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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLOBAL TELESYSTEMS GROUP, INC.
(Exact name of registrant as specified in charter)
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DELAWARE 4813 94-3068423
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
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GRIER C. RACLIN
4121 WILSON BOULEVARD 4121 WILSON BOULEVARD
8TH FLOOR 8TH FLOOR
ARLINGTON, VIRGINIA 22203 ARLINGTON, VIRGINIA 22203
(703) 236-3100 (703) 236-3100
(Address, including zip code, and telephone (Name, address, including zip code, and telephone
number, including area code, of registrant's number, including area code, of agent for service)
principal executive offices)
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Copies to:
CHRISTOPHER C. PACI, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NY 10022
(212) 848-8515
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________________ .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ] _____________________ .
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2)(3) REGISTRATION FEE(4)
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Common Stock, par value $.10 per
share........................... 1,008,838 $13.50 $13,619,313 $3,596
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(1) Rights to purchase Series A Preferred Stock of GTS, which are also being
registered hereunder, were issued in a number equal to the shares of Common
Stock being registered hereby for no additional consideration and therefore,
no registration fee for such rights is required. Prior to the occurrence of
certain events, such rights will not be exercisable or endorsed separately
from the Common Stock. When exercisable, each such right shall entitle the
owner to purchase from GTS one one-thousandth of a share of Series A
Preferred Stock.
(2) Estimated solely for the purpose of calculating the registration fee for
1,008,838 shares of common stock pursuant to Rule 457(c) under the
Securities Act, such that the market price per share of Common Stock is
based on the average of the high and low prices reported in the consolidated
reporting system on the New York Stock Exchange on April 17, 2000.
(3) 3,700,857 shares of common stock, or $100,617,050 aggregate amount,
previously registered pursuant to Registration Statement No. 333-32760, is
being included in the Prospectus filed with this Registration Statement.
(4) The Registrant previously paid $26,563 on March 17, 2000.
Pursuant to Rule 429 of the General Rules and Regulations under the
Securities Act of 1933, the Prospectus which is a part of this Registration
Statement is a combined Prospectus relating also to Registration Statement No.
333-32760 and constitutes Post-Effective Amendment No. 1 to Registration
Statement No. 333-32760.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BE COME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION (APRIL 19, 2000)
PROSPECTUS
DATED APRIL [ ], 2000
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4,709,695 SHARES
[GLOBAL TELESYSTEMS
GROUP, INC. LOGO] GLOBAL TELESYSTEMS GROUP, INC.
COMMON STOCK
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The selling stockholders listed under "Selling Stockholders" in this
prospectus intend to offer and sell from time to time, up to 4,709,695 shares of
Global TeleSystems Group, Inc.'s common stock. Our shares currently trade on the
New York Stock Exchange under the symbol "GTS."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is April [ ], 2000.
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TABLE OF CONTENTS
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Summary..................................................... 3
Risk Factors................................................ 7
Forward-Looking Statements.................................. 24
Use of Proceeds............................................. 25
Dividend Policy............................................. 25
Industry Overview........................................... 26
Business.................................................... 28
Selling Stockholders........................................ 44
Description of Capital Stock................................ 45
Summary of United States Federal Tax Consequences to
Non-United States Stockholders............................
Plan of Distribution........................................ 52
Legal Matters............................................... 52
Where You Can Find More Information......................... 53
Incorporation of Information We File With the SEC........... 53
Experts..................................................... 54
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SUMMARY
OUR COMPANY
We are a leading independent provider of broadband, Internet, data and
voice services to businesses, other high usage customers and carriers across
Europe. We market our services through our European operations.
OUR SERVICES
We offer a portfolio of bundled voice, data and Internet services to
small-to-medium sized enterprises, pan-European companies and select residential
end-users in 18 European countries. At December 31, 1999, we had approximately
100,000 business customers. We expect that our customer base will increasingly
include large companies with complex communications needs. We are also one of
the leading European providers of managed bandwidth and related communications
services to carriers, Internet service providers and other bandwidth-intensive
customers. We have the largest centrally managed fiber optic network in Europe
and a Tier 1 Internet backbone network. At December 31, 1999, the customers of
these services were contractually obligated to pay us an aggregate of
approximately $635.0 million for future services, provided we perform in
accordance with contractual specifications. This amount increased from $450.3
million at March 31, 1999, $498.7 million at June 30, 1999 and $548.2 million at
September 30, 1999.
We seek to capitalize on the increasing demand in Europe for e-business
services and products, in which businesses use the Internet to perform key
business communications processes. We believe that a wide variety of businesses,
both large and small, will increasingly use the Internet to communicate, improve
operating efficiencies and transact commerce in secure, reliable and
cost-effective ways. We currently provide these customers with a range of voice
and data services, including, in selected European countries, dial-up and
dedicated Internet access and virtual private network services. As we develop
and expand our suite of e-business services to include, among others,
Web-hosting, co-location, messaging and remote access, we expect to realize an
increasing proportion of our revenue from businesses that rely on Web-based
applications to communicate with customers, suppliers and employees, as well as
from new customer segments, such as e-business application service providers and
other Web-centric companies.
We began providing broadband carrier services in November 1996 and we are
recognized as a pioneer in Europe in fiber optic network deployment and service
development. We have established long-term contracts with these customers. We
provide mission-critical value-added solutions to these customers and
increasingly seek to establish ourselves as their strategic partner. This
integration into our customers' operations often provides us with the
opportunity to introduce and implement additional services with the customer,
which enables us to further penetrate our customer base.
