company by complying with the obligations under the Contract
                 and the rules and regulations of the Hungarian law.
<PAGE>   110
                                       36

13.2     EXPIRY OF THE CONTRACT

         The present Concession Contract shall cease to exist by the expiration
         of the period specified in Section 1.3.1, or it shall be terminated
         by the written agreement of the Parties specifying the conditions and
         consequences of such termination by agreement.

13.3     TERMINATION OF THE CONTRACT

         The present Contract has been concluded for a fifteen (15) year period
         according to Section 1.3.1, and with respect to the public interest on
         the due performance thereof, it can only be terminated under reasons
         specified in Sections 13.4 and 13.5 following an abortive grace period
         provided by a preliminary written notice. 

         A termination with immediate effect shall take place only under
         reasons specified in Section 13.4.2.

13.4     TERMINATION BY THE MINISTER

         The Minister shall have the right to terminate the Concession Contract
         upon the occurrence of any of the following events and circumstances
         within the control of the Concession Company.

13.4.1   The ERMES Concession Company does not perform its main liabilities set
         forth below and specified in the Concession Contract and its Annexes,
         in particular

         (i)     schedule of implementation and development of the ERMES
                 nationwide public paging services.

         (ii)    observing price law regulations issued by authorities
                 concerning tariffs and prices.

         (iii)   performing the quality criteria of the services.

         (iv)    due payment of fees as specified in the Contract.

13.4.2   The Concession Company will not be entitled to carry on the concession
         activity within six (6) months after the signing of the Concession
         Contract or from the withdrawal of any of its permits by the
         authorities as the case may be.

13.4.3   The Magyar Paging Consortium does not enforce the requirements
         specified in Section 2.4.2 in the Deed of Foundation of the Concession
         Company.
<PAGE>   111
                                       37

13.4.4   The Concession Company intentionally and repeatedly violates its major
         liabilities included in the Concession Contract, e.g. stipulations
         concerning the subscribers or other telecommunications service 
         providers, or the rules of market behavior, and these violations shall
         remain unremedied following the Minister's notice.

13.4.5   The Concession Company does not satisfy the demand for interconnection
         of the authorized telecommunication service providers requesting the
         same.

13.4.6   A liquidation process shall be opened against the Concession Company
         due to bankruptcy or, during a bankruptcy process the Concession
         Company makes such declarations to meet the demands of the creditors
         which significantly and adversely affects the performance of its
         liabilities under the Concession Contract concerning the provision of
         the services.

13.5     NOTICE BY THE CONCESSION COMPANY

         The Concession Company shall have the right to terminate the
         Concession Contract by observing the following cases and conditions:

13.5.1   The Minister intentionally and repeatedly breaches the basic
         liabilities under the present Concession Contract hereby offending and
         causing serious prejudice to the lawful interests of the Concession
         Company.

13.5.2   The Ministry being dissolved without legal successor or ceasing to
         have the authorization needed for performing its obligations under the
         present Concession Contract and the Government or any governmental
         authority competent to do so under the valid laws and regulations
         fails to assume the rights and obligations of the Ministry hereunder
         in accordance with the applicable law.

13.6     PROCEDURE IN CASE OF NOTICE

13.6.1   Prior to exercising his right to terminate the Concession Contract by
         notice under Sections 13.4.1, 13.4.3, 13.4.4, 13.4.5, 13.4.6, the
         Minister shall send written notice to the Concession Company
         requesting to remedy the event and/or the reason for such right of
         termination, and/or to give proper clarification thereon. If the
         Concession Company does not comply the notice within ninety (90) days
         after the receipt thereof, neither gives satisfactory clarification
         nor eliminate the situation and/or reason giving rise to such
         termination, the Minister shall terminate the Contract by way of a
         registered letter addressed to the Concession Company.
<PAGE>   112
                                       38

         The notice shall include:

         (i)     antecedents of the notice

         (ii)    reasons of the notice and indication relating to the proof
                 thereof

         (iii)   notice and deadline relating to the termination of operating
                 the network and of providing the ERMES services by the
                 Concession Company

         (iv)    other issues, notices and demands containing the consequences
                 of such notice. The dispute concerning the lawfulness of the
                 notice and its financial consequences shall be settled in the
                 procedures specified in Section 17.1.

         (v)     independently from any legal dispute, the Minister shall be
                 entitled to utilize wholly or partially the bank guarantee
                 (security) of 500.000 USD as specified in Sections 11.3.1,
                 11.3.2, 11.3.3.

13.6.2   The Concession Company shall, before exercising its right to terminate
         the Concession Contract by notice according to Section 13.5, give
         written notice to the Minister requesting the Minister to eliminate
         the situation or reason and/or to give clarifications thereon. If the
         Minister does not comply with the notice within ninety (90) days from
         the receipt thereof, or give satisfactory explanation or eliminate the
         situation and/or reason, the Concession Company shall terminate the
         Contract by notice by a registered letter addressed to the Minister.

         The letter or termination by notice shall include:

         (i)     the antecedents of the notice

         (ii)    reasons of the notice and indication relating to the proof
                 thereof

         (iii)   the notice in respect of security to be given by the Minister
                 to the Concession Company, and the declaration on date when the
                 Concession Company shall terminate the provision of ERMES 
                 nationwide public paging services.
                 

         In case of notice given by the Concession Company as forthwith
         instructed by the Minister, the Concession Company shall continue and
         - under the same conditions - perform the operation of the network and 
         the provision of the public telecommunications services for six        
         months after the date of the notice.
<PAGE>   113
                                       39

13.7     LEGAL EFFECTS OF THE NOTICE, THE NOTICE PERIOD

13.7.1   The dispute in connection with the lawfulness and financial
         consequences of the notice shall be settled in the procedures
         specified in Section 17.1.

13.7.2   If the Parties do not agree otherwise, the notice shall enter into
         force on the day following the decision of the competent Hungarian
         court relating to the lawfulness of such termination.

13.7.3   In case of lawful notice approved by the Minister, the concession fees
         paid by the Concession Company shall not be reclaimed.

         In case of lawful notice given by the Concession Company regarding the
         issue of repayment of the lump sum of the concession fee, i.e. the
         legal basis and/or the measure of the amount thereof, shall be agreed
         by the Parties during the notice process. If the Parties do not agree
         on the repayment of the lump sum of the concession fee the court
         proceeding in the issue of lawfulness of the notice shall decide on
         the legal basis and amount of the concession fee to be repaid for the
         Concession Company.

13.7.4   The Concession Contract shall be ended by the notice on the date of
         expiry of the 180 day lawful termination period.

13.7.5   During the termination period the Concession Company shall be liable
         to secure the operation of the ERMES system and the provision of the
         nationwide public paging services according to the order of the
         Minister.

13.7.6   On the day of termination of the Contract:

         (i)     the concession rights shall cease,

         (ii)    the validity of the issued radio licenses as well as the
                 licenses for frequency usage granted in connection with the
                 concession, shall come to an end,

         (iii)   liabilities concerning the liquidation of the Concession shall
                 commence and shall be perfected within 30 days as specified in
                 Section 26 subparagraph (1) of the Act No. XVI. on Concessions
                 and in IL Law of 1991 on bankruptcy, liquidation and final
                 winding up and in Act No. VI of 1988 on Economic
                 Associations.
<PAGE>   114
                                       40

         (iv)    the construction and using rights on land and property shall
                 cease as well as the rights concerning the interconnection
                 with other networks. In case of expiry or cessation of the
                 Concession Contract due to any reason, equipment provided for
                 use in the network by the members of the Concession Company
                 shall remain in the ownership of the Concession Company.

13.7.7   If the Concession Contract shall be terminated by a winding-up process
         ordered due to bankruptcy of the Concession Company, the Minister and
         the founders of the Concession Company may agree within the framework
         of the valid legal rules and regulations, that they shall found a new
         Concession Company to carry on the performance of concession rights
         and liabilities during the rest of the concession period.

13.8     SURVIVAL CLAUSE

         In case of termination of the present Concession Contract due to any
         reason the following provisions of this Contract shall survive:

         Section 17.6 on confidential information; Section 17.3 on legal
         disputes including Section 7.3; Section 17.1.1 on applicable law;
         Section 15 on conciliation and amicable settlement for disputes
         including 7.3; Section 2.4.7 on ownership of equipment.

                                   SECTION 14
              LEGAL SUCCESSION, EXTENSION OF THE CONCESSION PERIOD
                             THE CONCESSION PERIOD

14.1     ASSIGNMENT

         Without the prior written consent of the Minister the Concession
         Company may not transfer and/or assign:

         (i)     the present Concession Contract or any associated contracts or
                 agreements relating to the ERMES nationwide public paging
                 services, 

         (ii)    any of its rights arising from exercising the concession and
                 frequency use.

         (iii)   any of its assets directly promoting the ERMES nationwide
                 public paging services without substituting the same in its
                 own network.
<PAGE>   115
                                       41

14.2     PROLONGATION OF THE CONCESSION PERIOD

14.2.1   The concession period shall expire on the day as specified in Section
         1.3.1, however, it may be prolonged once by the parties' agreement by
         at least half of the concession period (7.5 years).

14.2.2   The Ministry and the Concession Company shall negotiate the
         prolongation of the concession period and validity of the Concession
         Contract under mutually acceptable terms and conditions 12 months
         prior to the expiry of the concession period.

         If the Minister and the Concession Company shall not reach an
         agreement regarding the prolongation of the concession period between
         the 12th and the 6th month prior to the expiry of the concession
         period, the Concession Contract shall cease on the day as specified by
         the Section 1.3.1.

14.2.3   After the expiry of the Concession Contract and in case of repeated
         Concession Tender procedures, the original concession holder shall be
         preferred to other Bidders provided they offer the same conditions
         regarding the major issues.

                                   SECTION 15
           HARDSHIP, CONCILIATION AND AMICABLE SETTLEMENT OF DISPUTES

15.1     HARDSHIP

         In case of the occurrence of any event beyond the reasonable control
         of either the Minister or the Concession Company (other than an event
         qualified as Force Majeure) including any material change of
         regulation directly impacting the Concession Company which could not
         have been reasonably foreseen on the date of concluding the Concession
         Contract and substantially and adversely affect the economic position
         of the Concession Company and due performance of the present contract
         timely for the Concession Company impossible, the Concession Company
         shall give notice to the Minister within thirty (30) days of the
         occurrence of such event, containing a description of the event and
         its likely economic consequences to the concession Company. The
         Minister and the Concession Company shall consult with a view to
         reaching a mutually satisfactory resolution to the change in
         circumstances of the project provided however, there shall be no
         binding obligation on either party to reach a solution.

<PAGE>   116
                                       42

15.2     CONCILIATION AND AMICABLE SETTLEMENT

         The Partners, shall do their utmost to negotiate in good faith and to
         conciliate and settle all disputes arising in connection with the
         present Contract.

         The Minister undertakes the obligation that he shall carry on
         conciliation with the Concession Company and/or the economic
         association (telecommunication service providers) concerned in all
         issue or dispute referring to the present Concession Contract.


                                  SECTION  16

                                 RELEVANT LAWS

The following Acts of Hungarian law are of extreme importance for the present
Contract:

(a)      Act No. IV of 1959 on the Civil Code of Republic of Hungary as
         amended;

(b)      Act No. VI of 1988 on Economic Associations as amended;

(c)      Act No. IV of 1957 on the Procedures of State Administration as
         amended;

(d)      Act No. XVI of 1991 on Concessions as amended;

(e)      Act No. LXXII of 1992 on Telecommunications as amended;

(f)      Act No. LXII of 1993 on Frequency Management;

(g)      Act No. LXXXVI of 1990 on Fixing Prices

(h)      Act No. LXXXVI of 1990 on Prohibition of Unfair Market Practice

(i)      Act No. LXIII of 1992 on Personal Data Protection and Publicity of 
         Data of Public Interest

(j)      Act No. LXVI of 1992 on Registering of Personal Data and Home
         Addresses of Citizens;
<PAGE>   117
                                       43

(k)      Act No. XCIII of 1990 as amended concerning duties

and the valid regulations (orders, decrees) of lower level specified in Annex
No...... of the present Contract.

                                  SECTION  17

                                 MISCELLANEOUS

17.1     APPLICABLE LAW, COMPETENT COURT

17.1.1   The Acts, governmental decrees and orders of Ministers of the Republic
         of Hungary shall be applicable for the present Concession Contract,
         its application and interpretation, as well as for the Concession
         Company and operation thereof.

17.1.2   List of regulations to be applied is specified in Section 16 and in
         Annex No....hereto.

17.1.3   In all disputes between the Minister and the Concession Company
         arising from and connected with the present Contract, its
         interpretation, application, performance, termination and extension,
         shall be decided by the competent court of the Republic of Hungary
         according to the rules of the Hungarian Civil Procedural Law.

         The legally binding decisions of the proceeding court as well as the
         higher court of second distance shall be final.

         The contracting partners covenant to execute the decision of the court
         in accordance with Section 7.3.


17.2     COMPLETE AGREEMENT

         This Contract and Annexes hereto represent the complete agreement
         between the Parties.

<PAGE>   118
                                       44

17.3     SEPARABILITY

         If any of the provisions of the present Concession Contract become
         null and void the relevant provisions can only be treated as null and
         void concerning the reason involved and the other provisions of the
         contract shall remain valid.

17.4     THE LANGUAGE OF THE CONTRACT

         The present Contract has been negotiated both in Hungarian and English
         and the partners signed it in Hungarian in two original copies and the
         English version has been supplemented to the present Contract. In case
         of any dispute the Hungarian version shall prevail.

17.5     NOTICES

         Any notice or correspondence under the present Contract shall be made
         by letter, telefax or telex to the addresses of the partners
         herebelow. Language of the notices, etc. shall be Hungarian.

         To the Minister or the Ministry:

         Ministry for Transport, Communications and Water Management 
         1077 Budapest 
         Dob u. 75-81.
         Telephone: +(36-1) 122-0220 
         Telefax +(36-1) 155-4085

         To the Euro Paging Hungary Concession Company Limited by Shares:

         Vaci ut 37. A/502.  
         H-1134 Budapest, Hungary 
         Telephone: +(36-1) 270-4080 
         Telefax: +(36-1) 270-4045
<PAGE>   119
                                       45

17.6     CONFIDENTIAL INFORMATION

         All information obtained and to be obtained in connection with the
         present Contract shall be treated as confidential by the partners to
         this Contract, their members, agents, advisers as well as their
         financing institutes or employees, and shall not be disclosed without
         the prior written approval of the other contracting partner.

         This stipulation shall not be applied to data provision required by
         the authorities and other empowered persons being specified by law.

         The contracting partners shall secure that their members, employees,
         advisers, present and future financial institutions, contractors, etc.
         shall adhere to this Section.

17.7     ANNEXES

         The following Annexes shall create an integral part of the present
         Contract:

         ANNEX No. 1: Technical requirements for providing the nationwide
         public paging services and for implementation of the connected
         network.

         ANNEX No. 2: Frequency reservation and usage fees

         ANNEX No. 3: Performance warranty

         ANNEX No. 4: Applicable laws

         ANNEX No. 5: English version of the present Concession Contract.

17.8     DEFINITIONS

         The definitions used in wording of the present Contract concerning the
         telecommunications and frequency management are contained in the
         relevant annexes of Act on Telecommunications as well as of Act on
         Frequency Management and the ETC 300 133-1...7 standard.

17.9     VALIDITY

         The Contract shall be valid following the agreement on all conditions
         and due undersigning thereof by the Minister and the ERMES Concession
         Company, but with effect from 29th April, 1994 as the commencement of
         the concession.
<PAGE>   120
                                       46

17.10    The present Contract is undersigned in Hungarian in 2 originals.


         Budapest, 5th August, 1994

<TABLE>
         <S>                                       <C>
         Euro Paging Hungary Concession Company    Minister for Transport,
         Limited by shares                         Communications and
                                                   Water Management
</TABLE>

         ............................................  
         Gerard Aircraft Sales and Leasing Company


         ............................................
         SFMT-Hungaro, Inc.


         ............................................
         Microsystem Telecom Rt.
<PAGE>   121
                                                                    EXHIBIT 10.1

                         REPRESENTATIONS AND WARRANTIES

In accordance with Section 10.1 of the Agreement, each Shareholder makes the
following representations and warranties to the other Shareholders:

1.       Organization and Standing. Such Shareholder (i) is a corporation
         established and validly existing under the laws of the State of
         Delaware, in the case of Gerard, the laws of the State of New York, in
         the case of SFMT, or the laws of the Republic of Hungary, in the case
         of Microsystem; and (ii) has all requisite power and authority to
         conduct its business in accordance with its foundation documents.

2.       Authorization; Due Execution. Such Shareholder has all requisite power
         and authority to execute and deliver this Agreement (and all other
         agreements contemplated by this Agreement to which it is a party,
         including the Deed of Foundation), and to perform its obligations
         under this Agreement (and under all such other agreements).  This
         Agreement has been (and all such other agreements have been or will
         be) duly authorized, executed and delivered by such Shareholder and
         this Agreement constitutes (and all such other agreements constitute
         or will constitute) the valid and legally binding obligation of such
         Shareholder (excepting the last paragraph of Section 2.4.2 and the
         last sentence of Section 19), enforceable (in each case) against such
         Shareholder in accordance with its terms, subject to applicable
         bankruptcy, insolvency and similar laws affecting the enforceability
         of creditors' rights generally and to general principles of equity
         (and excepting the provisions set forth in

3.       No Violation. Neither the execution or delivery by such Shareholder of
         this Agreement (or any other agreement contemplated by this Agreement
         to which it is a party, including the Deed of Foundation), nor the
         consummation of the transactions contemplated hereby (or thereby),
         will (i) violate any material agreement, commitment, judgment or order
         to which such Shareholder's property is bound, (ii) contravene any law
         or regulation having applicability to such Shareholder or (iii) result
         in or require the creation or imposition of any encumbrance of any
         nature upon, or with respect to, any properties or assets now owned or
         hereafter acquired by such Shareholder (other than as may arise
         pursuant to this Agreement).

4.       Approvals, Consents, Etc. Other than any approval required by the
         Ministry, no consent, authorization or
<PAGE>   122
         approval of, or waiver or exemption by, or filing or registration
         with, any governmental agency or any other person or entity is
         required to be obtained or made in connection with the execution,
         delivery or performance by such Shareholder of this Agreement (or any
         agreement contemplated by this Agreement, to which such Shareholder is
         or will be a party, including the Deed of Foundation).

5.       Litigation. There is no claim, action, suit, proceeding, arbitration,
         investigation or hearing, pending or, to the knowledge of such
         Shareholder, threatened by or before any court or governmental or
         administrative agency or authority or private arbitration tribunal,
         against such Shareholder involving the transactions contemplated by
         this Agreement.

6.       Financial Capacity. With the exception of Microsystem, the group of
         companies that are affiliated with such Shareholder have the financial
         means and resources necessary for the due and proper performance of
         its obligations under this Agreement and the Deed of Foundation.

7.       Certain Provisions of the Agreement. After due and proper inspection
         and consideration of the relevant legal regulations, such Shareholder
         is not aware of any fact that would constitute a sufficient basis to
         qualify or render null and void or voidable (in full or in part) any
         provision of this Agreement or the provisions of the Deed of
         Foundation, under any body of applicable law.

8.       Accuracy. No representation or warranty made by such Shareholder in
         this Agreement or in any other document furnished in connection with
         this Agreement contains or will contain any untrue statement of
         material fact or omits or will omit to state a material fact necessary
         to make the statement contained herein or therein not false or
         misleading.

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

                                      -2-
<PAGE>   123
                                                                    EXHIBIT 10.3

                        CERTAIN LIABILITIES/OBLIGATIONS

1.       The Consortium has entered into the Concession Agreement.

2.       Gerard has executed a letter of intent with Glenayre Electronics Ltd.,
         relating to its work as installation contractor.

3.       Legal fees have been incurred relating to work performed by Dewey
         Ballantine Theodore Goddard on in connection with the Concession
         Contract since July 6, 1994. It is expected that the aggregate amount
         of these fees will be approximately US $15,000. The parties have
         agreed that 50% of the amount of such fees will be borne by SFMT
         (notwithstanding anything to the contrary contained in Section 15 of
         the Agreement).

4.       International Technology Consultants has indicated that it might seek
         a finder's fee relative to the transaction between Gerard and SFMT.
         Gerard understands that SFMT is handling this fee. Should SFMT arrange
         for ITC to agree to a finder's fee in the amount of $40,000, Gerard
         has indicated its willingness to pay $15,000 of such amount (or its
         pro rata share of any lesser amount).

5.       Discussions relating to possible employment arrangements were held
         with two employees of Radio Contact Ltd.  These discussions did not
         result in the execution of any agreements.
<PAGE>   124

                            AGREEMENT ON ASSIGNMENT

THIS AGREEMENT is entered into as of August 5, 1994, among Magyar Paging
Consortium (the "Consortium") and Euro-Paging Hungary Concession Company
Limited by Shares (the "Company"), a Hungarian company limited by shares,
having its principal offices at 1134 Budapest, Vaci ut 37. A/502.

WHEREAS the Minister of Transport, Telecommunications and Water Management of
the Republic of Hungary (the "Minister") issued an international concession
tender for the provision of nationwide public paging services on the territory
of the Republic of Hungary;

WHEREAS the Consortium has won the tender and signed the Concession Contract
with the Minister on May 5, 1994 with a legal effect of April 29, 1994;

WHEREAS the Consortium, pursuant to its obligations under the Concession
Contract, has established the Company which shall be the legal holder of the
concession right and the related obligations;

THEREFORE, IN CONSIDERATION of the foregoing promises and mutual undertakings
hereinbelow set forth, the parties hereby agree as follows:

1.       The Consortium hereby irrevocably assigns its concession right and the
related obligations to the Company in accordance with the Concession Agreement
concluded between the Consortium and the Minister on May 6, 1994.

2.       As consideration for the assignment as well as the costs associated to
the acquisition of the concession right defined under Section 1. above, the
Company shall pay to the Consortium a single fee of USD 1,500,000 (one million
five hundred thousand US Dollars).

3.       The fee defined under Section 2. above shall be payable within fifteen
(15) days following the execution of this Assignment Agreement through wire
transfer to the designated bank account of SFMT-Hungaro, Inc.

4.       The members of the Consortium, Microsystem Telecom Rt. and Gerard
Aircraft Sales and Leasing Company, hereby acknowledge that the third member of
the Consortium, SFMT-Hungaro, Inc., has already reimbursed their costs incurred
in connection with the acquisition of the concession right. Thus, Microsystem
Telecom Rt and Gerard Aircraft Sales and Leasing Company hereby irrevocably
waive all their rights to claim any portion of the USD 1,500,000 (one million
five hundred thousand US dollars) payable by the Company to the Consortium in
accordance with Sections 1 and 3 of this Agreement and assign all their rights
arising therefrom to SFMT-Hungaro, Inc.
<PAGE>   125
                                       2



5.       Any dispute or disagreement between the parties arising out of or in
connection with this Assignment Agreement that cannot be amicably resolved,
shall be subject to the exclusive Jurisdiction by the Court of Arbitration of
the Hungarian Chamber of Commerce in accordance with its Rules of Procedure;
the decision of the Arbitration Courts shall be final and the place of the
arbitration shall be Budapest and the language English.

