<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GLOBAL TELESYSTEMS GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
GLOBAL TELESYSTEMS GROUP, INC.
4121 WILSON BOULEVARD
8TH FLOOR
ARLINGTON, VIRGINIA 22203
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2000
ARLINGTON, VIRGINIA
April 4, 2000
To the Stockholders of
Global TeleSystems Group, Inc.
The 2000 annual meeting of stockholders of Global TeleSystems Group, Inc.
(the "Company" or "GTS") will be held at The Ritz-Carlton Hotel at Pentagon
City, 1250 S. Hayes Street, Arlington, Virginia 22202 on May 16, 2000 at 10:30
a.m. local time, to consider and act on the following matters:
1. The election of four directors to hold office for a term of three
years or until their successors are elected and qualified (Item No. 1).
2. Approval of an amendment to the Company's Certificate of
Incorporation to increase the authorized common stock from 270 million
shares to 540 million shares (Item No. 2).
3. Approval of an amendment to the Company's Certificate of
Incorporation to change the name of the Company to "Global TeleSystems,
Inc." (Item No. 3).
4. Approval of the 2000 Domestic U.S. Employee Stock Purchase Plan and
the 2000 International Employee Stock Purchase Plan (Item No. 4).
5. Ratification of the selection of the auditors of the Company for
fiscal year 2000 (Item No. 5).
6. The transaction of such other business as may properly come before
the meeting.
Eligible stockholders of record at the close of business on March 31, 2000
will be entitled to vote at the meeting. A list of stockholders entitled to vote
at the meeting may be examined at the executive offices of the Company at 4121
Wilson Boulevard, 8th Floor, Arlington, Virginia 22203.
By Order of the Board of Directors
GRIER C. RACLIN
Corporate Secretary
IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
GLOBAL TELESYSTEMS GROUP, INC.
4121 WILSON BOULEVARD
8TH FLOOR
ARLINGTON, VIRGINIA 22203
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2000
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board of Directors") of Global TeleSystems Group,
Inc. (the "Company" or "GTS") of proxies to be voted at the annual meeting of
stockholders in Arlington, Virginia on May 16, 2000. Enclosed with this Proxy
Statement is notice of the meeting, together with a proxy for your signature if
you are unable to attend. Stockholders who execute proxies may revoke them at
any time before they are voted. Any proxy may be revoked by the person giving it
any time before it is voted by delivering to the Corporate Secretary of the
Company at 4121 Wilson Boulevard, 8th Floor, Arlington, Virginia 22203, on or
before the business day prior to the meeting or at the meeting itself, a
subsequent written notice of revocation or a subsequent proxy relating to the
same shares or by attending the meeting and voting in person. The approximate
date on which this Proxy Statement and the accompanying form of proxy will first
be sent to the Company's stockholders is April 4, 2000.
Shares of the Company's common stock, par value $0.10 per share ("Common
Stock"), represented by properly executed proxies received prior to or at the
meeting, unless such proxies have been revoked, will be voted in accordance with
the instructions indicated in the proxies. If no instructions are indicated on a
properly executed proxy of the Company, the shares will be voted in accordance
with the recommendations of the Board of Directors.
Common stockholders of record at the close of business on March 31, 2000
(the "Record Date") are entitled to vote at the meeting. On March 31, 2000, the
Company had outstanding 196,157,980 shares of Common Stock (excluding treasury
stock). The number of outstanding shares and all other data in this Proxy
Statement regarding shares of Common Stock, including without limitation, stock
ownership, stock option, and per share pricing information, reflects a
two-for-one split of the Common Stock effective on July 21, 1999.
REQUIRED VOTES
The vote of the holders of a plurality of the votes cast by holders of
shares of Common Stock will elect candidates for director (Item 1 on your
proxy). Abstentions or broker non-votes as to the election of directors will not
affect the election of the candidates receiving the plurality of votes. The vote
of the holders of at least a majority of the issued and outstanding shares of
Common Stock, voting together as a single class, is required to approve the
amendments to the Certificate of Incorporation to change the Company's name and
increase the authorized Common Stock (Items 2 and 3 on your proxy). The vote of
the holders of at least a majority of the shares of Common Stock present in
person or represented by proxy at the meeting and entitled to vote, voting
together as a single class, is required to (A) approve the Domestic U.S.
Employee Stock Purchase Plan and the International Employee Stock Purchase Plan
(Item 4 on your proxy), and (B) ratify the Board of Directors' appointment of
Ernst & Young LLP as the Company's independent public accountants for 2000 (Item
No. 5 on your proxy). Therefore, abstentions as to these particular proposals
(Item 2 through 5 on your proxy) will have the same effect as votes against such
proposals. Broker non-votes as to these particular proposals, however, will be
deemed shares of Common Stock not entitled to vote on such proposals, will not
be counted as votes for or against such proposals, and will not be included in
calculating the number of votes necessary for approval of such proposals.
1
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information ownership of the Common
Stock and rights to acquire Common Stock by (i) GTS stockholders that manage or
own, either beneficially or of record, five percent or more of the common stock,
(ii) each of the directors and executive officers of GTS and (iii) the directors
and officers of GTS as a group as of December 31, 1999. For the purposes of this
table, a person or group of persons is deemed to have "beneficial ownership" of
any shares which such person or group has the right to acquire within 60 days
after such date, but such shares are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) OWNED(1)
- ------------------------ ------------ ------------
<S> <C> <C>
AXA Assurances I.A.R.D. Mutuelle............................ 37,285,172(3) 20.21
9 Place Vendome
75001 Paris France
1290 Avenue of the Americas
New York, NY 10104
Putnam Investments.......................................... 14,542,789(4) 7.88
One Post Office Square
Boston, MA 02109
Soros Fund Management LLC................................... 11,998,094(5) 6.28
888 Seventh Avenue, 31st Floor
New York, NY 10106
David Dey................................................... 31,972 *
Roger W. Hale............................................... 34,490 *
Bernard McFadden............................................ 132,572 *
Stewart J. Paperin.......................................... 69,572 *
W. James Peet............................................... 33,572 *
Jean Salmona................................................ 59,572 *
Frank V. Sica............................................... 1,572 *
Alan B. Slifka.............................................. 4,548,699(6) 2.47
Adam Solomon................................................ 174,686 *
Gerald W. Thames............................................ 1,817,688(7) *
H. Brian Thompson........................................... 1,139,389(8) *
Gerard J. Caccappolo........................................ 496,500 *
Robert J. Amman............................................. 297,084(9) *
Robert A. Schriesheim....................................... 167,667(10) *
Hans Peter Kohlhammer....................................... 90,548 *
Other officers.............................................. 1,923,418 1.04
All Directors and Executive Officers as a group (27
persons).................................................. 11,019,001 5.88
Total of above.................................... 74,845,056
</TABLE>
- ---------------
* Less than 1%
(1) The percentage of ownership for each beneficial owner is based upon
184,472,884 shares of Common Stock issued and outstanding at December 31,
1999 and the number of warrants and stock options to purchase Common Stock
held by such beneficial owner. Excluded from the calculation are:
33,210,047 shares of Common Stock issued under the GTS' option plans; and
8,772,626 shares of Common Stock pursuant to the exercise of warrants.
(2) Includes shares of Common Stock issuable upon the exercise of stock options
and stock warrants within 60 days of December 31, 1999.
(3) Ownership information, which represents holdings of several separately
managed funds, is based on a Schedule 13G filed in February 2000 with the
Securities and Exchange Commission ("SEC"). Number
2
<PAGE> 5
of shares as to which such holder has: sole voting power -- 12,472,532
shares; shared voting power -- 23,073,348 shares; sole dispositive
power -- 37,189,669 shares; and shared dispositive power -- 87,303 shares.
(4) Ownership information, which represents holdings of several separately
managed funds, is based on a Schedule 13G filed in February 2000 with the
SEC. Number of shares as to which such holder has: shared voting
power -- 187,971 shares; and shared dispositive power -- 14,542,789 shares.
This holder filed an amendment to its Schedule 13G in March 2000 that
indicated it had increased its holding to 20,137,488 shares. Number of
shares as to which such holder has shared voting power -- 190,171 shares;
and shared dispositive power -- 20,137,488 shares.
(5) Ownership information, which represents holdings of several group members,
is based on a Schedule 13G filed in February 2000 with the SEC. Number of
shares as to which such holder has: sole voting power -- 11,998,094 shares;
and sole dispositive power -- 11,998,094 shares. As indicated within the
Schedule 13G, Mr. George Soros may be deemed to have been the beneficial
owner of 11,998,094 common shares. The number consists of (a) 8,660,562
shares (including 6,666,666 shares subject to immediately exercisable
warrants) held for the account of Open Society Institute, (b) 1,948,398
shares held for the account of The Soros Foundation Hungary, (c) 1,313,698
shares held for the account of Soros Charitable Foundation, and (d) 75,436
shares held for the account of Soros Humanitarian Foundation.
(6) Includes 2,666,295 shares of Common Stock owned by Mr. Slifka, 1,139,876
shares of Common Stock held in various trusts, options to purchase 33,572
shares of Common Stock owned by Mr. Slifka, and 708,956 shares of Common
Stock held by various Halcyon partnerships which are managed by
Halcyon/Alan B. Slifka Management Company (over which Mr. Slifka disclaims
beneficial ownership).
(7) Includes 691,000 shares of Common Stock held in the "Thames Family
Foundation, Inc." and options to purchase 1,126,688 shares of Common Stock
owned by Mr. Thames.
(8) Of these shares, 50,000 were purchased in February 2000.
(9) Of these shares, 24,000 were purchased in February 2000.
(10) Of these shares, 1,000 were purchased in February 2000.
3
<PAGE> 6
ELECTION OF DIRECTORS
(ITEM NO. 1 ON YOUR PROXY)
The Company's Certificate of Incorporation classifies the Board of
Directors into three classes, as nearly equal in number as possible. The members
of each class serve for terms of three years. The provision classifying the
Board of Directors was implemented in 1998, and, accordingly, the Board of
Directors has classified its members into three classes. The members of Class I
have terms expiring at the 2001 annual stockholders meeting; the members of
Class II have terms expiring at the 2002 annual stockholders meeting; and the
members of Class III have terms expiring at this annual meeting.
The terms of office of four of the present directors will expire at this
Annual Meeting.
The ages and business experience of directors set forth below are as of
March 31, 2000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
"FOR" EACH OF THE FOUR NOMINEES LISTED BELOW
NOMINEES FOR DIRECTOR FOR TERMS EXPIRING IN 2003
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
Robert J. Amman...................... 61 Mr. Amman was elected to GTS's Board of Directors in May
1998 and was appointed President of GTS in March 1999.
His term as a director expires at the 2000 annual
stockholders meetings. Mr. Amman was Chairman, President
and Chief Executive Officer of John H. Harland Company, a
printing firm, from 1995 to 1998. Previously, from 1994
to 1995, he served as Vice Chairman of First Financial
Management Corporation, where he was responsible for the
merchant services businesses consisting of Western Union,
NaBanco, Telecheck, Nationwide Credit and International
Banking Technologies. From 1988 to 1994, Mr. Amman served
as President and Chief Executive Officer of Western Union
Corporation, where he oversaw the transformation of the
firm from a telecommunications to a financial services
company. Mr. Amman is a member of the Executive Committee
of the Board of Directors.
Bernard McFadden..................... 66 Mr. McFadden has served as a director of GTS since
February 1994. His term expires at the 2000 annual
stockholders meeting. During 1999, Mr. McFadden served as
an independent consultant for GTS. 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. Mr. McFadden is Chairman of the
Compensation Committee of the Board of Directors.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
Stewart J. Paperin................... 52 Mr. Paperin has served as a director of GTS since March
1997. His term expires at the 2000 annual stockholders
meeting. Mr. Paperin serves as Chief Financial Officer of
the Soros Foundations. In addition, he has served as the
President of Capital Resource East since October 1993.
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. Mr. Paperin serves as a
director of Penn Octane Corporation, Golden Telecom, Inc.
and Svyazinvest as well as several Internet and
telecommunications companies. Mr. Paperin is Chairman of
the Audit and Budget Committee and is a member of the
Compensation, and Nominations and Governance Committees
of the Board of Directors.
Alan B. Slifka....................... 70 Mr. Slifka has served as a director of GTS since 1990,
and was Chairman until March 1999 when he was elected
Vice Chairman. His term expires at the 2000 annual
stockholders meeting. Mr. Slifka is a New York investment
banker and the Managing Principal of Halcyon/Alan B.
Slifka Management 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. Mr. Slifka is a
member of the Executive and Nominations and Governance
Committees of the Board of Directors.
</TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 2001
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
David Dey............................ 62 Mr. Dey was elected to GTS's Board of Directors in May
1998. Since 1995, Mr. Dey has served as an independent
consultant, particularly to high technology start-up
companies in Europe. In that capacity, he serves as
Chairman of World Telecom and as Chairman of STARTECH
Scotland. From 1992 to 1995, Mr. Dey served as Chief
Executive Officer of Energis Communications, which grew
from a start-up company to become the United Kingdom's
third national telecommunications operation during his
tenure. Mr. Dey was employed by British Telecom plc from
1987 to 1991, most recently, as Managing Director of its
Business Communications Division, and he held various
management positions at IBM Corporation, where he was
employed from 1961 to 1985. Mr. Dey is a member of the
Audit and Budget, and Nominations and Governance
Committees of the Board of Directors. Mr. Dey is a
citizen of the United Kingdom.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
Roger W. Hale........................ 56 Mr. Hale was elected to GTS's Board of Directors in May
1998. Mr. Hale is Chairman, President and Chief Executive
Officer of LG&E Energy Corp., a diversified energy
services company with businesses in retail gas and
electric utility services, energy marketing and power
generation and project development. Mr. Hale has served
in that capacity since August 1990. Previously, Mr. Hale
served as Executive Vice President of Bell South Corp.
and Bell South Enterprises, Inc. from 1986 to 1989 and
with AT&T Corporation from 1966 to 1986, serving in
various management positions including Vice President of
Marketing, Southern Region. Mr. Hale is a Director of H&R
Block, Inc. Mr. Hale is Chairman of the Nominations and
Governance Committee and is a member of the Executive
Committee of the Board of Directors.
Jean Salmona......................... 64 Mr. Salmona has served as a director of GTS since March
1996. Between December 1989 and November 1998, Mr.
Salmona was Chairman and C.E.O. of CESIA Consulting
Group, of which he is now Honorary Chairman. He is
President and C.E.O. of J&P Partners, a consulting
concern for high-tech companies which invest in Europe,
India and China. 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 is a member of the investment
committee of AXA FCPI, an affiliate of AXA Investment
Managers. Mr. Salmona is a graduate of Ecole
Polytechnique, Paris, Institut d'Etudes Politiques,
Paris, and Ecole Nationale de la Statistique et de
l'Administration Economique, Paris. Mr. Salmona is a
citizen of France.
Adam Solomon......................... 47 Mr. Solomon has served as a director of GTS since June
1995. Mr. Solomon is also Chairman of Shaker Investments,
Inc., a growth equity investment firm and Chairman of
Signature Properties 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. Mr. Solomon is a member of the
Executive and Compensation Committees of the Board of
Directors.
</TABLE>
6
<PAGE> 9
DIRECTORS WHOSE TERMS EXPIRE IN 2002
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
W. James Peet........................ 45 Mr. Peet has served as a director of GTS since January
1996. Since July, 1999, Mr. Peet has been Managing
Director of Lehman Brothers Communications Fund. Mr. Peet
was affiliated with The Chatterjee Group, an investment
firm, from 1991 until February 1999. Prior to that, Mr.