We believe that the trend toward substantial increases in the volume of
data traffic is being driven by the rapid growth of the Internet and
data-intensive applications, such as e-commerce, application hosting,
video-conferencing and multimedia applications, that require high-quality and
cost-effective transmission capacity. In addition, we believe that our customers
will increasingly demand Internet or Internet-protocol based services such as
Internet access, Web-hosting and data management services in order to
participate in the expected growth of data communication and the Internet. In
order to reinforce our leadership position, we will continue to add new services
on our network and sell our services in additional markets throughout Europe.
OUR NETWORK
In Europe, at December 31, 1999, our network has 58 carrier points of
presence in 30 cities, 18 Internet Protocol nodes in 17 cities and 46 switches
in 38 cities. The fiber optic network spans approximately 17,000 kilometers and
12 countries. We also have leased capacity from Europe to the United States from
third parties. We have purchased a dedicated fiber pair on the FLAG Atlantic-1
transatlantic fiber optic link. We expect to begin offering unprotected services
in the first quarter of 2001
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and fully protected services in the second quarter of 2001 over this fiber pair.
By owning this fiber pair, we will acquire capacity of 70 gigabits per second,
upgradeable to a maximum capacity of 400 gigabits per second of fully protected
capacity connecting the New York City area to our European network. In addition,
five intracity fiber networks are currently operational. In order to meet and
support the continuous increase in bandwidth requirements of our current and
future customers, we are upgrading the transmission equipment used on our fiber
optic network to increase our network's transmission capacity. In addition, we
intend to develop an additional ring on our network connecting the core cities
of London, Paris, Amsterdam, Frankfurt, Dusseldorf and Brussels with cable duct
that will accommodate up to 144 fibers. We also plan to install transmission
equipment on a second, currently installed fiber pair on a number of existing
routes in our network to expand our transmission capacity on those routes. We
plan to have available data and Web-hosting capabilities in London, Paris,
Frankfurt and Amsterdam by the end of the second quarter of 2000.
BUSINESS STRATEGY
Our goal is to become Europe's premier e-business services provider and to
maintain and enhance our position as a leading pan-European provider of
broadband, Internet, data and voice services to communications carriers,
Internet service providers and other high-usage customers. In order to achieve
this goal, we will build on the strengths of our pan-European broadband fiber
optic network, our pan-European Tier 1 Internet protocol backbone, our position
as a leading pan-European supplier of communications services to small- and
medium-sized businesses, with a pan-European sales and distribution network
spanning 79 European cities in 18 countries and a large base of carrier and
Internet service provider customers. The key elements of our strategy for
achieving this goal are as follows:
- Expand our services portfolio to support the communications and
e-business activities of our customers
- Leverage our distribution network to further penetrate our existing
customer base and reach new customers
- Build on our leadership position in the carriers' carrier market to
penetrate a broader bandwidth-intensive customer base
- Continue to invest in the reach and capacity of our fiber optic network
- Build infrastructure and extend our network closer to our customers
- Develop intracity fiber networks
- Expand and enhance the transatlantic capacity of our network
- Build or deploy data- and Web-hosting centers to support Web-based
services
- Enhance brand name recognition
We maintain our principal offices at 4121 Wilson Boulevard, 8th floor,
Arlington, VA 22203, and our telephone number is (703) 236-3100.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. Before
purchasing our common stock, you should consider carefully the following factors
relating to us and our business in addition to the other information contained
in this prospectus.
WE MAY BE UNABLE TO MEET OUR SUBSTANTIAL DEBT OBLIGATIONS
We have incurred substantial debt and may incur substantial additional debt
to implement our business plans.
Our ability to make principal and interest payments on our debt will depend
upon, among other things, our future operating performance. Our future operating
performance depends on a variety of factors, many of which are beyond our
control. Because of this uncertainty, we cannot assure you that we will generate
sufficient cash flow to make payments on our debt. Insufficient future cash flow
could impair our ability to raise additional equity or debt financing to expand
the reach and capacity of our network. Our cash flow could also be insufficient
to make principal and interest payments on our debt. If this happens, we may be
required to renegotiate the terms of, or to refinance, our long-term debt. We
cannot assure you that we would be able to refinance or renegotiate the terms of
our debt when required.
As a result of our current high level of debt, we:
- will need significant cash to service our debt, which will reduce funds
available for operations, future business opportunities and investments
in new or developing technologies and make us more vulnerable to adverse
economic conditions;
- may be more vulnerable to general adverse economic and industry
conditions;
- may not be able to refinance our existing debt or raise additional
financing to fund future working capital, capital expenditures, debt
service requirements, acquisitions or other general corporate
requirements;
- may be less flexible in planning for, or reacting to, changes in our
business and in the telecommunications industry that affect how we
implement our financing, construction or operating plans; and
- will have more debt than some of our competitors, which may place us at a
competitive disadvantage with respect to such competitors.
If we fail to make the required payments or to comply with our debt
covenants, we will default on our debt. A default would permit our debtholders
to accelerate the maturity of the debt, which in turn could cause defaults under
our other debt.