6. This Assignment Agreement shall be generally governed by Hungarian law.



                 /s/ [ILLEGIBLE]                      
                 ---------------------               
                 Euro-Paging Hungary Concession Ltd.


/s/ [ILLEGIBLE]                         /s/ [ILLEGIBLE]                      
- ---------------------                 ---------------------
Gerard Aircraft Sales                 SFMT-Hungaro, Inc.
and Leasing Co.                                         




/s/ [ILLEGIBLE]                      
- ---------------------
Microsystem Telecom Rt.
<PAGE>   126
                                                                               1


                                                                December 5, 1994


We refer to the joint venture and shareholders' agreement (the "Agreement")
dated August 5, 1994 among Gerard Aircraft Sales and Leasing Company
("Gerard"), SFMT-Hungaro, Inc. ("SFMT") and Microsystem Telecom Inc. Relating
to EURO Paging Hungary Concession Company Limited by Shares (the "Company").

Today we are executing certain documents relating to the capitalization of the
Company, including a loan agreement (the "Loan Agreement") between the Company
and Gerard. In connection with the execution of these documents, this is to
confirm our understanding relating to the capitalization arrangements:


1.       The initial registered capital of the Company will equal HUF 200
         million. Consistent with Section 7.2 of the Agreement, SFMT (or one of
         its affiliates) will be responsible for paying to the Company, on
         behalf of Gerard, the amount of HUF 51 million, representing the
         portion of the initial registered capital equal to Gerard's equity
         interest (as set out in Recital F of the Agreement).

2.       Although the Loan Agreement provides that Gerard shall advance to the
         Company the amount of $250,000.00 this amount shall be advanced to the
         Company by SFMT (or one of its affiliates).

3.       The parties intend that the amount advanced under the Loan Agreement,
         as well as the amount advanced under a similar loan agreement between
         SFMT and the Company, shall be converted into additional equity of the
         Company in January 1996. Any such conversion will result in Gerard and
         SFMT receiving such number of shares as are appropriate in order to
         achieve the ownership structure
<PAGE>   127
                                                                               2


         set out in Section 2.5.2 of the Agreement. No payment shall be
         required from Gerard for such shares.




GERARD AIRCRAFT SALES AND LEASING COMPANY


By:  /s/ JAMES G. MONAGHAM            
   -----------------------
   James G. Monagham
   President



THE FOREGOING IS ACCEPTED AND AGREED TO:

SFMT-HUNGARO, INC.

By:  /s/ LOUIS T. TOTH                
   -----------------------
   Louis T. Toth
   President
<PAGE>   128
THIS AGREEMENT is made as of the 15th day of December 1994

between

1.       EURO SZEMELYHIVO MAGYARORSZAG KONCESSZIOS RESZVENYTARSASAG
         Vaci ut 37/A
         1134 Budapest
         Hungary

(hereinafter called the "Borrower")

2.       SFMT-HUNGARO, INC.
         477 Madison Ave, 8th floor
         New York, NY 10022
         USA

(hereinafter called the "Lender")

WHEREAS

(1)      Borrower intends to develop and operate a network for the provision of
         nationwide public paging services for fifteen (15) years throughout
         the territory of the Republic of Hungary;

(2)      Lender is the shareholder of Borrower and intends to finance the
         operation of Borrower;

(3)      Borrower desires to borrow USD 750,000 (seven hundred and fifty
         thousand US dollars) in order to finance its initial operating costs;

(4)      At the request of Borrower, Lender has agreed to advance to Borrower
         USD 750,000 (seven hundred fifty thousand US dollars) upon and subject
         to the terms and conditions of this Agreement.

NOW IT IS AGREED AS FOLLOWS:

1.       LOAN

(1)      Lender shall provide the Loan for fifteen (15) years. Lender agrees to
         lend to Borrower, upon written request of Borrower, the aggregate
         total principal amount of USD 750,000 (seventy five thousand US
         dollars).
<PAGE>   129
                                       2

(2)      The repayment of the Loan will be an obligation of Borrower and will
         rank in priority to (subject to such exceptions as are from time to
         time mandatorily applicable under any applicable laws) all other
         present and future borrowing of the Borrower.

(3)      Borrower, in order to secure payment when due, whether by acceleration
         or otherwise, of any and all obligations of Borrower to Lender
         including, without limitation, principal, fees and expenses, whether
         now existing or hereinafter arising (collectively, the "Obligations"),
         grants a first priority lien, security interest and floating charge on
         and over the revenues of Borrower.

(4)      The purpose of this Loan shall be to provide financing for the
         provision of nationwide public paging services for fifteen (15) years
         throughout the territory of the Republic of Hungary.

2.       INTEREST

(1)      Lender shall provide the Loan at zero percent (0%) interest to
         Borrower.

3.       REPAYMENT OF LOAN

(1)      Subject to as provided in this Agreement, Borrower shall repay the
         Loan in US dollars within fifteen (15) days from the date of receipt
         of the written notification duly signed by Lender.

(2)      Upon full payment of the entire amount of the Loan, Lender shall (i)
         provide written notification to Borrower that the Loan has been
         repaid; and (ii) be deemed to have released the lien on Borrower's
         assets.

4.       COVENANTS BY THE BORROWER

         Borrower hereby covenants to Lender that during the continuance of
         this Agreement, Borrower:

         a)       will carry on and conduct its business in a proper and 
         efficient manner and will not without the written consent of Lender
         (such consent not be unreasonably withheld) make any material
         alteration in the nature of such business; and

         b)       will give to Lender such information relating to the affairs,
         business and assets of the Borrower as Lender may from time to time
         reasonably require.
<PAGE>   130
                                       3

5.       ASSIGNMENT

         Lender cannot assign, transfer, lien, encumber or otherwise dispose of
         any of its rights or obligations arising from this Agreement without
         the prior written notification of Borrower.

         Borrower cannot assign, transfer, lien, encumber or otherwise dispose
         of any of its rights or obligations arising from this Agreement
         without the prior written consent of Lender.

6.       NON-CONTRAVENTION OF ARTICLES

(1)      Borrower hereby certifies that it has the power to enter into this
         Agreement and that the execution of this Agreement does not or will
         not contravene any of the provisions of its Articles of Association
         nor of any charge, trust deed, contract or other instrument to which
         Borrower is a party or which is binding upon its assets.

(2)      The contracting parties hereby acknowledge that the validity of this
         Agreement is conditioned upon the approval of the National Bank of
         Hungary.

7.       TAXATION

         All payments in respect of this Agreement will be made without
         withholding or deduction for, or on account of, any present or future
         taxes or duties or whatever nature imposed or levied by or any behalf
         of any Governmental or other authority having power to tax, unless
         Borrower is required by law to withhold or deduct amounts for, or on
         account of, such taxes or duties.

8.       WAIVER

         No failure or delay on the part of Lender in exercising any right,
         power or remedy hereunder shall operate as a waiver thereof, nor shall
         any single or partial exercise of any such right, power or remedy
         preclude any other or further exercise thereof or the exercise of any
         other right, power or remedy hereunder.


<PAGE>   131
                                       4

9.       NOTICES

(1)      Any notice to be served in connection with this Agreement shall be in
         writing (which shall include telex and facsimile) and any notice or
         other correspondence under or in connection with this Agreement shall
         be delivered to the registered office of the addressee or as otherwise
         notified by the relevant addressee, or transmitted by telex or by
         first class mail or by facsimile, in each case to such address.

(2)      Any such notice or correspondence shall be deemed to have been served
         as follows:

         a)      in the case of delivery, on the day of delivery;

         b)      in the case of service by first class mail, ten (10) days
                 after the day on which it was posted;

         c)      in the case of telex, on the day when the recipients' machine
                 acknowledges the receipt thereof; and

         d)      in the case of a facsimile transmission on the date of
                 transmission of the notice.

10.      CHOICE OF LAW

         This Agreement shall be governed by, and construed in accordance with
         the laws of the Republic of Hungary and all disputes shall be settled
         by arbitration at the Hungarian Chamber of Commerce in Budapest in
         accordance with its rules from time to time in effect.

II.      SEVERABILITY

         Should any of the terms of this Agreement be or become fully or
         partially invalid, the legal validity of this Agreement shall not be
         affected thereby.

12.      ENTIRE AGREEMENT

         This Agreement constitutes the entire Agreement between the parties as
         the subject matter of this Agreement and may not be varied except in
         writing signed by all parties hereto.
<PAGE>   132
                                       5


IN WITNESS whereof the parties hereto have executed this Agreement in three
original copies on the day and year first above written.



/s/ Illegible                              /s/ Illegible               
- -----------------------                    -----------------------
EURO Szemelyhivo Magyarorszag              SFMT-Hungaro, Inc.
Koncesszios Rt.
<PAGE>   133
                            Hungarian National Bank

                                 Vice President

                                                     December 29, 1994, Budapest
                                                     Reg.No.: 9989/1994/HJ
                                                     Approval No.: 94/2782
                                                     Admin.: Agnes Borda

Euro-Paging Hungary Concession Ltd.
Budapest
Vaci ut 37/a
1134

Re: Foreign currency authority approval

With respect to the application for approval of foreign currency loan dated
December 14, 1994, the foreign currency authority (the "Authority"), in
accordance with section 5 of the Law Decree No 1. of 1974, passed the following
decision:

The Authority hereby approves the foreign currency loan agreement between the
following companies with the conditions described below:

BORROWER:                         Euro-Paging Hungary Concession Ltd.

LENDER:                           SFMT-Hungaro Inc. (shareholder)

TARGET:                           Working capital

CURRENCY:                         USD

AMOUNT OF THE LOAN:               750,000 (seven hundred fifty thousand)

THE LOAN CAN BE DRAWN DOWN WITHIN 6 (SIX) MONTHS FOLLOWING THE DATE FIXED IN
THIS APPROVAL.

INTEREST:                         No interest.

MATURITY:                         15 (fifteen) years

REPAYMENT OF THE PRINCIPAL:       At the time of the maturity
<PAGE>   134
                                                                               2



SECURITY:                         Assignment of the receivables

BANK:                             CA Ltd.

THE AMOUNT OF THE LOAN SHALL BE TRANSFERRED TO THE HUF OPERATING ACCOUNT NO.
217-68015 OF THE BORROWER.

The loan may be provided by the Lender only via bank transfer.

The bank statement on the exchange of the currency shall be submitted to the
bank which transfers back the amount of the loan at the time of the maturity.

The Hungarian National Bank shall provide, against payment in HUF, the currency
necessary to fulfill the Borrower's currency payment obligations to the Lender
arising out of the Loan Agreement approved in this decision.

This approval for the foreign currency loan shall be valid for a 6 (six) months
period of time from the date fixed in this approval. The loan shall be drawn
down during this period. In case the loan will not be drawn down, this approval
shall be returned to the Currency Administration Department.

Appendix No. 1 shall be sent to the Hungarian National Bank's Currency
Administration Department within 2 (two) weeks from the drowing down of the
loan. Appendix No. 2 shall be sent to the Hungarian National Bank's Currency
Administration Department on a quarterly basis.

Any deviation from the above described conditions shall be permitted only in
case of the modification of this approval.

This approval shall not be deemed as guarantee of the Hungarian National Bank.

In case of the Borrower's failure to supply the required information or any
violation of the provisions of this approval, the approval shall be withdrawn
by the Hungarian National Bank.

The authority hereby approves the application and, in absence of adverse party,
the authority, in accordance with section 43 paragraph 2 of Act No. 4 of 1957
on State Administration Procedure, does not provide the reasoning of the
approval and the information about the appeal possibilities.

Frigyes Harshegyi
(Stamp)
(Signature)
<PAGE>   135
                                                                               3



Appendix No.1.

        Report on foreign currency loans of business organizations

The information shall be supplied by business organizations whose application
for foreign currency loan was approved.  The information shall be sent to the
Hungarian National Bank's Currency Administration Department within 2 (two)
weeks from the drown down of the loan.

If a Hungarian bank provided bank guarantee for the loan, a copy of the
agreement on such guarantee is required.

If the loan is not drawn down within 6 (six) months from the date determined in
the approval, the approval shall be withdrawn.

Name:

Approval No.:

Currency:

Amount of the loan:

Date of the drowning down:

The name of the Hungarian bank providing the bank guarantee:




                                   signature
<PAGE>   136
                                                                               4


    Appendix for the transfer order for repayment of foreign currency loan

Name of the transferor:

No. of the transfer order:

Title of the amortization: principal interest (To be underscored)

No. of the foreign currency authority's approval:

Date of receipt/drowning down of the loan:

The name of the bank receiving the loan:
<PAGE>   137
Annex 2.

Report on foreign currency loans of the business organizations

on                    199

The information shall be supplied by business organizations whose application
for foreign currency loan was approved.  The first information shall be
provided within 90 days after the issue of the approval.  Further information
shall be forwarded to the Currency Administration Department of the National
Bank of Hungary not later than the 10th day of the month following the quarter.


No. of the approval:              
                                  ----------------------------
Name of the business organization:
                                  ----------------------------
Participating Hungarian bank:     
                                  ----------------------------


<TABLE>
<S>                       <C>             <C>                   <C>              <C>              <C>
- -----------------------------------------------------------------------------------------------------------------------
Date of receipt resp.                                            Principal        Interest         Net amount of
date of repayment         Currency         Received loan         repayment        repayment        loans                    
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

TOTAL

- ----------------------------
Official Signature
<PAGE>   138
THIS AGREEMENT is made as of the 15th day of December 1994

between

1.       EURO SZEMELYHIVO MAGYARORSZAG KONCESSZIOS RESZVENYTARSASAG
         Vaci ut 37/A
         1134 Budapest
         Hungary

(hereinafter called the "Borrower")

2.       GERARD AIRCRAFT SALES AND LEASING COMPANY
         1013 Centre Road, Wilmington
         Delaware 19805
         USA

(hereinafter called the "Lender")

WHEREAS

(1)      Borrower intends to develop and operate a network for the provision of
         nationwide public paging services for fifteen (15) years throughout
         the territory of the Republic of Hungary;

(2)      Lender is the shareholder of Borrower and intends to finance the
         operation of Borrower;

(3)      Borrower desires to borrow USD 250,000 (two hundred fifty thousand US
         dollars) in order to finance its initial operating costs;

(4)      At the request of Borrower, Lender has agreed to advance to Borrower
         USD 250,000 (two hundred fifty thousand US dollars) upon and subject
         to the terms and conditions of this Agreement.

NOW IT IS AGREED AS FOLLOWS:

1.       LOAN

(1)      Lender shall provide the Loan for fifteen (15) years. Lender agrees to
         lend to Borrower, upon written request of Borrower, the aggregate
         total principal amount of USD 250,000 (two hundred fifty thousand US
         dollars).
<PAGE>   139
                                       2



(2)      The repayment of the Loan will be an obligation of Borrower and will
         rank in priority to (subject to such exceptions as are from time to
         time mandatorily applicable under any applicable laws) all other
         present and future borrowings of the Borrower.

(3)      Borrower, in order to secure payment when due, whether by acceleration
         or otherwise, of any and all obligations of Borrower to Lender
         including, without limitation, principal, fees and expenses, whether
         now existing or hereinafter arising (collectively, the "Obligations"),
         grants a first priority lien, security interest and floating charge on
         and over the revenues of Borrower.

(4)      The purpose of this Loan shall be to provide financing for the
         provision of nationwide public paging services for fifteen (15) years
         throughout the territory of the Republic of Hungary.

2.       INTEREST

(1)      Lender shall provide the Loan at zero percent (O%) interest to
         Borrower.

3.       REPAYMENT OF LOAN

(1)      Subject to as provided in this Agreement, Borrower shall repay the
         Loan in US dollars within fifteen (15) days from the date of receipt
         of the written notification duly signed by Lender.

(2)      Upon full payment of the entire amount of the Loan, Lender shall (i)
         provide written notification to Borrower that the Loan has been
         repaid; and (ii) be deemed written notification to have released the
         lien on Borrower's assets.

4.       COVENANTS BY THE BORROWER

         Borrower hereby covenants to Lender that during the continuance of
         this Agreement, Borrower:

         a)      will carry on and conduct its business in a proper and
                 efficient manner and will not without the written
                 consent of Lender (such consent not be unreasonably withheld)
                 make any material alteration in the nature of such business;
                 and

         b)      will give to Lender such information relating to the affairs,
                 business and assets of the Borrower as Lender may from time to
                 time reasonably require.
<PAGE>   140
                                       3

5.       ASSIGNMENT

         Lender cannot assign, transfer, lien, encumber or otherwise dispose of
         any of its rights or obligations arising from this Agreement without
         the prior written notification of Borrower.

         Borrower cannot assign, transfer, lien, encumber or otherwise dispose
         of any of its rights or obligations arising from this Agreement
         without the prior written consent of Lender.

6.       NON-CONTRAVENTION OF ARTICLES

(1)      Borrower hereby certifies that it has the power to enter into this
         Agreement and that the execution of this Agreement does not or will
         not contravene any of the provisions of its Articles of Association
         nor of any charge, trust deed, contract or other instrument to which
         Borrower is a party or which is binding upon its assets.

(2)      The contracting parties hereby acknowledge that the validity of this
         Agreement is conditioned upon the approval of the National Bank of
         Hungary.

7.       TAXATION

         All payments in respect of this Agreement will be made without
         withholding or deduction for, or on account of, any present or future
         taxes or duties of whatever nature imposed or levied by or any behalf
         of any Governmental or other authority having power to tax, unless
         Borrower is required by law to withhold or deduct amounts for, or on
         account of, such taxes or duties.

8.       WAIVER

         No failure or delay on the part of Lender in exercising any right,
         power or remedy hereunder shall operate as a waiver thereof, nor shall
         any single or partial exercise of any such night, power or remedy
         preclude any other or further exercise thereof or the exercise of any
         other right, power or remedy hereunder.
<PAGE>   141
                                       4

9.       NOTICES

(1)      Any notice to be served in connection with this Agreement shall be in
         writing (which shall include telex and facsimile) and any notice or
         other correspondence under or in connection with this Agreement shall
         be delivered to the registered office of the addressee or as otherwise
         notified by the relevant addressee, or transmitted by telex or by
         first class mail or by facsimile, in each case to such address.

(2)      Any such notice or correspondence shall be deemed to have been served
         as follows:

         a)      in the case of delivery, on the day of delivery;

         b)      in the case of service by first class mail, ten (10) days
                 after the day on which it was posted;

         c)      in the case of telex, on the day when the recipients' machine
                 acknowledges the receipt thereof; and

         d)      in the case of a facsimile transmission on the date of
                 transmission of the notice.

10.      CHOICE OF LAW

         This Agreement shall be governed by, and construed in accordance with
         the laws of the Republic of Hungary and all disputes shall be settled
         by arbitration at the Hungarian Chamber of Commerce in Budapest in
         accordance with its rules from time to time in effect.

11.      SEVERABILITY

         Should any of the terms of this Agreement be or become fully or
         partially invalid, the legal validity of this Agreement shall not be
         affected thereby.

12.      ENTIRE AGREEMENT

         This Agreement constitutes the entire Agreement between the parties as
         the subject matter of this Agreement and may not be varied except in
         writing signed by all parties hereto.
<PAGE>   142
                                       5


IN WITNESS whereof the parties hereto have executed this Agreement in three
original copies on the day and year first above written.



       [ILLEGIBLE]                                    [ILLEGIBLE]
- ----------------------------               ---------------------------------
EURO Szemelyhivo Magyarorszag              Gerard Aircraft Sales and Leasing
Koncesszios Rt.                                         Company
<PAGE>   143

                        [MAGYAR NEMZETI BANK LETTERHEAD]


                                                      Budapest, 1995. januar 03.
                                                      Ikt.szam: 9990/1995/HJ
                                                      Eng.szam: 95/2790
                                                      Ugyintezo: Borda Agnes
Euro-Szemelyhivo Magyarorszag Koncesszios Rt.
Budapest
Vaci ut 37/A.
1134

Targy: Devizahatosagi engedely

Devizahitel felvetelenek engedelyezesere iranyulo 1994. december 14-en kelt
kerelemben foglaltakat megvizsgalva az 1974.  evi 1. tvr. 5.Section alapjan az
alabbi hatarozatot hoztam:

engedelyezem, hogy

         Euro-Szemelyhivo Magyarorszag Rt.HITELFELVEVO

         Gerard Aircraft Sales and Leasing Company (tulajdonos) HITELNYUJTOVAL

         forgoeszkoz hitel                 CELRA

         USD                               DEVIZANEMBEN MEGHATAROZVA

         250.000,- Kettoszazotvenezer      OSSZEGBEN

         JELEN ENGEDELYBEN MEGJELOLT IDOPONTOT KOVETO 6 HONAPON BELULI 
         FELVETELRE

         kamatmentesen

         15 ev                             LEJARATTAL

         lejaratkori                       TOKETORLESZTES MELLETT

         bevetel engedmenyezese            BIZTOSITEKKAL

         CA Rt.                            BANKNAL VEZETETT

         217-68015 SZ. FORINTSZAMLAJARA TORTENO ATUTALASSAL DEVIZAHITEL
FELVETELERE VONATKOZO SZERZODEST KOSSON.
<PAGE>   144
A hitelnyujto a hitelt kizarolag bankatutalas formajaban bocsathatja
rendelkezesukre.

A deviza atvaltasarol a bank altal kiallitott okmanyt a hitel visszafizetesekor
az atutalast vegzo banknak be kell mutatni.

Az MNB gondoskodik arrol, hogy jelen engedellyel jovahagyott hitelugyletbol
eredo, Onoket a hitelnyujtoval szemben terhelo devizafizetesekhez
szukseges deviza forintfizetes elleneben rendelkezesre alljon.

Engedelyunk a hitelfelvetelre megjelolt idoponttol szamitott 6 honapig ervenyes.
Ezen idoszak alatt a hitelt fel kell venni. Amennyiben a hitel felvetelere
egyaltalan nem kerul sor, abban az esetben a devizahatosagi engedelyt a
Devizaszabalyozasi foosztalynak vissza kell kuldeni.

A hitel felvetelet koveto 2 heten belul az 1. szamu mellekletet, mig a 2. szamu
mellekletet naptari negyedevenkent kitoltve kerjuk az MNB Devizaszabalyozasi
foosztalyara megkuldeni.

A hitelfelvetel elobbiekben kozolt felteteleitol eltermi csak az engedely
modositasa alapjan lehetseges.

Jelen engedelyunk nem jelenti az MNB garanciavallalasat.

Az adatszolgaltatas elmulasztasa, valamint a jelen engedely barmely eloirasanak
megszegese eseten az MNB az engedelyt visszavonja.