Peet spent 6 years with McKinsey & Company. Mr. Peet was
a director of Hainan Airlines and of Phoenix Information
Systems Corporation. In addition, Mr. Peet served as
director of Viatel, Inc. from November 1995 until June
1998. Mr. Peet is a member of the Compensation Committee
of the Board of Directors.
Frank V. Sica........................ 49 Mr. Sica was elected as a director of GTS in March 1999.
Mr. Sica is a Managing Director of Soros Fund Management
LLC and head of Soros Fund Management's private equity
operations. Prior to joining Soros Fund Management, Mr.
Sica was a Managing Director at Morgan Stanley Dean
Witter & Co., the investment banking and brokerage firm.
He is also a director of CSG Systems International, Inc.,
Kohl's Corporation, Emmis Broadcasting, Outboard Marine
Corp., Banco Hipotecario, and JetBlue. Mr. Sica is a
member of the Audit and Budget and Compensation
Committees of the Board of Directors.
Gerald W. Thames..................... 53 Mr. Thames joined GTS as Chief Executive Officer in
February 1994, and has served as a director of GTS since
February 1994. He was elected Vice Chairman of the Board
of Directors in 1998 and Executive Vice Chairman in March
1999. 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. He is a director of Data for
Development International Association. Mr. Thames is a
member of the Executive Committee of the Board of
Directors.
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
NAME AGE
---- ---
<S> <C> <C>
H. Brian Thompson.................... 61 Mr. Thompson was elected Chairman of the Board and Chief
Executive Officer of GTS in March 1999. From 1991 until
June 1998, Mr. Thompson was Chairman and Chief Executive
Officer of LCI International, Inc., a provider of
telecommunications services in the United States and to
more than 230 international locations. In June 1998, LCI
was acquired by Qwest Communications International, Inc.
and Mr. Thompson became Vice Chairman of Qwest. He
resigned from the Board of Directors of Qwest in December
1998. He serves as a member of the board of directors of
Bell Canada International, Inc., Williams Communications
Group, Inc., DynCorp, and as a member of the management
committee of Paging Brazil Holding Co., LLC. He also
serves as Co-Chairman of the Global Information
Infrastructure Commission and as a member of the Irish
Prime Minister's Ireland-America Economic Advisory Board,
and was Chairman of the Advisory Committee for
Telecommunications for Ireland Department of Public
Enterprise. Mr. Thompson is Chairman of the Executive
Committee of the Board of Directors.
</TABLE>
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held fourteen meetings in 1999. The
Board of Directors has the following standing committees: Audit and Budget
Committee, Executive Committee, Nominations and Governance Committee and
Compensation Committee. During 1999, the Audit and Budget Committee held nine
meetings, the Executive Committee held two meetings, the Nominations and
Governance Committee held six meetings, and the Compensation Committee held ten
meetings.
During 1999, the Audit and Budget Committee, in consultation with financial
officers of the Company and the independent public accountants, assisted in
establishing the scope of the annual audit. The Audit and Budget Committee
reviews and recommends to the Board of Directors corporate budget and capital
expenditure requests, reviews the financial integrity of the corporate books and
records, conducts special audits as may be recommended by the Board of
Directors, the Chief Executive Officer and the Chief Financial Officer of the
Company and reviews the policies of the Company regarding compliance with
applicable laws.
The Compensation Committee reviewed the salaries, incentive compensation,
stock option and restricted stock grants, retirement and other benefits which
accrued to officers of the Company and its subsidiaries, including the Chief
Executive Officer, administered the Fourth Amended and Restated 1992 Stock
Option Plan and the Equity Compensation Plan, and set compensation guidelines
for the Company and its subsidiaries.
During 1999, each of the incumbent directors, except for Mr. Sica, attended
75 percent or more of the meetings of the Board of Directors and of the
committees on which the directors served.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
(ITEMS NO. 2 AND 3 ON YOUR PROXY)
The Board of Directors has voted unanimously to approve certain amendments
to provisions of the Company's Certificate of Incorporation and to recommend
approval of such amendments to the Company's stockholders. The proposed
amendments, if authorized, would: (i) increase the aggregate number of
authorized shares of Common Stock (Item No. 2); and (ii) permit the Company to
change its name (Item No. 3). If authorized by the stockholders, the proposed
amendments to the Company's Certificate of Incorporation will become effective
upon the filing of one or more Certificates of Amendment with the Secretary of
State of the State of Delaware, which the Company intends to file as soon as
practicable after
8
<PAGE> 11
stockholder approval is obtained. However, pursuant to Delaware law, the Board
of Directors retains the discretion to abandon and not implement the proposed
amendments.
INCREASE IN AUTHORIZED COMMON STOCK
(ITEM NO. 2 ON YOUR PROXY)
The Company proposes to amend its Certificate of Incorporation to increase
the number of authorized shares of the Company's Common Stock from 270 million
to 540 million shares. The Board of Directors has unanimously approved, and
unanimously recommends a vote FOR, this amendment to the Certificate of
Incorporation.
The Company believes the increase in the number of authorized shares of
Common Stock will provide flexibility in connection with financings,
acquisitions of other companies, other investment opportunities, stock dividends
or splits, granting stock-related compensation to employees and others, and for
other corporate purposes that the Board of Directors deems advisable. For
example, during the first quarter of 2000, the Company agreed to issue
approximately four million shares of Common Stock in connection with its
acquisition of Netcom Internet Limited, an Internet service provider operating
in the United Kingdom. The Company believes these acquisitions will help the
Company realize its goal of becoming the leading independent provider of
e-business services in Europe.
Of the 270 million shares of Common Stock currently authorized, as of March
31, 2000, 196,157,980 shares of Common Stock were outstanding. As of the same
date, there were 16,962,834 shares reserved for issuance upon conversion of the
5.75% convertible senior subordinated debentures due 2010; 14,492,753 shares
reserved for issuance upon conversion of the 10 million Depositary Shares, each
representing 1/100 of a share of the Company's 7.25% cumulative convertible
preferred stock; 8,772,626 shares reserved for issuance upon exercise of
warrants; 1,500,000 shares reserved for the Domestic U.S. and International
Employee Stock Purchase Plans (addressed in the discussion of Item No. 4); and
23,831,754 shares reserved for issuance upon exercise of stock options. In
addition, in July 1999, the Company effected a two-for-one split of its Common
Stock in the form of a stock dividend. As a result, only approximately 8,282,053
million shares of Common Stock are authorized, unissued and unreserved and
available for future issuances.
If stockholders approve this proposal, the first paragraph of Article
Fourth of the Company's Certificate of Incorporation will be amended to read as
follows:
"The total number of shares of capital stock which the Corporation shall
have authority to issue is 550,000,000 (five-hundred and fifty million)
shares, of which there shall be 540,000,000 (five-hundred and forty
million) shares of common stock, par value $0.10 per share, and
10,000,000 (ten million) shares of preferred stock, par value $0.0001
per share."
If the amendment is approved, the additional shares of Common Stock could
be issued without additional stockholder action, unless required by applicable
law or regulation.
The Company could also use the additional shares of Common Stock to oppose
a hostile takeover attempt or delay or prevent changes of control. For example,
without further stockholder approval, unless required by applicable law or
regulation, the Board of Directors could sell shares of Common Stock in a
private transaction to purchasers who would oppose a takeover of the Company.
Although the Board of Directors is motivated by business and financial
considerations in proposing this amendment, and not by the threat of any attempt
to gain control of the Company (and the Board of Directors is not currently
aware of any such attempts), the additional shares of Common Stock could
facilitate efforts by the Company to deter or prevent changes of control of the
Company in the future, including transactions in which the stockholders might
otherwise receive a premium for their shares over then-current market prices.
Currently, the Company has no specific plans or proposals to issue shares
of its Common Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE INCREASE IN THE AUTHORIZED COMMON STOCK (ITEM 2 ON YOUR PROXY)
9
<PAGE> 12
CHANGE OF COMPANY NAME
(ITEM NO. 3 ON YOUR PROXY)
The Company proposes to amend its Certificate of Incorporation to change
its name to "Global TeleSystems, Inc.". The Board of Directors has unanimously
approved, and unanimously recommends a vote FOR, this amendment to the
Certificate of Incorporation.
The Company believes that this change of name will better reflect the
growth and integration of the Company from a collection of companies acquired
over the past few years to a single, integrated entity with a single strategy
and uniform goals and ideals.
If the stockholders approve this proposal, the first paragraph of the
Article First of the Company's Certificate of Incorporation will be amended to
read as follows:
"FIRST: The name of the Corporation is Global TeleSystems, Inc. (the
"Corporation")."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE NAME CHANGE OF THE COMPANY
(ITEM 3 ON YOUR PROXY)
APPROVAL OF 2000 DOMESTIC U.S. EMPLOYEE STOCK PURCHASE PLAN
AND 2000 INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
(ITEM NO. 4 ON YOUR PROXY)
The Board of Directors is seeking stockholder approval of the 2000 Domestic
U.S. Employee Stock Purchase Plan ("U.S. Purchase Plan") and the 2000
International Employee Stock Purchase Plan ("International Purchase Plan,"
together with the U.S. Purchase Plan, the "Purchase Plans"). The Purchase Plans
were adopted by the Board of Directors in December 1999 to encourage employees
of the Company and its subsidiaries to acquire a proprietary interest in the
Company by purchasing Common Stock through voluntary payroll deductions. The
U.S. Purchase Plan is designed as an "employee stock purchase plan" within the
meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended, (the
"Internal Revenue Code"), and in order to qualify thereunder must be approved by
the Company's stockholders. The International Purchase Plan for foreign
employees of the Company does not provide the same tax incentives due to
differences in applicable law. The Board of Directors believes this opportunity
for employee equity participation will enhance the Company's ability to attract,
and to promote the retention and motivation of, employees. An aggregate of
1,500,000 shares of the Company's Common Stock has been reserved for issuance
under the Purchase Plans and an additional 500,000 shares of the Company's
Common Stock shall be reserved at the beginning of each twenty-seven month term
commencing April 2002, under the U.S. Purchase Plan. A summary of the Purchase
Plans follows and is qualified in its entirety by reference to the Purchase
Plans, which are appended hereto as Annexes A and B. The Board of Directors has
unanimously approved, and unanimously recommends a vote FOR, the Purchase Plans.
ADMINISTRATION
The Board of Directors has appointed a committee (the "Committee") to
administer the Purchase Plans and the Committee may appoint a plan
administrator. All questions of interpretation or application of the Purchase
Plans are determined by the Committee, whose decisions are final, conclusive and
binding upon all participants.
U.S. PURCHASE PLAN
ELIGIBILITY AND PARTICIPATION
Any person regularly employed by the Company or a subsidiary of the Company
designated by the Committee for at least 20 hours per week is eligible to
participate in the U.S. Purchase Plan after
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<PAGE> 13
30 continuous days of employment. No person who owns or holds options or rights
to acquire, or as result of participation in the U.S. Purchase Plan, would own
or hold options or rights to acquire, 5% or more of the Company's outstanding
Common Stock may participate in the U.S. Purchase Plan. As of March 31, 2000,
approximately 130 U.S. employees were eligible to participate in the U.S.
Purchase Plan.
OFFERING PERIODS
Each offering period is a calendar quarter, with the first offering period
under the U.S. Purchase Plan commencing during the first quarter of 2000.
Assuming approval by the stockholders at the Annual Meeting, the first date on
which Common Stock will be purchased is June 30, 2000 under the U.S. Purchase
Plan.
PURCHASE OF SHARES
Eligible U.S. employees who wish to participate in the U.S. Purchase Plan
allocate a portion of their after-tax payroll to the U.S. Purchase Plan, which
amount is deducted from the employee's paycheck by the Company and directed to
the accumulation account. At the end of each calendar quarter, the employee
funds in the accumulation account are used to purchase Common Stock from the
Company; provided, however, that the first purchase date will be at the end of
the second quarter of 2000. The Internal Revenue Code imposes a $25,000 market
value limit per employee per calendar year on the combined value of the Common
Stock purchased through the U.S. Purchase Plan as calculated at the beginning of
each quarterly purchase period. A maximum of 5,000 shares of Common Stock may be
purchased under the U.S. Purchase Plan during each twenty-seven month term.
When an employee withdraws from participation in the U.S. Purchase Plan by
giving written notice to the Company of his or her election to withdraw,
accumulated payroll deductions will be returned to the employee, and future
payroll deductions will cease. An employee may re-enroll in succeeding offering
periods, provided such employee must wait one full offering period before
recommencing participation.
PURCHASE PRICE, SHARES PURCHASED
Shares of Common Stock may be purchased under the U.S. Purchase Plan during
each twenty-seven month term at a price not less than 85% of the fair market
value of the Common Stock on (i) the employee's first day of participation in
the U.S. Purchase Plan or one of the reset dates of the relevant twenty-seven
month term, or (ii) the last trading day of the offering period, whichever is
less.
On January 3, 2000, the day that the U.S. Purchase Plan was implemented,
the closing price per share of the Common Stock was $31.25. The number of whole
shares of Common Stock a participant purchases in each offering period is
determined by dividing the total amount of payroll deductions withheld from the
participant's compensation during that offering period by the purchase price. At
the mid-point of each twenty-seven month term of the U.S. Purchase Plan, the
fixed purchase price under the U.S. Purchase Plan can be reset, at the
discretion of the Board of Directors, to 85% of the then current fair market
value, if such amount is greater than the original fixed purchase price under
the U.S. Purchase Plan.
PAYROLL DEDUCTIONS FOR EMPLOYEES
The funds for purchasing shares for employees are accumulated by payroll
deductions, the rate of which may be changed by the employee effective
commencing the next offering period. Payroll deductions do not accrue interest,
unless otherwise specified by the Committee. An employee's participation in the
U.S. Purchase Plan, including the rate of payroll deductions, remains in effect
for successive offering periods unless the employee withdraws or amends such
participation or such employee's employment is terminated. An employee may
discontinue his or her payroll deductions and participation in the U.S. Purchase
Plan at any time.
TERMINATION OF PARTICIPATION
An employee's participation in the U.S. Purchase Plan is terminated when
the employee either voluntarily elects to reduce payroll deductions to zero, or
his or her employment is terminated. Once
11
<PAGE> 14
participation is terminated, an eligible employee must wait one full offering
period before the employee is entitled to again participate in the U.S. Purchase
Plan.
CAPITAL CHANGES
In the event any change is made in the Company's capitalization during an
offering period, such as a stock split, reverse stock split, stock dividend or
other change which results in an increase or decrease in the number of shares of
Common Stock outstanding of the Company, appropriate adjustment will be made in
the purchase price and in the number of shares purchasable under the U.S.
Purchase Plan.
AMENDMENT AND TERMINATION OF THE U.S. PURCHASE PLAN
The Board of Directors may amend the U.S. Purchase Plan at any time from
time to time or may terminate the U.S. Purchase Plan without approval of the
Stockholders, unless such approval is required by applicable law or regulation.
However, no such action by the Board of Directors may alter or impair any rights
previously granted under the U.S. Purchase Plan without the consent of the
affected employees. Unless earlier terminated by the Committee or Board of
Directors, the U.S. Purchase Plan shall terminate on the purchase date in
December 2008.