COVENANTS IN OUR DEBT AGREEMENTS RESTRICT OUR OPERATIONS
The covenants in our currently outstanding debt may materially and
adversely affect our ability to finance our future operations or capital needs
or to engage in other business activities. Among other things, these covenants
limit our ability to:
- incur additional debt;
- pay dividends or make certain other restricted payments;
- limit our ability to use our assets as collateral for loans;
- dispose of our assets;
- enter into transactions with affiliates; or
- consolidate, merge or sell all or substantially all of our assets and the
assets of our subsidiaries.
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COMPETITORS WITH GREATER RESOURCES MAY ADVERSELY AFFECT OUR REVENUES
The markets for managed bandwidth services, local and long distance
telecommunications services, Internet connectivity and related services are
extremely competitive. The ongoing liberalization of the European
telecommunications market has coincided with technological innovation to create
an increasingly competitive market, characterized by still-dominant incumbent
telecommunications operators as well as an increasing number of new market
entrants. We anticipate that competition will continue to intensify as the use
of the Internet grows. The tremendous growth and potential market size of these
markets, particularly the IP services market, has attracted many new start-ups
as well as established businesses from different industries. We compete
primarily on the basis of the pan-European coverage of our network, the range
and quality of services offered, customer service and price. Competitors have
forced us, and may continue to force us, to lower our prices or modify our
service offerings to remain competitive. We cannot assure you that we will be
able to effectively market our expanded service offerings, keep prices at a
profitable level or attract and retain customers. Specifically, prices for
domestic and international long distance calls have decreased substantially over
the last few years in most of our current and potential markets. We anticipate
continued pricing reductions by our competitors, and, accordingly, expect the
prices for our bandwidth services and voice services to continue to decrease for
the foreseeable future. Many competitors have established customer bases and
extensive brand name recognition and have greater financial, management and
other resources.
COMPETITION FOR CUSTOMERS OF OUR VOICE, DATA AND INTERNET SERVICES
Competitors for these customers include large established national
carriers, alliances among telecommunications companies, competitors that own
equipment and networks, companies that purchase and resell the services of other
carriers, Internet service providers and other providers of bundled services. We
may also face competition from cable television companies, wireless telephone
companies, microwave carriers and satellite companies. Many of these competitors
have established customer bases and extensive brand name recognition and have
greater financial, management and other resources. Our medium-to-large-sized
business and governmental agency customers may also be reluctant to entrust
their telecommunications needs to what they perceive to be a relatively new and
unproven operator.
In the area of e-business services, our current and prospective competitors
include the public telephone operators, other national, regional and local ISPs,
long distance and local exchange telecommunications companies, cable television,
direct broadcast satellite, wireless communications providers and on-line
service providers. In addition, several major European cable companies have
announced that they are exploring the possibility of offering Internet
connectivity, relying on innovative technologies to upgrade their networks.
Several announcements have also recently been made by other alternative service
companies approaching the Internet connectivity market with various wireless
terrestrial and satellite-based service technologies.
Recently, there have also been several announcements regarding the planned
deployment of broadband services for high speed Internet access by
telecommunications companies, including KPN Qwest B.V. and others. These
services would include new technologies such as digital subscriber lines. These
providers have initially targeted the residential consumer. However, it is
likely that their target markets will expand to encompass business customers,
which is our target market. This expansion could adversely affect the pricing of
our service offerings. Moreover, a number of free ISP services have recently
been introduced and some ISPs are offering free personal computers to their
subscribers. These trends could have a material adverse effect on our business,
financial condition and results of operations.
COMPETITION FOR CUSTOMERS OF OUR BROADBAND SERVICES
With respect to our broadband services, we compete with various
telecommunications companies, including MCI WorldCom, Inc., Viatel, Inc., KPN
Qwest B.V., COLT Telecom Group plc, Level 3 Communications, Inc., Carrier1
International S.A., Deutsche Telekom AG, France Telecom S.A., Global Crossing
Ltd. and British Telecommunications plc. Some of these entities have announced
plans to
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construct, have begun to construct or are already operating high bandwidth fiber
optic networks across various European countries and in several European
metropolitan markets and in some cases, provide transatlantic connectivity.
These existing and future networks do or will compete with our network and our
planned intracity fiber networks.
For more information on the competitors for our customers, see
"Business -- Competition."
OUR COMPETITIVE POSITION AND ABILITY TO PROVIDE SERVICES MAY BE COMPROMISED BY
OUR DEPENDENCE ON OTHER TELECOMMUNICATIONS SERVICE PROVIDERS
We need to enter into interconnection agreements with large established
national carriers operating in our target markets. We also rely on local service
providers to provide local access services to enable our customers to link to
our fiber optic network. We may also need to enter into agreements which permit
us to place our equipment at the facilities of such third parties and/or lease
telecommunications transport capacity from such third parties. Failure to enter
into interconnection and other agreements which provide satisfactory pricing and
other terms could affect our ability to compete in a targeted market. In
addition, we have experienced delays in provisioning of local access services to
enable our customers to connect to our network. We continue to experience
provisioning delays that will delay our ability to provide services contracted
for by the customer and therefore defer our recognition of revenue to later
periods.
WE MAY EXPERIENCE A POTENTIAL LACK OF CUSTOMER DEMAND
Although we have been delivering services to a number of customers and have
experienced demand for services in the past, we cannot assure you that customer
demand for services over our network will continue to grow. Further, we cannot
assure you that there will be enough customer demand to realize the anticipated
cash flow, operating efficiencies and cost benefits of our network.