A hitelkerelemnek helyt adva - ellenerdeku fel hianyaban az allamigazgatasi
eljarasrol szolo 1957. evi IV. tv. 43.Section-nak /2/ bekezdese alapjan
mellozzuk az indoklast es a jogorvoslatrol szolo tajekoztatast.

                                              [SEAL]

                                            /s/ [ILLEGIBLE]
                                        Dr. Harshegyi Frigyes
<PAGE>   145
                                                                               1

                                    MINUTES
                       OF THE BOARD OF DIRECTORS ("BOD")
          OF EURO-PAGING HUNGARY CONCESSION COMPANY LIMITED BY SHARES

held on December 12, 1994 at Vaci ut 37/A, Room 502.

The following persons are present:

- -        Mr. Louis T. Toth, Chairman of the BoD
- -        Mr. Istvan Pesti, member of the BoD
- -        Mr. James Monaghan, member of the BoD
- -        Mr. Peter Maros, member of the BoD
- -        Mr. Phillip Lee, SFMT-Central Europe
- -        Mr. Thomas Pryor, Marketing Director of EURO-Paging Hungary Ltd
         ("EUROHIVO") 
- -        Ms. Andrea Gyuracz, Shearman & Sterling, keeper of the Minutes

Mr. Toth established that, since more than half of the BoD members are present,
the meeting has a quorum.

Mr. Lee recited the agenda:

1.       Operation Status and Overview
         * Network
         * Pagers
         * Marketing/Advertising
         * Distribution/Sales
         * Staffing
         * Customer Service Operation
         * Concession/Legal
         * Open Issues

2.       Competition

3.       Business Plan Update

4.       900 Service as VAS

5.       Execution of Capitalization Documents

6.       SFMT Intercompany Transactions

7.       Scheduling of the Next Board Meeting

8.       Tour of Operation
<PAGE>   146
                                                                               2



Before starting the discussion of Agenda No.1, the members of the BoD,
representing each shareholder, signed the documents necessary for the
capitalization of EUROHIVO and, thus discussed and completed AGENDA NO. 5.

AGENDA NO. 1

(a)      Network. Mr. Pryor informed the BoD members that the base stations
         will be shipped by the end of the week following the BoD meeting.
         Three base stations will be shipped to Hungary, two of which will be
         placed at Harmashatarhegy and Szechenyi hegy and will be capable of
         covering 80% of Budapest and, the three together, after their
         installation, will be able to cover the whole Budapest area. EUROHIVO
         plans to complete customs clearance by the 20th of December and have
         an operational network before Christmas. With respect to network
         equipment, EUROHIVO is responsible for customs matters - which are
         actually handled by SFMT-Montana - and Glenayre is responsible for the
         installation works. EUROHIVO received two digital lines from MATAV,
         each with 30 channels thus, 60 incoming calls can be handled at the
         same time. The cabling of the operator stations and the installation
         of the Sky Data VSATs will be started shortly. EUROHIVO has purchased
         its billing system from INTOUCH, a New York based corporation working
         for paging companies. The PBX is installed, and the LAN is ordered.

(b)      Pagers. Mr. Pryor informed the BoD members on the status of the pager
         importation, which is one of the most critical points of EUROHIVO'S
         operation. Currently, NEC is the only supplier; however, in
         France NEC had to recall their pagers because of technical problems.
         With respect to the NEC pagers, there are problems with certain
         Hungarian characters like [ILLEGIBLE], [ILLEGIBLE], [ILLEGIBLE],
         because NEC pagers are not capable to present these characters
         without a new chip.  Pagers are also produced by Swissphone.
         Although the Swissphone pager would be able to present these
         characters, it is not capable of shipping pagers by May 1995.
         Other pager producers, like Motorola, will not be able to ship before
         1996. The character set, however, is only a public relations problem
         and not an operational one; it is manageable. Thomas Pryor also
         mentioned that each pager will bear the "eurohivo" logo and, according
         to his estimation, the import of 1,000 pager per month should not cause
         a problem.
        
(c)      Marketing, Advertising. EUROHIVO selected Bates Hungary to be its
         advertising agency in Hungary. The strategy of the advertising is
         focused on the education of the prospective customers as to how they
         can used the pagers and the paging services. The logo of EUROHIVO has
         been designed and presented to the BoD members. The preparation of the
         TV advertising is in progress: the first ad launch is planned for
         February 1995; this advertisement should be seen at 66% of Hungary.
         The POS materials will be ready by January 19, 1995 and the prelaunch
         teaser, to develop interest though newspaper advertising is planned
         for January 1995. The launch of the services, however, depends on
         pager availability and quantity.
<PAGE>   147
                                                                               3

(d)      Distribution/Sales. Mr. Pryor informed the BoD members that the
         negotiation of the exclusive Distribution Agreement with FOTEX will be
         finished shortly. WESTEL, another possible distributor, was also
         considered, but WESTEL did not undertake to finance (buy) the pagers;
         only wanted a commission on the services sold. FOTEX, in accordance
         with the current status of the negotiations, undertakes the financing
         of the first 1,000 pagers as well as the financing of pagers in
         general. EUROHIVO will then buy the pagers from FOTEX. EUROHIVO has
         sent the NEC pager contract to FOTEX. FOTEX will earn a margin of the
         sale of pagers as well as 8% of the basic service revenue. The retail
         price of the pagers will be agreed and based on criteria like margin,
         advertising costs, supplies and production price. EUROHIVO will
         organize training session for FOTEX's management and employees (sales
         representatives). FOTEX dedicated 40 sales representatives and 75
         stores - 25 in Budapest, 50 outside Budapest - for the sale of the
         pagers and services.

         Mr. Maros mentioned that the combination of FOTEX and WESTEL, as
         distributors, would deprive competitors from entering into
         distribution agreements with these companies, which are among the
         largest distributing companies in Hungary; thus, EUROHIVO could decide
         to finance the pagers for WESTEL.

(e)      Staffing. All senior positions, except for operations and
         distribution, are staffed. Operations are handled by Greg Egan until
         the Operations Manager will be appointed. There are a lot of
         candidates; however, one problem is that Hungarians do not have paging
         experience. By the end of January, the CSRs and operators will be
         selected; thus, staffing will not cause any problems for the expected
         launch. These persons should be trained, and Glenayre undertook the
         management of this training. There are interviews for prospective
         distribution/sales forces as well.

(f)      Customer Service/Operators. The interviews for these jobs are nearly
         complete. It is planned to organize a trip for CSRs to Portugal where
         a well-rounded, well-organized paging company operates with the similar
         business. The operator stations will be installed soon; the CSR
         furniture and equipment has been ordered. The internal policies, like
         working hours, vacation, etc, are being developed. These persons will
         be on full payroll and trained fully by the end of January, 1995.

(g)      Concession/Legal. Mr. Pryor, based on the chart attached to the
         Invitation, explained compliance with the requirements of the
         Concession Contract.

         With respect to pricing, he explained that EUROHIVO has difficulty with
         the pricing (including problems with the frequency fee, that seems 
         to be substantially higher than originally expected, possible length 
         of the messages, the MATAV interconnect fees and the problem with the 
         pagers). That is why EUROHIVO was not able to comply with the 
         deadline.  As a consequence, the tariffs have not been yet approved.
         The pricing  of the services will be finalized soon; currently
         EUROHIVO is waiting  for the result of market study prepared on
         paging pricing in
        
<PAGE>   148
                                                                               4



         Europe and the pricing of Operator Hungaria. EUROHIVO plans to file
         tariffs similar to those included in the Concession Contract and later
         decrease the prices.

         The members of the BoD, after the above explanation, requested Mr.
         Pryor to file the pricing as soon as possible at the highest rate;
         thus, during the discussion with the Ministry, EUROHIVO can still
         reduce the prices. Mr. Monaghan requested a copy of the pricing and
         asked Mr. Toth, Mr. Pryor, and Mr. Egan to hold a discussion on the
         subject.

(f)      Other Issues. Mr. Pryor explained the issues included in the chart
         attached to the agenda. There are problems arising from the ERMES
         technology as well as different interpretations of the ERMES
         specifications by NEC and Glenayre. He also referred to the problems
         with the pagers and the message length, which in the opinion of
         Glenayre could be 400 character long. There are problems with MATAV
         with respect to the lines as well as with the interconnect.

         Concerning the interconnect, the major issues are: (i) how much MATAV
         will charge for a call; (ii) revenue sharing between MATAV and
         EUROHIVO; (iii) how much does it cost to have a message. The BoD
         members suggested to hire a consultant for managing this item.

         Concerning frequency fees, Mr. Pryor stated that the major issue is
         the amount of the frequency fee. EUROHIVO should go back and check
         with the Ministry this fee since there is an inconsistency between the
         oral agreement with the Ministry and Annex 2 to the Concession
         Agreement.

The BoD members accepted Mr. Pryor's report on EUROHIVO's operation.

AGENDA NO. 2

Mr. Lee informed the BoD members that according to his information, EasyCall is
at least 2 to 3 months behind EUROHIVO. Otherwise EUROHIVO has a good
relationship with EasyCall have met and talked to each other on major mutual
issues.

The BoD members acknowledged the information.

AGENDA NO. 3

EUROHIVO's management submitted the revised 1994 and 1995 budget for approval.
After review by the Board, the 1994 and 1995 budget was accepted.

AGENDA NO. 4.
<PAGE>   149
                                                                               5



Mr. Monaghan presented his ideas concerning the provision of 900 Services as
VAS. He presented several newspaper articles related to this matter and
suggested to invent a similar type of service since he believes that it would
make good money. Of course, the revenue should be shared with MATAV but a good
revenue sharing could be worked out.

Mr. Maros agreed to try to get into touch with the phone companies and ask
their opinion about the idea.

AGENDA NO. 6

With respect to SFMT-Intercompany Transactions, Mr. Lee presented a chart (copy
attached) including the costs of certain employees' salary paid by SFMT, Inc,
who spend most of their time working for EUROHIVO as well as office expenses
for the first two months of operation. The BoD members accepted the costs and
requested that these costs should be budgeted in advance and included in the
business plan.

AGENDA NO. 7

The BoD members agreed to hold the next board meeting in the third week of
February 1995.

After the discussion of the above agenda items the meeting was adjourned and
the BoD members took tour of EUROHIVO's office.



/s/ LOUIS T. TOTH                 /s/ PESTI ISTVAN      
- ------------------                ------------------
Mr. Louis T. Toth                 Mr. Pesti Istvan



/s/ JAMES MONAGHAN                /s/ MAROS PETER       
- ------------------                ------------------
Mr. James Monaghan                Mr. Maros Peter



/s/ ANDREA GYURACZ   
- ------------------
Ms. Andrea Gyuracz

<PAGE>   1
                                                                   Exhibit 10.35



                                   AGREEMENT

               on the Establishment of Limited Liability Company

concluded today according to the Czech Commercial Code
1.   SFMT-Czech, Inc., registered office National Corporate Research, Ltd. 9 
     East Loockerman Street, Dover, County of Kent, U.S.A., business seat 477
     Madison Avenue, New York, N.Y. 10022, U.S.A. (hereinafter "SFMT"), and

2.   B & H, s.r.o., Nad-lomem 14/746, 147 00 Praha 4 (hereinafter "B & H")


                                       I.
                                BASIC PROVISIONS
                                        
                                   Section 1
                             BUSINESS NAME AND SEAT

1.   The business name of the Company is:    SFMT Czech Net.
                                             spol. s.r.o.
2.   The seat of the Company is:   Nad lomem 14/746, 147 00
                                   Praha 4


                                   Section 2
                          SCOPE OF BUSINESS ACTIVITIES

1.   The scope of business activities of the Company is:
     a)   Sale and operations of private telecommunications services through
          satellite (within the extent of the given licenses) and commercial
          activities connected with it
     b)   Sale and purchase of merchandise for the purpose of further sale

2.   The Executive of the Company shall submit within 3 days after the
     conclusion of this Agreement to the appropriate telecommunication
     authority the petition for the licence for activity mentioned in para 1.
     a) and at the same time shall announce the activity mentioned under para
     1. b) to the appropriate Trades Bureau. He shall at the same time appoint
     the responsible representative of the Company.

3.   Members have agreed that B & H s.r.o. shall be the trade representative of
     the Company. For this purpose a contract between the Company and B & H
     s.r.o. on non-exclusive trade representation according to para 664 ff of
     the Commercial Code shall be concluded within one month after the
     establishment of the Company, however the Company shall be permitted to
     engage other companies or


                                       1
<PAGE>   2
     organizations to market telecommunications services on its behalf.


                                   Section 3
                               REGISTERED CAPITAL

     The registered capital of the Company is 3,000,000 [ILLEGIBLE].


                                   Section 4
                                  INVESTMENTS

1.   Founders of the Company are obliged to invest into the registered capital
     of the Company within one month after the conclusion of this Agreement to
     the newly opened bank account of the Company
     a)   SFMT financial investment in the amount of 2,400,000 [ILLEGIBLE]
     b)   B & H s.r.o. financial investment in the amount of 600,000
          [ILLEGIBLE].

2.   The shareholdings of the members in the registered capital are therefore
     as follows:
     a)   SFMT      80%
     b)   B & H     20%

3.   The Executive of the Company shall also be the administrator of the
     investments.


                                      II.
                          RIGHTS AND DUTIES OF MEMBERS
                                        
                                   Section 5
                               RIGHTS OF MEMBERS

       Each member has in particular the following rights:
a)   The right to a share of profits that the General Meeting has resolved for
     distribution among members.
b)   The right to receive information on the activities of the Company, the
     right to request such information from the Executive and to inspect all
     documents of the Company during normal business hours and with reasonable
     notice period.
c)   The right to participate in the General Meeting, the right to submit
     resolutions to the General Meeting and to express opinion on its
     consideration.
d)   to participate by voting in the decision making of the General Meeting.
e)   The right to propose the convening of an extraordinary General Meeting,
     evtl. convene a General Meeting under conditions mentioned in Section 129,
     para 2 of the Commercial Code.
f)   The right to transfer the ownership interest to another person under
     conditions agreed upon in this Agreement in Section 17.


                                       2
<PAGE>   3
g)   The right of first refusal to new investments under conditions agreed upon
     in this Agreement in Section 15.
h)   The right to settlement in the event of termination of its participation
     in the Company and in the event of termination of the Company.
i)   The right to an entrepreneur's remuneration in case of personal
     participation in the activities of the Company if it is a participation
     outside a labour law relationship.


                                   SECTION 6
                               DUTIES OF MEMBERS


       Members are obliged in particular:
a)   to fulfill obligations imposed on them by this Agreement and by General
     Meeting Resolutions
b)   to respect the directives of the Executives in personal participation in
     the activities of the Company
c)   not to form on the territory of the Czech Republic other commercial
     companies with the same scope of activities (Section 2/1a) nor to
     participate as members in such scope of activities in other legal entities
     in the Czech Republic.


                                   SECTION 7
                     SANCTIONS FOR VIOLATION OF OBLIGATIONS


1.   In the event of violation of the Agreement the affected member may request
     the convening of the General Meeting with the motion that the violation of
     law be remedied.  If remedy is not secured member or the Company may
     request protection in a Court action.

2.   The General Meeting may resolve to submit a motion for expulsion of a
     member in the event that this member deliberately or by gross negligence
     has violated one of its substantial obligations.  The Court shall proceed
     according to the principles of civil law proceedings.

3.   The provisions of paras 1 and 2 as well as the provisions of Section 4,
     para 2 do not affect the obligation for compensation of reasonable damages.


                                      III.
                                 COMPANY BODIES
                                        
                                   SECTION 8
                                GENERAL MEETING


1.   The General Meeting shall be the highest body of the Company.

2.   The General Meeting can take decisions only if both members are present.
     However, if either Member refuses to attend two consecutive
     regularly called General Meetings



                                       3
<PAGE>   4
     the third General Meeting may take decisions by votes of the present
     Member according to the present Agreement, in accordance with the existing
     Commercial Code.

3.   Apart from authority mentioned in the law (Section 125 of the Commercial
     Code) the General Meeting shall further be authorized:

     a) To approve the strategy of Company's activities and its modifications.

     b) To approve the entrepreneur's renumeration of members participating in
        the activities of the Company outside a labour law relationship.

     c) To decide which dispositions with the assets of the Company are subject
        to its prior consent.

     d) To decide on the method for distribution of profit and how to cover the
        losses of the Company.

     e) To decide on the amendements of the founding agreement.

     f) In the event that the Company shall have at least 50 employees the
        General Meeting may decide that the Company shall adopt Statutes in 
        which the internal organization and principles of its economy shall be 
        regulated in more detail than the present Agreement.  In such case these
        Statutes are subject to the approval by the General Meeting.

     g) To decide on the motion to expel a member.

     h) To resolve on the merger, division or integration of the Company or on
        its transformation in an other commercial company.  It shall also decide
        on winding up of the Company.
     
     i) To appoint and recall members of the Executive Council and to approve
        its competencies and principles of its activity.

     j) To appoint and recall the Executive of the Company.
     
4.   The General Meeting may at any time reserve its decision of cases which
     otherwise belong in the competence of the Executive Council and the
     Executives.  In case of competence disputes the resolution of the General
     Meeting is decisive.

5.   At each session the General Meeting shall elect its Chairman.  In the
     election of a Chairman each member has one vote.

6.   In all matters voted upon by the General Meeting, unless otherwise
     specified in this Agreement each member shall have one vote per every
     100,000 Kc of its investments. Unless otherwise provided, such actions
     require a majority of votes.

7.   For decisions on matters mentioned

     a) Under provisions of Section 127, para 4 of the Commercial Code.

     b) In provisions of Section 8, para 3 d), e), h), i) and in Section 8,
        para 4 of this Agreement,

     c) In approval of the Statutes of the Company



                                       4
     
<PAGE>   5
     approval by at least a two thirds majority of all members votes shall be
     required, subject to an exception where such acts occur as a result of the
     exercise by SFMT of its rights under Section 15, para 1.

     However, unanimity of all votes is required for matters under paras 3 e)
     and 3 h) above if these decisions would adversely affect the interest of
     minority member (members) to the extent that the basic principles of the
     present Agreement would be changed.

8.   The Executive is obliged to attend the General Meeting.  If he/she is not
     at the same time a member, he/she shall have only an advisory function.

9.   The Executive shall record the proceedings of the General Meeting in a
     Protocol.

                                   Section 9
                               Executive Council


1.   The General Meeting shall elect within one month after signature of this
     Agreement a Executive Council of the Company.  The Executive Council shall
     have three members.  SFMT shall appoint two members and B & H one
     member.  The Executive Council shall elect from among its member its
     Chairman.

2.   The Executive Council is an operative body of the Company for its
     management between the General Meetings and shall report to the General
     Meeting.  Specific authority and principles of its activity shall be
     determined in a General Meeting resolution.

3.   The Executive Council may give binding instructions to the Company
     Executive.


                                   Section 10
                                   Executive


1.   The Executive is authorized to decide on all matters which the law or this
     Agreement does not reserve to the General Meeting or which the General
     Meeting has not reserved for its decision.

2.   The Executive is in his/her activities bound by the directives of the
     Executive Council according to Section 9, para 3 of this Agreement.

3.   The Executive is bound by the ban on competitive conduct within the extent
     mentioned in Section 136 of the Commercial Code with the following
     modification:

     a) The Executive is allowed to participate in the activities of another
        company as a member with unlimited liability if it is not a company in
        competition with this Company as defined in Section 2 1a) above



                                       5
<PAGE>   6
     b)  The Executive is not allowed to perform activities as statutory organ
         or a member of a statutory organ of any legal entity; this applies 
         also in case mentioned under subpara a) above.

4.   The Executive is Ing.  Pavel Vyborny residing in Senovska 540, 182 00
     Prague 8, birth No. 400604/116.

5.   The Executive acts for the Company in such a way that he shall sign
     documents under the printed or written name of the Company and shall, as a
     rule, give his executive function.


                                      IV.

                             ECONOMY OF THE COMPANY

                                   SECTION 11
                               ACCOUNTING PERIOD


1.   The first accounting period begins on the day of the establishment of the
     Company and ends on 31 December of the year in which the Company was 
     established.

2.   Other accounting periods are identical with calendar years.


                                   SECTION 12
             DUTIES OF THE EXECUTIVE IN THE ECONOMY OF THE COMPANY

1.   The Executive is responsible for the proper economy of the Company and for
     its harmonization with the approved conception to the General Meeting and
     to individual members.

2.   The Executive is obliged to make arrangements for the proper book-keeping
     of the Company and for ordinary and extraordinary balance sheets.  These
     are submitted with the motion for distribution of profit and with the
     annual report to the General Meeting for consideration and decision.

3.   The Executive is obliged to compile an annual report for every accounting
     period also if it is not required by legal regulation.  In a separate
     exhibit to the annual report he shall give the data which are to be
     published.

                                   SECTION 13
                                  RESERVE FUND


1.   The Company shall establish a Reserve Fund in the amount of 10% of its
     registered capital.  The Reserve Fund shall be fed on an annual basis by
     5% of net profit until the Reserve Fund reaches the level of 10% of the
     registered capital.



                                       6
<PAGE>   7
2.   The Executive is authorized to decide on the use of the Reserve Fund after
     prior consent of the Executive Council.  He shall inform the next General
     Meeting on the disposition with the Reserve Fund and on its level.


                                   Section 14
                             DISTRIBUTION OF PROFIT


1.   Distribution of profit shall be decided upon by the General Meeting on
     proposal by the Executive after consideration by the Executive Council.

2.   The General Meeting shall decide what part of the profit shall the Company
     use for its further development and what part shall be used for
     distribution of profit between members after deduction of taxes and
     supplement of the Reserve Fund.

3.   Profit shall be distributed between members proportionally according to
     their shareholdings.

                                       V.
                         CHANGES OF REGISTERED CAPITAL

                                   Section 15
                         INCREASE OF REGISTERED CAPITAL


1.   Increase of registered capital shall be decided upon by two third majority
     of votes on the proposal of anyone of them. SFMT may increase registered
     capital as required by reasonable and prudent business practice in line
     with the needs of the operation by the Company.

2.   The priority right for new investments to increase the registered capital
     according to Section 143 of the Commercial Code is set for existing
     members within one month as from the General Meeting resolution on
     increase of registered capital.

3.   The decision to increase the registered capital shall also provide for the
     method by which the registered capital of the Company shall be increased.
     The Executive shall see to it that the agreed method and the legal
     regulation in accepting the obligations for new investments shall be
     abided by.  The Executive shall also apply for the registration of the
     change of the registered capital of the Company within 7 days after this
     change has occurred.


                                  Section 16
                        REDUCTION OF REGISTERED CAPITAL


1.   The reduction of registered capital shall be decided upon



                                       7
<PAGE>   8
     by the General Meeting as agreed in Section 8, para 7 of this Agreement.

2.   With the reduction of the registered capital the members investments shall
     be decreased proportionately if the reduction is not due to the
     termination of membership of a member in the Company and if at the same
     time a transfer of succession of its shareholding to another person has
     not taken place; in such a case the registered capital shall be
     reduced by the reduction of number of investments.