U.S. FEDERAL INCOME TAX INFORMATION
No income will be taxable to an employee participating in the U.S. Purchase
Plan at the time of purchase of the shares of Common Stock at the formula
discount from fair market value. Upon disposition of such shares, the employee
will generally be subject to tax. If the shares have been held by the employee
for more than two years after the date of the commencement of the relevant
twenty-seven month term and more than one year after the purchase date of the
shares, the lesser of (i) the excess of the fair market value of the shares at
the time of such disposition over the purchase price, or (ii) 15% of the fair
market value of the shares on the first day of the offering period will be
taxable as ordinary income, and any additional gain will be treated as long-term
capital gain. If the shares are disposed of before the expiration of the holding
periods described above, the excess of the fair market value of the shares on
the purchase date over the purchase price will be treated as ordinary income,
and further gain or loss on such disposition will be capital gain or loss.
Different rules may apply with respect to participating employees subject to
Section 16 of the Securities Exchange Act of 1934. The Company is not entitled
to a deduction for amounts taxable to an employee, except to the extent of the
ordinary income taxable to an employee upon disposition of shares prior to the
expiration of the holding periods described above.
This is only a summary of the U.S. federal income tax consequences of the
U.S. Purchase Plan to employees and the Company and this summary does not
purport to be complete. Reference should be made to applicable provisions of the
Internal Revenue Code. In addition, the summary does not discuss the tax
consequences of an employee's death or the income tax laws of any municipality,
state or foreign country in which the employee may reside.
INTERNATIONAL PURCHASE PLAN
ELIGIBILITY AND PARTICIPATION
Non-U.S. based employees who are employed by the Company or by a subsidiary
of the Company, which may be designated from time to time by the Committee
depending on the number of employees in a particular jurisdiction and the
requirements of applicable local law, will be eligible to participate in the
International Purchase Plan after 30 continuous days of employment.
Participation level in the International Purchase Plan is subject to certain
monetary and share limits, including but not limited to (i) an aggregate of
$25,000 in payroll deductions per calendar year; (ii) a person who owns or would
own shares, either directly or indirectly, in excess of 5% or more of the
Company's Common Stock immediately after a purchase under the International
Plan, may not thereafter participate in the International Purchase Plan; and
(iii) the maximum number of shares of Common Stock an employee may purchase
under the International Purchase Plan is 5,000.
12
<PAGE> 15
OFFERING PERIODS
There shall be quarterly offering periods in each calendar year. Such
offering periods end on March 31, June 30, September 30, and December 31 of each
year.
PURCHASE OF SHARES
An eligible non-U.S. based employee who wishes to participate in the
International Purchase Plan may do so through payroll deduction. At the end of
each quarter, the employee's funds in the accumulation account are used to
purchase Common Stock in compliance with requirements of applicable local law.
When an employee withdraws his or her participation in the International
Purchase Plan by giving written notice to the Company of his or her election to
withdraw, accumulated payroll deductions will be returned to the employee and
future payroll deductions will cease. An employee may re-enroll in succeeding
offering periods, provided such employee must wait one full offering period
before recommencing participation.
PURCHASE PRICE
Shares of Common Stock may be purchased under the International Purchase
Plan at a price calculated in accordance with such formula as may be determined
by the Committee in compliance with requirements of applicable local law.
PAYROLL DEDUCTIONS
The funds for purchasing shares under the International Purchase Plan are
accumulated by payroll deductions, the rate of which may be changed by the
employee effective commencing the next offering period. Payroll deductions do
not accrue interest, unless otherwise specified by the Committee. An employee
may discontinue his or her payroll deductions and participation in the
International Purchase Plan at any time.
TERMINATION OF PARTICIPATION
An employee's participation in the International Purchase Plan is
terminated when the employee either voluntarily elects to reduce payroll
deductions to zero, or as otherwise specified by the Committee in compliance
with requirements of applicable local law. Once an employee's participation is
terminated, an eligible employee must wait one full offering period before the
employee may recommence participation in the International Purchase Plan.
CAPITAL CHANGES
In the event any change is made in the Company's capitalization during an
offering period, such as a stock split, reverse stock split, stock dividend, or
other change which results in an increase or decrease in the number of shares of
Common Stock outstanding, appropriate adjustment will be made in the purchase
price and in the number of shares purchasable under the International Purchase
Plan.
AMENDMENT AND TERMINATION OF THE INTERNATIONAL PURCHASE PLAN
The Board of Directors may amend the International Purchase Plan at any
time from time to time or may terminate the International Purchase Plan without
approval of the stockholders. Unless earlier terminated by the Committee or
Board of Directors, the International Purchase Plan shall terminate on December
31, 2002.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT A VOTE "FOR"
THE APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLANS
(ITEM 4 ON YOUR PROXY).
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<PAGE> 16
RATIFICATION OF APPOINTMENT OF AUDITORS
(ITEM NO. 5 ON YOUR PROXY)
The Board of Directors has selected Ernst & Young LLP ("Ernst & Young"),
independent public accountants, to audit the consolidated financial statements
of the Company for the fiscal year ending December 31, 2000 and recommends that
the stockholders ratify such selection.
The submission of the appointment of Ernst & Young is not required by law
or by the By-laws of the Company. The Board of Directors is nevertheless
submitting it to the stockholders to ascertain their views. If the stockholders
do not ratify the appointment, the selection of other independent public
accountants will be considered by the Board of Directors. If Ernst & Young shall
decline to accept or become incapable of accepting its appointment, or if its
appointment is otherwise discontinued, the Board of Directors will appoint other
independent public accountants.
A representative of Ernst & Young is expected to be present at the Annual
Meeting, will have the opportunity to make a statement, and will be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF AUDITORS (ITEM 5 ON YOUR PROXY)
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
During 1999, each Director of GTS, except Messrs. Thompson, Amman, and
Thames, received an annual directors' cash fee of $15,000 applicable to the one
year period commencing June 1, 1999. In addition, the fee paid to each Director,
except for Messrs. Thompson, Amman, and Thames, for attending any meeting of the
Board of Directors is $1,500 per meeting, except for telephonic Board of
Directors meetings of two hours or less, where the fee is $750 for each such
meeting. Each Director, except Messrs. Thompson, Amman, and Thames, who attends
a committee meeting is entitled to a fee of $1,000 per meeting, except for
telephonic committee meetings of a duration of two hours or less, for which a
fee of $500 is paid.
GTS maintains the Global TeleSystems Group, Inc. Second Amended and
Restated Non-Employee Directors' Stock Option Plan and Restricted Stock Plan
that permits directors to share in the growth of the value of GTS through the
grant and exercise of nonqualified stock options and restricted stock. See
"-- Global TeleSystems Group, Inc. Second Amended and Restated Non-Employee
Directors' Stock Option and Restricted Stock Plan."
GLOBAL TELESYSTEMS GROUP, INC. SECOND AMENDED AND RESTATED NON-EMPLOYEE
DIRECTORS' STOCK OPTION AND RESTRICTED STOCK PLAN
The purpose of the Global TeleSystems Group, Inc. non-employee directors'
stock option and restricted stock plan, which we refer to as the Directors'
Plan, is to permit eligible non-employee directors of GTS to share in the growth
of the value of GTS through the grant and exercise of nonqualified stock options
and restricted stock.
The total number of shares of Common Stock presently reserved and available
for delivery under the Directors' Plan is 2,550,000. The Directors' Plan is
administered by the Board of Directors. Only directors of GTS who are not
employees of GTS or any subsidiary of GTS on the date on which an option or
restricted stock is to be granted are eligible to participate in the Directors'
Plan on such date.
On the date of each annual shareholders meeting, pursuant to the Directors'
Plan, each Director (except for Messrs. Thompson, Amman, and Thames) receives an
option to purchase a certain number of shares,
14
<PAGE> 17
determined by a formula where the numerator is $60,000 and the denominator is
equal to the fair market value of Common Stock on that date. This option vests
and is exercisable immediately. In addition, pursuant to the Directors' Plan,
each Director (except for Messrs. Thompson, Amman, and Thames) receives a grant
of restricted stock for each committee of the Board of Directors on which he
serves: each chairman of a committee receives a grant of restricted shares of
Common Stock equal to $5,000 divided by the fair market value of the Common
Stock on the date of the annual shareholders meeting; and each member of each
committee receives a grant of restricted shares of Common Stock equal to $2,500
divided by the fair market value of the Common Stock on the date of the annual
shareholders meeting. Such restricted stock becomes free of restrictions upon
the first to occur of the following events: (a) the Director's death or total
disability; (b) one year from the grant date; or (c) a change of control
transaction following which the Director is not continued as on the Board of
Directors of GTS or the survivor company.
An option to purchase shares of 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, and we refer to these
as "Initial Grants." A director's Initial Grant option represents 22,500 shares
of Common Stock. The entire amount of Initial Grant options vests on the first
to occur of (a) the Director's death or total disability; (b) one year from the
grant date; or (c) a change of control transaction following which the Director
is not continued as a member of the Board of Directors of GTS or the survivor
company.
On the date of each annual meeting of GTS's shareholders after the Initial
Grant has been issued, an additional directors' option to purchase 9,000 shares
will be granted to the individuals who will serve as elected non-employee
directors of GTS during the next year, and we refer to these as "Subsequent
Grants." The entire amount of Subsequent Grant options vests on the first to
occur of (a) the Director's death or total disability; (b) one year from the
grant date; or (c) a change of control transaction following which the Director
is not continued as a member of the Board of Directors of GTS or the survivor
company.
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 director's option will be
equal to 100% of the fair market value of the 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' options are 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, the 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, the 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.
Directors' restricted stock are subject to certain terms and conditions
including those summarized below. The directors may vote their shares of
restricted stock on matters presented to shareholders of GTS common stock, but
may not sell, transfer, pledge or assign the restricted stock. The restricted
stock become free of restrictions on the first to occur of (a) the Director's
death or total disability; (b) one year from the grant date; or (c) a change of
control transaction following which the Director is not continued as a member of
the Board of Directors of GTS or the survivor company. Any stock dividends on
restricted stock are granted in the form of restricted stock. Prior to the
restricted stock becoming free of restrictions, a director would forfeit the
restricted stock upon termination of service from the chairmanship or membership
of the relevant committee, or termination of service from the Board of
Directors.
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<PAGE> 18
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 GTS common stock may then be listed or quoted, or if
the Board of Directors determines in its discretion to seek such shareholder
approval.
SUMMARY COMPENSATION TABLE
The following table sets forth each component of compensation paid or
awarded to, or earned by, the Chief Executive Officer and the four other most
highly compensated executive officers serving as of December 31, 1999, for the
years indicated.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SAR COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)(10)
- --------------------------- ---- -------- -------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
H. Brian Thompson............ 1999 $468,461 $449,000 $51,040(3) 0 3,300,000(8) $6,466
Chairman and
Chief Executive Officer(1)
Robert J. Amman.............. 1999 $312,307 $213,552 (4) 0 1,050,000(8) $5,532
President and Chief
Operating
Officer(1)
Robert A. Schriesheim........ 1999 $319,711 $168,100 (4) $1,647,600(7) 700,000(8) $ 936
Executive Vice President,
Corporate Development and
Chief Financial Officer(1)
Hans Peter Kohlhammer(2)..... 1999 $306,963 $169,474 $81,307(5) 0 43,302(8) 0
President of Business
Services
Gerard J. Caccappolo......... 1999 $232,542 $367,424 $52,681(6) 0 200,000(8) $4,000
President of Carrier 1998 191,042 57,750 83,125(6) 0 61,000(8) 4,000
Services
1997 173,750 52,500 32,043(6) 0 1,714(9) 4,000
</TABLE>
- ---------------
(1) Messrs. Thompson and Amman were elected to their positions in March 1999.
Mr. Schriesheim was elected Executive Vice President, Corporate Development
in February 1999, and was elected to the additional position of Chief
Financial Officer in September 1999.
(2) Mr. Kohlhammer joined the Company in March 1999 as a result of the
Company's acquisition of Global TeleSystems (Europe) Limited, formerly
Esprit Telecom Group plc.
(3) The amount disclosed includes $24,127 related to spousal travel with the
remaining attributable to gross-up payments for certain tax liabilities.
(4) Perquisites and other personal benefits paid to the named executive officer
were less than the lesser of $50,000 and 10% of the total of salary and
bonus report for the named executive officer.
(5) The amount disclosed includes transportation and travel allowance of
$29,268, social security and medical payment of $21,988 and pension
arrangements of $28,684.
(6) Mr. Caccappolo received a cost of living allowance of $4,833, $13,373 and
$12,163 in 1999, 1998 and 1997, respectively, and resides in a company
apartment for which the company paid the equivalent of $15,466, $16,595 and
$16,109 per year in rent in 1999, 1998 and 1997, respectively. In 1999 and
1998, respectively, Mr. Caccappolo also received tax equalization payments
of $24,428 and $42,278 and a gross-up payment for certain tax liabilities
of $660 and $1,011. In 1998, Mr. Caccappolo received paid
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<PAGE> 19
home leave of $3,660. In addition, we provided Mr. Caccappolo with the use
of a company car in 1999, 1998 and 1997.
(7) The dollar amount represents 60,000 shares of restricted stock granted on
April 5, 1999 when the closing price of the Company's Common Stock on the
Nasdaq National Market was $27.56. The restriction on 20,000 of the shares
will lapse on April 5, 2002; the restriction on the remaining 40,000 shares
will lapse on April 5, 2002 if certain performance levels are met,
otherwise the restriction on the remaining 40,000 shares will lapse on
April 5, 2004.
(8) Shares of Common Stock underlying stock options awarded under the Stock
Option Plan.
(9) Stock options awarded under The Key Employee Stock Option Plan of Global
TeleSystems Europe B.V. which we refer to as the GTS Europe B.V. Stock
Option Plan.
(10) Amounts disclosed hereunder represent the sum of premiums paid by GTS for
$1 million in group term life insurance for each named executive officer
and contributions by GTS under the 401(k) Plan, as defined below, to each
named executive officer's account, except Messrs. Thompson , Schriesheim
and Kohlhammer who did not participate in the 401(k) Plan. In each case in
which GTS paid 401(k) Plan contributions, $4,000 was paid in each of 1999,
1998 and 1997 to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on stock option grants to the five
most highly compensated officers in 1999 under the Stock Option Plan.
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR GRANT DATE
OPTIONS IN BASE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR PRICE($/SH.) DATE VALUE($)(5)
- ---- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
H. Brian Thompson............... 3,000,000 23.40% $27.21 03/26/09(1) $18,360,000
300,000 2.34% 29.13 12/10/09(2) 3,735,690
Robert J. Amman................. 700,000 5.46% 27.21 03/26/09(3) 4,284,000
50,000 0.39% 23.19 09/15/09(2) 292,195
300,000 2.34% 29.13 12/10/09(2) 3,735,690
Robert A. Schriesheim........... 500,000 3.90% 27.50 02/22/09(3) 3,014,700
200,000 1.56% 29.13 12/10/09(2) 2,490,460
Hans Peter Kohlhammer........... 496 0.00% 29.31 03/18/05(4) 984
150,000 1.17% 27.73 03/18/09(3) 1,553,310
50,000 0.39% 38.08 06/17/09(2) 517,575
100,000 0.78% 29.13 12/10/09(2) 1,245,230
Gerard J. Caccappolo............ 100,000 0.80% 38.08 06/17/09(2) 1,082,030
100,000 0.80% 29.13 12/10/09(2) 1,245,230
</TABLE>
- ---------------
(1) One million of these options vest in February 2005, when financial results
for 2004 are expected to be publicly announced. If certain performance
targets are met or exceeded, these options could be fully exercisable by
February 2002, when financial results for 2001 are expected to be publicly
announced. An additional one million of these options vest on the first day
on or prior to September 22, 2002, if any, which is the tenth consecutive
trading day on each of which days the closing price of the Company's common
stock has been at least $64. The final million options vest on the first day
on or prior to September 22, 2004, if any, which is the tenth consecutive
trading day on each of which days the closing price of the Company's closing
price has been at least $100. If these closing prices are not achieved by
such dates, the two million options will vest in any event on September 25,
2005.