EUROPEAN USE OF THE INTERNET, ELECTRONIC COMMERCE, DATA TRANSMISSION SERVICES,
MULTIMEDIA AND OTHER BANDWIDTH INTENSIVE APPLICATIONS MAY NOT INCREASE AS WE
EXPECT
Our business plan assumes that European use of the Internet, electronic
commerce, data transmission services, multimedia and other bandwidth-intensive
applications will increase substantially in the next few years, in a manner
similar to the increased use in the United States market in the past few years.
If the use of data transmission services, multimedia and bandwidth-intensive
applications in Europe does not increase as we anticipate, demand for many of
our value added services, including managed bandwidth services, Internet
protocol transit services and data- and Web-hosting services, will be lower than
we currently anticipate. Reduced demand for our services will have a negative
effect on our pricing power and our financial condition.
SUBSTANTIAL ADDITIONAL CAPITAL IS REQUIRED TO EXPAND OUR NETWORK
We will require significant amounts of capital to develop and expand our
network. We expect to incur between $900 million and $950 million through 2000
in additional capital expenditures, including capital lease obligations, to
expand the reach and capacity of our network, construct intracity fiber
networks, deploy data- and Web-hosting centers in our target metropolitan
markets, expand our e-business services offering, and purchase equipment to
upgrade the capacity of the dedicated fiber pair we have purchased on the FLAG
Atlantic-1 transatlantic fiber link. However, the actual amount and timing of
our future capital requirements may differ from our estimates. Thus, additional
financing may be needed to expand the reach and capacity of our network, to
construct our intracity fiber networks, deploy data- and Web-hosting centers,
fund initiatives related to our e-business services offering, to purchase
equipment to upgrade the capacity of the dedicated fiber pair we have purchased
on the FLAG Atlantic-1 transatlantic fiber link and for general working capital
purposes. We cannot assure you that such additional financing will be available
on terms acceptable to us or at all. If we fail to obtain this financing, we
might have to delay or abandon our plans for expanding the reach and capacity of
our network, constructing our intracity fiber networks, deploying data- and
Web-hosting centers, expanding our e-business services offering, and purchasing
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equipment to upgrade the capacity of the dedicated fiber pair we have purchased
on the FLAG Atlantic-1 transatlantic fiber link. Delaying or abandoning these
plans could have a material adverse effect on our financial condition.
OUR ACTUAL COSTS AND REVENUES MAY VARY FROM WHAT WE EXPECT THEM TO BE
Our revenues and the costs of expanding the reach and capacity of our
network, constructing our intracity fiber networks, deploying data- and
Web-hosting centers, expanding our e-business services offering, purchasing
equipment to upgrade the transmission capacity of the dedicated fiber pair we
have purchased on the FLAG Atlantic-1 transatlantic fiber link and operating our
business depend upon a variety of factors, including our ability to:
- efficiently manage the enhancement of our network and operations;
- access markets and attract a sufficient number of customers;
- negotiate favorable contracts with suppliers;
- obtain additional licenses, regulatory approvals, rights-of-way and
infrastructure contracts;
- provide and develop services to which our customers will subscribe; and
- effectively manage our billing and information systems.
Our revenues and costs are also dependent upon factors that are not within our
control, including:
- regulatory changes;
- changes in technology;
- increased competition;
- strikes;
- weather; and
- performance by third-parties, including our vendors, infrastructure
providers and customers, in connection with the enhancement of our
network.
Due to the uncertainty of these factors, our actual costs and revenues may vary
from what we expect them to be and our future capital requirements might
increase. Accordingly, we cannot assure you that the amount of funds required to
enhance our network and construct our City Enterprise Networks and deploying
data- and Web-hosting centers will not be greater than anticipated.
WE MAY FACE DIFFICULTIES IN INTEGRATING, MANAGING AND OPERATING NEW TECHNOLOGIES
Our operations depend on our ability to successfully integrate new and
emerging technologies and equipment. These include the technology and equipment
required for dense wavelength division multiplexing, which allows multiple
signals to be carried simultaneously. Integrating these new technologies could
increase the risk of system failure and result in further strains on our
resources. Additionally, any damage to our network management center or our
major switching centers could harm our ability to monitor and manage the network
operations and generate accurate call detail reports from which billing
information is derived. See "Business -- Our European Operations," and
"Business -- Our Network Infrastructure."
THE TECHNOLOGY OF OUR NETWORK COULD BECOME OBSOLETE AND HARM OUR COMPETITIVENESS
If our network is not able to meet its design specifications or if it is
unable to keep pace with technological changes in the telecommunications
industry, our network could become obsolete. Our network utilizes dense
wavelength division multiplexing and synchronous digital hierarchy technology,
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another digital transmission standard that facilitates the compatibility of
dissimilar equipment from different vendors. While the currently operational
portion of our network has performed at or above design specifications since
November 1996, our network may not achieve the technical specifications which we
designed it for. Additionally, we may be unable to allocate the funds necessary
to upgrade our network as technological improvements in telecommunications
equipment are introduced. This could harm our competitive position relative to
other more technologically advanced networks. See "Business -- Broadband
Services" and "Business -- Our Network Infrastructure."
INTEGRATION OF ACQUISITIONS
Although we have integrated the management of companies that we acquired
during 1999, GTS (Europe) Ltd. (formerly Espirit Telecom Group plc), NetSource,
Omnicom, and InTouch, we are still in the process of realizing the synergies
that we expected from these acquisitions. There can be no assurance that we will
realize such synergies.