3.   The registered capital of the Company and the investments of its members
     must not fall below the legal minimum.

4.   The Executive shall be obliged to publicize the reduction of the
     registered capital twice, the second publication within 30 days after the
     first one in the Economic Gazette.  After settlement eventually cover for
     those creditors claims which were submitted within the time given by law
     the Executive shall without undue delay submit a petition for
     re-registration of the change of the registered capital of the Company in
     the Companies Register.


                                      VI.
                      DISPOSITION WITH OWNERSHIP INTEREST
                                        
                                   Section 17
                         TRANSFER OF OWNERSHIP INTEREST

1.   A member may transfer its ownership interest to another member without the
     approval by the General Meeting.  SFMT-Czech, Inc. can transfer its
     ownership interests without the approval by the General Meeting to a
     wholly-owned subsidiary to be formed by SFMT-Czech, Inc. in the Czech
     Republic.

2.   If a member does not exercise its right, the other member should be free
     to sell its interest to any third party for a period of three months.  In
     the event a member receives a bona fide offer to purchase its interest,
     then the terms and conditions of such offer should control the purchase
     price and conditions under which the other member should be entitled to
     purchase the interest.  If however, the member that received the offer to
     purchase its interest attempts to sell such interest at a lower price or
     upon more favorable terms than those which the other member declined to
     purchase, then such interest must first be offered to the other member at
     such reduced price or more favorable terms.  All sales to third parties
     are subject to the condition that the party purchasing the interest become
     a party to this Agreement.


                                       8
<PAGE>   9
3.   The transfer of ownership interest shall be effective for the Company as
     of the day on which the Executive has received a copy of the transfer
     contract.


                                   Section 18
                         DIVISION OF OWNERSHIP INTEREST

       Ownership interest can be divided only with the consent of the General
Meeting and only in the following cases:
a)   In the case of transfer of ownership interest according to Section 16,
     para 1
b)   Transfer of ownership interest to legal successor of the member.


                                   Section 19
                            FREE OWNERSHIP INTEREST

1.   The General Meeting shall decide how the Executive shall dispose of an
     ownership interest which has become free due to the fact that members have
     not exercised their priority right or due to the fact that there is no
     available third party purchaser.

2.   If the decision according to para 1 stipulates that the free share shall
     be transferred to a person who is not a member and the transfer has not
     been successful, this ownership interest shall be divided among the
     present members proportionately according to their shareholdings.


                                      VII.
                   WINDING UP AND TERMINATION OF THE COMPANY
                                        
                                   Section 20
                           WINDING UP OF THE COMPANY

1.   In addition to reasons for winding up of the Company mentioned in the law,
     the Company shall also be wound up by a unanimous resolution of the
     General Meeting and on proposal of a member according to para 2.

2.   Any member may submit a proposal that the Court should wind up the Company
     according to the Czech Commercial law.


                                   Section 21
            RESOLUTION OF THE GENERAL MEETING TO WIND UP THE COMPANY

1.   The General Meeting, when deciding to wind up the Company, shall also
     resolve whether the Company shall be wound up with liquidation or without
     liquidation.

2.   The Resolution to wind up the Company without liquidation shall also
     specify the day of winding up of the Company and shall instruct the
     Executive to arrange for the entry

                                       9
<PAGE>   10
     of the winding up of the Company in the Companies Register.

3    In the Resolution to wind up the Company with liquidation the General
     Meeting shall specify the day of starting the liquidation, shall appoint 
     the liquidator and shall decide on the renumeration of the liquidator. The
     General Meeting shall instruct the Executive to submit in time the
     petition for entry of these facts in the Companies Register.

                                     


                                     VIII.
                               Final Provisions

                                  Section 22
                            Settlement of Disputes

The Parties to this Agreement shall endeavor to reach an amicable settlement
of  disputes arising hereunder.  However, if they are unable to resolve any 
dispute by amicable settlement, such dispute shall be settled by binding 
arbitration under the arbitration Rules of the Stockholm Chamber of Commerce 
(the "Rules")by three arbitrators appointed in accordance with the Rules.  
The President of the Chamber of Commerce, Stockholm (Sweden) shall act as the
"appointing authority" under the Rules.  Parties hereby irrevocably waive 
the right to submit such disputes, or to appeal, to any court.  The seat of 
the arbitration tribunal shall be Stockholm, Sweden.  The language of the 
arbitration shall be English.  This submission and agreement to arbitrate 
shall be specifically enforceable.  Any award rendered by an arbitration 
tribunal shall be final and binding on the Parties, and the judgement upon 
the award rendered may be entered in any court having jurisdiction thereof.


                                  Section 23
                  Expenses of the Establishment of the Company

     The Court and administrative charges connected with the establishment 
of the Company shall be born by the Company and shall be accounted for as 
its first expenses.  Other expenses shall be borne by each member.


                                  Section 24
                     Number of Copies. A Signature Specimen

1.  This Agreement has been done in 6 copies in Czech and English.  In case
    of differences the English version shall control.  Each of the members
    shall receive 2 copies, 1 copy shall be deposited with the Companies 
    Register and the remaining copy shall be deposited by the Executive in
    the archives of the Company.


                                       10
<PAGE>   11
2.   The signature given below this Agreement serves also as the signature
     specimen.

3.   The Executive of the Company is authorized to submit the application for
     registration of the Company in the Companies Register.  His signature on
     the petition or on the power of attorney for the appointed attorney, shall
     also serve as signature specimen.


Done in Prague      July, 1994
              -----



For SFMT-Czech, Inc.                    For B & H

/s/LOUIS T. TOTH                        /s/ ING. VLADISLAV HRIBEK
- -------------------------               -------------------------
Louis T. Toth                           Ing. Vladislav Hribek
Vice President                          Executive

                                        B & H, s.r.o.
                                        Nad lomem 14/746
                                        147 00 Praha 4






[Illegible]

Louis Thomas Toth, nar. 12. sept. 1942, 1500 LOWST St. APT-2613, PHILADELPHIA,
PA 19102, U.S.A.

[Illegible]

12.7.1994



                      Emilia Kubikova                [SEAL]

<PAGE>   1
                                                                   EXHIBIT 10.36

I.   FORMATION OF THE EQUITY JOINT VENTURE

          GTS and SSTIC shall forthwith form an equity joint venture limited
liability company pursuant to the "Law of the People's Republic of China on
Joint Ventures Using Chinese and Foreign Investment" ("Joint Venture Law") and
other relevant Chinese laws and regulations to be known as SHANGHAI V-TECH
TELECOMMUNICATIONS & ENGINEERING LIMITED LIABILITY COMPANY (the "EJV"). The EJV
shall be organized as follows:

          1.   Duration. The duration of the EJV shall be twenty (20) years,
after which it shall continue by mutual agreement unless terminated by written
notice by either SSTIC or GTS to the other Party twelve (12) months prior to
the expiration of the term or unless terminated pursuant to Article VI or by
mutual agreement of the parties.

          2.   Purposes. The purposes of the EJV shall be, but not limited to:

          (a)  provision of telecommunications engineering and consulting
     services, and other technical support to Chinese companies and other
     organizations, including SSTIC and SVC, such consulting and technical
     support services to include without limitation, VSAT, Cellular, PCS/PCN,
     CATV and other telecommunication networks;

          (b)  provision of telecommunications system design and system
     integration and installation and maintenance of telecommunications 
     equipment in China;

          (c)  provision of training and consulting services concerning system
     operations to SSTIC and its portfolio companies, including SVC;

          (d)  arrangement of the procurement, import and export of
     telecommunications equipment; and

          (e)  development of telecommunications business outside of China.

          3.   Business Scope. The business scope of the EJV is to acquire,
own, sell and operate property, enter into contracts, hire personnel, and
undertake and conduct all other lawful activities necessary for or incidental
to the purposes set forth in Section I(2) of this Contract. 

          4.   Total Amount of Investment and Registered Capital

          (a)  The total amount of investment in the EJV shall be the
     equivalent of Eight Million U.S. Dollars (US$8,000,000) ("Total Amount of
     Investment"). The registered capital of the EJV shall be the equivalent of
     Five Million U.S. Dollars (US$5,000,000) ("Registered Capital").


                                       2
<PAGE>   2
        (b) The EJV's sources of equity and financing shall include the
            following:

            (i)   GTS shall make contributions equivalent to Three
                  Million Seven Hundred and Fifty Thousand U.S. Dollars 
                  (US$3,750,000), representing Seventy-Five Percent 
                  (75%) of the Registered Capital of the EJV.
                    
            (ii)  SSTIC shall make contributions equivalent to One
                  Million Two Hundred and Fifty Thousand U.S. Dollars 
                  (US$1,250,000), representing Twenty-Five Percent (25%) 
                  of the Registered Capital of the EJV.

            (iii) Prior to the second anniversary of the Effective Date of this
                  Contract, additional funds for capital investment and/or 
                  operating needs shall be obtained by the EJV in the 
                  following order of priority:
 
                  (1)   Through loans from GTS on terms favorable in
                        comparison to those available from the Bank of China, 
                        each at an interest rate of seven percent (7%) per 
                        annum with a three (3) year term; provided, however,
                        that the total amount of GTS's loans shall not exceed 
                        Three Million U.S. Dollars (US$3,000,000). Each such 
                        loan shall be substantially in the form appended
                        hereto as Exhibit B - Form of Term Loan Agreement.

                  (2)   Through loans from domestic or foreign financial 
                        institutions.  The management of the EJV shall, with 
                        the assistance of the Parties, arrange, on the most 
                        competitive terms available to it, such third party
                        loans.

            (iv)  After the second anniversary of the Effective Date of this
                  Contract, additional funds for capital investment and/or 
                  operating needs shall be obtained by the EJV at such time 
                  and in such manner as the Parties shall agree.

            (v)   Any borrowing by the EJV shall conform with the required
                  debt-to-equity ratio.

        (c) The Parties shall make their subscribed contributions
            to the Registered Capital of the EJV in the following forms:

            (i)   GTS shall make its subscribed contributions to the Registered
                  Capital of the EJV by depositing cash for the account of the 
                  EJV




                                       3
<PAGE>   3
                at a bank in Shanghai designated by the EJV the sum of Three
                Million Seven Hundred and Fifty Thousand U.S. Dollars 
                (US$3,750,000).  All of GTS's contributions to the Registered
                Capital shall be completed within two (2) weeks after the date
                on which the EJV is issued a business license by the Shanghai
                branch of the State Administration of Industry and Commerce
                of the People's Republic of China.

        (ii)    SSTIC shall make its subscribed contributions to the
                Registered Capital of the EJV by depositing cash for the
                account of the EJV at a bank in Shanghai designated by the EJV
                the sum of One Million Two Hundred and Fifty Thousand U.S.
                Dollars (US$1,250,000).  SSTIC's contributions to the
                Registered Capital shall be completed within two (2) weeks
                after the date on which the EJV is issued a business license
                by the Shanghai branch of the State Administration of Industry
                and Commerce of the People's Republic of China.

        5.      Sharing of Profits, Risks and Losses. The profits, risks and
losses of the EJV shall be shared by the Parties in proportion to their
contributions to the Registered Capital.  Following their respective
contributions to the Registered Capital of the EJV, GTS shall own 75% of the
equity of the EJV and SSTIC shall own 25% of the equity of the EJV.

       6.       Registered Address.  The EJV shall be located and registered
in the Golden Bridge Zone of Pudong.

       7.       Articles of Association.  The Articles of Association of the
EJV shall be substantially in the form of Exhibit A hereto.

II.    GOVERNANCE

       1.       Board of Directors.

       (a)      The date of registration of the EJV shall be the
    date of the establishment of the board of directors.

       (b)      Subject to the provisions of the Joint Venture Law,
    all the powers of the EJV shall be exercised by or under the
    authority of the board of directors ("Board of Directors").  The
    business and affairs of the EJV shall be managed under the direction
    of the Board of Directors.  The Board of Directors shall consist of
    five (5) directors, of which three (3) shall be appointed by GTS, and
    two (2) shall be appointed by SSTIC.  One of the directors is
    appointed by SSTIC shall serve as Chairman of the Board of Directors.
    The term of office for the directors and


                                       4
<PAGE>   4
          Chairman is four years; their term of office may be renewed
          continuously by the appointing Party.  A director may be removed by   
          the Party who appointed such director and replaced by a successor
          director appointed by the Party who appointed the director so removed.
        
              (c)  The highest authority of the EJV shall be its board of
          directors.  It shall decide all major issues concerning the EJV.
          Unanimous approval shall be required before any decisions are made
          concerning the following major issues:
        
                   (1)  Amendment of the Article of Association;
                    
                   (2)  Termination and dissolution of the EJV;

                   (3)  Increase or assignment of the registered capital of the
                        EJV;

                   (4)  Merger of the EJV with other economic organizations.

          
          Decisions on other issues shall be made according to the rules of
          procedure stipulated in the Article of Association.

               2.  Officers.  The EJV shall have a General Manager, three
Deputy General Managers and one Assistant Deputy General Manager in  charge of
the management of the day-to-day operations of the EJV.

              (a)  The General Manager of the EJV shall be appointed by GTS.
          The General Manager shall be the chief operating officer of the EJV 
          and, subject to the direction and control of the board of directors,
          shall have general charge and supervision over the property, 
          business, and affairs of the EJV.

              (b)  The three Deputy General Managers of the EJV shall be:  one
          Deputy General Manager in charge of Engineering and Operations, to be
          appointed by GTS to serve for the first year of the operations of 
          the EJV and thereafter appointed by SSTIC; one Deputy General 
          Manager in charge of Marketing and Sales to be appointed by SSTIC; 
          and one Deputy General Manager in charge of Finance and 
          Administration to be appointed by GTS. The Deputy General Managers
          shall assist the General Manager in the management of the day-to-day
          operations of the EJV.

              (c)  The EJV shall have one Assistant Deputy General Manager of
          Finance and Administration to be appointed by SSTIC.

              (d)  Personnel assigned to the EJV by the Parties to provide
          services for the EJV shall be at the expense of the EJV.  Plans for   
          appointment of such personnel shall be subject to review and approval
          of the Board of Directors.


                                       5

<PAGE>   5
          3.  Financial Affairs and Accounting.

          (a) All appropriate accounting records and statements of the EJV
     shall be prepared and kept in both Chinese and English languages and in
     accordance with Chinese Generally Accepted Accounting Principles.  To
     satisfy GTS's reporting requirements in the U.S. and the EJV's need to
     obtain loans outside China, such accounting records and statements shall
     be simultaneously converted to separate records and statements that
     are consistent with United States Generally Accepted Accounting Principles.

          (b) The Board of Directors shall select qualified Chinese and
     international cooperative accounting firms registered in China to be the
     auditors of the EJV to examine and verify the accounts and books of the
     EJV and to submit to the Board of Directors and the General Manager of the
     EJV an audit report signed by a certified accountant.  The methodologies
     used by the outside financial auditor of the EJV must satisfy the
     requirements of both parties.

          (c)  The EJV shall prepare and provide to GTS on such timely basis as
     specified by them information requested by them for purposes of their
     income tax and their other obligations and filings in the United States.

          (d)  Each Party may review the accounts and books of the EJV.  The
     expenses of such review shall be paid by the Party making the review.

          (e)  The fiscal year of the EJV shall be from January 1 through
     December 31.


III. RESPONSIBILITIES OF PARTIES

          1.  Responsibilities of GTS.  GTS shall be responsible for the
following:

          (a) Contribute its share of the Registered Capital according to the
     schedule in Section I(4) of this Contract.

          (b) Provide technical personnel needed by the EJV for performing its
     obligations under its agreements with telecommunication companies.

          (c) Provide business management and financial expertise to the EJV.

          (d) Train technical personnel and workers of the EJV.

          (e) Handle other matters entrusted by the EJV.



                                       6
<PAGE>   6
         (f)  Use reasonable efforts to assist the EJV to develop the 
    international market of VSAT business.

         2.   Responsibilities of SSTIC.  SSTIC shall be responsible for the
following:

         (a)  Contribute its share of the Registered Capital according to the
    schedule in Section I(4) of this Contract.

         (b)  Use reasonable efforts to assist its portfolio companies to enter
    into agreements with the EJV for provision of engineering and other 
    services.

         (c)  Use its best efforts to assist SVC to obtain, and maintain the
    validity of, all the licenses and permits necessary for the business 
    operations of the EJV, including without limitation the license and permits 
    for operating VSAT networks in China.

         (d)  Handle applications for approval, registration, business 
    licenses and other matters in connection with the formation of the EJV with
    relevant government authorities in China.

         (e)  Assist the EJV in recruiting Chinese management personnel, 
    technical personnel, workers and other personnel.

         (f)  Assist in obtaining entry visas for GTS personnel assigned to work
    for the EJV.

         (g)  Assist GTS personnel assigned to work for the EJV to adjust to 
    life in China.

         (h)  Assist the EJV in obtaining all favorable tax treatment and other
    benefits available to the EJV under Chinese laws and regulations.

         (i)  Handle other matters entrusted by the EJV.

IV.      REPRESENTATIONS AND WARRANTIES

         Each of the Parties represents and warrants to the others as to the
following:

         1.   Valid Existence.  It is the type of entity indicated in the first
paragraph of this Contract, duly formed and validly existing under the laws of
the jurisdiction indicated in the first paragraph of this Contract, that it has
complied with all its material legal and statutory obligations and that it has
the power under its constitutive documents to execute and deliver this Contract
and to perform its obligations under this Contract.






                                       7
<PAGE>   7
          2.   Due Authorization; Validity.  The execution of this Contract by
its undersigned representative and the delivery and performance by it of this
Contract:

         (a)   have been duly authorized by all necessary action and do not
     violate any applicable law, statute, rule, regulation, order, ordinance,
     or requirement of any governmental entity of the jurisdiction which 
     governs it;

         (b)   do not and shall not result in the breach of, or constitute a
     default under, or require the consent under, its constitutive documents
     or any indenture, bank loan or credit arrangement, mortgage, or other
     agreement or instrument to which it is a party or by which it or any
     of its properties may be bound or affected; and

         (c)   shall constitute its valid, binding and enforceable obligation 
     in accordance with the terms of this Contract.

V.   COVENANTS

          1.   Non-Competition.  Neither SSTIC nor GTS shall, so long as this
Contract is in effect and for so long as SSTIC or GTS is a Party, engage in a
business or invest in another entity in China which has the same or similar
VSAT services and VSAT technologies that directly compete with VSAT services
in China as described in this Contract without first offering the other a
preemptive right to participate on the same basis in such a business or entity. 
GTS and SSTIC also agree to identify and exchange information about
opportunities for V-Tech to provide any VSAT telecommunication services and
VSAT engineering services in which the other may in the future participate in
any part of Asia and Europe.

          2.   Confidentiality.

         (a)   All VSAT-related technology, know-how, trade secrets and
     proprietary and other information belonging to any Party and made 
     available to the EJV which is labeled or otherwise identified to be such 
     ("Confidential Information") shall continue to be the property of the
     Party making such available to the EJV, and shall be used by the other
     Party exclusively for the purposes of the business of the EJV, unless
     the Party making Confidential Information available to the EJV provides 
     its express prior written permission for use by the other Party for any
     purpose other than the business of the EJV.

         (b)   Each Party who has received Confidential Information shall, and
     shall require that its employees, agents, consultants or other 
     representatives shall, keep confidential and use all Confidential
     Information only for the benefit of the EJV, and preserve all Confidential
     Information for the benefit of the Party which provided the Confidential
     Information.




                                      8

 
<PAGE>   8
              (c)  No protection shall be granted to Confidential Information 
         that is or becomes: (i) generally available to the public, other than
         through disclosure by a Party; (ii) rightfully obtained from a third
         party without restriction of confidentiality; (iii) released in
         writing from the obligation of confidentiality by the Party to which
         the Confidential Information belongs; or (iv) which is required to be
         disclosed by law or judicial process.
        
         3.   Press Releases; Announcements.  No Party shall make any formal 
press release, public announcement, news release, or other form of publicity
relating to the EJV or its business, without prior consultation with the other
Parties and their consent to the substantive content of such release,
announcement or other publicity.  No Party shall unreasonably withhold its
consent to any formal press or news release, public announcement, or other
publicity relating to the EJV or its business.
        
         4.   Agreements with Portfolio Companies.  SSTIC and GTS shall use 
their reasonable efforts to assist their respective portfolio companies engaged
in the provision of telecommunications services to enter into engineering
service agreements with the EJV.  
        
         5.   Transfer of Shares.  No Party shall sell, transfer, dispose or
otherwise convey its interest in the EJV to any person or entity that is not a
Party, except in accordance with the provisions of Article 23 of the Law of the
People's Republic of China on Joint Ventures Using Chinese and Foreign
Investment.  No transfer of an interest in the EJV shall be effective unless
and until the transferee becomes a party to this Contract.
        
VI.  TERMINATION, DISSOLUTION AND LIQUIDATION

        1.    Termination.  This Contract may be terminated at any time:

        (a)  by mutual agreement of the Parties to dissolve the EJV before the
    expiration of its term; or

        (b)  by either SSTIC or GTS if the other shall (i) be determined 
    to be bankrupt or insolvent by a court or other governmental        
    authority of competent jurisdiction, or (ii) file a  petition or otherwise
    take any action seeking the protection of any bankruptcy, reorganization or
    other insolvency laws; or
        
        (c)  by either SSTIC or GTS if the other defaults on any of its
    material obligations under this Contract and such default is not remedied
    within sixty (60) days after the defaulting Party receives notice of such
    default from the non-defaulting Party, or if such default is of a nature
    that it cannot be cured within such sixty (60) day period and the
    defaulting Party has not promptly commenced and continued to diligently
    pursue the remedy of such breach; or              
        








                                       9
<PAGE>   9
         (d)  by either SSTIC or GTS if there occurs a change in control of the
    other, except if such change in control results from a registered public
    offering of its securities; or
        
         (e)  by either SSTIC or GTS if the other is not performing any of its
    material obligations under this Contract as the result of an event or
    circumstance constituting a force majeure under Article VIII of this
    Contract and such force majeure continues for a period of at least one
    hundred and eighty (180) days; or
        
        (f)   by GTS if (i) at any time the EJV has no agreements, to provide
    telecommunications engineering or consulting services or technical support
    to Chinese companies or other organizations, or (ii) all of the parties
    with which the EJV has such agreements lose their license to operate a 
    telecommunications venture, or fail or otherwise are unable to renew their 
    licenses to provide telecommunications services; or
        
        (g)   for any reason that may be provided by under the relevant Chinese
    laws and regulations.