(2) Represents options that vest over a three year period, 33% after one year
and one thirty-sixth every month thereafter.
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<PAGE> 20
(3) These options vest in February 2005, when financial results for 2004 are
expected to be publicly announced. If certain performance targets are met or
exceeded, these options could be fully exercisable by February 2002, when
financial results for 2001 are expected to be publicly announced.
(4) These options vest on the first anniversary of their grant.
(5) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield 0%, expected volatility of 0.75, risk-free
interest rates between 4.95% and 6.03% and expected life of five years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
The following table provides information on the number and value of GTS
stock options exercised by the five most highly compensated officers during
1999, the number of options under the Stock Option Plan held by such persons at
December 31, 1999, and the value of all unexercised options held by such persons
as of that date.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
H. Brian Thompson........... -- -- -0-/3,300,000 -0-/24,306,000
Robert J. Amman............. -- -- 33,750/1,061,250 532,913/7,719,638
Robert A. Schriesheim....... -- -- -0-/700,000 -0-/4,749,000
Hans Peter Kohlhammer....... -- -- 40,052/389,494 1,008,910/3,693,058
Gerard J. Caccappolo........ -- -- 12,500/309,500 142,250/2,564,110
</TABLE>
- ---------------
(1) Based on the closing price of $34.75 on the New York Stock Exchange of the
Common Stock on December 31, 1999.
THE GTS 401(k) PLAN
The GTS 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, subject to certain regulatory qualifications, including the
five most highly compensated 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. 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 GLOBAL TELESYSTEMS GROUP, INC. EQUITY COMPENSATION PLAN
The purpose of the Global TeleSystems Group, Inc. 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 shares of
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.
18
<PAGE> 21
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 Compensation Committee
of the Board of Directors. The chief executive officer of GTS has the authority
to recommend the individuals to whom awards will be granted, subject to approval
by the Compensation Committee. The Compensation 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 Compensation Committee may
condition the vesting of restricted stock upon the attainment of specified
performance goals or such other factors as the Compensation Committee may
determine in its sole discretion. In the event that the Compensation 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 Compensation 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
Compensation 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
Compensation 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, 2002, unless earlier terminated by
GTS. No restricted stock may be granted under the Equity Compensation Plan on or
after November 14, 2002.
During a specified period set by the Compensation 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 Compensation 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 Compensation 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 Compensation 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 any shares that
the participant wishes to sell.
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 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.
19
<PAGE> 22
THE FOURTH AMENDED AND RESTATED 1992 STOCK OPTION PLAN OF GLOBAL TELESYSTEMS
GROUP, INC.
The Fourth Amended and Restated 1992 Stock Option Plan of the Company (the
"Fourth and Amended and Restated Plan") provides for the grant of options to
employees, non-employee directors, and independent contractors of GTS and any
subsidiary or affiliate of GTS. Up to 18.5% of the outstanding shares of Common
Stock, from time to time, are authorized to be granted as options under the
Fourth Amended and Restated Plan. A total of approximately 34.1 million shares
of common stock were reserved for issuance to employees, non-employee directors
and independent contractors under the Fourth Amended and Restated Plan
representing 18.5% of the outstanding shares of Common Stock on December 31,
1999. A total of 1 million shares of Common Stock may be issued pursuant to
options qualifying for tax purposes as incentive options under the Fourth
Amended and Restated Plan.
The Fourth Amended and Restated Plan is administered by the Compensation
Committee (or a sub-committee thereof), which consists of not less than two
directors appointed by the Board of Directors. The Compensation Committee (or a
sub-committee) selects the employees, independent contractors and directors of
GTS and its subsidiaries and affiliates to whom options will be granted. Options
covering not more than three million shares of Common Stock may be granted to
any employee during any calendar year.
The option exercise price under the Fourth Amended and Restated Plan may
not be less than the exercise price determined by the Compensation Committee (or
a sub-committee) (or 110% of the fair market value of the Common Stock on the
date of grant of the option in the case of an incentive option granted to an
optionee beneficially owning more than 10% of the outstanding Common Stock). The
maximum option term is 10 years and one day (or five years in the case of an
incentive option granted to an optionee beneficially owning more than 10% of the
outstanding Common Stock). Options become vested and exercisable at the time and
to the extent provided in the option agreement related to such option. The
Compensation Committee (or a sub-committee) has the discretion to accelerate the
vesting and exercisability of options.
There is a $100,000 limit on the value of stock (determined at the time of
grant) covered by incentive options that first become exercisable by an optionee
in any calendar year. No option may be granted more than 10 years after the
effective date of the Fourth Amended and Restated Plan. Generally, during an
optionee's lifetime, only the optionee (or a guardian or committee if the
optionee is incapacitated) may exercise an option except that, upon approval by
the Compensation Committee (or a sub-committee), nonqualified options may be
transferred to the spouse of the optionee and certain nonqualified options may
be granted or transferred to the GTS Employee Stock Option Plan Trust for the
benefit of one or more designated foreign employees, independent contractors or
directors. Incentive stock options are non-transferable except at death.
Payment for shares purchased under options granted pursuant to the Fourth
Amended and Restated Plan may be made either in cash or by exchanging shares of
Common Stock (which shares have been held by the optionee for at least six
months) with a fair market value of up to the total option exercise price and
cash for any difference. Options may be exercised by directing that certificates
for the shares purchased be delivered to a licensed broker-dealer as agent for
the optionee, provided that the broker-dealer tenders to GTS cash or cash
equivalents equal to the option exercise price plus the amount of any taxes that
GTS may be required to withhold in connection with the exercise of the option.
If an optionee's employment or service with GTS or a subsidiary or
affiliate terminates by reason of death, retirement or permanent and total
disability, his or her vested options may be exercised within one year after
such death, retirement or disability, unless otherwise provided with respect to
a particular option (but not later than the date the option would otherwise
expire). If the optionee's employment or service with GTS or a subsidiary or
affiliate terminates for any reason other than death, retirement or disability,
options held by such optionee terminate 90 days after such termination, unless
otherwise provided with respect to a particular option (but not later than the
date the options would otherwise expire), except that options terminate
immediately upon termination of an employee or independent contractor for
"cause" (as defined), unless the Compensation Committee (or a
sub-committee)determines otherwise. Each option would be exercisable to the
extent it had become vested before the termination of employment or service
(unless otherwise provided in the option agreement).
20
<PAGE> 23
If the outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or securities
of GTS, by reason of merger, consolidation, reorganization, recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend, spin-off or other distribution payable in capital stock, or
other increase or decrease in such shares without receipt of consideration by
GTS, an appropriate and proportionate adjustment will be made in the number and
kinds of shares subject to the Fourth Amended and Restated Plan, and in the
number, kinds and per share exercise price of shares subject to the unexercised
portion of options granted prior to any such change, in order to preserve the
value of any granted options. Any such adjustment in an outstanding option,
however, will be made without a change in the total price applicable to the
unexercised portion of the option, but with a corresponding adjustment in the
per share option price.
Upon any dissolution or liquidation of GTS, or upon a reorganization,
merger or consolidation in which GTS is not the surviving corporation, or upon
the sale of substantially all of the assets of GTS to another corporation, or
upon any transaction (including, without limitation, a merger or reorganization
in which GTS is the surviving corporation) approved by the board of directors
which results in any person or entity owning 80% or more of the total combined
voting power of all classes of stock of GTS, the Fourth Amended and Restated
Plan and the options issued thereunder will terminate, unless provision is made
in connection with such transaction for the continuation of the Fourth Amended
and Restated Plan, the assumption of such options or for the substitution for
such options of new options covering the stock of a successor corporation or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kinds of shares and the per share exercise price. In the event of such
termination, all outstanding options shall be exercisable in full during such
period immediately prior to the occurrence of such termination as the Board of
Directors in its discretion shall determine.
The Board of Directors may further amend the Fourth Amended and Restated
Plan with respect to shares of the Common Stock as to which options have not
been granted. However, GTS's stockholders must approve any amendment that would
(1) change the requirements as to eligibility to receive incentive options; or
(2) increase the maximum number of shares in the aggregate for which incentive
options may be granted (except for adjustments upon changes in capitalization);
or (3) otherwise to the extent required by applicable law, rule or regulation.
The Board of Directors at any time may terminate or suspend the Fourth
Amended and Restated Plan. Unless previously terminated, the Fourth Amended and
Restated Plan will terminate automatically on April 9, 2008. No termination,
suspension or amendment of the Fourth Amended and Restated Plan may, without the
consent of the person to whom an option has been granted, adversely affect the
rights of the holder of the option.
EMPLOYMENT AGREEMENTS
GTS has employment agreements with each of the five most highly compensated
executive officers during 1999. Mr. Thompson's agreement provides that he will
serve in his position for an initial term commencing on March 22, 1999 and
ending on December 31, 2001. This initial term shall be extended for an
additional period expiring on March 31, 2005, unless either Mr. Thompson or the
Company gives notice of non-extension by September 1, 2001. Mr. Caccappolo's
agreement provides that he will serve in his position for an initial term
commencing on January 3, 1995 and ending on January 2, 1997. Since then, his
agreement has been extended for successive one-year periods, and is renewable
automatically for one-year terms, unless either the Company or Mr. Caccappolo
gives three months' notice of non-extension prior to the expiration of such
one-year extensions. Mr. Kohlhammer's agreement provides that he will serve in
his position for a term commencing on March 4, 1999 and ending on September 30,
2001. Messrs. Amman's and Schriesheim's agreements provide that they will serve
in their positions from March 22, 1999 and February 22, 1999, respectively,
until terminated under their agreements. The salary and bonus potential of each
of the five most highly compensated officers is provided for in each agreement
and may be increased at the discretion of the Compensation Committee of the
Board of Directors. In addition to salary and bonus, each of the five most
highly compensated officers is eligible to participate in the employee stock
option plan, to receive standard health and insurance benefits that are provided
to employees of GTS, to receive certain other fringe benefits
21
<PAGE> 24
and to be reimbursed for all reasonable expenditures incurred in the execution
of each named executive officer's respective duties.
The employment agreements provide for severance payments in the event of
(a) termination without cause, as defined, or (b) resignation for good reason,
as defined. Severance arrangements for the five most highly compensated
executive officers are for a period of up to twenty-four months of base salary
and an imputed bonus. If the named executive officer is terminated for cause of
if he voluntarily terminates his employment other than for good reason, he shall
not be entitled to any salary, bonus or severance payments (other than accrued
salary).
Each employment agreement includes noncompetition and nonsolicitation
clauses that are effective during the term of employment and for a period of up
to two years thereafter. In addition, the employment agreements include
covenants of confidentiality and nondisclosure. Any dispute arising under an
employment agreement, except with respect to Mr. Kohlhammer's 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 of the covenants described above.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The role of the Compensation Committee is to oversee and direct the
development of executive compensation policies and programs that are consistent
with, explicitly linked to, and supportive of the strategic objectives of
growing the Company's businesses and maximizing shareholder value. The
Committee's specific responsibilities include determining the appropriate levels
of compensation, including salaries, annual incentives, long-term incentives and
employee benefits, for members of the Company's senior management, including
executive officers. The Company believes that a strong link should exist between
executive compensation and management's ability to maximize shareholder value.
This belief is adhered to by developing both short- and long-term incentive
compensation programs that provide competitive compensation and reflect Company
performance.
Compensation Philosophy
The four fundamental principles to which the Committee adheres in
discharging its responsibilities are as follows. First, the majority of annual
and long-term compensation for the Company's executive officers should be at
risk, with actual compensation levels correlating with the Company's actual
performance in certain key areas determined by the Committee. Second, over time,
incentive compensation of the Company's executive officers should focus more
heavily on long-term rather than short-term accomplishments and results. Third,
equity-based compensation should be used on an increasing basis so as to provide
executive officers with clear and direct links to the shareholders' interests.
Fourth, the overall executive compensation program should be competitive,
equitable and structured so as to ensure the Company's ability to attract,
retain, motivate and reward the talented executives who are essential to the
Company's continuing success. Total compensation, rather than individual
compensation elements, is the focus of the Company's intent to provide
competitive compensation opportunities.
The Committee believes that continued revenue growth as well as continued
improvement in other key financial and operating measures should be recognized
in considering compensation levels along with improvements in overall
effectiveness, productivity, return on investment and success of strategic
alliances and business acquisitions and combinations.
The Committee periodically meets with an outside compensation consultant to
evaluate how well the Company's executive compensation program adheres to this
philosophy and to evaluate the level and mix of salary, annual bonuses and
long-term incentives.
22
<PAGE> 25
Compensation Elements
The Company's compensation program for executives consists of four
principal elements, each of which is vitally important in meeting the Company's
need to attract, retain, motivate and reward highly-qualified executives.
The four principal elements are:
Base Salaries
Base salaries for executive officers are generally set at levels that
reflect the competitive marketplace for companies that are of comparable size
and complexity and would be considered competitors of the Company in attracting
and retaining qualified executives. The salaries of the executive officers are
reviewed and approved by the Compensation Committee based on its assessments of
each executive's experience and performance and a comparison of salaries of
peers in other companies.
Annual Performance Incentives
Incentive awards have been made on a periodic basis to executive officers
on the basis of Company, business unit and individual performance relative to
budget in such areas as revenue, cash flow, operating income, operating margin
and the like. The Company intends to continue providing incentives in concert
with other compensation elements in order to maintain a competitive total
compensation program for its executive officers. The Committee reviews and
approves all performance measures and goals established under the annual and
long-term incentive plans. The Committee also approves all incentive payments to
executive officers.
Long-Term Incentives
The Company relies on stock options as the principal means of providing
long-term incentive compensation. Stock options have been, and will continue to
be, granted to executive officers under the Fourth Amended and Restated 1992
Stock Option Plan.
Benefits
Benefits offered to executive officers serve a different purpose than do
other elements of the total compensation program. In general, they provide for
retirement income and serve as a safety net against problems that can arise from
illness, disability or death. Benefits offered to executive officers are
basically those offered to other employees of the Company.
Evaluation Procedures
In determining matters regarding executive officer compensation (other than
the Chief Executive Officer), the Committee with the Chairman and Chief
Executive Officer reviews the President and Chief Operating Officer and the
other key executives including the executive officers, the respective areas of
authority and responsibility of the various executive officers, and the
performance and contribution of each to the efforts of the Company in meeting
its goals.
The Committee has confirmed that the compensation paid in 1999 to the named
executive officers is consistent with the Company's compensation philosophy and
objectives.
Compensation of the Chief Executive Officer
Decisions regarding the compensation of the Chairman and Chief Executive
Officer, H. Brian Thompson, were the responsibility of the Committee. Upon his
employment as Chairman and Chief Executive Officer, the Company entered into an
employment agreement with Mr. Thompson that established his initial annual base
salary at $600,000 and his annual target bonus at 140 percent of salary paid.
For the portion of 1999 during which Mr. Thompson served as Chairman and Chief
Executive Officer, salary payments to
23
<PAGE> 26
Mr. Thompson totaled $468,461. Mr. Thompson was awarded bonuses totaling
$449,000 for the performance year 1999, which was less than his target bonus.
This bonus reflected the Company's performance in revenues, earnings and
strategy development and execution. In evaluating Mr. Thompson's compensation,
the Committee and its compensation consultant compared the Company's
compensation practices and levels to those of other companies involved in
similar businesses, including but not limited to, the companies included in the
Performance Graph. Based on this review, the Committee determined Mr. Thompson's
compensation to be appropriate.