WE MAY ENCOUNTER DELAYS IN IMPLEMENTING KEY ELEMENTS OF OUR BUSINESS STRATEGY
Our ability to achieve our strategic objectives will depend in large part
on the successful, timely and cost-effective realization of numerous elements of
our business plan, including:
- our plan to develop and offer seamless connectivity between Europe and
the United States;
- our plan to construct intracity fiber networks in sixteen major European
cities by year-end 2001;
- our plan to establish data- and Web-hosting centers in up to 13 major
European cities by year-end 2001;
- our plan to construct an additional ring connecting London, Paris,
Amsterdam, Frankfurt, Dusseldorf and Brussels;
- our plan to expand our offering of e-business services;
- the execution of agreements with various parties regarding, among other
things, rights-of-way, lease of dark fiber and development and
maintenance of infrastructure and equipment;
- the timely performance by third parties of their contractual obligations
to engineer, design and construct the infrastructure underlying our
intracity fiber networks, the extension of our network and the planned
transatlantic cable operated by the FLAG Atlantic-1 joint venture; and
- activation of full capacity on the FLAG Atlantic-1 transatlantic cable
which could be delayed or prevented if the FLAG Atlantic-1 joint venture
fails to comply with interest coverage and other financial ratios in the
credit facility it has entered into to finance construction of the cable.
We cannot assure you that we will successfully execute these elements of our
business plan. In addition, any delays in realizing these elements of our
strategy would materially and adversely affect the timely or successful
realization of our business plan.
We believe that our cost estimates and the build-out schedules for our
intracity fiber networks and data and Web-hosting centers are reasonable with
respect to these projects. However, the actual costs or time required to
complete the plans could substantially exceed current estimates. Any significant
delay or increase in the costs to develop such plans could have a material
adverse effect on our operations.
OUR INABILITY TO IDENTIFY FUTURE ACQUISITION OPPORTUNITIES OR ACQUIRE THE
FINANCIAL AND MANAGEMENT RESOURCES TO PURSUE SUCH OPPORTUNITIES MAY HINDER OUR
ABILITY TO EXECUTE OUR BUSINESS PLAN
Our inability to successfully implement our acquisition strategy may hinder
the expansion of our business and make our services less attractive to customers
seeking a geographically broader network. We believe that additional attractive
acquisition opportunities currently exist in Western and Central Europe and the
United States. We continuously evaluate attractive acquisition opportunities
and, at any given
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time, may be engaged in discussions with respect to possible material
acquisitions or other business combinations. Although we have discussions with
other companies to assess opportunities on an ongoing basis, we do not currently
have a definitive agreement with respect to any material acquisition or joint
venture. We may be unable to identify, finance and complete, on acceptable
terms, suitable acquisitions, transactions or business combinations.
Furthermore, we may not be able to raise the additional capital necessary to
fund such acquisitions and may have to divert management's attention and our
financial and other resources from other areas.
WE MAY CONTINUE TO HAVE SUBSTANTIAL NET LOSSES INDEFINITELY WHICH MAY MAKE IT
DIFFICULT TO FUND OUR OPERATIONS
We have historically sustained substantial operating and net losses. If we
do not become profitable in the future, the value of our common stock may fall
and we could have difficulty obtaining funds to continue our operations.
We expect to continue incurring significant operating losses during the
next several years while we expand our operations, infrastructure, service
offerings and customer base in our target markets. In particular, we expect to
have negative cash flow for the 2000 fiscal year.
WE MAY NOT IMPLEMENT BILLING AND MANAGEMENT INFORMATION SYSTEMS EFFECTIVELY AND
ON SCHEDULE
We are converting the existing billing systems in the various businesses we
have acquired to a new billing system that we believe will provide the
capability and flexibility to support our anticipated growth. If our new billing
and management information systems are not effectively implemented, our call
details may not be accurately recorded and customer bills may not be generated
promptly and accurately. This would adversely impact our business since we would
not be able to promptly invoice and collect on customer balances due to us. See
"Business -- Our Network Infrastructure -- Operations, Systems and Support."
SYSTEM FAILURES OR INTERRUPTIONS IN OUR NETWORK MAY CAUSE LOSS OF CUSTOMERS
Our success depends on the seamless uninterrupted operation of our network
and on the management of traffic volumes and route preferences over our network.
Furthermore, as we continue to expand our network to increase both its capacity
and reach, and as traffic volume continues to increase, we will face increasing
demands and challenges in managing our circuit capacity and traffic management
systems. Our network is vulnerable to damage or cessation of operations from:
- fire;
- earthquakes;
- severe storms;
- power loss;
- natural disasters;
- damage from human error and tampering;
- software defects;
- capacity limitations;
- breaches of security;
- physical break-ins;
- intentional acts of vandalism;
- telecommunications failures; and
- other factors that can cause interruptions in service or reduced capacity
for our customers.
We have designed our network to minimize the risk of such system failure
but we cannot assure that we will not experience failures or shutdowns relating
to individual points of presence or even catastrophic failure of the entire
network. Such significant or prolonged system failures or shutdowns could damage
our reputation and result in the loss of customers.
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ALTHOUGH WE HAVE IMPLEMENTED NETWORK SECURITY MEASURES, OUR NETWORK MAY BE
SUSCEPTIBLE TO VIRUSES, BREAK-INS OR DISRUPTIONS
We have implemented many network security measures, such as limiting
physical and network access to our routers. Nonetheless, our network's
infrastructure is potentially vulnerable to computer viruses, break-ins and
similar disruptive problems caused by our customers or other Internet users.