        2.   Termination; Liquidation.  Upon termination of this Contract, all 
of the rights and obligations hereof shall terminate except any claim of any
Party against any other Party for damages arising out of a breach of this
Contract, which shall survive such termination.  In the event that either SSTIC
or GTS gives notice pursuant to Article I or VI of this Contract of its desire
to terminate this Contract, the other shall have the right to make an offer to
purchase the interest of the Party giving notice and shall inform the Party
giving notice whether or not it chooses to exercise such right within sixty
(60) days.  If such Party chooses not to exercise such right or if the other
Party does not accept the terms of the offer to purchase, the Board of
Directors shall immediately take steps to dissolve the EJV and liquidate its
assets in accordance with relevant Chinese laws and regulations.  After payment
of third party claims and the setting aside of such reserves as required by
Chinese laws, the balance of the proceeds shall be distributed to the Parties,
first to repay any loans owing by the EJV to the Parties, and then to the
Parties according to the proportion of their contributions to the Registered
Capital of the EJV.

VII. DISPUTE RESOLUTION

    All disputes arising out of or in connection with this Contract or the
performance hereof shall first be settled amicably through consultation between
the Chairman of the Board of SSTIC and the president of GTS.  In case no
settlement can be reached through consultation within sixty (60) days, then
either party may submit the dispute to arbitration in Stockholm, Sweden.
Arbitration shall be conducted in the English language and in accordance with
the Arbitration Rules of the Stockholm Chamber of Commerce.  Only a single
neutral arbitrator selected by that arbitration institute shall be required.
The








                                       10
<PAGE>   10
arbitrator shall have the authority to render an award consistent with the
explicit terms of this Contract and to include in such award a decision binding
upon the parties and enjoining them to take or refrain from taking specific
actions with respect to the matter in dispute.  The award of the arbitrator
shall be final and the parties shall not contest or seek relief from such award
in any court.  Judgement upon the arbitration award may be rendered in any
court of competent jurisdiction.  Expenses of arbitration shall be borne by the
losing party.

VIII.FORCE MAJEURE

          The Parties hereto shall not be liable for failure of performance if
occasioned by war, fire, storm, strike, or any other force majeure events
beyond the control of and without the fault of the Parties, including any
action by any governmental authority that has the effect of preventing any
Party from performing its obligations under this Contract.  Any suspension of
performance by reason of this Article shall be limited to the period during
which such cause of nonperformance exists.

IX.  EFFECTIVE DATE

          This Contract shall become effective on the date (the "Effective 
Date") all the necessary approvals and permits for the establishment of the 
EJV have been obtained from the relevant government agencies of the People's 
Republic of China.  This Contract shall remain in force as long as the EJV 
continues to exist, unless earlier terminated as provided in Article VI hereof.

X.   LANGUAGE

          This Contract shall be executed in six original copies, three of which
shall be in English and three of which shall be in Chinese.  Each original
copy, whether in English or in Chinese, shall be equally valid provided,
however, in the event of a discrepancy between the English and the Chinese
counterparts, the English language counterparts shall govern.

XI.  GOVERNING LAW

          This Contract shall be governed by and construed in accordance with 
the laws of the People's Republic of China.  In the absence of Chinese laws and
regulations, international customary laws and practice shall control.








                                       11
<PAGE>   11
XII. ENTIRE AGREEMENT; EXHIBITS; AMENDMENT

          This Contract sets forth the entire understanding among the Parties
relating to the subject matter contained herein and merges all prior
discussions and agreements between them. Exhibits to this Contract are
incorporated herein as an integral part of the Contract.  No amendment to this
Contract shall be effective unless it is in writing and executed by all the
Parties.

XIII. MISCELLANEOUS

          1.   Severability. In the event that any provision of this Contract
shall be held to be invalid, the validity of the remaining provisions shall not
be affected.  To the extent possible the Parties shall replace such provision
with a legally permissible and valid provision with like effect.

          2.   Joint Venture Contract Governs. In the case of any discrepancies
between this Contract and the Articles of Association of the EJV, the
provisions of this Contract shall control the relationship among the Parties,
and the Articles of Association of the EJV shall be modified in such a manner
as to be consistent with this Contract.




                                       12

<PAGE>   1
                                                                   EXHIBIT 10.37



                            Contract to Establish
                  the Sino-foreign Cooperative Joint Venture
         Beijing Tianmu Satellite Communications Technology Co., Ltd.


                                    AMENDED

                                 By and Between

              China International Travel Service Telecom Co., Ltd.

                                      and

                     American China Investment Corporation
<PAGE>   2
                       COOPERATIVE JOINT VENTURE CONTRACT



ARTICLE 1:            GENERAL PRINCIPLES

1.1      China International Travel Service (CITS) TELECOM CO., LTD., a company
organized under the Laws of the People's Republic of China ("PRC") and legally
authorized to conduct economic activities, with its principal office at:  CITS
Development Building, P.O.Box 3015, Beijing 100011, PRC (hereinafter referred
to as Party A); Legal representative:  Mr. Li Yuancheng, General Manager;
nationality:  PRC.

         American China Investment Corporation ("ACIC"), a corporation
organized under the Laws of Ontario, Canada, with its principal office at:  95
Wellington Street West, suite 1001, Toronto, Ontario M5J 2N7, Canada
(hereinafter referred to as Party B); Legal Representative:  Raymond I. Marks,
Chairman; nationality:  USA.

1.2      Party A and Party B (hereinafter referred to as the "Parties") agreed
to jointly form a Cooperative Joint Venture Company in accordance with the Laws
of the PRC on Cooperative Joint Ventures using Chinese and Foreign Investment
and other applicable laws and regulations pursuant to a Cooperative Joint
Venture Contract dated March 28, 1995 (the "Original JVC").  Certain matters
have arisen making it appropriate to amend the Original JVC.  The Parties agree
to amend and restate the Original JVC with the terms and conditions of this
Cooperative Joint Venture Contract (this "Contract").  The Parties agree to
perform in good faith this Contract as amended and restated.


ARTICLE 2:            NAME AND ADDRESS OF THE JOINT VENTURE COMPANY

2.1      The Chinese full name of the Joint Venture Company shall be "      "
(abbreviated as "                    ").

2.2      The English full name of the Joint Venture Company shall be "Beijing
Tianmu Satellite Communications Technology Co., Ltd." (abbreviated as "JVCO").

     The Headquarters and registered address of JVCO shall be 45 Baishiqiao
Road, Haidian District, Beijing 100044, PRC.


ARTICLE 3:           PURPOSE AND BUSINESS SCOPE OF JVCO


                                      1
<PAGE>   3
3.1      JVCO shall operate on sound and lawful business principles and on the
basis of equality and mutual benefit, with the goal of providing services and
products at a profit acceptable to JVCO.

3.2      JVCO shall endeavor to operate competitively (particularly as regards
efficiency, quality, price and delivery schedule) and carry out its operations
in accordance with sound business practices.

3.3      The business scope of JVCO shall include the following:

     (1)         Constructing and providing technical engineering services and
support for telecommunications projects and facilities with capital injection
relating to, without limitation, VSAT, wireless, CATV and other
telecommunications networks;

     (2)         Engaging in network system design and integration, equipment
and system installation and maintenance, engineering management and system
operation consultation for telecommunications facilities and networks; and

     (3)         Producing and trading in satellite communications equipment
and systems and network operation systems software.

     JVCO's business scope shall be summarized for purposes of its business
license as follows:  "Producing and trading in satellite communications
equipment and systems and network operation systems software; constructing and
providing technical engineering services and support for telecommunications
projects and facilities with capital injection relating to telecommunications
networks."

3.4      This Contract shall be an exclusive agreement between Party A and
Party B.

3.5      JVCO shall endeavor to apply suitable advanced technologies and
management techniques to advance the quality of JVCO services.  JVCO shall have
the exclusive right to merge with Party A reflecting the joint roles as
strategic partners when appropriate and permitted by applicable law.


ARTICLE 4:           REGISTERED CAPITAL AND FINANCING

4.1      JVCO shall be a limited liability company.  The respective liabilities
of the Parties to JVCO in all circumstances shall be limited to the amount of
the registered capital expressly subscribed to by it pursuant to Article 4.4
below.  The Parties shall have no liability, jointly or severally, for any
debts or obligations of JVCO other than the amount, if any, of a Party's



                                       2
<PAGE>   4
unpaid subscribed contribution to JVCO's registered capital.  JVCO's debts and
obligations shall all be settled exclusively from the then existing assets of
JVCO.

4.2      The total investment of JVCO shall be US$26,900,000 (Twenty-six
million, nine hundred thousand U.S. Dollars).

4.3      The registered capital of JVCO shall be US$12,500,000 (Twelve million,
five hundred thousand U.S. Dollars), of which Party A shall subscribe thirty
percent (30%) of the total registered capital, equivalent to US$3,750,000
(Three million, seven hundred and fifty thousand U.S. Dollars), and Party B
shall subscribe seventy percent (70%) of the total registered capital,
equivalent to US$8,750,000 (Eight million, seven hundred and fifty thousand
U.S. Dollars).

4.4      The form of the contributions of both Parties to the registered
capital of JVCO shall be as follows:

         Party A:      (a) Satellite telecommunications equipment and        
                           infrastructure equivalent to US$3,481,600;        
                           and                                               
                                                                             
                       (b)  Cash in Renminbi yuan equivalent to              
                            US$268,400.                                      
                                                                             
         Party  B:     US$8,750,000 in cash.                                 
                                                                             
4.5      The contributions of both Parties to the registered capital of JVCO
shall be made in installments in accordance with the following schedule:

     (1)         Within fifteen (15) days of the approval by the original
authority of this Contract and the extension of JVCO's tentative business
license which was issued on May 19, 1995 by the State Administration for
Industry and Commerce (the "SAIC"), Party A shall fully make its subscribed
capital contribution as above-mentioned to JVCO, and Party B shall
contribute US$2,500,000 in cash to JVCO (less the amount of any preparatory
expenses advanced or paid by Party B or on its behalf pursuant to Article 4.6
of this Contract); and

     (2)         Subject to the issuance of JVCO's formal business license by
the SAIC, Party B shall contribute an additional US$3,400,000 in cash to JVCO
not later than June 30, 1996; and Party B shall contribute the remaining
US$2,850,000 in cash to JVCO not later than December 31, 1996.

4.6      Prior to the date of this Contract, Party B will have advanced to
Party A the amount of US$300,000 to be used by Party A as preparatory expenses
in connection with JVCO.  If the condition to the payment of registered capital
of JVCO pursuant to Article 4.5 (1) is not



                                       3
<PAGE>   5
fulfilled within forty-five (45) days of the date of this Contract, Party A will
reimburse Party B the amount of the preparatory expenses advanced to Party A.

4.7      The magnitude, schedule and method for financing the total investment
of JVCO in addition to the registered capital contributions shall be decided
and approved by the Board of JVCO based on the actual capital required by the
growth and expansion of JVCO.  Party B shall be responsible for arranging such
financing, which shall not result in any change in either Party's percentage
interest in the total registered capital of JVCO as set forth in Article 4.3
of this Contract.  Party A shall have no obligation to arrange any part of such
financing.

4.8      After the contributions to the registered capital of JVCO are made by
the Parties, an independent international accountant registered in China shall
verify such investment.  JVCO shall issue an investment certificate, signed by
the Chairman and the Vice Chairman of the Board, which states the following:
name of JVCO; date, month and year of the establishment of JVCO; names of the
Parties and their investment contributed; date, month and year of the
contribution of the investment and date, month and year of the investment
certificate issued.  The total amount of the registered capital as confirmed by
the Parties shall not be reduced during the term of this Contract.

4.9      The balancing of foreign currency requirements will be the
responsibility of JVCO.


ARTICLE 5:          BOARD OF DIRECTORS AND ORGANIZATIONAL
                    STRUCTURE

5.1      The Board of Directors shall be the highest authority of JVCO and
decide all major issues.  The Board shall be composed of eleven (11) Directors,
four (4) of which shall be from Party A and seven (7) from Party B.  Party A
shall appoint a Chairman, and Party B shall appoint two (2) Vice Chairmen.  The
Directors shall hold the office for a period of four (4) years.  Directors
shall be appointed, renewed and/or replaced by Party A and Party B,
respectively.

5.2      Actions by the Board of Directors require the affirmative vote of a
majority of the Directors, which majority shall include at least two Directors
from Party A and two Directors of Party B.  Directors who are unable to attend
Board meetings (either in person or by teleconference) may send their duly
executed written proxies to the Chairman.  When dealing with issues of concern
to the Parties' individual rights and interests, the Board of Directors shall
operate on the basis of equality and mutual benefit through consultation.

5.3      The Board of Directors shall meet quarterly.  Meetings shall be called
and presided over by the Chairman of the Board; in his absence, a Vice Chairman
shall preside.  The



                                       4
<PAGE>   6
Chairman shall give twenty (20) days' written notice of every meeting to all
Directors and the General Manager.  When necessary, special meetings may be
called at the request of Directors from either Party.  The meetings shall
generally be held in China.  Nine (9) Directors, present in person or by
proxy, shall constitute a quorum.  Action taken by unanimous written and signed
resolution of the Board shall have the effect of approval at a Board Meeting.
Minutes of the meetings shall be kept both in English and Chinese languages.

5.4      At the first meeting of the Board of Directors (which will be
scheduled as soon as practicable after JVCO has received its formal business
license), members will consider establishing a number of oversight committees
to assist with the management and operation of JVCO.  Such committees may
include an executive committee, compensation committee and an audit committee.

5.5      Notwithstanding the requirements of Section 5.2, certain matters
require either unanimous or dual majority voting by the Board:

         (1)      Issues requiring unanimous decision of the Directors are: 
                  - Amendment of the Articles of Association of JVCO;          
                    and                                                        
                  - Extension, termination and dissolution of JVCO and         
                    the liquidation and wind-up thereof,                       
                  - Increase, transfer or assignment of the registered         
                    capital of JVCO; and                                       
                  - Any merger of JVCO with another economic organization. 
                                                                               
         (2)      Issues requiring a decision by a majority of Directors
from Party A and a majority of the Directors from Party B are:                
                  - Strategic direction and borrowing plans of JVCO;           
                  - Business plans of JVCO;                                    
                  - Annual budget and accounting statements of JVCO;           
                  - Plans for allocating reserve funds, enterprise             
                    expansion funds, and plans for distributing annual         
                    profits;                                                   
                  - The Management Contract between JVCO and the               
                    high-ranking officers of JVCO; and                         
                  - Appointment and dismissal of General Manager and           
                    Deputy General Manager of JVCO, appointment and            
                    dismissal of persons in charge of each department          
                    nominated by the General Manager and Deputy                
                    General Manager.                                           
                                                                               
5.6      JVCO shall have a General Manager, a Deputy General Manager and a
Chief Financial Officer in charge of the management of the day-to-day operation
of JVCO.




                                       5
<PAGE>   7
     (1)         The General Manager of JVCO shall be nominated by Party B and
shall be the chief operating officer of JVCO and, subject to the direction and
control of the Board of Directors and have general charge and supervision over
the property, business, and affairs of JVCO.

     (2)         The Deputy General Manager shall take charge of marketing and
technical issues and shall be nominated by Party A.  The Chief Financial Officer
shall take charge of the accounting and finance of JVCO and shall be appointed
by Party B.  The Deputy General Manager and the Chief Financial Officer shall
assist the General Manager in the management of the day-to-day operations of
JVCO.

     (3)         Personnel assigned to JVCO by the Parties to work for or
provide services to JVCO shall be at the expense of JVCO.  Plans for
appointment of such personnel shall be subject to review and approval of the
Board of Directors.

5.7      The General Manager and Deputy General Manager shall be in charge of
the routine operation and management of JVCO in accordance with the Management
Contract and the resolutions of the Board of Directors.  In the absence of the
General Manager, the Deputy General Manager shall, on behalf of the General
Manager, carry out his duties.  The structure, responsibilities and personnel
arrangements of each of the departments shall be formulated by the General
Manager and the Deputy General Manager in accordance with the decisions of the
Board and approval shall be obtained from the Board of Directors.

5.8      The General Manager or Deputy General Manager shall not be permitted
to have any connections with other economic organizations which compete with
JVCO, provided, however, that JVCO managers nominated by Party A may also
serve concurrently as officers and/or directors of Party A or any affiliate
thereof, and that JVCO managers nominated by Party B may also serve
concurrently as officers and/or directors of Party B or any affiliate thereof;
provided further that in either case, such concurrent appointment does not
affect such person's capacity or ability to serve as manager of JVCO and to
pursue the best interests of JVCO.  In case of graft or serious neglect of duty
on the part of the General Manager or other high-ranking management personnel,
the Board shall have the right to dismiss them at any time.


ARTICLE 6:           RESPONSIBILITIES AND DUTIES OF THE PARTIES

6.1      Party A and Party B shall each exercise their best efforts to achieve
the objectives of JVCO, in accordance with sound business practices and
applicable laws and under the supervision of qualified and experienced
management and technical specialists.




                                       6
<PAGE>   8
6.2      Within thirty (30) days after the extension of JVCO's tentative
business license in accordance with Article 4.5 (i), the Parties will prepare
and agree on a Business Plan, including network design, equipment schedules,
build-out plan, timetables and financial projections.

6.3      Party A's responsibilities to JVCO shall be to:

         Assist JVCO in handling the application for approval and registration
         of the business license from relevant Chinese authorities;

         Obtain all possible tax reductions and exemptions allowed under
         Chinese law;

         Gather information regarding prospective customers, competition and
         potential sales opportunities in China;

         Facilitate JVCO business travel in China and assist foreign personnel
         in obtaining necessary entry visas and related matters;

         Coordinate accommodations, meals, transportation and medical care of
         JVCO personnel;

         Assist JVCO in employing Chinese staff, engineers, technicians,
         workers and translations;

         Assist JVCO in obtaining any other necessary government approvals for
         the conduct of JVCO, including all necessary access to foreign
         currency and repatriation of funds out of the PRC;

         Provide assistance in handling the customs procedures and formalities
         for import, and in domestic transportation for imported equipment,
         supplies and materials;

         Assist in locating suitable work-space for JVCO; and

         Provide assistance in other matters at the request of JVCO.

6.4      Party B's responsibilities to JVCO shall be to:

         Identify, select and appoint the Chief Financial Officer of JVCO who
         shall report to the Board of Directors;

         Identify and select advisors, who are experts in such areas as
         telecommunications



                                       7
<PAGE>   9
         technology and systems, marketing, and finance, to assist JVCO in
         developing and expanding the business;

         Guide the development of the business plan, particularly as regards the
         marketing and financial plan, in consultation with Party A;

         Design appropriate training programs for JVCO personnel, in
         consultation with Party A; and

         Assist with the collection of appropriate scientific and technological,
         economic and legal information related to JVCO operation; and

         Provide assistance in other matters at the request of JVCO.


ARTICLE 7:             PROFIT DISTRIBUTIONS AND TAXES

7.1      As soon as practicable after the close of each fiscal year, the net
profits of JVCO shall be distributed to the Parties according to the following
ratio:  Thirty percent (30%) to Party A and Seventy percent (70%) to Party B.
For the purpose of this Article 7.1, "net profits" shall mean the amount,
remaining after deducting from the gross profits the following items:

         (1)     The amount of any income taxes levied on the gross profits of
JVCO pursuant to the relevant laws and regulations of China and terms of this
Contract;

         (2)   The amount of any loss carry forward;

         (3)     The amount of any special reserves determined by the Board of
Directors and as may by required by the relevant laws and regulations of China;

         (4)     The amount of any funds to be reinvested in JVCO, as may be
determined by the Board of Directors; and

         (5)     The amount of any reserves for employee bonuses and welfare,
as required by the relevant laws and regulations of China or as determined by
the Board of Directors.

7.2      Party A shall use its best efforts to secure the most preferential tax
rate available to JVCO.  The Parties shall apply for any preferential tax
deductions available to enterprise located in the Special Economic Zone of
Beijing and any other tax deductions that may be allowed under other laws and
regulations.




                                       8
<PAGE>   10
7.3      Chinese, overseas Chinese, Hong Kong, Macao and foreign personnel of
JVCO are requested to pay individual income tax in accordance with Chinese tax
laws and regulations.


ARTICLE 8:       JOINT VENTURE'S RIGHTS AND LABOR WAGE

8.1              JVCO has the right to:

(1)      Operate independently and employ foreign personnel for technical and
administrative work; and

(2)      Test and recruit qualified personnel, who are to work under an agreed
employment contract, including a three-to-six month probationary period.  JVCO
can dismiss employees who, after training, fail to meet the needs of JVCO or
cannot be transferred to other types of work.  For those workers and staff
members who violate the rules and regulations of JVCO and cause harmful
consequences, JVCO may, based on the merits of the individual case, assess
penalties, decrease wages, or discharge the employee(s).

8.2      JVCO may determine its own wage systems according to the requirements
of the operations.

8.3      Salaries and other earnings (after tax) for foreign, overseas Chinese,
Hong Kong and Macao employees are allowed to be remitted out of China through
the Bank of China or other Banks in line with foreign exchange control
measures.  Legitimate profits of the investors (after tax) are allowed to be
remitted out of China through the Bank of China or other Banks in line with the
foreign exchange control measures.

8.4      Should JVCO terminate its business, it shall submit the reasons for
termination to the authorities concerned and clear any debt.  Assets and funds
then may be transferred and remitted outside of China.


ARTICLE 9:           ACCOUNTING AND AUDITING

9.1      The Parties agree to utilize the services of an independent accounting
firm which is registered in the PRC and is mutually agreed to by the Parties
("the Accounting Firm").

9.2      JVCO shall maintain an accounting system in accordance with China's
regulations for financial accounting applicable to the Cooperative Joint
Venture firms.

9.3      JVCO shall prepare quarterly financial statements within thirty (30)
days after the end





                                       9
<PAGE>   11
of each quarter during its fiscal year and shall deliver copies of such
financial statements to Party A, Party B and each member of the Board of
Directors.  The financial statements shall contain a balance sheet and income
statement for the accounting period.  The financial statements shall be
prepared both in Chinese and English.  The financial statements shall be
certified as true and correct by the Chief Financial Officer of JVCO.

9.4      JVCO shall prepare annual financial statements within thirty (30) days
after the end of its fiscal year and shall deliver copies to Party A, Party B,
and each member of the Board of Directors.  The annual financial statements
shall contain a balance sheet and income statement.  The financial statements
shall be prepared both in Chinese and English.  The financial statements shall
be audited and certified as true and correct by the Accounting Firm.

9.5      Party A and Party B shall have the right at any time within one (1)
year of the end of each fiscal year to audit JVCO at their own expense.


ARTICLE 10:          EFFECTIVE DATE AND TERM OF AGREEMENT

10.1     This Contract shall be submitted to the appropriate authorities for
approval.  Immediately after approval, within one (1) month, JVCO shall register
with the SAIC to obtain its formal business license.

10.2      JVCO shall have a term of twenty-five (25) years commencing from the
date JVCO is established.  If JVCO business develops and the registered capital
is significantly increased, the term of this Contract shall be correspondingly
increased.

10.3      With the approval of relevant government authorities and after going
through registration procedures in accordance with the "Regulations for the
Implementation of the Law of the People's Republic of China on Cooperative
Joint Ventures Using Chinese and Foreign Investment", the term of JVCO shall
continue for successive five (5) years periods, unless six (6) months prior to
the end of the then current term, the Parties mutually agree to terminate JVCO.