Deductibility of Certain Executive Compensation
Beginning in 1994, the Omnibus Reconciliation Act of 1993 (the Act) limits
to $1 million the amount that may be deducted by a publicly-held corporation for
compensation paid to each of its named executive officers in a taxable year,
unless the compensation in excess of $1 million is "qualified performance-based
compensation." The Committee and the Company have determined that the Company's
practice is to design its short-term and long-term compensation plans to qualify
for the exemption from the deduction limitations of Section 162(m) of the
Internal Revenue Code and to be consistent with providing appropriate
compensation to executives. Shareholder approval of incentive compensation plans
and various provisions thereunder covering the executive officers has been
sought and obtained and will be sought in the future to continue to qualify
performance-based compensation for the exemption. Although it is the Company's
intent to qualify compensation for the exemption from the deduction limitations,
the Company's compensation practices have been and, will continue to be,
designed to serve the best interests of the shareholders regardless of the
whether specific compensation qualifies for the exemption.
Compensation Committee Members during 1999:
Bernard J. McFadden, Chairman
W. James Peet
Frank V. Sica
Adam Solomon
David Dey (no longer on the Committee as of July 1999)
Michael Greeley (resigned from Board in March 1999)
Stewart J. Paperin (no longer on the Committee as of July 1999)
24
<PAGE> 27
PERFORMANCE GRAPH
The following performance graph compares the percentage change in the
Company's cumulative total shareholder return on the Common Stock from February
5, 1998 (the date on which the Common Stock began trading on the Nasdaq National
Market) and ending on December 31, 1999 with the cumulative total return,
assuming reinvestment of dividends of the Standard & Poor's 500 Stock Index and
the Nasdaq Telecom Index. (On October 29, 1999, the Common Stock delisted from
the Nasdaq National Market and since that date has been listed on the New York
Stock Exchange.)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
2/5/98 3/98 6/98 9/98 12/98 3/99 6/99 9/99 12/99
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Global TeleSystems Group, Inc. $100.00 $171.16 $178.49 $123.57 $204.12 $204.80 $296.56 $144.39 $254.46
S & P 500 100.00 112.70 116.42 104.84 127.17 133.51 142.92 133.99 153.93
NASDAQ Telecommunications 100.00 119.34 126.21 111.70 154.37 191.82 203.93 189.02 268.82
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a subscription agreement (the "Subscription
Agreement") dated as of April 6, 1999 with H. Brian Thompson, its Chairman and
Chief Executive Officer, in connection with Mr. Thompson's employment agreement
with the Company. The Subscription Agreement provides that Mr. Thompson purchase
$20 million of the Common Stock valued at $27.17 per share, or a total of
736,056 shares. The Subscription Agreement provides further that Mr. Thompson
pay for 368,028 of these shares for $10 million in cash and for 368,028 of these
shares using the proceeds of a loan in the principal amount of $10 million from
the Company. These arrangements were consummated in June 1999. In connection
with the loan, Mr. Thompson has delivered a secured promissory note to the
Company which bears interest at the Federal Mid-Term Rate and has a maturity of
six years.
The Company has entered into an employment agreement with Mr. Gerald
Thames, Executive Vice Chairman of the Board of Directors. The agreement
provides that he will hold this position until at least the
25
<PAGE> 28
2000 annual shareholders meeting and that he will perform such other reasonable
duties and exercise such other power and authority as may be reasonably
delegated by the Board of Directors. The agreement commenced March 21, 1999 and
expires on October 31, 2001, unless extended. The agreement provides that Mr.
Thames will receive an annual salary of $400,000 and a bonus for the fiscal
years 1999 and 2000, or pro rated portion thereof, in an amount not less than
fifty percent of his salary for such year. In addition to salary and bonus, Mr.
Thames is also eligible to participate in the employee stock option plan, to
receive standard health and insurance benefits that are provided to employees of
GTS, to receive certain other fringe benefits and to be reimbursed for all
reasonable expenditures incurred in the execution of his duties. If the Board of
Directors were to appoint Mr. Thames to another position, he would continue to
receive his salary and bonus and benefits for the remaining term of the
agreement, as described above. If Mr. Thames were terminated without cause, as
defined in the agreement, or resigned for good reason, as defined in the
agreement, during the twenty-four month period following a change of control, as
defined in the agreement, he would receive severance in an amount of up to
thirty-six months of his then-current salary, continuation of certain benefits
and accelerated vesting of all stock options that would have otherwise vested
prior to October 31, 2001. Mr. Thames' agreement includes noncompetition and
nonsolicitation clauses that are effective during the term of his agreement and
for a period of up to one year thereafter. In addition, the employment agreement
includes covenants of confidentiality and nondisclosure. Any dispute arising
under Mr. Thames' employment agreement must be resolved through arbitration.
Alan B. Slifka, the Vice Chairman of the board of directors, was paid
$66,666 in consulting fees in 1999. Bernard McFadden, a director of GTS, was
paid $100,000 in consulting fees in 1999.
Halcyon/Alan B. Slifka Management Company LLC (formerly Alan B. Slifka and
Company), a company principally owned by Mr. Slifka, holds 287,756 stock options
to purchase shares of Common Stock that were granted in 1991 pursuant to a stock
option agreement that is not subject to any stock option plan. The options have
an exercise price of $0.267 per share and are fully vested. Any of the stock
options that remain unexercised after November 30, 2001 shall lapse and become
void. Generally, in the event that Mr. Slifka ceases to be an employee or
nonemployee director of GTS, any of such unexercised stock options shall lapse
thirty days after such termination. The shares of Common Stock underlying such
options have been registered under a registration statement that has been
declared effective by the SEC.
The Soros associates purchased $40 million of notes from us in 1996, which
notes bore interest at 10% per annum, in partial consideration of which (1) the
Soros associates received the right to designate, from time to time, one person
for nomination to the Board of Directors and (2) the affiliates received
warrants to purchase 8,888,886 shares of the Common Stock. Of those warrants,
8,772,626 remain outstanding and unexercised as of March 31, 2000. Together with
their prior equity interests in GTS, these affiliates currently hold, on a fully
diluted basis (excluding shares underlying stock options), approximately 6.28%
of the Common Stock. In accordance with the terms of the warrant agreement, the
exercise price of the warrants was reduced from $5.14 per share to $4.67 per
share as the outstanding debt had not been repaid prior to December 31, 1996. In
February 1998, we repaid the $40 million of notes, plus accrued interest, using
part of the proceeds of an offering of senior notes and the initial public
offering completed at that time. In addition, these affiliates collect a
monitoring fee of $40,000 per month. In 1999, the Soros associates exercised
warrants and 116,260 common shares were issued. Under certain agreements, these
affiliates have the right to co-invest with us in all of our 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Bernard McFadden, a Director and Chairman of the Compensation Committee,
was paid $100,000 in consulting fees in 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons or entities who own more then 10% of the
Company's Common Shares, to file with the SEC and Nasdaq
26
<PAGE> 29
Stock Market or the New York Stock Exchange, as the case may be, initial reports
of beneficial ownership and changes in beneficial ownership of the Company's
equity securities. Such persons are also required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. To Company's
knowledge, based on a review of the copies of such reports furnished to the
Company as to transactions for which reports are required, all Section 16(a)
filing requirements applicable to such individuals or entities were complied
with during 1999, except with respect to Messrs. James Newman, James Reynolds,
Gerard Caccappolo, Hans-Peter Kohlhammer and Gerald Thames. The Company
determined on February 1, 1999, June 18, 1999, June 18, 1999 and June 18, 1999
that Messrs. Newman, Reynolds, Caccappolo and Kohlhammer, respectively, were
executive officers of the Company. Messrs. Newman, Reynolds, Caccappolo and
Kohlhammer filed their "Initial Statements of Beneficial Ownership of
Securities" on Form 3 on April 9, 1999, August 4, 1999, July 29, 1999 and August
3, 1999, respectively. Mr. Newman left the employ of the Company during 1999.
Mr. Thames sold 150,000 shares of the Company's common stock on November 17,
1999, and transferred 19,000 shares of the Company's common stock to a family
foundation on November 22, 1999. Mr. Thames disclosed these dispositions in his
"Annual Statement of Changes in Beneficial Ownership" on Form 5, which was filed
with the SEC on February 14, 2000, instead of in a "Statement of Changes in
Beneficial Ownership" on Form 4.
OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which may come before the
meeting except that indicated above. However, if other business is brought
before the meeting, the persons acting under the enclosed form of proxy may vote
thereunder in accordance with their best judgment.
AUDIT AND BUDGET COMMITTEE CHARTER
The Board of Directors of the Company has adopted a written charter for its
Audit and Budget Committee. The rules of the SEC require that the charter be
included as an appendix to a company's proxy statement at least once every three
years. Accordingly, the charter of the Audit and Budget Committee is appended to
this Proxy Statement as Annex C. The charter is not being presented for
shareholder approval.
COST AND METHOD OF PROXY SOLICITATION
Proxies will be solicited by mail. The expenses of such solicitation will
be borne by the Company. Directors, officers, or regular employees of the
company may solicit proxies by telephone or in person. The cost of such
solicitation will be nominal. In addition, Georgeson Shareholder Communications,
Inc. has been retained by the Company to assist in soliciting proxies from
brokerage firms, bank nominees and other institutional holders to assure a
timely vote by the beneficial owners of stock held of records by such firms,
banks and institutions. This firm will receive a fee not to exceed $10,000 for
its services.
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Stockholder proposals, in order to be timely submitted for inclusion in the
Company's proxy materials for the 2001 annual meeting of stockholders, must be
received at the Company's principal executive offices by January 16, 2001.
* * *
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON WRITTEN REQUEST OF SUCH PERSON, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999.
REQUESTS SHOULD BE ADDRESSED TO VICE PRESIDENT -- INVESTOR RELATIONS AND
CORPORATE COMMUNICATIONS, GLOBAL TELESYSTEMS GROUP, INC. 4121 WILSON BOULEVARD,
8TH FLOOR, ARLINGTON, VIRGINIA, 22203.
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ANNEX A
GLOBAL TELESYSTEMS GROUP, INC.
YEAR 2000
DOMESTIC U.S. EMPLOYEE STOCK PURCHASE PLAN
EFFECTIVE JANUARY 4, 2000
(SUBJECT TO SHAREHOLDER APPROVAL)
1. PURPOSE OF PLAN.
The purpose of the Global TeleSystems Group, Inc. Year 2000 Domestic U.S.
Employee Stock Purchase Plan (the "Plan") is to provide eligible employees who
wish to become stockholders of Global TeleSystems Group, Inc. (the "Company"),
or who wish to increase their stockholdings in the Company, with an opportunity
to purchase shares of the Company's common stock, par value $0.10 per share
("Common Stock"), on a basis that is more convenient and more favorable than
would otherwise be available. It is believed that employee participation in
ownership of the Company on this basis will be to the mutual benefit of both the
employees and the Company. It is intended that the Plan constitute an "employee
stock purchase plan" (a "Stock Purchase Plan") within the meaning of Section 423
of the United States Internal Revenue Code of 1986, as amended (the "Code").
2. EMPLOYEES ELIGIBLE TO PARTICIPATE.
(a) Subject to the limitations on eligibility in paragraph (b) of this
Section 2, any employee of the Company or any "parent corporation" of the
Company within the meaning of Section 424(e) of the Code (a "Parent"), or
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code (a "Subsidiary") which adopts the Plan with the consent of the Company
(an "Employing Corporation") shall be eligible to participate in the Plan. The
term "employee" shall have the meaning applicable under Treasury Regulation
Section 1.421-7(h) and such employees shall be "eligible employees" under the
Plan. Employees hired by the Company or an Employing Corporation during an
Offering Period (as such term is defined in Section 4(a) of the Plan) shall
become eligible employees immediately following 30 days or more of continuous
employment with the Company or an Employing Corporation.
(b) The term "eligible employee" as used herein shall not:
(i) include any employee whose customary employment with the
Company or an Employing Corporation is for twenty (20) hours or less per
week or for not more than five (5) months in any calendar year;
(ii) include a member of the Board of Directors of the Company (the
"Board") or of an Employing Corporation who is not also an employee of
the Company or of an Employing Corporation;
(iii) include leased employees within the meaning of Section 414(n)
of the Code; and
(iv) include any individual
(A) who provides services to the Company, any Employing
Corporation or any division thereof under an agreement, contract, or
any other arrangement pursuant to which the individual is initially
classified as an independent contractor, or
(B) whose remuneration for services has not been treated
initially as subject to the withholding of federal income tax
pursuant to Section 3401 of the Code, unless the individual is
subsequently reclassified as a common law employee as a result of a
final decree of a court of competent jurisdiction or the settlement
of an administrative or judicial proceeding.
To the extent permitted by Section 423 of the Code and any rules or regulations
promulgated thereunder, an individual who is reclassified as a common law
employee as a result of a final decree of a court of competent jurisdiction or
the settlement of an administrative or judicial proceeding shall become eligible
to participate, if
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otherwise eligible under this Section 2, after two years of employment
(including any period of service recharacterized as common law employment).
3. ELIGIBLE COMPENSATION.
Compensation eligible for payroll deductions ("Compensation") shall be base
salary, overtime pay, and, to the extent permitted by the Stock Purchase Plan
Committee ("the Committee"), any commissions and/or bonuses paid in each payroll
period. Compensation shall not include severance pay, incentive pay, shift
premium differentials, pay in lieu of vacation, imputed income for income tax
purposes, patent and award fees, awards and prizes, back pay awards,
reimbursement of expenses and living allowances, educational allowances, expense
allowances and reimbursements, expatriate benefits and expense allowances,
disability benefits under any insurance program, fringe benefits, deferred
compensation, compensation under the Company's stock plans, amounts paid for
services as an independent contractor, or any other compensation excluded by the
Committee in its discretion, applied in a uniform manner. The preceding sentence
notwithstanding, Compensation shall be determined before giving effect to any
salary reduction agreement pursuant to a qualified cash or deferred arrangement
(within the meaning of Section 401(k) of the Code) or to any similar salary
reduction agreement pursuant to any cafeteria plan (within the meaning of
Section 125 of the Code).
4. TERMS OF THE PLAN.
(a) Effective Date and Term.
The Plan shall commence on January 4, 2000 (the "Effective Date") and
shall, unless earlier terminated pursuant to Section 17 of the Plan, have four
consecutive twenty-seven (27) month terms, with: (i) the first twenty-seven (27)
month term commencing on the Effective Date and ending on the Purchase Date (as
such phrase is defined in this Section 4(a)) in March, 2002; (ii) the second
twenty-seven (27) month term commencing on the first Trading Day (as such term
is defined in Section 5(g)) of April, 2002 and ending on the Purchase Date in
June, 2004; (iii) the third twenty-seven (27) month term commencing on the first
Trading Day of July, 2004 and ending on the Purchase Date in September, 2006;
and (iv) the fourth twenty-seven (27) month term commencing on the first Trading
Day of October, 2006 and ending on the Purchase Date in December, 2008. The Plan
shall terminate on the Purchase Date in December, 2008. During the four
consecutive twenty-seven (27) month terms of the Plan there shall be quarterly
offering periods (the "Offering Periods" or, an "Offering") wherein the price at
which shares may be purchased by participants, shall be set according to Section
7 of the Plan. Such calendar quarters end on March 31st, June 30th, September
30th and December 31st of each year. The date on which shares shall be purchased
under the Plan (the "Purchase Date") for each Offering Period shall be the last
Trading Day of the Offering Period; provided, however, that the first Purchase
Date shall be the last Trading Day of June, 2000. The Effective Date and full
implementation of the Plan shall be subject to shareholder approval of the Plan
at the annual meeting of the Company to be held in 2000 (the "Annual Meeting").