Computer viruses, break-ins or other problems caused by third parties could lead
to interruptions, delays or cessation in service to our customers. Furthermore,
inappropriate use of the Internet by third parties could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers. This could, in turn, deter potential customers and
adversely affect our existing customer relationships.
Security problems represent an ongoing threat to public and private data
networks. Attacks upon the security of Internet sites and infrastructure
continue to be reported in the press. Addressing problems caused by computer
viruses, break-ins or other problems caused by third parties could have a
material adverse effect on us.
The security services that we offer in connection with our customers'
networks cannot assure complete protection from computer viruses, break-ins or
other disruptive problems. Although we attempt to limit contractually our
liability in such instances, the occurrence of such problems may result in
claims against us or could have a material adverse effect on our business or
reputation or on our ability to attract and retain customers for our services.
Moreover, until more consumer reliance is placed on security technologies
available, the security and privacy concerns of existing and potential customers
may inhibit the growth of the Internet service industry and our customer base
and revenues.
OUR BUSINESS WILL SUFFER IF WE LOSE KEY PERSONNEL OR FAIL TO ATTRACT AND RETAIN
OTHER QUALIFIED PERSONNEL
Our operations are managed by a small number of key executive officers. The
loss of any of these officers could have a negative effect on our business. The
loss of senior management or the failure to recruit additional qualified
personnel in the future could significantly impede our financial plans, network
development, marketing and other objectives. Although we have designed incentive
and compensation programs to retain key employees and have entered into
employment agreements with certain executive officers, we cannot assure you as
to the continued availability of qualified key executive officers.
We believe that our growth and future success will depend in large part on
our continued ability to attract and retain highly skilled and qualified
management, marketing, technical and sales executives and other personnel who
are in high demand and often have multiple employment options. The competition
for qualified management, marketing, technical and sales executives and other
personnel in the telecommunications industry is intense. We will also need to
train our sales personnel to ensure that we successfully market our expanded
offering of e-business services to our business customers. We may lose key
employees or be forced to increase their compensation. We cannot assure you that
we will be able to hire, retain or successfully train necessary personnel.
WE MAY ENCOUNTER DELAYS, OPERATIONAL PROBLEMS AND INCREASED COSTS IF WE ARE
UNABLE TO ACQUIRE KEY EQUIPMENT FROM OUR MAJOR SUPPLIERS
We are significantly dependent on the technology and equipment which we
acquire from telecommunications equipment manufacturers that may provide vendor
financing for, and maintenance of, this equipment. Without this equipment, we
would face delays, operational disruption and higher expenses. Our main
suppliers are Ciena, Alcatel, Nortel, Ericsson, Siemens and Cisco Systems. While
we could obtain equipment of comparable quality from several alternative
suppliers, we may be unable to acquire compatible equipment from such
alternative sources on a timely and cost-efficient basis.
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WE WILL LOSE TAX BENEFITS IF WE ARE UNABLE TO USE OUR NET OPERATING LOSS
CARRYFORWARDS
As of December 31, 1999, we had net operating loss carryforwards for U.S.
federal tax purposes of approximately $183.8 million expiring in 2004 through
2019. We cannot assure you that U.S. tax authorities will allow us to apply
these loss carryforwards, in part or full, to reduce taxes on our future income.
Because of the change in ownership provisions of the Tax Reform Act of 1986, our
ability to use the tax benefits from our net operating loss carryforwards may be
subject to an annual limit.
OUR INFRASTRUCTURE MAY NOT KEEP PACE WITH OUR RAPID GROWTH
Our operating and financial control systems and infrastructure may not be
adequate to maintain and effectively manage future growth. If we fail to
continually upgrade our administrative, operating and financial control systems,
or if unexpected expansion difficulties arise as a result of our rapid growth,
our business, results of operations and financial condition could suffer a
material adverse effect. We must also purchase additional telecommunications
facilities and expand, train and manage our employee base. Inaccuracies in our
forecasts of market demand could result in insufficient or excessive
telecommunications facilities and fixed expenses that are not in line with our
operations. As we proceed with our development and expansion, there will be
additional demands on our customer support, sales and marketing and
administrative resources and network infrastructure.
FAILURE TO CARRY SUFFICIENT TRAFFIC ON OUR LEASED LINES COULD CAUSE US TO INCUR
LOSSES ON THE LEASED PORTION OF OUR NETWORK
The revenues generated by transporting traffic in our leased fiber routes
may vary with traffic volumes and prices. Accordingly, if we do not carry enough
traffic volume over the particular route or are unable to charge an appropriate
price for such traffic, we could fail to generate revenue sufficient to cover
our lease costs, and would therefore incur operating losses on the particular
route or routes. For a more comprehensive discussion of our network agreements,
see "Business -- Our Network Infrastructure -- Network Agreements."
RISKS ASSOCIATED WITH REGULATORY MATTERS
DELAYS IN LIBERALIZATION OF THE EU TELECOMMUNICATIONS MARKET MAY ADVERSELY
AFFECT EXECUTION OF OUR BUSINESS STRATEGY
A substantial portion of our strategy depends on the timely implementation
of regulatory liberalization of the EU telecommunications market. We may
implement our business plan and make capital expenditures in a given country in
anticipation of regulatory liberalization which may not occur. This
liberalization is occurring in accordance with existing European Commission
directives. Even if an EU member state promptly adopts liberalization measures
in a timely fashion, established national or regional telecommunications
operators, regulators, trade unions and other sources may resist implementing
such measures. Further, our provision of services in Europe and the
implementation of our business plan may be materially adversely affected if any
EU member state imposes greater restrictions on international services between
the EU member state and non-EU countries.