10.4      Any termination of this Contract for any reason shall be reported to
the original approving authorities.


ARTICLE 11:          ASSIGNMENT

11.1      Neither Party of JVCO may assign, pledge, sell or otherwise dispose of
all or part of




                                       10
<PAGE>   12
its investment to a third Party without the approval of a majority of the
Directors from Party A and a majority of the Directors from Party B and consent
by the appropriate Chinese authorities.  In case that assignment is effected by
one Party, the following stipulations must be observed:

     (1)         When one Party intends to assign all or part of its investment
subscribed, such Party shall notify the other Party and such other Party shall
have a preemptive right with respect to the proposed assignment;

     (2)         In the event that the Party who holds the preemptive right
fails to make response to the assignor within thirty (30) days of the
assignor's request for approval of the assignment, the assignor shall have the
right to effect assignment to a third Party;

     (3)         If one Party intends to assign all or part of its investment
to a third Party confirmation of the qualification and reputation of the third
Party shall be obtained from the remaining Party, and the conditions given
shall not be more favorable than those given to the other Party of JVCO; and
the assignor shall submit to the other Party a duplicate of the written
agreement with the assignee concerning the relevant portion of rights and
obligations so assigned; and

     (4)         The business of JVCO shall not be interrupted nor the
organizational structure be effected during the assignment.  After assignment
has taken place, registration procedures for changes shall be conducted with
the SAIC within thirty (30) days.


ARTICLE  12:    TERMINATION AND LIQUIDATION

12.1     Under the following circumstances, either Party may terminate this
Contract with at least sixty (60) days notice:

(1)      In the event of bankruptcy, voluntary or involuntary, winding up or
liquidation, of the other Party;

(2)      On the grounds that the other Party has repudiated, defaulted and
materially breached any of the terms of this Contract, in which case the notice
of termination shall state the causes of default or breach allegedly committed
by the other Party, and provided that such other Party shall have the right to
rectify the situation within a given grace period in such notice; and

(3)      In the event that performance by the Parties or JVCO violates any
applicable PRC laws, regulations, restrictions or prohibitions.


                                       11
<PAGE>   13
12.2     The liquidation of JVCO assets and creditors' rights and settlement of
JVCO debts shall be conducted by JVCO immediately after the early termination
or expiration of this Contract.  The liquidation shall be based upon fair and
responsible principles and methods.

12.3      Upon announcement of the termination of this Contract and the pending
liquidation of JVCO, the Board of Directors shall work out procedures and
principles for liquidation and nominate candidates for the liquidation
committee.  The liquidation committee may engage the services of accountants
and lawyers registered in China for purpose of rendering advice to the Board.

12.4      The liquidation committee shall offer to interested parties, the sale
of JVCO as an on-going concern, provided that such purchase and sale agreement
is in accordance with the relevant Chinese laws and is approved by appropriate
authorities.  Party A shall have the first option to purchase JVCO, followed by
Party B.

12.5     Should neither Party A nor Party B nor a third party wish to purchase
JVCO as an on-going concern at an acceptable price, the affairs of JVCO shall
be terminated and the committee shall sell JVCO assets on an individual item
basis.  Party A shall have the first option to purchase JVCO assets, followed
by Party B.

12.6     The defaulting Party shall be liable to the terminating Party for the
financial injury caused by such breach or default.


ARTICLE 13:           INSURANCE

13.1      After consultation with the Board of Directors, the General Manager
shall propose insurance coverage for JVCO operations, including transponder and
business loss insurance.  Preference shall be given to selection of People's
Insurance Company of China as the underwriter, if it is deemed to be
competitive in terms of cost and quality of service.


ARTICLE 14:          APPLICABLE LAWS

14.1     The formation of this Contract, its validity, interpretation,
execution, and settlement of any disputes arising hereunder shall be governed
by and in accordance with the promulgated and publicly available laws of the
PRC.  Where there is no PRC law on point, generally accepted standards and
principles of international law and customary international practice shall
govern.

14.2     Nothing herein shall be construed as requiring Party A to take any
action contrary to





                                       12
<PAGE>   14
PRC law nor as requiring Party B to take any action contrary to the applicable
law of Canada or the United States of America.

14.3     The assets and rights of JVCO, as well as the investment, profit
share, other amounts due to the Parties under this Contract and other lawful
rights and benefits of the Parties shall be protected by all published laws,
decrees, rules and regulations of PRC.


ARTICLE 15:           DISPUTE RESOLUTION AND ARBITRATION

15.1     Best efforts should be made to settle all disputes through friendly
consultation between the Parties.

15.2     Any dispute arising out of this Contract between Party A and Party B
shall first be settled through consultation by the Board of Directors, with the
spirit of mutual trust.  Should such consultation fall to settle the dispute
within thirty (30) days, the mediation may be conducted by a third Party
selected by Party A and Party B.

15.3     In the event that such mediation fails to resolve the dispute within
thirty (30) days, the dispute shall be resolved by arbitration.  An arbitration
panel shall be composed of three members, one member shall be appointed by
Party A, the other member shall be appointed by Party B and the third member
shall be a person agreed upon by the members appointed by both Parties.
Arbitration shall be conducted pursuant to the procedures and rules of the
Singapore Arbitration Center in the Republic of Singapore.

15.4      The arbitration award shall be final and binding on both Parties.
The cost of arbitration shall be borne by the losing Party or in accordance
with the ruling of the arbitrator(s).


ARTICLE 16:          FORCE MAJEURE

16.1     Any event or circumstance beyond the control of the Parties shall be
deemed an event of Force Majeure and shall include, but not be restricted to
fire, storm, flood, earthquake, explosion, war, rebellion, insurrection,
epidemic and quarantine restriction.  If either Party is prevented from
performing any of its obligations under this Contract due to an event of Force
Majeure, the term of this Contract shall be extended by a period equal to the
Force Majeure delay.

16.2      The affected Party shall immediately notify the other Party of the
occurrence of any Force Majeure by fax and shall send to the other Party by
registered airmail, within fourteen




                                      13
<PAGE>   15
(14) days thereafter, a certificate from the relevant government authorities 
or departments confirming the occurrence of the cause of such Force Majeure. 
Should the delay caused by any event of Force Majeure continue for more than
ninety (90) consecutive days, both Parties shall settle the problem of further
performance of this Contract through friendly negotiations and confirm whether
they shall continue this Contract or terminate it in advance.


ARTICLE 17:          LANGUAGE OF CONTRACT AND WORKING LANGUAGE

17.1      This Contract is composed of the Contract and Annexes.  The Annexes
and the Contract proper have the same validity.  In the event that any
contradictions should arise between any provisions of the annexes and the
corresponding provisions of the Contract proper, the Contract proper shall be
definitive.

17.2      Any amendment of this Contract must be unanimously adopted by the
Parties and written into official document.  After the approval by the
appropriate authorities, the approved documents shall become an inseparable and
integral part of this Contract.

17.3      The headings contained in this Contract are for reference propose only
and shall not effect the meaning or interpretation.

17.4      The Contract and the Annexes are written in both Chinese and
English.  Both texts shall have the same legal effect.

17.5      All important documents of JVCO shall be written both in Chinese and
English.  Both versions shall have the same legal effect.

17.6      Both Parties agree to use Chinese and English as the working
languages.


ARTICLE 18:         TEXTS

18.1      The Chinese and English texts of this Contract are each prepared with
four originals.  Each Party shall keep two copies of each text.


ARTICLE 19:         NOTICE

19.1      Notices and documents including faxes sent by either Party of JVCO to
the other Party shall be sent to the following addresses and shall be deemed to
have been given as of




                                       14
<PAGE>   16
the date of receipt:

                 PARTY A:      CITS TELECOM CO., LTD.

                 Address:      45 Baishiqiao Road, Haidian District, Beijing
                               100044, PRC

                 Telephone:    8610-8460185,          8610-8460186
                               8610-8460187,          8610-8460188
                 Fax:          8610-8460170


                 PARTY B:      AMERICAN CHINA INVESTMENT CORPORATION            

                 Address:       
                                -----------------------------------
                                
                                -----------------------------------
                                
                 Telephone:
                 Fax:


                 WITH COPY TO:  
                                -----------------------------------

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

                 Telephone:
                 Fax:

19.2     During the effective term of JVCO, either of the Parties and its
assignee shall have the right to change its address from time to time, provided
that the other Party shall be notified in writing of such changes one (1) month
in advance.


ARTICLE 20:          MISCELLANEOUS

20.1     This Contract shall amend the Original JVC in its entirety and in the
event of any discrepancies between this Contract and the Original JVC, this
Contract shall take preference.

20.2     Should any of the provisions contained in this Contract or any
document executed





                                       15
<PAGE>   17
concurrently or in connection with this Contract be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions contained in this Contract shall
not be affected or impaired in any way.




     IN WITNESS WHEREOF, the Parties hereto have caused this Contract to be
executed this 27th day of March, 1996, by their respective duly authorized
representatives.




Authorized Representative of                     Authorized Representative of
CITS Telecom Co., Ltd.                           American China Investment Corp
of the People's Republic of China                of Toronto, Ontario, Canada
                                                 
(Party A)                                        (Party B)
                                                 
                                                 
Signature:                                       Signature: /s/ [ILLEGIBLE]   
          --------------------                             ------------------
Name:      /s/ [ILLEGIBLE]                       Name:     
          --------------------                             ------------------
Title:                                           Title:    
          --------------------                             ------------------
Witness:                                         Witness:
          --------------------                             ------------------
                                                 
                                                 



                                       16

<PAGE>   1
                                                                   EXHIBIT 10.38


                             JOINT VENTURE CONTRACT

                 THIS JOINT VENTURE CONTRACT (the "Contract") is made as of
March 28, 1996 by and between GTS TRANSPACIFIC VENTURES LIMITED, a United
States corporation duly incorporated in the State of Delaware, having offices
at 1751 Pinnacle Drive, North Tower 12th Floor, McLean, Virginia 22102, U.S.A.
(Legal Representative: Gerald W. Thames; Title: Chairman of the Board) ("GTS"),
and SHANGHAI INTELLIGENCE ENGINEERING, INC., a legal person duly established
under the laws of the People's Republic of China (the "PRC"), having registered
offices at 63 Xishi Street, Wanggang, Pudong, Shanghai 200080, the People's
Republic of China (Legal Representative: Yang Xianfan; Title: Chairman of the
Board) ("SIE"). GTS and SIE are referred to collectively as "the Parties" and
individually as a "Party".

                                    RECITALS

                 A.       GTS and certain of its affiliates are U.S. companies
which have substantial experience and expertise in the provision of
telecommunications equipment, systems, engineering and consulting services, and
in the provision of technical support in the telecommunications field.

                 B.       SIE is a PRC limited liability company under the
Shanghai Construction Commission mainly engaged in computers and
telecommunications.

                 C.       GTS and SIE propose to combine and make full use of
their respective strengths and expertise through an equity joint venture
operating in Shanghai, PRC, for the purposes of providing Chinese companies and
other organizations with telecommunications engineering and consulting services
and technical support for the operation of telecommunications facilities in the
PRC.

              NOW THEREFORE, GTS and SIE hereby agree as follows:

I. FORMATION OF THE EQUITY JOINT VENTURE

                 GTS and SIE shall forthwith form an equity joint venture
limited liability company pursuant to the "Law of the People's Republic of
China on Joint Ventures Using Chinese and Foreign Investment" and the
implementing regulations promulgated thereunder

<PAGE>   2
(collectively, the "Joint Venture Law") and other relevant PRC laws and
regulations to be known as Shanghai Global Intelligent TeleSystems Co., Ltd.
(the "JVC"). The JVC shall be organized as follows:

                          1.      Duration. The duration of the JVC shall be
twenty (20) years, after which it shall continue by mutual agreement unless
terminated by written notice by either SIE or GTS to the other Party twelve
(12) months prior to the expiration of the term or unless terminated pursuant
to Article VI or by mutual agreement of the Parties.

                          2.      Scope of Business. The scope of business of
the JVC shall include, without limitation:

                          (a)     construction with capital injection of
                 telecommunications engineering projects and facilities,
                 including, without limitations mobile telecommunications,
                 cable communications, radio communications, CATV and other
                 telecommunications networks and the provision of engineering
                 services and support in connection with such projects and
                 facilities;

                          (b)     telecommunications networks system design and
                 system integration, installation and maintenance of
                 telecommunications equipment and network systems, engineering
                 management of telecommunications projects, and provision of
                 consulting services and technical training in connection with
                 the operation of network systems;

                          (c)     purchasing, selling, manufacture and
                 maintenance of telecommunications equipment; and

                          (d)     development of related telecommunications
                 businesses outside China.

                          3.      Purpose. The purpose of the JVC is to
acquire, own, sell and operate property, enter into contracts, hire personnel,
and undertake and conduct all other lawful activities necessary for or
incidental to the scope of business set forth in Article 1.2. of this Contract.

           4.      Total Amount of Investment and Registered Capital.

                          (a)     The total amount of investment in the JVC
                 shall be the equivalent of Nine Million U.S.  Dollars
                 (US$9,000,000). The registered capital of the JVC shall be the
                 equivalent of Five Million U.S. Dollars (US$5,000,000)
                 ("Registered Capital").

                          (b) The JVC's sources of equity and financing shall
                 include the following:

                                       2
<PAGE>   3
                 (i)      GTS shall contribute Four Million U.S. Dollars
                          (US$4,000,000) to the Registered Capital (the "GTS
                          Contribution"), representing Eighty Percent (80%) of
                          the Registered Capital of the JVC.

                 (ii)     SIE shall contribute One Million U.S. Dollars
                          (US$1,000,000) to the Registered Capital (the "SIE
                          Contribution"), representing Twenty Percent (20%) of
                          the Registered Capital of the TVC.

                 (iii)    Additional funds (other than the Registered Capital)
                          for capital investment and/or operating needs shall
                          be obtained by the JVC at such time and in such
                          manner as the Board of Directors (as defined below)
                          shall determine.

                 (iv)     Any borrowing by the JVC shall conform with the
                          debt-to-equity ratio required pursuant to applicable
                          law.

     (c)         The Parties shall make their subscribed contributions to the
                 Registered Capital according to the following schedule:

                 (i)      GTS shall contribute the sum of Two Million U.S.
                          Dollars (US$2,000,000) to the Registered
                          Capital, representing Fifty Percent (50%) of its
                          subscribed contribution, within two (2)
                          weeks after the date (the "Issuance Date") on which
                          the JVC is issued a business license by the
                          Shanghai branch of the State Administration of
                          Industry and Commerce of the PRC. Any
                          preparatory expenses advanced to SIE by GTS pursuant
                          to Article III.1. (a) of this Contract
                          shall be credited towards the contributions to be
                          made by GTS in accordance with this Article
                          1.4.(c)(i).

                 (ii)     SIE shall contribute the sum of One Million U.S.
                          Dollars (US$1,000,000) to the Registered
                          Capital, representing One Hundred Percent (100%) of
                          its subscribed contribution, within Four (4)
                          weeks after the Issuance Date.

                 (iii)    GTS shall make its remaining subscribed contribution
                          to the Registered Capital at such times and in such
                          manner as the Board of Directors (as defined below)
                          shall determine;     provided, however, that GTS
                          shall have completed its contributions to the
                          Registered Capital prior to the third anniversary of
                          the Effective Date (as defined in Article IX.).

                                       3
<PAGE>   4
                 5.       Sharing of Profits, Risks and Losses. The profits,
risks and losses of the JVC shall be shared by the Parties in proportion to
their contributions to the Registered Capital. Following their respective
contributions to the Registered Capital, GTS shall own Eighty Percent (80%) of
the equity of the JVC and SIE shall own Twenty Percent (20%) of the equity of
the JVC.

                 6.       Registered Address. The JVC shall be located and
registered at 63 Xishi Street, Wanggang, Pudong, Shanghai, PRC.

                 7.       Articles of Association. The Articles of Association
of the JVC shall be substantially in the form of Exhibit A hereto.

II.      GOVERNANCE

                 1. Board of Directors.

                 (a)      The date of registration of the JVC shall be the date
         of the establishment of the Board of Directors.

                 (b)      Subject to the provisions of the Joint Venture Law,
         all the powers of the JVC shall be exercised by or under the authority
         of the board of directors ("Board of Directors"). The business and
         affairs of the JVC shall be managed under the direction of the Board
         of Directors. The Board of Directors shall consist of five (5)
         directors, of which three (3) shall be appointed by GTS, and two (2)
         shall be appointed by SIE. One of the directors appointed by GTS shall
         serve as Chairman of the Board of Directors. The term of office for
         the directors and the Chairman is four years; their term of office may
         be renewed by the appointing Party. A director may be removed by the
         Party who appointed such director and replaced by a successor director
         appointed by such Party.

                 (c)      The highest authority of the JVC shall be the Board
         of Directors. It shall decide all major issues concerning the JVC.
         Unanimous approval shall be required before any decisions are made
         concerning the following major issues:

                 (1)      Amendment of the Articles of Association.

                 (2)      Termination and dissolution of the JVC.

                 (3)      Increase or assignment of the registered capital of 
                          the JVC.

                 (4)      Merger of the JVC with other economic organizations.

                                       4
<PAGE>   5
                 (5)      Loans with a principal amount in excess of Two
                          Hundred Thousand U.S. Dollars (US$200,000).

                 Decisions with respect to all other matters shall require a
simple majority of the directors in attendance at a duly constituted meeting of
the Board of Directors.

                 2.       Officers. The JVC shall have a General Manager and
three Deputy General Managers in charge of the management of the day-to-day
operations of the JVC.

                 (a)      The General Manager of the JVC shall be appointed by
         GTS. Such appointment shall be ratified by the Board of Directors. The
         General Manager shall be the chief operating officer of the JVC and,
         subject to the direction and control of the Board of Directors, shall
         have general charge and supervision over the property, business, and
         affairs of the JVC.

                 (b)      The three Deputy General Managers of the JVC shall
         be: one Deputy General Manager in charge of Engineering and
         Operations, to be appointed by SIE; one Deputy General Manager in
         charge of Marketing and Sales to be appointed by SIE; and one Deputy
         General Manager in charge of Finance and Administration to be
         appointed by GTS. The Deputy General Managers shall assist the General
         Manager in the management of the day-to-day operations of the JVC.

                 (c)      Personnel assigned to the JVC by the Parties to work
         or provide services for the JVC shall be at the expense of the JVC.
         Plans for appointment of such personnel shall be subject to the review
         and approval of the Board of Directors.
                  
                 3.      Financial Affairs and Accounting.
               
                 (a)     All appropriate accounting records and
         statements of the JVC shall be prepared and kept in both the Chinese
         and English languages and in accordance with PRC Generally Accepted
         Accounting Principles. To satisfy GTS's reporting requirements in the
         U.S. and the JVC's need to obtain loans outside China, such accounting
         records and statements shall be simultaneously converted to separate
         records and statements that are consistent with United States
         Generally Accepted Accounting Principles.

                 (b)      The Board of Directors shall select a certified
         accountant from an internationally recognized accounting firm
         registered in China to be the auditor of the JVC, to examine and
         verify the accounts and books of the JVC and to submit to the Board of
         Directors and the General Manager of the JVC a signed audit report.
         The methodologies used by such certified accountant must satisfy the
         requirements of both parties.

                                       5
<PAGE>   6
                 (c)      The JVC shall prepare and provide to GTS on a timely
         basis such information as may be requested by GTS for purposes of its
         income tax and its other obligations and filings in the United States.

                 (d)      Each Party may review the accounts and books of the
         JVC. The expenses of such review shall be paid by the Party conducting
         the review.

                 (e)      The fiscal year of the JVC shall be from January 1
         through December 31.

III.     RESPONSIBILITIES OF PARTIES

                 1.       Responsibilities of GTS. GTS shall be responsible for
                          the following:

                 (a)      Advance Two Hundred Thousand U.S. Dollars
         (US$200,000) to SIE prior to the Effective Date as preparatory
         expenses for SIE to conduct any preparatory work deemed necessary or
         advisable by the Parties in connection with the formation of the JVC.

                 (b)      Contribute its subscribed amount of the Registered
         Capital according to the schedule in Article I.4. of this Contract.

                 (c)      Provide technical personnel needed by the JVC for
         performing its agreements with telecommunication companies.

                 (d)      Provide business management and financial expertise 
         to the JVC.

                 (e)      Train technical personnel and workers of the JVC.

                 (f)      Handle other matters entrusted by the JVC.

  2.     Responsibilities of SIE. SIE shall be responsible for the following:

                 (a)      Conduct any preparatory work deemed necessary or
         advisable by the Parties in connection with the formation of the JVC.
         In the event that for any reason the JVC has not been issued a
         business license within eight (8) weeks of the date hereof, SIE shall
         reimburse GTS for any preparatory expenses advanced to SIE by GTS
         pursuant to Article III 1. (a) of this Contract.

                 (b)      Contribute its subscribed amount of the Registered
         Capital according to the schedule in Article I.4. of this Contract.

                                       6
<PAGE>   7
                 (c)      Use its best efforts to assist the JVC to enter into
        agreements with SIE's subsidiaries and/or affiliates for construction 
        with capital injection and. the provision of telecommunications 
        engineering and other services.

                 (d)      Handle applications to the relevant PRC government
        authorities by the JVC for approval, registration, business licenses 
        and other matters in connection with the formation of the JVC.

                 (e)      Assist the JVC in recruiting Chinese management
        personnel, technical personnel, workers and other personnel.

                 (f)      Assist in obtaining entry visas for GTS personnel
        assigned to work for the JVC.

                 (g)      Assist GTS personnel assigned to work for the JVC to
        adjust to life in China.

                 (h)      Assist the JVC in obtaining all favorable tax
        treatment and other benefits available to the JVC under PRC laws and 
        regulations.

                 (i)      Handle other matters entrusted by the JVC.

IV.     REPRESENTATIONS AND WARRANTIES

                 Each of the Parties represents and warrants to the other as to
the following:

                 1.       Valid Existence. It is the type of entity indicated
in the first paragraph of this Contract, duly formed and validly existing under
the laws of the place of incorporation indicated in the first paragraph of this
Contract, that it has complied with and performed all its material legal and
statutory obligations and that it has the power under its constitutive
documents to execute and deliver this Contract; and to perform its obligations
under this Contract.

                 2.       Due Authorization Validity. The execution of this
Contract by its undersigned representative and the delivery and performance by
it of this Contract:

                 (a)      have been duly authorized by all necessary action and
         do not violate any applicable law, statute, rule, regulation, order,
         ordinance, or requirement of any governmental entity of the
         jurisdiction which governs it;

                                       7
<PAGE>   8
                 (b)      do not and shall not result in the breach of, or
         constitute a default under, or require the consent under, its 
         constitutive documents or any indenture, bank loan or credit 
         arrangement, mortgage, or other agreement or instrument to which it 
         is a party or by which it or any of its properties may be bound or 
         affected; and

                 (c)      shall constitute its valid, binding and enforceable
         obligation in accordance with the terms of this Contract.