In the event that the Plan is not approved at the Annual Meeting, the Plan shall
be automatically terminated and each participant shall be refunded all monies
deducted from their compensation pursuant to Section 4(b), without interest
(unless otherwise specified by the Committee).
(b) Elections to Participate.
In order to participate in an Offering, an eligible employee must execute
and return an enrollment/payroll deduction authorization form or complete such
other procedures as the plan administrator (the "Plan Administrator") may
require or permit (an "Enrollment Agreement"), at least twenty-one (21) days
prior to the date on which such eligible employee shall be permitted to commence
participation in the Plan. The Plan Administrator shall be the person, or group
of persons, whom the Committee designates as such. By executing and returning an
Enrollment Agreement, eligible employees shall be authorizing the Plan
Administrator to make regular payroll deductions in either (i) a specified whole
dollar amount for each payroll period or (ii) any full percentage of
Compensation. Neither the specified whole dollar amount, nor the designated
percentage deduction shall exceed fifteen percent (15%) of any eligible
employee's Compensation during any payroll period. The requirement that each
eligible employee return an Enrollment Agreement at least twenty-
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one days prior to their eligibility date shall not apply to the enrollment
period for the initial Offering Period. The enrollment period for the initial
Offering Period shall be set by the Committee pursuant to its authority under
Section 10. EACH ELIGIBLE EMPLOYEE WHO ELECTS TO PARTICIPATE IN THE PLAN ASSUMES
THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE COMMON STOCK.
If a participant authorizes payroll deductions pursuant to clause (ii) in
the foregoing paragraph, the amount of Compensation to be deducted shall be
determined for each payroll period on a basis of the percentage of Compensation
authorized for deduction by the participant, which amount shall be increased or
decreased (as applicable) on a prospective basis to reflect changes in such
Compensation during the term of the Plan.
5. PARTICIPATION.
(a) In General.
On the first Trading Day of each Offering Period, each then eligible
employee, who has completed an Enrollment Agreement in the manner required by
Section 4(b) of the Plan, shall be granted the opportunity to purchase, on the
date of the next Purchase Date, the number of shares of Common Stock determined
by the employee's payroll deduction elections made in accordance with such
eligible employee's Enrollment Agreement in compliance with the terms of the
Plan; provided, however, that in no event shall such number of shares of Common
Stock exceed the amount permitted in Section 6(d) of the Plan or the maximum
dollar amount of Section 6(b) of the Plan.
(b) Newly Eligible Employees.
Each new employee of the Company or an Employing Corporation who becomes an
eligible employee pursuant to the terms of Section 2 of the Plan, must complete
an Enrollment Agreement pursuant to Section 4(b) of the Plan in order to
participate in the Plan during the next Offering Period in which such newly
eligible employee shall be permitted to participate in the Plan. Each newly
eligible employee shall be subject to the purchase limits of Sections 6(b) and
6(d) of the Plan and such newly eligible employee's purchase price shall be set
according to Section 7(a)(ii) of the Plan.
(c) Enrollment During an Offering Period.
Any eligible employee who elects not to participate in the Plan for the
initial Offering Period may subsequently elect to participate in the Plan,
subject to the recommencement terms and conditions of Section 11 of the Plan.
(d) Changes in Payroll Deduction Authorization.
Participants may not change their rate of payroll deduction within the
twenty-one (21) day period immediately prior to, and during, an Offering Period,
but may elect to withdraw from the Plan in accordance with Section 11 of the
Plan. A participant may change his or her rate of payroll deduction effective
commencing the next Offering Period without affecting the Base Purchase Price
(or the Alternative Purchase Price, if applicable) if the employee's revised
Enrollment Agreement is submitted to the Plan Administrator at least twenty-one
(21) days prior to the next Offering Period. A reduction of the payroll
deduction amount to zero shall constitute a withdrawal from the Plan.
(e) Notice of Dispositions.
As part of the Enrollment Agreement, each participant in an Offering shall
agree to notify the Company of any disposition of shares of Common Stock
purchased pursuant to the Plan prior to either (i) two (2) years after first
Trading Day of the first Offering Period in which such employee participates in
the Plan or (ii) one year from the Purchase Date of such shares of Common Stock,
whichever period is longer.
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(f) Equivalent Rights.
All eligible employees who participate under the Plan and who are based in
the United States shall be offered the same rights and privileges under the Plan
except that the number of shares each participant may purchase shall bear a
uniform relationship to the employee's eligible Compensation and shall depend
upon the payroll deduction the employee authorizes.
(g) Trading Day.
For purposes of the Plan, a "Trading Day" is a day on which shares of
Common Stock are traded on the New York Stock Exchange, the principal national
securities exchange on which the Common Stock is then listed or admitted to
trading, the NASDAQ National Market System or other market on which the Common
Stock is traded on such date.
6. PARTICIPATION LIMITATIONS.
(a) Five Percent Owners.
Notwithstanding anything herein to the contrary, no employee shall be
granted a right to purchase any shares of Common Stock under the Plan if the
employee, immediately after the right is granted, owns or would own shares,
either directly or indirectly, (including all shares which may be purchased
under outstanding rights to purchase Common Stock under the Plan) in excess of
five percent (5%) or more of the total combined voting power or value of all
classes of shares of capital stock of the Company, the Employing Corporation, or
any Parent or Subsidiary. For purposes of the foregoing limitation, the rules of
Section 424(d) of the Code (relating to attribution of stock ownership) shall
apply in determining share ownership, and Common Stock which the employee may
purchase under outstanding rights to purchase Common Stock shall be treated as
stock owned by such employee.
(b) $25,000 Value Limitation.
If pursuant to the terms of the Plan, an employee would be granted a right
to purchase Common Stock that would cause a violation of Section 423(b)(8) of
the Code, as amended, such right shall not be granted and the employee shall
instead be granted a right to purchase shares in an amount that, when combined
with the employee's right to purchase shares under all Stock Purchase Plans of
the Company, the Employing Corporation and its Parents and Subsidiaries, will
not cause the employee's right to purchase shares of stock to accrue at a rate
which exceeds twenty-five thousand dollars ($25,000) of the Fair Market Value of
such shares (determined at the time such rights were granted) for each calendar
year in which such rights to purchase Common Stock are outstanding at any time.
In determining this limitation, the rules of Section 423(b)(8) of the Code and
the regulations thereunder shall apply.
(c) Fair Market Value.
Unless otherwise defined by the Committee at the beginning of an Offering
Period, the "Fair Market Value" of the Common Stock on any date shall mean the
closing price of the Common Stock on that date on the New York Stock Exchange,
the principal stock exchange or other market on which the Common Stock is
traded, or if such day is not a Trading Day, on the immediately preceding
Trading Day, as reported in the Wall Street Journal on the next business day. If
the price of the Common Stock is not reported on any securities exchange or
national market system, the Fair Market Value of the Common Stock on a
particular date shall be as determined by the Committee.
(d) Maximum Number of Shares.
The maximum number of shares of Common Stock which an employee shall be
permitted to purchase pursuant to the Plan shall be 5,000 shares per
twenty-seven (27) month term; provided, however, that the maximum number of
shares purchased by any participant shall not exceed the limitations of Sections
4(b) or 6(b) of the Plan. When any of the foregoing participation limitations
are reached, payroll deductions shall cease, and any amount of excess funds as
of the date that a participation limitation has been reached shall be returned
to the employee.
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7. PURCHASE PRICE.
(a) In General.
Subject to the adjustments described in Sections 7(b)(i) and 15 of the
Plan, the purchase price at which shares of Common Stock may be purchased during
any Offering Period shall be determined as follows:
(i) Eligible employees who elect to participate in the Plan during
the initial Offering Period and do not withdraw from the Plan at any
time during the first twenty-seven (27) month term of the Plan, shall
have a maximum purchase price, subject to adjustment pursuant to
paragraph (b) of this Section, (such fixed purchase price hereinafter
referred to as, the "Base Purchase Price") during the first twenty-seven
(27) month term of the Plan that shall be fixed at eighty-five percent
(85%) of the Fair Market Value of a share of Common Stock on the
Effective Date. If, on any Purchase Date after such participant's Base
Purchase Price has been fixed, eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock is less than the Base Purchase
Price for such participant, then the option price for such participant
on such Purchase Date shall be eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock (the "Alternative Purchase
Price").
(ii) Eligible employees who elect to participate in the Plan at a
date later than the initial Offering Period, which includes newly
eligible employees and employees who have elected not to participate
during the initial Offering Period, and do not withdraw from the Plan at
any time prior to the Purchase Date in March, 2002, shall have a Base
Purchase Price that shall be fixed from the first Trading Day of the
Offering Period in which such employee elects to participate in the Plan
until the Purchase Date in March, 2002, at the greater of (A) the same
Base Purchase Price as participants described in Section 7(a)(i) or (B)
eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on the first Trading Day of the Offering Period in which such new
participant elects to participate in the Plan. If, on any Purchase Date
after such new participant's Base Purchase Price has been fixed,
eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock is less than the Base Purchase Price for such new participant,
then the purchase price for such new participant on such Purchase Date
shall be the Alternative Purchase Price.
(iii) Participants in the Plan who, during any of the four
consecutive twenty-seven (27) month terms of the Plan, elect to withdraw
from, and subsequently elect to recommence participation in the Plan
pursuant to Section 11 of the Plan shall, upon recommencement, have
their Base Purchase Price calculated as the greater of: (A) the Base
Purchase Price applicable to such participant, had he/she not withdrawn
from the Plan during that particular twenty-seven (27) month term or (B)
eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on such recommencing participant's recommencement date, with such
recommencement date being the first Trading Day of the next Offering
Period.
(b) Adjustments.
(i) Mandatory Adjustments. All participants with Base Purchase
Prices described in Section 7(a)(i), (ii) or (iii) shall have their Base
Purchase Price reset to the same Base Purchase Price on the following
dates (each at "Reset Date"): (A) on the first Trading Day of the second
twenty-seven (27) month term described in Section 4(a); (B) on the first
Trading Day of the third twenty-seven (27) month term described in
Section 4(a); and (C) on the first Trading Day of the forth twenty-seven
(27) month term described in Section 4(a). The Base Purchase Price for
all participants on each Reset Date shall be fixed for that particular
twenty-seven (27) month term at eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock on the first Trading Day of that
particular twenty-seven (27) month term. Each participant shall continue
to have the benefit of the Alternative Purchase Price for each Purchase
Date during any twenty-seven (27) month term of the Plan. The Base
Purchase Price may also be adjusted pursuant to Section 15 of the Plan.
(ii) Optional Adjustments. At the midpoint of any twenty-seven (27)
month term of the Plan (the "Revaluation Date"), the Base Purchase Price
may be subject to adjustment. This adjustment
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may be made at the discretion of the Committee. If the Committee elects
to adjust the Base Purchase Price on the Revaluation Date, the Base
Purchase Price after the Revaluation Date shall be eighty-five percent
(85%) of the average of the Fair Market Value of a share of Common Stock
during the period of twenty (20) Trading Days ending one (1) month prior
to the Revaluation Date; provided, however, that if such adjustment
would result in the adjusted Base Purchase Price being lower than the
initial Base Purchase Price for any participant, then the initial Base
Purchase Price shall remain unchanged.
8. PURCHASE OF COMMON STOCK.
(a) Purchase of Common Stock.
At the end of each payroll period, each participant shall have deducted
from his or her pay the amount authorized pursuant to Section 4(b) of the Plan.
This deducted amount shall be held as general assets by the Company together
with all funds deducted from all participants' pay pursuant to each Enrollment
Agreement, and such amounts shall not accrue any interest on behalf of any
participant (unless otherwise specified by the Committee). On the next Purchase
Date, a purchase shall automatically be made on each participant's behalf to
purchase at the lesser of the then applicable Base Purchase Price or the
Alternative Purchase Price, that number of whole shares of Common Stock which
may be purchased using the amount deducted from the participant's Compensation
during that Offering Period and excess funds (representing less than the value
of the immediately preceding Offering Period's purchase price of one whole
Common Share) from the preceding Offering Period, if any.
(b) Plan Custodian.
The Committee shall designate an appropriate financial services or
brokerage firm as the plan custodian (the "Plan Custodian"). On each Purchase
Date, the Plan Custodian shall receive from the Company, at the applicable
Purchase Price, as many whole shares of Common Stock as can be purchased with
the funds received from each participant during the Offering Period and excess
funds (representing less than the value of the immediately preceding Offering
Period's purchase price of one whole Common Share) from the preceding Offering
Period, if any. Upon receipt of the Common Stock so purchased, the Plan
Custodian shall allocate to each participant, the number of whole shares of
Common Stock to which each participant is entitled. Subject to any limitations
imposed by the Committee from time to time, a certificate representing the
number of shares of Common Stock to which a participant is entitled shall be
issued to the participant, at the participant's expense, upon written request to
the Plan Custodian. Unless otherwise requested by the participant, Common Stock
purchased under the Plan shall be held by and in the name of, or in the name of
a nominee of, the Plan Custodian for the benefit of each participant, who shall
thereafter be a beneficial stockholder of the Company.
(c) Rights as a Stockholder.
A participant's rights as a stockholder of record of the Company shall vest
on a relevant Purchase Date with respect to such shares of Common Stock that are
purchased on that Purchase Date with the funds allocated by such participant.
Shares of Common Stock issued to participants shall be transferable in
accordance with applicable securities laws.
9. NUMBER OF SHARES TO BE OFFERED.
The maximum number of shares of Common Stock that may be purchased under
the Plan is 500,000 during the first twenty-seven (27) month term of the Plan,
and this maximum number shall be automatically increased by 500,000 shares of
Common Stock on the first day of each succeeding twenty-seven (27) month term,
until the termination of the Plan. Such shares may be treasury shares, or
authorized and unissued shares, as the Board may determine in its sole
discretion.
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10. ADMINISTRATION AND INTERPRETATION OF THE PLAN.
The Plan shall be administered by the Plan Administrator(s) designated by
the Committee, under the Committee's direction. The members of the Committee
shall be designated by the Board. Except as expressly provided herein, the
Committee shall have the exclusive right to interpret the provisions of the Plan
and to determine any questions arising hereunder or in connection with the
administration of the Plan, including the remedying of any omission,
inconsistency, or ambiguity, and the determination of benefits, eligibility and
interpretation of Plan provisions. The Committee's decisions, determinations,
interpretations or other actions in respect thereof shall be conclusive and
binding upon all participants, former participants, beneficiaries, heirs,
executors, assigns, and all other parties.
11. WITHDRAWAL FROM THE PLAN.
A participant may, at any time and for any reason, by giving notice to the
Plan Administrator, elect to withdraw from any further participation in the
Plan. The withdrawing participant shall, as soon as practicable, notify the Plan
Custodian regarding the disposition of the shares of Common Stock credited to
the participant's account as of the date of withdrawal and a check in payment
for any funds not applied toward the purchase of shares as of that date. An
eligible employee who has withdrawn from participation may elect to recommence
participation in the Plan by executing and delivering to the Plan Administrator
a new Enrollment Agreement in the same manner required by Section 4(b), provided
however, a participant who withdraws from participation must wait one full
Offering Period before recommencing participation. The Base Purchase Price
applicable to a recommencing participant shall be calculated according to
Section 7(b)(iii) of the Plan.