DELAYS IN OBTAINING REGULATORY LICENSES AND APPROVALS COULD ADVERSELY AFFECT
OUR PLANS TO OFFER SERVICES IN OUR TARGETED MARKETS
Because we plan to provide an expanded array of telecommunications services
in Europe, we will become subject to significant additional regulation at the
EU, national and local levels. In particular, we must obtain and renew
agreements for the long-term lease of dark fiber, rights-of-way and other
permits to install fiber optic cable from railroads, utilities and governmental
authorities to expand the geographic reach of the network. We must also apply
for permits and other regulatory approval from government and local authorities
to construct our intracity fiber networks. In addition, we are dependent on FLAG
Atlantic Limited applying for and obtaining the permits and other regulatory
approvals required to build and operate the FLAG Atlantic-1 transatlantic cable
link. We cannot assure you that we or (as to FLAG
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Atlantic-1) FLAG Atlantic Limited will be able to obtain or maintain the
necessary lease agreements, regulatory approvals, rights and permits on a timely
basis or that we will not be adversely affected by regulatory developments,
which could have a material adverse effect on these planned businesses. Delays
in receiving regulatory approvals, or the enactment of adverse regulations or
regulatory requirements, may delay or prevent us from expanding the geographic
reach of our network and our service offering.
WE MAY BE LIABLE FOR INFORMATION DISSEMINATED THROUGH OUR NETWORK IN EU MEMBER
STATES
The law relating to the regulation and liability of Internet service
providers in relation to information carried or disseminated is developing.
The EU Commission has prepared a proposal for a directive on certain legal
aspects of electronic commerce, which, if adopted by the European Parliament and
Council, would require member states to make certain changes to national laws.
The proposed directive would apply to us and other service providers established
in the EU and aims to establish a consistent legal framework for electronic
commerce within the EU.
The proposed directive includes provisions which would limit the liability
(other than for prohibitory injunctions) of "intermediaries" (such as Internet
service providers and carriers that transmit or host information provided by
third party users of the service) in respect of certain access, caching and
hosting services provided by them, subject to compliance with certain
conditions. The limitations potentially limit civil and criminal liability for
all types of illegal activities initiated by third parties on-line (e.g.
copyright piracy, unfair competition practices, misleading advertising,
copyright infringements, defamation, trademark infringements). If an
intermediary fails to qualify for such limitations, the nature and scope of its
liability will be established on the basis of member states' existing
legislation which may not provide us with the same protections from liability.
The proposed directive is still under review with member states and it is
impossible to predict whether it will eventually be adopted and, if so, in what
form. Decisions, laws, regulations and other activities regarding regulation and
content liability may adversely affect the development and profitability of
companies offering Internet access services, including us.
The imposition upon Internet and Web-hosting service providers of potential
liability for material carried on or disseminated through their systems could
require us to implement measures to reduce our exposure to liability. Such
measures may require that we spend substantial resources or discontinue some of
our service offerings. Any of these actions could have a material adverse effect
on our business, operating results and financial condition.
THERE MAY BE RESTRICTIONS ON OUR ABILITY TO CARRY CERTAIN TRAFFIC THROUGH OUR
NETWORK IN EU MEMBER STATES
In October 1999, the EU adopted a directive on data protection which
establishes minimum levels of protection for personal information and imposes
limits on the collection, processing, storage and dissemination of such data
without the subject's consent. The directive is being implemented in EU member
states in various stages. Certain functions that we and our carrier customers
perform (such as storage of routing and billing information) are subject to the
directive. The directive forbids the transfer of personal information collected
in the EU to countries that lack "adequate" privacy protection. At the moment,
the United States is not judged to have "adequate" privacy protection. The EU
and U.S. authorities are currently holding discussions aimed at resolving this
issue and enabling the free circulation of personal information between the EU
and the United States. However, if these discussions are not successful, there
is a possibility that the movement of certain types of telecommunications
traffic from the EU to the United States could be disrupted, with consequent
impact on our revenues.
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OUR MANAGEMENT, LEGAL AND FINANCIAL CONTROLS MAY HAVE BEEN INADEQUATE TO ENSURE
THAT WE COMPLIED WITH APPLICABLE LAWS
Our reporting and control standards may have been insufficient in emerging
markets to ensure that certain practices complied with all applicable laws. If
we or any of our ventures were found to have been involved in unlawful
practices, we or our ventures could be exposed, among other things, to
significant fines, the risk of prosecution and the loss of its licenses. Russia
and the other independent countries of the CIS in which we operate lack
corporate management and financial reporting legal requirements, and have
underdeveloped banking, computer and other internal control systems.
Additionally, we have had difficulty hiring and retaining qualified employees in
these markets. As a result, we have had difficulty in emerging markets:
- establishing internal management, legal and financial controls;
- collecting financial data;
- preparing financial statements, books of account and corporate records;
and
- instituting business practices that meet Western standards.