V.       COVENANTS

                 1.        Pre-emptive Right. For so long as (i) this Contract
remains in effect and (ii) either SIE or GTS remains a Party to the JVC, if
SIE obtains the right to participate, engage or invest in a mobile
telecommunications business, project or entity in the PRC, SIE shall accord GTS
a pre-emptive right to participate, engage or invest in such business, project
or entity under the same conditions.

                 2.       Confidentiality.

                 (a)      All telecommunications-related technology, know-how,
         trade secrets and proprietary and other information belonging to any
         Party and made available to the JVC ("Confidential Information")
         shall continue to be the property of the Party making such available
         to the JVC, and shall be used by the other Party exclusively for the
         purposes of the business of the JVC, unless the Party making
         Confidential Information available to the JVC provides its express
         prior written permission for use by the other Party for any purpose
         other than the business of the JVC.

                 (b)      Each Party who has received Confidential Information
         shall, and shall require that its employees, agents, consultants or
         other representatives shall, keep confidential and use all
         Confidential Information only for the benefit of the JVC, and preserve
         all Confidential Information for the benefit of the Party which
         provided the Confidential Information.

                 (c)      The term of "Confidential Information" shall not
         include information which: (i) is generally available to the public,
         other than through disclosure by a Party; (ii) is rightfully obtained
         from a third party without restriction of confidentiality; (iii) is
         released in writing from the obligation of confidentiality by the
         Party to which such information belongs; or (iv) is required to be
         disclosed by law or judicial process.

                  3.      Press Releases; Announcements. No Party shall make
any formal press release, public announcement, news release, or other form of
publicity relating to the JVC or

                                       8
<PAGE>   9
its business, without prior consultation with the other Party and its consent
to the substantive content of such release, announcement or other publicity.
No Party shall unreasonably withhold such consent.

                 4.       Agreements with Subsidiaries and Affiliates.  SIE
shall use its best efforts to cause its subsidiaries and affiliates engaged in
the provision of telecommunications services to enter into construction with
capital injection agreements and related agreements with the JVC.

                 5.       Transfers of Shares.  No Party shall sell, transfer,
dispose or otherwise convey its interest in the JVC to any person or entity that
is not a Party, except in accordance with the provisions of Article 23 of the
Joint Venture Law.  No transfer of an interest in the JVC shall be effective
unless and until the transferee becomes a party to this Contract.

VI.  TERMINATION, DISSOLUTION AND LIQUIDATION

                 1.       Termination.  This Contract may be terminated at any
time upon the occurrence of any one of the following:

                 (a)      by mutual agreement of the Parties to dissolve the JVC
        before the expiration of its term; or

                 (b)      by either SIE or GTS if the other shall (i) be
        determined to be bankrupt or insolvent by a court or other
        governmental authority of competent jurisdiction, or (ii) file a 
        petition or otherwise take any action seeking the protection of any 
        bankruptcy, reorganization or other insolvency laws; or

                 (c)      by either SIE or GTS if the other defaults on any of
        its material obligations under this Contract and such default is not
        remedied within sixty (60) days after the defaulting Party receives
        notice of such default from the non-defaulting Party, or if such
        default is of a nature that it cannot be cured within such sixty (60)
        day period and the defaulting Party has not promptly commenced and
        continued to diligently pursue the remedy of such breach; or

                 (d)      by either SIE or GTS if there occurs a change in
        control of the other, except if such change in control results from a 
        registered public offering of its securities; or

                 (e)     by either SIE or GTS if the other is not performing
        any of its material obligations under this Contract as the result of 
        an event or circumstance constituting a

                                       9
<PAGE>   10

          force majeure under Article VIII of this Contract and such force
          majeure continues for a period of at least one hundred and eighty
          (180) days; or

                (f)     by GTS if (i) at any time the JVC has no agreements 
          to provide construction with capital injection services or
          telecommunications engineering services to Chinese companies or other
          organizations, or (ii) all of the parties with which the JVC has
          such agreements lose their license to operate a telecommunications
          venture, or fail or otherwise are unable to renew their licenses to
          provide telecommunications services; or

                (g)     for any other reason that may be provided under the 
          relevant PRC laws and regulations.

                2.     Termination, Liquidation. Upon termination of this 
Contract, all of the rights and obligations hereof shall terminate
except any claim of any Party against any other Party for economic loss
sustained by reason of a breach of this Contract, which shall survive such
termination. In the event that either SIE or GTS gives notice pursuant to
Article I (1) or VI of this Contract of its desire to terminate this Contract,
the other shall have the right to make an offer to purchase the interest of the
Party giving notice and shall inform the Party giving notice whether or not it
chooses to exercise such right within sixty (60) days. If such Party chooses
not to exercise such right or if the other Party does not accept the terms of
the offer to purchase, the Board of Directors shall immediately take steps to
dissolve the JVC and liquidate its assets in accordance with relevant PRC laws
and regulations. After payment of third party claims and the setting aside of
such reserves as are required by applicable laws and regulations, the balance
of the proceeds shall be distributed to the Parties, first to repay any loans
owed by the JVC to the Parties, and then to the Parties according to the
proportion of their contributions to the Registered Capital.

VII.             DISPUTE RESOLUTION

                         All disputes arising out of or in connection with
this Contract or the performance hereof shall first be settled amicably through
consultation between the Chairman of the Board of SIE and the president of GTS.
In case no settlement can be reached through such consultation within sixty
(60) days, then either party may submit the dispute to the China International
Economic and Trade Arbitration Commission ("CIETAC").  Arbitration shall be
conducted in the English language and in accordance with CIETAC's rules of
arbitration. Only a single neutral arbitrator selected by that arbitration
institute shall be required. The arbitrator shall have the authority to render
an award consistent with the explicit terms of this Contract and to include in
such award a decision binding upon the parties and enjoining them to take or
refrain from taking specific actions with respect to the matter in dispute. The
award of the arbitrator shall be final and the parties shall not contest

                                       10
<PAGE>   11
or seek relief from such award in any court. Judgement upon the arbitration
award may be rendered in any court of competent jurisdiction. Expenses of
arbitration shall be borne by the losing party.

VIII. LIABILITY FOR NON-PERFORMANCE; FORCE MAJEURE

                 Each Party shall be liable for the failure of such Party to
perform any of the terms of this Contract; provided, however, that such Party
shall not be liable if such failure to perform is occasioned by war, fire,
storm, strike, or any other force majeure events beyond the control of and
without the fault of such Party, including any action by any governmental
authority that has the effect of preventing such Party from performing its
obligations under this Contract. Any suspension of performance by reason of
this Article shall be limited to the period during which such cause of
nonperformance exists.

IX. EFFECTIVE DATE

                 This Contract shall become effective on the date (the
"Effective Date") all the necessary approvals and permits for the establishment
of the JVC have been obtained from the relevant government agencies of the PRC.
This Contract shall remain in force as long as the JVC continues to exist,
unless earlier terminated as provided in Article VI hereof.

X. LANGUAGE

                 This Contract shall be executed in six original copies, three
of which shall be in English and three of which shall be in Chinese. Each
original copy, whether in English or in Chinese, shall be equally valid and
binding.

XI. GOVERNING LAW

                 This Contract shall be governed by and construed in accordance
with the laws of the PRC. In the absence of PRC laws and regulations,
international customary laws and practice shall control.



                                       11
<PAGE>   12
XII.     ENTIRE AGREEMENT; EXHIBITS; AMENDMENT

                 This Contract sets forth the entire understanding among the
Parties relating to the subject matter contained herein and merges all prior
discussions and agreements between them.  Exhibits to this Contract are
established herein as an integral part of the Contract.  No amendment to this
Contract shall be effective unless it is in writing and executed by all the
Parties and approved by the relevant PRC authorities.

XIII.    MISCELLANEOUS

                 1.       Severability.  In the event that any provision of
this Contract shall be held to be invalid, the validity of the remaining
provisions shall not be affected.  To the extent possible the Parties shall
replace such provision with a legally permissible and valid provision with like
effect.

                 2.       Joint Venture Contract Governs.  In the case of any
discrepancies between this Contract and the Articles of Association of the JVC,
the provisions of this Contract shall control the relationship among the
Parties, and the Articles of Association of the JVC shall be modified in such a
manner as to be consistent with this Contract.


                                       12
<PAGE>   13
                 IN WITNESS WHEREOF, the respective authorized representatives
of the parties have executed this Contract as of the day and year first written
above.



                                        SHANGHAI INTELLIGENCE ENGINEERING, INC.

                                        By:  /s/ [ILLEGIBLE]
                                           ------------------------
                                           Name:
                                           Title:



                                        GTS TRANSPACIFIC VENTURES LIMITED

                                        By:  /s/ [ILLEGIBLE]
                                           ------------------------
                                           Name:
                                           Title:





                                       13

<PAGE>   1





                                                                   EXHIBIT 10.39
                                   AGREEMENT

BETWEEN THE UNDERSIGNED

GLOBAL TELESYSTEMS GROUP, Inc., a corporation organized under the laws of
Delaware with its head office at 1751 Pinnacle Drive North Tower 12th Floor,
McLean, Virginia 22102 U.S.A. (hereafter referred to as "GTS"), acting on its
own behalf represented by Mr. Raymond I. Marks duly empowered.

                                      (hereafter referred to as the "Purchaser")

                                                                 ON THE ONE PART

CESIA S.A., a company set up under French law, with a capital of 8.056.000 FRF,
with registered office at 122 avenue de Hambourg, BP 139, 13267 Marseille Cedex
08, registered at the Companies' Registry of Marseille, under the number B 950
426 759, acting on its own behalf, represented by Mr. Jean Salmona, its
President of the Board of Directors,

                              (hereafter referred to as "CESIA" or the "Seller")

                                                              ON THE SECOND PART

(hereafter collectively referred to as the "Parties")

RECITALS

1.       The share capital of C-DATACOM International, a French Societe Anonyme
         having its registered office at 6 avenue du General de Larminat, 75015
         Paris, registered at the Companies' Registry of Paris, under the
         number B 393 227 749 is allocated as indicated in Appendix 1.

                                               (hereafter referred to as "CDI").

2.       The sole activity of CDI consists in providing high speed digital
         international telecommunication services between India and the rest of
         the world. CESIA has entered into an initial agreement dated November
         5, 1992 as well as into three subsequent amendments dated respectively
         July 2, 1993, August 8, 1994 and January 25, 1995 and three
         supplementary agreements of July 2, 1993, August 8, 1994 and January
         25, 1995 entered into with SATCOMM SERVICES (INDIA), a "society" set
         up under the laws of India, true and complete copies of which are
         attached hereto as APPENDIX 2 (hereafter the "Contract").
<PAGE>   2
                                           2

         On December 15, 1993, the rights and obligations under the Contract
         have been transferred from CESIA to CDI pursuant to an agreement, a
         copy of which is attached hereto as APPENDIX 3.

3.       The merger between SATCOMM SERVICES (INDIA) and Software Technology
         Parks India (hereafter referred to as "STPI"), being effective as at
         August 1, 1995,  STPI will be the current contracting party with CDI
         under the Contract. Therefore any reference in this Agreement to
         SATCOMM SERVICES (INDIA) shall also include reference to STPI.

4.       At the date hereof, the share capital of CDI amounts to 250,000 FRF
         and is divided into 250 shares with a nominal value of 1,000 FRF.

5.       GTS, an international telecommunication network company, wishes to
         develop directly or indirectly its activity relating to India in the
         area of high speed digital telecommunication network. With a view to
         achieve such goal, GTS approached CESIA in December 1994 to discuss
         the possibility for GTS to acquire directly or indirectly the whole
         share capital of CDI.

6.       CESIA wishes to transfer the activities it has developed through CDI
         in the field of international high speed digital telecommunications
         with India.

In consideration of their mutual interest, the Parties have agreed to enter
into this agreement (hereafter the "Agreement").

NOW THEREFORE, IT HAS BEEN AGREED AS FOLLOWS

ARTICLE 1 - OBJECT AND STRUCTURE OF THE TRANSACTION

1.1      Subject to the conditions precedent and cancellation condition set
         forth in Article 4 hereof as well as pursuant to the other terms and
         conditions set forth in the Agreement, CESIA undertakes to sell to GTS
         or its assignee as defined in Article 12 below as GTS may solely
         decide, and GTS undertakes to purchase or to cause such assignee to
         purchase from CESIA under the same terms and conditions 250 shares of
         CDI which represent 100% of the share capital and voting rights of
         CDI.  It is specified that the acquisition of 100% of the share
         capital and voting rights of CDI (hereafter "the CDI Shares") is an
         essential condition of this transaction which has led the Purchaser to
         enter into this Agreement.

         It is expressly agreed that the present commitments to sell and
         purchase shall include, and all provisions of the present Agreement
         shall apply (without any modification of the Purchase Price as such
         term is defined hereafter) to all shares or other securities which
         have been or may be issued and allocated to the Seller in connection
         with the CDI Shares prior to the transfer dates as defined hereafter
         in
<PAGE>   3
                                       3

         Article 2, as a consequence notably of any merger, split-up, exchange
         of shares, increase or decrease of the capital of CDI.

         The Seller hereby undertakes, as from the date of the present
         Agreement and until the transfer date of all shares or other
         securities allocated to the Seller, not to transfer, contribute,
         alienate, create a security interest (pledge or other) or otherwise
         dispose in favor of any third party of any right to or in respect of
         such shares or securities.

1.2      It is specified that the transaction defined in this Agreement will be
         structured as follows:

         -       225 shares of CDI representing 90% of its share capital and
                 voting rights shall be transferred on the Transfer Date as
                 indicated hereafter;

         -       25 shares of CDI representing 10% of its share capital and
                 voting rights (hereafter referred to as the "Remaining
                 Shares") shall be transferred in accordance with the terms and
                 conditions set forth in Section 2.2 hereafter.

ARTICLE 2 - TRANSFER DATES

2.1.     The Parties agree that 225 shares representing 90% of the share
         capital and voting rights of CDI (hereafter the "Shares") will be
         transferred within eight (8) working days following the fulfillment of
         the last of the conditions precedent set forth in Article 4 hereafter
         (hereafter referred to as the "Transfer Date").

         The Shares are sold with effect as at the Transfer Date, that is, the
         Purchaser shall be entitled to receive all dividends and distributions
         attached to the Shares not paid prior to the Transfer Date, which
         shall include any dividend and/or distributions attached to the Shares
         with respect to the fiscal year 1994 and to previous fiscal years.

2.2.     The Parties agree that the Remaining Shares will be transferred to the
         Purchaser on the fifth anniversary of the Transfer Date (hereafter the
         "Remaining Shares Transfer Date").

2.3.     On the Transfer Date, the Seller shall deliver to the Purchaser:

         (i)     one or more transfer orders (ordres de mouvement) in respect
                 of the Shares, duly signed by the Seller in favor of the
                 Purchaser and/or its assignees, if any;

         (ii)    a certified copy of CDI's directors' resignation letters;


<PAGE>   4
                                       4

         (iii)   the minutes of the board of directors' meeting of CESIA and of
                 CDI approving and authorizing the present sale and purchase to
                 the Purchaser in accordance with Article II of CDI's by-laws;

         (iv)    a certified copy of any document assessing that the conditions
                 precedent set forth in Section 4.1 (i) and (ii) hereafter have
                 been satisfied;

         (v)     a duly signed copy of the Representations and Warranties, the
                 terms and conditions of which are set forth in the draft
                 attached hereto as APPENDIX 4 accurate at the present date as
                 well as on the Transfer Date; this being an essential condition
                 without which the Purchaser would not have undertaken to
                 acquire the CDI Shares;

2.4.     On the Transfer Date, the Purchaser shall deliver to the Seller:

         (i)     a copy of the minutes of the board of directors of the
                 Purchaser authorizing the transaction as contemplated in this
                 Agreement.

         (ii)    the part of the Purchase Price defined in Section 3.2
                 hereunder by means of a check.

2.5.     On the Remaining Shares Transfer Date, the Seller shall deliver to the
         Purchaser:

         -       one or more transfer orders (ordres de mouvement) in respect
                 of the Remaining Shares, duly signed by the Seller in favor of
                 the Purchaser and/or its assignee if any.

2.6.     On the Remaining Shares Transfer Date, the Purchaser shall deliver to
         the Seller:

         -       The part of the Purchase Price as defined in Article 3.5
                 hereafter by means of a check.

3.       PURCHASE PRICE

3.1.     In consideration of the purchase of the CDI Shares and of all related
         rights referred to in Article 1 above, the Purchaser shall pay a
         maximum amount of US$ eight million five hundred thousand (8,500,000).

         The purchase price of the CDI Shares and of all related rights
         referred to in Article 1 above (hereafter "the Purchase Price") shall
         be computed and paid under the terms and conditions set forth
         hereunder.

3.2.     On the Transfer Date, the Purchaser shall pay to the Seller an amount
         equal to US$ one million (1,000,000).


<PAGE>   5
                                       5

3.3.     Subject to the limitation of the amount of the Purchase Price set
         forth in Section 3.1 above, upon satisfaction of the conditions set
         forth hereunder and provided such conditions are satisfied prior to
         the first annual anniversary of the Transfer Date, GTS will make an
         additional payment to CESIA of US$ one million (1,000,000). It is
         however specified that regardless of the date on which such conditions
         are satisfied within such one year period, the payment of US$ one
         million (1,000,000) shall not be made earlier than six months after
         the Transfer Date. The conditions to be satisfied are the following:

         (i)     SATCOMM SERVICES (INDIA) has agreed in writing to extend the
                 term of the Contract such that the expiration date of that
                 agreement is not earlier than July 27, 2005; and

         (ii)    SATCOMM SERVICES (INDIA) has agreed to extend the Area of
                 Operation pursuant to Article 1, Section 3 of the contract
                 between CDI and SATCOMM SERVICES (INDIA) dated November 5,
                 1992 to include all SATCOMM SERVICES (INDIA) traffic to all
                 parts of the world. However, the Purchaser/CDI may on a case
                 by case basis accept that SATCOMM SERVICES (INDIA) be freed
                 from the exclusivity commitment where the Purchaser/CDI is not
                 in a position to respond to a specific requirement of a
                 customer if such exclusion from the exclusivity provision is
                 beneficial to the cooperation of those companies (i.e. the
                 Purchaser, CDI and SATCOMM SERVICES (INDIA)); and

         (iii)   CDI shall provide evidence, satisfactory to the Purchaser,
                 that the authorizations under which SATCOMM SERVICES (INDIA)
                 operates are valid, and in full force and effect for the term
                 (as extended in paragraph (i) above) of the Contract.

         The Seller shall inform the Purchaser on a regular basis with respect
         to the actions undertaken to satisfy the above conditions.

3.4.     Subject to the limitation of the amount of the Purchase Price set
         forth in Section 3.1 above, GTS will be obligated to pay to CESIA in
         US dollars an amount equal to 2% of all revenues, (less taxes and
         revenues collected by CDI from customers for the Indian portion of
         services provided by SATCOMM SERVICES (INDIA) under the One-Stop-Shop
         provisions contained in the Contract) collected by CDI and/or
         affiliates of/or the Purchaser for international telecommunications
         services to and from India, where SATCOMM SERVICES (INDIA) provides
         the Indian part of the international services (hereafter the
         "Revenues") during the 48 calendar months following the Transfer Date.
         This amount shall be paid in five installments payable on March 1st of
         each of the years 1996, 1997, 1998, 1999 and 2000 for the Revenues
         received during those months of the above 48 months included in the
         preceding calendar year.
<PAGE>   6
                                       6

         In case of disagreement between the Parties on the price payable
         pursuant to this section 3.4, the amount thereof shall be determined
         in accordance with Article 1592 of the French Civil Code by an expert
         appointed jointly by the Parties or in case of disagreement relating
         to such designation, by the President of the Tribunal de Commerce de
         Paris (hereafter the "Expert") within sixty (60) days of its seizure
         by the most diligent party. The Expert's decision shall be binding
         upon the Parties and not subject to appeal.

3.5.     Subject to the limitation of the amount of the Purchase Price set
         forth in Section 3.1 above, the Parties agree that on March 1st 2000
         and 2001, the Purchaser shall pay to CESIA an amount equal to 20% of
         the Revenues received, for the March 1st 2000 payment, from July 1st
         1999 to December 31, 1999 and, for the March 1st 2001 payment, from
         January 1st 2000 to June 30, 2000.

         In case of disagreement between the Parties on the part of the
         Purchase Price defined in this section, such amount shall be
         determined by the Expert as defined in Section 3.4 above and pursuant
         to the terms and conditions defined in such section.

3.6.     The amount set forth in Section 3.2 to Section 3.5 above constituting
         part of the Purchase Price shall be paid by the Purchaser to the
         Seller by means of a check.

ARTICLE 4 - CONDITIONS PRECEDENT AND CANCELLATION CONDITION

4.1.     The obligations undertaken by the Purchaser pursuant to this Agreement
         are subject to the satisfaction of the following conditions precedent:

         (i)     the obtaining of any necessary or appropriate consents from
                 third parties, including governmental entities;

         (ii)    the approval of the transaction as described in this Agreement
                 by the boards of directors of the Seller and the Purchaser;

         (iii)   the satisfactory carrying out of a legal, financial and
                 accounting due diligence examination of CDI by the Purchaser
                 and its advisors (hereafter the "Due Diligence"), it being
                 specified that the Purchaser undertakes to make its best
                 efforts to have the Due Diligence completed by June 26, 1995.

         It is specified that the Purchaser may renounce to the benefit of any
         of the conditions precedent provided for in paragraphs (ii) with
         respect to the approval of the Purchaser and (iii) above.

         The Seller and the Purchaser shall mutually inform each other within
         the best timeframe with respect to progress made on the satisfaction
         of the conditions precedent set forth above.
<PAGE>   7
                                       7

         For the purpose of the Due Diligence, the Seller undertakes in his own
         name and on behalf of CDI to make available all necessary documents
         for review by the Purchaser and its advisors as well as all managers
         and directors and/or key employees of CDI or CESIA with a view to
         answer the Purchaser's and its advisor's queries.

         If the above conditions precedent are not satisfied by July 31, 1995,
         the Parties hereto shall be free from any of the obligations contained
         in this Agreement which would become null and void without any
         indemnity being due by any of the Parties as a result thereof. The
         Parties would however remain bound by the terms of the confidentiality
         provision set forth under Article 10 and 13.4 hereof.

4.2.     The present Agreement shall be considered as null and void and the
         Parties free from any obligations undertaken thereunder if a
         substantial change having an adverse impact on CDI's activity, assets,
         prospects or results were to occur between the date of this Agreement
         and the Transfer Date. The Parties would however remain bound by the
         terms of Article 10 and 13.4 hereof.

ARTICLE 5 - UNDERTAKINGS OF THE PARTIES

5.1      The Seller undertakes that between the date of this Agreement and the
         Transfer Date, he shall not take or have CDI take any decision outside
         of the latter's normal course of business without the prior written
         approval of the Purchaser, in particular no amendment to the Contract
         shall be signed except the ones necessary to satisfy the conditions
         described in Sections 3.3 (i) and (ii) above.