12. RIGHTS NOT TRANSFERABLE.
No eligible employee who is participating in the Plan may sell, assign,
transfer, pledge, or otherwise dispose of or encumber either the payroll
deductions authorized by the Enrollment Agreement or any rights with regard to
the exercise of an option or to receive shares under the Plan other than by will
or the laws of descent and distribution, and such right and interest shall not
be liable for, or subject to, the debts, contracts, or liabilities of the
participant. If any such action is taken by the participant, or any claim is
asserted by any other party in respect of such right and interest whether by
garnishment, levy, attachment or otherwise, such action or claim will be treated
as an election to withdraw from the Plan in accordance with Section 11.
Participation in the Plan can only be exercised by the eligible employee to whom
the option to participate has been granted.
13. TERMINATION OF EMPLOYMENT.
In the event of a participant's retirement, death, or other termination of
employment, no payroll deductions shall be made from any Compensation then due
and owing to such employee at such time, and a certificate representing the
number of whole shares of Common Stock then credited to the participant's
account and a check in payment for any funds not applied toward the purchase of
shares as of that date shall be issued and delivered to the participant or the
participant's representative.
14. PERIODS OF INACTIVE EMPLOYMENT.
A participant may elect to continue to make payroll deductions under the
Plan for the first ninety (90) days of any period of inactive employment due to
disability or approved leave of absence if the participant continues to receive
Compensation from the Company as defined in Section 3 of the Plan. If a
participant does not receive Compensation from the Company during a period of
inactive employment, the participant's payroll deductions shall immediately
cease; however, such deductions shall resume automatically if the participant
returns to active employment within ninety (90) days. If a participant elects to
discontinue the payroll deduction, such election shall be treated as a
withdrawal from participation in the Plan in accordance with Section 11 of the
Plan. In any event, a participant shall be treated as having withdrawn from the
Plan in accordance with Section 11 of the Plan on the ninety-first (91st) day of
any period of inactive employment. As soon as is practicable after the
ninety-first (91st) day of any period of inactive employment,
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participant shall notify the Company and Plan Custodian regarding the
disposition of the number of whole shares of Common Stock then credited to the
participant's account and any amount of excess funds credited to such account as
of that date (calculated in accordance with Section 13).
15. REORGANIZATION.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, offering of rights, or
any other change in the structure of Common Stock, the Committee may make such
adjustments, if any, as it may deem appropriate in the number, and kind of
shares available for purchase under the Plan, and in the minimum and maximum
number of shares which a participant is entitled to purchase. The Base Purchase
Price for each participant shall be proportionately adjusted and reset in the
event of any reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, offering of rights, or any other
change in the structure of Common Stock, that has the direct effect of impacting
the Fair Market Value of a share of Common Stock.
16. AMENDMENTS.
The Board may review and modify the operation and administration of the
Plan quarterly and may amend the terms of the Plan at any time without obtaining
the approval of the stockholders of the company unless stockholder approval is
required by Section 423 of the Code or by any other applicable law, regulation
or rule. The Board may not amend the Plan in any manner which would materially
and adversely affect a right to purchase Common Stock previously granted to a
participant without the consent of such participant; provided, however, that the
Board may at any time make such amendments as it may deem necessary to cause the
Plan to comply with the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended.
17. TERMINATION OF PLAN.
The Plan and all rights of the participants shall terminate on the earlier
to occur of: (i) a termination pursuant to Section 4(a); or (ii) the date as of
which the Committee or the Board terminates the Plan. Upon termination, all
payroll deductions shall cease and all amounts credited to participants'
accounts shall be equitably applied to the purchase of the shares of Common
Stock then available under the Plan, and all funds accumulated under the Plan
not utilized to purchase shares shall be refunded, without interest (unless
otherwise specified by the Committee).
18. REQUIRED GOVERNMENTAL APPROVALS.
The Plan, all rights granted under the Plan and all other rights inherent
in the Plan are subject to receipt by the Company of all necessary approvals or
consents of governmental agencies which the Company, in its sole discretion,
shall deem necessary or advisable. Notwithstanding any other provision of the
Plan, all rights granted under the Plan and all other rights inherent in the
Plan are subject to such termination and/or modification as may be required or
advisable in order to obtain any such approval or consent, or which, as a result
of consequences attaching to any such approval or consent, may be required or
advisable in the judgment of the Committee in order to avoid adverse impact on
the Company's overall wage and salary policy.
19. NO EMPLOYMENT RIGHTS.
The Plan does not, directly or indirectly, create in any employee or class
of employees any right with respect to continuation of employment by the Company
or any Employing Corporation, and it shall not be deemed to interfere in any way
with the Company's or any Employing Corporation's right to terminate, or
otherwise modify, an employee's employment at any time with or without cause.
20. GENDER.
Pronouns shall be deemed to include both the masculine and feminine gender,
and words used in the singular shall be deemed to include both the singular and
the plural, unless the context indicates otherwise.
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21. EXPENSES.
Expenses of administering the Plan, including any expenses incurred in
connection with the purchase by the Company of shares for sale to participating
employees, shall be paid by the Employing Corporations. Participants shall be
responsible for all expenses associated with certificating and selling shares
purchased by the participant under the Plan.
22. GOVERNING LAW.
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Delaware, without giving
effect to its principles of conflict of laws.
* * * * *
Adopted by the Board of Directors, December 9, 1999
Approved by the Shareholders: , 2000
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<PAGE> 39
ANNEX B
GLOBAL TELESYSTEMS GROUP, INC.
YEAR 2000
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
Effective April 1, 2000
(Subject to Shareholder Approval)
1. PURPOSE OF PLAN.
The purpose of the Global TeleSystems Group, Inc. Year 2000 International
Employee Stock Purchase Plan (the "International Plan") is to provide Eligible
Employees who wish to become stockholders of Global TeleSystems Group, Inc. (the
"Company"), or who wish to increase their stockholdings in the Company, with an
opportunity to purchase shares of the Company's common stock, par value $0.10
per share ("Common Stock"), on a basis that is more convenient and more
favorable than would otherwise be available. It is believed that employee
participation in ownership of the Company on this basis will be to the mutual
benefit of both the employees and the Company. The Company adopts this
International Plan with flexibility as appropriate under local law for non-U.S.
employees.
2. EMPLOYEES ELIGIBLE TO PARTICIPATE.
(a) The Stock Purchase Plan Committee (the "Committee") selected by the
Board of Directors of the Company will in its discretion designate one or more
entities, which may include the Company, any "parent corporation" of the Company
(a "Parent"), or "subsidiary corporation" of the Company (a "Subsidiary") and
will add that entity to an exhibit that will be attached to the International
Plan (each of the entities listed on the exhibit, an "Employing Corporation").
In general, employees of each of the Employing Corporations shall then be
eligible to participate in the International Plan pursuant to the terms herein
and any terms in the relevant attached exhibit, except as otherwise required by
local law.
(b) For purposes of this International Plan, an eligible employee of an
Employing Corporation ("Eligible Employee") shall include individuals who have
been continuously employed by an Employing Corporation for at least 30 days, but
shall not include any individual who performs services for the Company or a
Subsidiary solely as an independent contractor, consultant or employee of a
third party employment or leasing agency.
(c) For the purposes of determining who is an Eligible Employee under the
International Plan, an employee's eligibility shall be denied if, as a result of
such eligibility, there would occur an infraction of a law, rule or regulation
of the local jurisdiction in which such employee is employed.
3. ELIGIBLE COMPENSATION.
Compensation eligible for payroll deductions ("Compensation") shall be base
salary, overtime pay, and, to the extent permitted by the Committee, any
commissions and/or bonuses paid in each payroll period, and any other
compensation that the Committee may deem eligible in its discretion. Except as
otherwise determined by the Committee, compensation does not include severance
pay, incentive pay, shift premium differentials, pay in lieu of vacation,
imputed income for income tax purposes, patent and award fees, awards and
prizes, back pay awards, reimbursement of expenses and living allowances,
educational allowances, expense allowances and reimbursements, expatriate
benefits and expense allowances, disability benefits under any insurance
program, fringe benefits, deferred compensation, compensation under the
Company's stock plans, amounts paid for services as an independent contractor,
or any other compensation excluded by the Committee in its discretion, applied
in a uniform manner.
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4. TERM AND OFFERING PERIODS
The term of the International Plan shall begin on April 1, 2000 (the
"Effective Date") and shall continue until terminated pursuant to Section 4 or
Section 17. During the term of the International Plan, there shall be quarterly
offering periods (the "Offering Periods" or, an "Offering") in each calendar
year. Such calendar quarters end on March 31st, June 30th, September 30th and
December 31st of each year. The Effective Date and full implementation of the
International Plan shall be subject to shareholder approval of the International
Plan at the annual meeting of the Company to be held in 2000 (the "Annual
Meeting"). In the event that the International Plan is not approved at the
Annual Meeting, the International Plan shall automatically be terminated and
each participant shall be refunded all accrued monies deducted from their
Compensation pursuant to Section 5(a), without interest (unless otherwise
specified by the Committee).
5. PARTICIPATION.
(a) Election to Participate.
In order to participate in the International Plan, an Eligible Employee
must execute and return an enrollment/payroll deduction authorization form or
complete such other procedures as the plan administrator may require or permit
(an "Enrollment Agreement"), at least twenty-one (21) days prior to the relevant
Offering Period with respect to which such Eligible Employee shall be permitted
to commence or recommence participation in the International Plan. The plan
administrator (the "Plan Administrator") shall be the person, or group of
persons, whom the Committee designates. By executing and returning an Enrollment
Agreement, Eligible Employees shall be authorizing the Plan Administrator to
make regular payroll deductions that shall be used to purchase Common Stock
under the International Plan subject to the limit permissible under such plan
and any exhibits thereto applicable to the Eligible Employee. The requirement
that each Eligible Employee return an Enrollment Agreement at least twenty-one
days prior to their eligibility date shall not apply to the enrollment period
for the initial Offering Period. The enrollment period for the initial Offering
Period shall be set by the Committee. EACH ELIGIBLE EMPLOYEE WHO ELECTS TO
PARTICIPATE IN THE INTERNATIONAL PLAN ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE PRICE OF THE COMMON STOCK AND CURRENCY EXCHANGE RATE.
(b) In General.
On the first day of each Offering Period, each then Eligible Employee, who
has completed an Enrollment Agreement in the manner required by Section 5(a),
shall be granted the opportunity to purchase, on the last day of such Offering
Period shares of Common Stock at the Purchase Price, as defined in the exhibit
attached hereto relevant to such Eligible Employee, for such number of shares of
Common Stock determined by the employee's payroll deduction elections made in
accordance with such Eligible Employee's Enrollment Agreement; provided,
however, that in no event shall such number of shares of Common Stock exceed the
maximum amount permitted under the International Plan and any Exhibits hereto
applicable to such Eligible Employee, and provided further such purchase must
comply with the terms set forth in the International Plan and any Exhibits
hereto applicable to such Eligible Employee.
(c) Newly Eligible Employees.
Each new employee of the Company or an Employing Corporation who becomes an
Eligible Employee pursuant to the terms of Section 2, must complete an
Enrollment Agreement pursuant to Section 5(a) in order to participate in the
International Plan during the next full Offering Period.
(d) Changes in Payroll Deduction Authorization.
Participants may not change their rate of payroll deduction within the
twenty-one (21) day period immediately prior to, and during, an Offering Period,
but may elect to withdraw from the International Plan in accordance with Section
11. A participant may change his or her rate of payroll deduction effective
commencing the next Offering Period if the employee's revised Enrollment
Agreement is submitted to the
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Plan Administrator at least twenty-one (21) days prior to the next Offering
Period. A reduction of the payroll deduction amount to zero shall constitute a
withdrawal from the International Plan.
(e) Trading Day.
For purposes of the International Plan, a "Trading Day" is a day on which
shares of Common Stock are traded on the New York Stock Exchange, the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading, the NASDAQ National Market System, or other market on which
the Common Stock is traded on such date.
6. PARTICIPATION LIMITATIONS.
(a) Five Percent Owners.
Notwithstanding anything herein to the contrary, no employee shall be
granted the opportunity to purchase any shares of Common Stock under the
International Plan if the employee, immediately after such purchase, owns or
would own shares, either directly or indirectly, in excess of five percent (5%)
of the total combined voting power or value of all classes of shares of capital
stock of the Company, the Employing Corporation, or any Parent or Subsidiary.
(b) $25,000 Value Limitation.
Notwithstanding anything herein to the contrary, the total sum of an
Eligible Employee's payroll deductions within a calendar year for purposes of
participation in the International Plan may not exceed an aggregate of
twenty-five thousand dollars ($25,000), or such other cap as the Committee may
set from time to time in its discretion.
(c) Fair Market Value.
Unless otherwise defined by the Committee at the beginning of an Offering
Period, the "Fair Market Value" of the Common Stock on any date shall mean the
closing price of a share of Common Stock on that date, on the New York Stock
Exchange, the principal stock exchange or other market on which the Common Stock
is traded or if such day is not a Trading Day, on the immediately preceding
Trading Day, as reported in the Wall Street Journal on the next business day. If
the price of the Common Stock is not reported on any securities exchange or
national market system, the Fair Market Value of the Common Stock on a
particular date shall be as determined by the Committee.
(d) Maximum Number of Shares.
The maximum number of shares of Common Stock which an employee shall be
permitted to purchase pursuant to the International Plan shall be the 5,000
shares, subject to compliance with other limitations set forth herein, including
but not limited to Section 5(a) and Section 6. When the foregoing participation
limitation is reached, payroll deductions shall cease, and any amount of excess
funds as of the date that the participation limitation has been reached shall be
returned to the employee.
7. PURCHASE PRICE.
The purchase price (the "Purchase Price") at which shares of Common Stock
may be purchased during an Offering Period shall be calculated in accordance
with the formula set forth in the exhibit attached to the International Plan by
the Committee and relevant to such Eligible Employee.
8. PURCHASE OF COMMON STOCK.
(a) Purchase of Common Stock.
At the end of each payroll period, each participant shall have deducted
from his or her pay the amount authorized by the Enrollment Agreement. This
amount shall be held for the credit of the participant by the Company or its
designee, and shall not accrue any interest (unless otherwise specified by the
Committee). On the last Trading Day of each Offering Period (the "Purchase
Date"), a purchase automatically shall be made
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on participant's behalf to purchase at the Purchase Price, that number of whole
shares of Common Stock which may be purchased using the amount deducted from the
participant's Compensation during that Offering Period and participant's excess
funds (representing less than the value of the immediately preceding Offering
Period's purchase price of one whole Common Share) from the preceding Offering
Period, if any.
(b) Plan Custodian.
The Committee shall designate an appropriate financial services or
brokerage firm as the plan custodian (the "Plan Custodian"). On each Purchase
Date, the Plan Custodian shall receive from the Company as many whole shares of
Common Stock as can be purchased at the applicable Purchase Price, with the
funds received from each participant during the Offering Period and excess funds
(representing less than the value of the immediately preceding Offering Period's
purchase price of one whole Common Share) from the preceding Offering Period, if
any. Upon receipt of the Common Stock so purchased, the Plan Custodian shall
allocate to each participant, the number of whole shares of Common Stock to
which each participant is entitled. Subject to any limitations imposed by the
Committee from time to time, a certificate representing the number of shares of
Common Stock to which a participant is entitled shall be issued to the
participant, at the participant's expense, upon written request to the Plan
Custodian. Unless otherwise requested by the participant, Common Stock purchased
under the International Plan shall be held by, and in the name of, or in the
name of a nominee of, the Plan Custodian for the benefit of each participant,
who shall thereafter be a beneficial stockholder of the Company.
(c) Rights as a Stockholder.
A participant's rights as a stockholder of record of the Company shall vest
on a relevant Purchase Date with respect to shares of Common Stock purchased on
such Purchase Date with the funds allocated by such participant.. Shares of
Common Stock issued to participants shall be transferable in accordance with
applicable securities laws.
9. NUMBER OF SHARES TO BE OFFERED.
The maximum aggregate number of shares of Common Stock that may be
purchased under the International Plan is 1,000,000. Such shares may be treasury
shares, or authorized and unissued shares, as the Company's Board of Directors
(the "Board") may determine in its sole discretion. The Board is hereby
authorized to amend the maximum number of authorized shares of Common Stock that
may be purchased under the International Plan.
10. ADMINISTRATION AND INTERPRETATION OF THE INTERNATIONAL PLAN.
The International Plan shall be administered by the Plan Administrator
designated by the Committee, under the Committee's direction. The members of the
Committee shall be designated by the Board. Except as expressly provided herein,
the Committee shall have the exclusive right to interpret the provisions of the
International Plan and to determine any questions arising hereunder or in
connection with the administration of the International Plan, including the
remedying of any omission, inconsistency, or ambiguity, and the determination of
benefits, eligibility and interpretation of any provisions of the International
Plan. The Committee's decisions, determinations, interpretations or other
actions in respect thereof shall be conclusive and binding upon all
participants, former participants, beneficiaries, heirs, executors, assigns, and
all other parties. The Committee shall have the authority to amend or alter the
International Plan in order for the International Plan to conform with any
applicable laws, rules and regulations of those jurisdictions outside the United
States where the Company has Eligible Employees.
11. WITHDRAWAL FROM THE INTERNATIONAL PLAN.
A participant may, at any time and for any reason, by giving written notice
to the Plan Administrator, elect to withdraw from any further participation in
the International Plan. The withdrawing participant shall, as soon as
practicable, notify the Plan Custodian regarding the disposition of the shares
of Common Stock credited to the participant's account as of the date of
withdrawal, and payment for any funds not applied
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toward the purchase of shares as of that date. An Eligible Employee who has
withdrawn from participation may elect to recommence participation in the
International Plan by executing and delivering to the Plan Administrator a new
Enrollment Agreement in the same manner required by Section 5(a), provided
however, a participant who withdraws from participation must wait one full
Offering Period before recommencing participation.
12. RIGHTS NOT TRANSFERABLE.
No Eligible Employee who is participating in the International Plan may
sell, assign, transfer, pledge, or otherwise dispose of or encumber either the
payroll deductions authorized by the Enrollment Agreement (other than by will or
the laws of descent and distribution), or any rights with regard to the
participation in, or purchase of shares pursuant to, the International Plan, and
such right and interest shall not be liable for, or subject to, the debts,
contracts, or liabilities of the participant. If any such action is taken by the
participant, or any claim is asserted by any other party in respect of such
right and interest whether by garnishment, levy, attachment or otherwise, such
action or claim shall be treated as an election to withdraw from the
International Plan in accordance with Section 11. Participation in the
International Plan can only be exercised by the Eligible Employee to whom the
option to participate has been granted.
13. TERMINATION OF EMPLOYMENT.
A participant's participation in the International Plan shall cease
immediately and automatically if the participant's employment is terminated for
any reason, and no further payroll deductions under the International Plan shall
be made from any Compensation then due and owing to the employee at such time.
The terminated participant shall, as soon as practicable, notify the Plan
Custodian regarding the disposition of the shares of Common Stock then credited
to the participant's account as of the date of termination and for any funds not
applied toward the purchase of shares as of that date.
14. PERIODS OF INACTIVE EMPLOYMENT.
During a period of an Eligible Employee's inactive employment due to
disability or approved leave of absence, eligibility to participate in the
International Plan shall be in accordance with the applicable exhibit attached
hereto to the extent permitted under applicable law.
15. REORGANIZATION.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, offering of rights, or
any other change in the structure of Common Stock, the Board or its designee may
make such adjustments, if any, as it may deem appropriate in the number, kind,
and price of shares available for purchase under the International Plan, and in
the minimum and maximum number of shares which a participant is entitled to
purchase.
16. AMENDMENTS.
The Board may review and modify the operation and administration of the
International Plan quarterly and may amend the terms of the International Plan
at any time without obtaining the approval of the stockholders of the Company,
unless stockholder approval is required by applicable law, regulation or rule.
The Board may at any time make such amendments as it may deem necessary to cause
the International Plan to comply with the requirements of Rule 16b-3 promulgated
by the United States Securities and Exchange Commission under the securities
Exchange Act of 1934, as amended, and other applicable law or regulation.
17. TERMINATION OF PLAN.
The International Plan and all rights of the participants shall terminate
on the earlier to occur of: (i) a termination pursuant to Section 4; (ii)
December 31, 2002 or (iii) the date as of which the Committee or the Board
terminates the International Plan. Upon termination, all payroll deductions
shall cease and all amounts credited to participants' accounts during that
Offering Period shall be equitably applied to the purchase of the
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shares of Common Stock then available under the International Plan, and all
funds accumulated under the International Plan not utilized to purchase shares
shall be refunded, without interest (unless otherwise specified by the
Committee).
18. REQUIRED GOVERNMENTAL APPROVALS.
The International Plan, and all rights granted under or inherent in the
International Plan, are subject to receipt by the Company of all necessary
approvals or consents of governmental agencies which the Company, in its sole
discretion, shall deem necessary or advisable. Notwithstanding any other
provision of the International Plan, all rights granted under or inherent in the
International Plan are subject to such termination and/or modification as may be
required or advisable in order to obtain any such approval or consent, or which,
as a result of consequences attaching to any such approval or consent, may be
required or advisable in the judgment of the Committee in order to avoid adverse
impact on the Company's overall wage and salary policy.
19. NO EMPLOYMENT RIGHTS.
The International Plan does not, directly or indirectly, create in any
employee or class of employees any right with respect to continuation of
employment by the Company or any Employing Corporation, and it shall not be
deemed to interfere in any way with the Company's or any Employing Corporation's
right to terminate, or otherwise modify, an employee's employment at anytime
with or without cause, in accordance with local laws and the terms of an
employment agreement, if any. Participation in the International Plan does not
entitle any employees to any benefit other than that granted under the
International Plan, and any benefit received as a result of such participation
are not part of any employee's ordinary compensation or remuneration and shall
not be considered as part of such compensation or remuneration in the event of
severance, redundancy or resignation. Each employee understands and accepts that
the employee's participation in, and the continuation of, the International Plan
is entirely at the grace and discretion of the Company and the Employing
Corporation of such employee and that the Company and the Employing Corporation
retains the right to amend or terminate the International Plan at any time, at
their sole discretion and without notice.
20. GENDER.
Pronouns shall be deemed to include both the masculine and feminine gender,
and words used in the singular shall be deemed to include both the singular and
the plural, unless the context indicates otherwise.
21. EXPENSES.
Expenses of administering the International Plan, including any expenses
incurred in connection with the purchase by the Company of shares for sale to
participating employees, shall be paid by the Employing Corporations.
Participants shall be responsible for all expenses associated with certificating
and selling shares purchased by the participant under the International Plan.
22. GOVERNING LAW.
The validity, construction and effect of the International Plan shall be
determined in accordance with the laws of the State of Delaware, United States
of America, without regard to its conflicts of law rules or principles.
Adopted by the Board of Directors, December 9, 1999
Approved by the Shareholders: , 2000
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ANNEX C
GLOBAL TELESYSTEMS GROUP, INC.
AUDIT AND BUDGET COMMITTEE CHARTER
MISSION STATEMENT
The Audit and Budget Committee (the "Committee") is a committee appointed
by the Board of Directors of Global TeleSystems Group, Inc. ("GTS" or the
"Company"). Its primary function is to assist the Board in fulfilling its
oversight responsibilities by reviewing (i) proposed budgets and financial
plans; (ii) the integrity of the financial information provided to shareholders
and others; (iii) GTS' systems of internal controls which management and the
Board of Directors have established, and the compliance by the Company with
legal and regulatory requirements; (iv) the audit process; and (v) the
independence and performance of the Company's internal and external auditors.
The Committee shall provide an open avenue of communication between the
independent public accountant and the Board of Directors.
MEMBERS
The Committee will be composed of at least three independent members of the
Board of Directors who shall serve at the pleasure of the Board. Each member
shall:
1. Be independent of management;
2. Be in the opinion of the Board of Directors, free from any relationship
that would interfere with the exercise of independent judgment; and
3. Satisfy the independence and experience requirements of the Securities
and Exchange Commission ("SEC") and New York Stock Exchange.
Audit and Budget Committee members will be appointed by the Board of
Directors at the recommendation of the Chairman of the Board or the Executive
Committee. One of the members will be designated by the Committee as its
Chairman. The Chairman will preside over the Committee meetings and report
Committee actions to the Board of Directors.
MEETINGS
The Committee will meet on a regular basis at least four times annually and
will call special meetings as circumstances require. The Committee will meet
with the Chief Financial Officer and Chief Accounting Officer, and may ask other
members of management, the Company's outside counsel, independent public
accountant, or others to attend the meetings and provide pertinent information,
as necessary. The Committee will meet privately with the Company's Chief
Financial Officer; General Counsel; Compliance Officer; Vice President, Internal
Audit; and the Company's independent public accountant in separate executive
sessions to discuss any matters that the Committee; Chief Financial Officer;
General Counsel; Compliance Officer; the Vice President, Internal Audit; or the
independent public accountant believe should be discussed privately.
RESPONSIBILITIES
The Committee shall:
1. Review and reassess the adequacy of this Charter at least annually and
recommend any proposed changes to the Board for approval.
2. Meet with the independent public accountant prior to the audit to
review the planning and staffing of the audit.
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3. Review with management and the independent public accountant the
Company's quarterly financial statements prior to the release of
quarterly earnings.
4. Review with management and the independent accountant at the completion
of the annual audit:
a. The Company's annual financial statements and related footnotes,
including major issues regarding accounting and auditing principles
and practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements;
b. The independent public accountant's audit of the financial statements
and the report thereon;
c. Any significant changes required in the independent accountant's
audit plan and scope;
d. Any serious difficulties or disputes with management encountered
during the course of the audit, including any restrictions on the
scope of activities or access to required information;
e. Any management letter provided by the independent public accountant
and the Company's response to that letter; and
f. Other matters related to the conduct of the audit which are to be
communicated to the Committee under generally accepted auditing
standards.
5. Prepare the report required by the rules of the SEC to be included in
the Company's annual proxy statement, including a statement in such
report whether, based upon review and discussion, the Committee
recommends to the Board that the audited financial statements be
included in the Company's annual report on Form 10-K.
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent public
accountant, internal auditors or management.
7. Discuss with the independent public accountant the matters required to
be discussed by Statement on Auditing Standards No. 61, relating to the
conduct of the audit.
8. Recommend to the Board of Directors the appointment of the independent
public accountant, which firm is ultimately accountable to the Audit
Committee and the Board of Directors; evaluate, together with the Board
of Directors the performance of the independent public accountant and,
if so determined by the Audit Committee, recommend that the Board of
Directors replace the independent public accountant; and approve the
compensation of the independent public accountant.
9. Receive periodic written reports from the independent public accountant
regarding the auditor's independence and which delineate all
relationships with the Company; review and discuss such reports with
the auditor; and if so determined by the Audit Committee, recommend
that the Board of Directors take appropriate action to satisfy itself
of the independence of the auditor.
10. Review with management the internal audit department responsibilities,
budget and staffing.
11. Consider and approve the annual plan of the internal auditing function,
and the independent accountant's proposed audit plan, including
coordination with the internal audit plan.
12. Inquire of management and the independent public accountant about
significant risks or exposures and assess the steps management has
taken to minimize such risk to the Company.
13. Consider and approve any special audit of systems or procedures
suggested by management or the independent public accountants.
14. Consider and review with the independent public accountant and
management, as appropriate:
a. The adequacy of the Company's internal controls, including
computerized information system controls and security and training
programs; and
b. Any related significant issues identified by the independent
accountant and internal auditing department, together with
management's responses thereto.
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15. Consider and review the significant reports to management prepared by
the internal auditing department and management's responses.
16. Review with management the results of the management questionnaires
regarding compliance issues.
17. Obtain reports from management, the Company's General Counsel,
Compliance Officer, Vice President, Internal Audit, and the independent
public accountant that the Company's subsidiaries and foreign
affiliated entities are in conformity with applicable legal
requirements and the Company's compliance policies.
18. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations.
19. Review with the General Counsel and Compliance Officer legal and
regulatory matters that may have a material impact on the financial
statements, related Company compliance policies and programs and
reports or inquiries received from regulators.
20. Report Committee actions to the Board of Directors with such
recommendations as the Committee may deem appropriate.
21. Review and recommend to the Board of Directors the annual corporate
budget and corporate budget and capital or other significant
expenditure requests.
22. Assume such other duties and considerations as may be delegated to the
Committee by the Board of Directors, or required of the Committee upon
the request of the Board of Directors from time to time pursuant to a
duly adopted resolution of the Board of Directors.
In fulfilling these responsibilities, the Committee shall have full
authority to investigate any aspect of the Company's affairs within the
Committee's scope of responsibilities, at its discretion, and to retain special
legal, accounting or other consultants to advise the Committee. The Committee
shall have full and unrestricted access to all of the Company's records and
personnel. While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles -- this is
the responsibility of management and the independent public accountant. Nor is
it the duty of the Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent public accountant,
or to assure compliance with laws and regulations.
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[Form of Proxy]
[Front of Proxy]
GLOBAL TELESYSTEMS GROUP, INC.
4121 WILSON BOULEVARD
8TH FLOOR
ARLINGTON, VIRGINIA 22203
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby makes, constitutes and appoints H. Brian
Thompson, Robert A. Schriesheim and Grier C. Raclin and each of them, lawful
attorney and proxies of the undersigned, with full power of substitution, for
and in the name, place and stead of the undersigned to attend the Annual Meeting
of Stockholders of Global TeleSystems Group, Inc. at the Ritz Carlton Hotel at
Pentagon City, Arlington, Virginia on Tuesday, May 16, 2000, at 10:30 a.m.,
local time, and at any adjournment(s) thereof, with all powers the undersigned
would be entitled to vote if personally present.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ITEMS 1, 2, 3, 4 AND 5 (Continued, and to be signed and dated, on
reverse side.)
[Reverse of Proxy]
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR all [ ] WITHHOLD AUTHORITY to vote [ ] EXCEPTIONS [ ]
nominees for all nominees listed
listed below below
Nominees: Robert J. Amman, Bernard J. McFadden, Stewart J. Paperin and Alan B. Slifka
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK THE "EXCEPTIONS"
BOX AND WRITE THAT NOMINEE'S NAME IN SPACE PROVIDED BELOW.)
*Exceptions______________________________________________________________________________________
2. Approval of the increase in authorized 3. Approval of change in the Company's name
common stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ] FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of Employee Stock Purchase Plans 5. Proposal to ratify the appointment of
Ernst & Young LLP as the Company's
auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ] FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
I/we will [ ] Address [ ]
attend meeting. Change Mark
Here
Please sign exactly as name appears. When shares are held by
joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give
full title as such.
Dated:____________________________, 2000
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Signature
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Signature if held jointly
Votes MUST be indicated [ ]
(x) in Black or Blue Ink.
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PLEASE SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