5.2      The Seller undertakes to repurchase the shares of CDI from the
         individuals listed in APPENDIX 1 before the Transfer Date. It is
         however recognized and accepted by the Purchaser that the Seller may
         not be in a position to purchase one of those shares. If this were to
         be the case, the Seller shall indemnify the Purchaser and/or CDI of
         any cost (including the price to be paid to the assignor) or damage
         suffered by the Purchaser or CDI by reason of such situation. However
         until December 31, 1995 solving the issue of this share purchase
         shall be the exclusive responsibility of the Seller.

5.3      The Seller undertakes to make available to CDI all the services
         provided to it as at the date of this Agreement and as requested by
         the Purchaser. The price of such services shall be determined by
         mutual agreement between the Parties.

5.4      For the period during which the Seller shall remain a 10% shareholder
         in CDI, he shall be entitled to be a member of the board of directors
         of CDI. The Seller shall be represented by Mr. Jean Salmona as long as
         he shall be working with it. The by-laws of CDI shall include a
         provision to this effect by providing for two classes of shares.
<PAGE>   8
                                       8

ARTICLE 6 - WAIVER

In the event that any Party shall refrain at any time from insisting on the
performance by the other party of any provision of this Agreement, its right to
do so at any later time shall remain fully in effect.  In addition, the waiver
by any Party of its right in respect to the failure by the other party to
perform any provision of this Agreement shall not mean, nor be interpreted to
mean, that such party has waived its rights under such provision or under any
other provision of this Agreement.

ARTICLE 7 - SEVERABILITY

Should any of the provisions of this Agreement be declared void or
unenforceable by any court or competent authority, or become unlawful for any
court or competent authority, or become unlawful for any reason whatsoever, the
Parties shall negotiate in good faith with a view to replacing it by a valid
provision as close as possible to the original one, and all other provisions of
this Agreement shall remain in full force and effect.

ARTICLE 8 - APPLICABLE LAW AND JURISDICTION

The parties agree that all disputes arising in connection with the present
Agreement, which cannot be resolved by agreement of the parties, shall be
submitted to arbitration.

The most diligent party shall appoint one arbitrator and shall inform the other
party by registered mail with return receipt requested of the name of such
arbitrator as well as of the questions it intends to submit for arbitration.

The other party shall within fifteen (15) days of such notification appoint its
own arbitrator and proceed with the same information as the one referred to
above.

If that party fails to appoint an arbitrator within that time, the arbitrator
of the defaulting party shall be appointed by the President of the "Tribunal de
Grande Instance" of Paris under summary proceedings (referes) on application of
the non defaulting party.

The two arbitrators so appointed shall appoint a third arbitrator within thirty
(30) days.  If they fail to do so, the third arbitrator shall be appointed by
the President of the "Tribunal de Grande Instance" of Paris, under summary
proceedings (referes) upon application of either party.

The three arbitrators shall make up an arbitral tribunal which shall rule
pursuant to the Livre IV of the French Nouveau Code de Procedure Civile and the
applicable law shall be French law.

At the request of either party, the arbitral tribunal may make any temporary or
partial award.  It may also take any temporary measure that it judges to be
necessary in the form
<PAGE>   9
                                       9

of a pre-judgment award, without prejudice to any question that will be
presented in summary procedure or, upon request by either party, before the
judicial courts.

In the event that any arbitrator dies, resigns, is prevented from acting or
declines to act, or in the event that the arbitrator appointed fail to give
their decisions within the time period referred to above, the arbitrator who is
so prevented or in default shall be replaced by the party who appointed that
arbitrator within the same time frame, in accordance with this clause and
without invalidating the arbitration proceedings.

The arbitrators in their decision shall apportion the expenses of the
arbitration consisting of the fees and expenses of the arbitrators and any
experts.

The arbitration shall take place in Geneva (Switzerland).

The arbitration award shall be final and binding upon the parties.

ARTICLE 9 - EXPENSES

Each Party shall bear the expenses incurred by it in connection with the
drafting and negotiation of this Agreement.

Payment of any registration duties, if any, for the transfer of the Shares and
Remaining Shares will be borne by the Seller.

ARTICLE 10 - CONFIDENTIALITY - DISCLOSURE

Except for disclosures required by applicable law, no party shall make any
disclosure of the proposed transaction without prior discussion and agreement
with the other party as to the necessity for such disclosure and the content of
any such disclosure. The Seller agrees to the present provision in his own name
and on behalf of CDI.

No written or oral news releases or public statements by or on behalf of the
Purchaser or the Seller or any of their respective affiliates, or any of their
respective directors or officers, pertaining to the transaction contemplated in
this Agreement shall be made, without the consent of the other party.

ARTICLE 11 - NOTICES

Any notice or other communication required under this Agreement shall be made
by registered letter with return receipt requested, addressed to the Parties at
their addresses set out above or at another address which they may notify in
writing. All notices will be deemed to be received upon the signature of the
return receipt.
<PAGE>   10
                                       10

ARTICLE 12 - TRANSFER

The Purchaser may assign or transfer part or all of its rights and obligations
under the Agreement to any of its wholly owned subsidiary. It being understood
that in case of such transfer or assignment, the Purchaser shall guarantee the
compliance by such subsidiary of the so assigned or transferred rights and
obligations.

ARTICLE 13 - MISCELLANEOUS

13.1.    This Agreement contains the entire understanding between the Parties
         relating to the subject matter herein contained and replaces any and
         all former agreement on the subject matter.

13.2.    The rights and obligations stipulated herein are binding to the
         successors and assignees of the Parties.

13.3.    No person or entity acting on behalf of any of the Parties hereto is
         or will be entitled to any finders' or brokers' fee or any other
         similar commission directly or indirectly from such Parties.

13.4     The Purchaser agrees as of the date of this Agreement and until the
         Transfer Date not to negotiate separately with SATCOMM SERVICES
         (INDIA) or STPI or to act in such a way which may lead to a separate
         agreement between the Purchaser and such entities concerning part or
         all of the transaction described in this Agreement. Besides in case
         the transaction is not carried out as contemplated herein, the
         Purchaser shall remain bound by this commitment until December 31,
         1995 unless such non occurrence is due to the Seller. The Seller shall
         not conduct any negotiation with any third party relating to the
         transaction described in this Agreement until July 31, 1995, except if
         this Agreement is not completed due to the Purchaser.

This Agreement has been signed
On June 1st, 1995
In 2 originals

In Paris                          In Monaco

/s/ JEAN SALMONA              
- -------------------               ------------------
Seller                            Purchaser
duly represented                  duly represented
by Mr. Jean Salmona               by Mr. Raymond I. Marks
<PAGE>   11
                               LIST OF APPENDICES

Appendix 1 :     List of Shareholders

Appendix 2 :     Contract

Appendix 3 :     Transfer Agreement

Appendix 4 :     Representations and Warranties
<PAGE>   12
                                   APPENDIX I

                              Shareholders of CDI

Name of Shareholder                                         Number of Shares

Jean Salmona                                                        1
Raymond H. Levy                                                     1
Bernard Cabaret                                                     1
Bernard Maurel                                                      1
Jean-Raoul Jourdan                                                  1
Michel Laeard Baton                                                 1
CESIA                                                             244
<PAGE>   13
                                   APPENDIX 2

                                    CONTRACT

<PAGE>   1

                                                               EXHIBIT 10.40




Mr. Alan B. Slifka
Chairman of the Board of Directors
SFMT, Inc.
477 Madison Avenue
New York, New York 10022                                        March 1, 1994


Dear Mr. Slifka:

               This letter of agreement (the "Agreement") will confirm and
evidence the agreement between SFMT, Inc. ("SFMT") and you ("Slifka") as
follows:

1.   Consulting Services

               SFMT and Slifka hereby agree that during the term of this
Agreement, Slifka shall provide his consulting services upon the terms and
conditions described herein, it being understood that Slifka will render
services to SFMT as an independent contractor and not as an employee. The
services provided by Slifka will consist of consulting services with respect to
strategic direction, finance, market analysis, capital raising and liaison with
joint venture partners, and the rendering of advice by Slifka in connection
with new clients and business opportunities.

2.   Term of Consultancy

               The term of this Agreement shall begin on January 1, 1994 and
shall end on December 31, 1994. This Agreement shall be renewable for
successive one year terms unless cancelled by either party by written notice
given not less than thirty 30 days before an anniversary of this Agreement.

3.   Consulting Fee

               In consideration of Slifka's services hereunder, SFMT shall pay
Slifka an annual fee of $90,000, payable in equal monthly increments (or such
other increments as the parties shall mutually agree upon).



SFMT, Inc.
- -------------------------------------------------------------------------------
477 Madison Avenue,                         Tel: 212-303-9494 Fax: 212-371-9552
8th Floor, 
New York, NY 10022, USA 
<PAGE>   2
                                       2


4.   Termination

               This Agreement may be terminated at any time and for any reason
or no reason by either party upon 30 days' written notice.

5.   Location

               There shall be no restriction on the place of performance of
services hereunder by Slifka. Notwithstanding the previous sentence, SFMT shall
provide the use of its facilities and employees to Slifka.

6.   Reimbursement of Expenses

               SFMT shall reimburse Slifka for all reasonable business expenses
incurred by Slifka in the performance of services hereunder.

7.   Non-exclusivity

               Slifka shall be free to devote such time and effort as he sees
fit to conduct other business and provide consulting services to clients other
than SFMT.

8.   Governing Law

               This Agreement shall be construed and enforced in accordance
with, and governed by, the laws of the State of New York.



                                        SFMT INC.


                                        By /s/ [ILLEGIBLE]
                                          ------------------------
                                          Name:
                                          Title:


Accepted and Agreed:



/s/ ALAN B. SLIFKA
- -------------------------
Alan B. Slifka
     

<PAGE>   1
                                                                 EXHIBIT 10.41


                                   AGREEMENT



                 This Agreement is made as of this fifteen day of August, 1996
by and between Global TeleSystems Group, Inc. ("GTS"), a Delaware corporation
having its principal offices at 1751 Pinnacle Drive, North Tower, 12th Floor,
McLean, Virginia 22102, USA and Bernard J. McFadden, ("Consultant"), having his
residence at Avenue du Castel 13, Braine l'Alleud, 1420 Belgium.

                 WHEREAS, GTS desires to retain Consultant to provide certain
services to GTS and to Hermes Europe Railtel B.V. ("Hermes") as described
below, all on terms and conditions acceptable to GTS; and

                 WHEREAS, Consultant has extensive experience in the
telecommunications industry and is qualified to assist GTS and Hermes;

                 NOW, THEREFORE, the Parties, intending to be legally bound,
hereby agree as follows:

                 1 .      Scope of Agreement.  GTS hereby retains Consultant as
a consultant in connection with the provision of the services described below.
All services provided by Consultant shall be in accordance with the directions
given by the Chief Executive Officer of GTS or his/her designee.

                 2.       Term.  This Agreement shall commence as of the date
specified above, and shall remain in effect until June 30, 1997, with automatic
one year renewals on that date and the subsequent anniversaries of that date,
unless canceled by either party, in its sole and absolute discretion, upon
thirty (30) days advance written notice prior to the end of the initial term or
any renewal term (the "Term").

                 3.       Duties of Consultant.

                     (a)     Consultant's services to GTS shall consist of:

                                  (i)      New Ventures -- To act as a member
of an advance team for setting up new ventures with specific emphasis on
determining the optimal business, legal, and tax solutions for the venture
while also assuring compliance with governing laws and regulations,

                                  (ii)     GTS Worldwide Operations -- To
determine the best European location for establishing a GTS European office to
serve as a focal point for managing GTS's worldwide operations, and to provide
support to GTS's Chief Operating Officer during organization, staffing and
start-up phases,
<PAGE>   2
                                  (iii)    Regulatory /Licensing /Customer
Relations -- To develop the necessary relationships to exploit GTS's assets,
including the Monaco country code, and

                                  (iv)     Hermes Supervisory Board - Represent
GTS as a member of the Hermes Supervisory Board.

                          (b)     In connection with Hermes, Consultant's
activities include, among others, the following:

                                  (i)      Monitor project status and progress
on an on-going basis and keep GTS senior management aware of significant events
and problems,

                                  (ii)     Assist Hermes management to select
and direct the efforts of qualified consultants to provide in-country
representation, support, and relationships with the railroads or the partners,
regulatory agencies, customers and vendors,

                                  (iii)    Maintain an on-going relationship
with Alcatel's or other vendor's senior management to assure that Hermes
receives maximum support in performing all aspects of the project.

          4.      Fees.  GTS shall pay Consultant a total of $100,000 in
consulting fees each year, on a monthly basis, in arrears.

          5.     Information.  Any information not elsewhere publicly
available, given to Consultant by GTS relating to GTS and its Affiliates, will
remain the property of GTS, and be subject to confidential treatment.

          6.     Independent Contractor.  The relationship of GTS and
                 Consultant is one of independent contractor.

          7.     Foreign Corrupt Practices Act.  Consultant agrees to comply in
all respects with the U.S. Foreign Corrupt Practices Act of 1977 ("FCPA"), as
amended, which makes it unlawful for any U.S. company or any officer, director,
employee, agent or any stockholder thereof acting on behalf of such U.S.
company to directly or indirectly offer to pay any bribe, gift, or thing of
value to any foreign official, candidate for foreign office, foreign political
party or party officials to influence any act or decision of such persons or
entities in their official capacity.  Consultant's failure to comply in all
respects with the provisions of the FCPA shall constitute a material breach by
Consultant of Consultant's obligations hereunder and shall entitle GTS to
terminate this Agreement immediately.  Consultant hereby acknowledges that he
has read the "Global TeleSystems Group, Inc.  Policy on Foreign Transactions"
(Exhibit A hereto) and that a


                                       2
<PAGE>   3
condition precedent to the effectiveness of this Agreement is Consultant's
delivery to GTS of an executed copy of the Addendum (Exhibit B hereto) to such
policy.  If requested by GTS, Consultant agrees to execute from time to time a
Certificate of Compliance (Exhibit C hereto) with the FCPA and attend
additional FCPA training in keeping with GTS policy and procedures.

                 8.      Representations and Warranties.

                          (a)     Consultant represents and warrants that this
Agreement is valid and binding as to Consultant, and Consultant's execution,
delivery and performance under this Agreement does not contravene or constitute
a default under any agreement, arrangement or other understanding to which
Consultant is a party.

                          (b)     Consultant has not taken any action prior to
the date hereof which, if taken after the execution and delivery of this
Agreement, would constitute a violation of any covenant, representation, or
other obligation of Consultant under this Agreement.

                 9.      Miscellaneous.

                          (a)     Governing Law.  This Agreement and the
obligations of the parties hereunder shall be interpreted, construed, and
enforced in accordance with the laws of the Commonwealth of Virginia

                          (b)     Notices.  Any notice required to be given
pursuant to the provisions of this Agreement shall be in writing and mailed by
overnight courier or certified mail to the parties at the addresses set forth
in the opening paragraph of this Agreement.  In the case of GTS, notices should
be sent to the attention of the General Counsel.

                          (c)     Entire Agreement; Amendment.  This Agreement
is the entire Agreement between the parties concerning the subject matter
thereof and any and all prior agreements, negotiations and understandings of
the parties with respect thereto, are specifically superseded thereby.  No
variations, modifications, or changes shall be binding upon any party hereto
unless set forth in a document duly executed by each party or by a person duly
authorized to act on behalf of each party.

                          (d)     Nonwaiver.  No consent or waiver, express or
implied, by either party to any breach or default by the other party, shall be
deemed or construed to be a consent or waiver to any other breach or default in
the performance by the parties of any obligation hereunder.





                                       3
<PAGE>   4
               (e)        Severability.  If any provision of this Agreement
shall be invalid or unenforceable, the remainder of the Agreement and the
application thereof shall not be affected thereby and shall be enforced to the
extent permitted by law.

               (f)        Assignments.  Consultant shall not assign or delegate
his obligations under this Agreement.

               (g)        Counterparts.  This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which when taken together shall constitute one and the same agreement.

               (h)        Captions.  The headings and captions used herein are
for convenience only and are not to be considered in the construction or
interpretation of any provision of this Agreement.


     IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.

                                                        /s/ BERNARD J. McFADDEN
                                                        -----------------------
Global TeleSystems Group, Inc.                          Bernard J. McFadden



by: /s/ [ILLEGIBLE]                                      
    --------------------------

Title:
       -----------------------


                                       4
<PAGE>   5
                                                                       Exhibit A


                         GLOBAL TELESYSTEMS GROUP, INC.
                         POLICY ON FOREIGN TRANSACTIONS


               It is the policy of Global TeleSystems Group, Inc. (the
"Company") to conduct all of its activity so as to comply with applicable law.
In order to ensure this Policy is adhered to, the following rules govern
activities outside the United States.

               1 .     Joint venture partners, agents, distributors,
representatives and anyone else who acts on behalf of the Company or its
affiliates in connection with transactions outside the United States
("Representative") will be selected on the basis of the person's reputation for
professionalism and integrity.

               2.         Before any Representative is retained, a background
check will be conducted.  A written report and recommendation on the basis of
the background check will be sent to the relevant Senior Vice President whose
written approval is required before any Representative is retained. The report 
will describe the following information as to the proposed Representative:

                 a.       Size of the firm in terms of people and facilities.
                 b.       Number years of operation.
                 c.       Number and reputation of Representative's other 
                          clients.  
                 d.       Qualifications of Representative's technical staff.
                 e.       Adequacy of support staff.  
                 f.       Familiarity with and adherence to the principles of 
                          the United States Foreign Corrupt Practices
                          Act (the "FCPA").
                 g.       Reputation for professionalism, integrity and
                          compliance with law.

                 3 .      No officers or employees of any government or any
department, agency or instrumentality of any government or political party or
political candidate or any entity in which such person has a beneficial
interest will be retained as a Representative.

                 4 .      No officer, director, employee or affiliate of any
customer of the Company or any entity in which such person has a beneficial
interest will be retained as a Representative.

                 5 .      No agreement or payment to any Representative will be
in violation of any law, including the FCPA.

                 6 .      No payment will be made to any Representative until
such Representative's agreement has been supplemented by an Addendum in the
form attached executed by the Company and the Representative.

                 7 .      If any question arises concerning the legality of the
Representative's agreement with the Company, the Company will obtain legal
advice.

                 8 .      The Representative's compensation shall be determined
solely on the basis of the written agreements between the Company and the
Representative.

                 9 .      All sales transactions of the Company will be properly
recorded on the books and records of the Company.
<PAGE>   6
                                                                       Exhibit A




               10.        Compliance with this Policy is the responsibility of
every Company employee.  Violations of this Policy and failures by supervisors
to detect violation of this Policy will subject individuals to discipline as
appropriate to the situation.

               11.        Mr. Harold B. Adams has been appointed as Compliance
Officer with responsibility to oversee compliance with this Policy through
training and publications that explain this Policy.

               12.        The Compliance Officer shall establish a system to
monitor and audit the compliance with this Policy and to detect violations of
this Policy and the FCPA by employees of the Company or the Representative.
The Compliance Officer shall report to the Board of Directors at least once a
year on the Company's compliance with this Policy.





                                       2
<PAGE>   7
                                                                       Exhibit B




                 ADDENDUM TO THE GLOBAL TELESYSTEMS GROUP, INC.
                         POLICY ON FOREIGN TRANSACTIONS



               Whereas Bernard J. McFadden ("Representative") and Global
TeleSystems Group, Inc. ("The Company") want to formally record their
longstanding practice with respect to compliance with certain laws and to
supplement their Consulting Agreement, dated as of July 1, 1996 (the
"Agreement").

                Now, therefore, Representative and the Company agree as follows:

               1 .    Representative acknowledges that the laws of the Eurasian
continents and of the United States apply to its performance of the Agreement.

               2 .    Representative is familiar with the Foreign Corrupt
Practices Act (the "FCPA") and the Company's policy and procedures for
compliance with the FCPA. 

               3 .    No person who is an owner, officer, director, employee,
direct or indirect agent, or acts on behalf of Representative is an officer or
employee of any government or any department or agency or instrumentality of
any government or an official of any political party or a political candidate.

               4.     No compensation Representative receives from the Company
will be used, directly or indirectly, in violation of any law including the
FCPA.

               5 .    Any payment to Representative shall be only in the form
of bank drafts or bank transfers to an account in the name of Representative in
the country of Representative's principal place of business.  No compensation
shall be paid in currency or to any other person or place.  Payment shall only
be made against a written invoice and Compliance Certificate in the form
attached.

               6 .    Representative shall not employ any person or entity or
obligate the Company with respect to any services for the Company without
obtaining the prior written approval of the Company each time in advance.

               7 .    The Company's payments to Representative will only be
made if such payments are permitted under the applicable laws including the
FCPA and are consistent with the Company's policy for its employees in the
United States.

               8 .    All compensation and expense reimbursement paid by the
Company is subject to audit by the Company.  Representative shall provide the
Company with access to all books and records of Representative needed for such
audit.

               9.     The Company may disclose the existence and terms,
including the compensation terms, of the Agreement to anyone the Company
determines has a legitimate need to such information.

               10.     If Representative receives any request in connection
with the Company or its products that Representative believes may be a
violation of any law, including the FCPA, Representative shall promptly notify
N. S. Molberger, General Counsel to the Company.
<PAGE>   8
                                                                       Exhibit B



               11.        The Company may terminate all agreements between
itself and Representative at any time without further liability or obligation
if it believes in good faith that there has been a breach of the terms of this
Addendum by Representative.

Dated:

         /s/ [ILLEGIBLE]                            /s/ BERNARD S. MCFADDEN
- ---------------------------------              ---------------------------------
              Company                                    Representative


                                       2
<PAGE>   9
                                                                       Exhibit C



                           Certificate of Compliance



            I, BERNARD J. MCFADDEN ("Representative") certifies that:

     1.     Representative will comply with the terms of the Addendum to the
            Global TeleSystems Group, Inc. Policy on Foreign Transactions
            ("Addendum"); and

     2.     Representative has made no agreement or commitment which, if
            carried out in the future, would directly or indirectly violate the
            Addendum.


Dated:  19 SEPTEMBER 1996
      -----------------------


                                        /s/ BERNARD J. MCFADDEN
                                        ----------------------------
                                        Representative

                                        Bernard J. McFadden 
                                        ----------------------------
                                        Print Name of Signatory

<PAGE>   1
                                                                    Exhibit 23.2

               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 31, 1997 (Global TeleSystems Group, Inc.),
February 21, 1997 (EDN Sovintel), and June 11, 1997 except for Note 9, which is
as of July 15, 1997 (Hermes Europe Railtel B.V.), in Amendment No. 1 to the 
Registration Statement (Form S-1 No. 333-36555) and related Prospectus of 
Global TeleSystems Group, Inc. dated on or about November 19, 1997.

                                            /s/ Ernst & Young LLP


Vienna, Virginia
November 14, 1997 


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