In light of these circumstances, in the second half of 1996 we increased
our efforts to improve our management and financial controls and business
practices. In early 1997, we retained special outside counsel to conduct a
thorough review of our business practices in the emerging markets in which we
operate. In addition, in June 1999, our special counsel completed an update of
the 1997 review in Russia and Ukraine. Neither the review nor the update
identified any violations of law that we believe would have a material adverse
effect on our or Golden Telecom's financial condition. However, we cannot ensure
that all potential deficiencies have been properly identified or that
governmental authorities will not disagree with our assessment. If our or Golden
Telecom's control procedures and compliance programs are not effective or if
governmental authorities determine that we or Golden Telecom have violated any
law, depending on the penalties assessed and the timing of any unfavorable
resolution, our or Golden Telecom's future results of operations and cash flows
could be materially adversely affected.
RISKS RELATED TO GOLDEN TELECOM
TURMOIL IN RUSSIA AND THE CIS CREATES SIGNIFICANT UNCERTAINTY FOR GOLDEN
TELECOM'S OPERATIONS
To date, we have earned a significant portion of our revenue from
operations in Russia and the other countries of the CIS. All foreign companies
operating in the former Soviet Union, including our subsidiary Golden Telecom,
face significant political, economic, regulatory, legal and tax risks, as
described below.
CONTINUING POLITICAL INSTABILITY IN THE COUNTRIES WHERE GOLDEN TELECOM OPERATES
COULD DEPRESS FOREIGN AND LOCAL INVESTMENT AND SPENDING, WHICH COULD ADVERSELY
AFFECT ITS RESULTS OF OPERATIONS
Since the dissolution of the Soviet Union in December 1991, Russia and
Ukraine have been undergoing significant political and economic transformation,
the result of which is a generally unstable political climate characterized by
frequent changes in governments, political gridlock in the legislative process,
widespread corruption among government officials and a significant rise in
organized crime and other criminal activity.
This political and economic instability in Russia, Ukraine and the other
countries where Golden Telecom operates could disrupt the direction and the pace
of political and economic reforms. Such a disruption could discourage foreign
and local investment and spending, in which case demand for Golden Telecom's
services could decrease and Golden Telecom's results of operations could
deteriorate. If this were to occur, then the market price of our stock could
decrease.
In addition, a dramatic change in government policies permitting foreign
investment or the privatization of the telecommunications industry could also
have a material adverse effect on Golden Telecom's operations.
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ECONOMIC INSTABILITY IN RUSSIA AND UKRAINE COULD ADVERSELY AFFECT THE DEMAND
FOR GOLDEN TELECOM'S SERVICES AND ITS ABILITY TO COLLECT ON INVOICES
Since August 1998, the Russian and Ukrainian economies have remained in a
depression that has been exacerbated by political instability. If the political
situations in these countries do not stabilize and their economies do not
strengthen, we expect that demand for Golden Telecom's services will remain
depressed. The failure of the Russian and Ukrainian economies has also weakened
the financial condition and the results of operations of many of Golden
Telecom's customers. As a result, some of these customers have been unable to
pay Golden Telecom's invoices, and Golden Telecom's revenues have suffered
accordingly.
THE RUSSIAN BANKING CRISIS COULD ADVERSELY AFFECT GOLDEN TELECOM'S ABILITY TO
CONVERT RUBLES TO HARD CURRENCY AND MANAGE CASH FLOWS
The instability of the ruble and the institution of further restrictions on
certain foreign exchange payments could negatively affect our ability to convert
rubles into foreign currency and transfer foreign exchange payments out of
Russia. Through Golden Telecom, we have earned and continue to earn significant
revenue in Russia. The value of the ruble against the U.S. Dollar, however, has
steadily declined. As a result of the August 17, 1998 decision by the Russian
Government and the Central Bank of Russia to devalue the ruble and its
aftermath, the value of the ruble against the U.S. Dollar has fallen even more
significantly, negatively affecting Golden Telecom's financial performance.
During the quarter ended September 30, 1998, Golden Telecom recorded a $13.1
million pre-tax charge, the largest portion of which consisted of foreign
currency exchange losses on Golden Telecom's net monetary assets that are
denominated in rubles. Since the August 17th decision, the Russian authorities
have been unable to maintain a stable exchange rate. Thus, an additional
significant and sudden decline in the value of the ruble might occur which could
negatively affect Golden Telecom's financial performance and require Golden
Telecom and us to record another significant pre-tax charge.
Golden Telecom's ability to hedge against further declines in the values of
the ruble by converting to other currencies is significantly limited. The ruble
is generally non-convertible outside Russia. Within Russia, the market for
converting rubles into other currencies is limited and is subject to rules that
restrict the purposes for which conversion and payment are allowed. This market
may become even more restricted or may cease to exist as a result of policies
the Russian government may implement.
The 90-day moratorium that the August 17th decision imposed on certain
foreign exchange payments delayed transfers of funds. Although the 90-day
moratorium has expired, it could be renewed or established in another form if
the Russian government and Central Bank anticipate further liquidity crises. Any
delay in converting rubles into foreign currency to make a payment or delay in
the transfer of such foreign currency could have a material adverse effect on
operations.
Golden Telecom manages intercompany liquidity through a cash collateralized
debt facility offered through a Western bank operating under a Russian banking
licence. If Golden Telecom loses access to this or a similar hard currency
facility, its ability to manage its liquidity position and foreign exchange risk
may suffer.
THE REORGANIZATION OF THE RUSSIAN AND UKRAINIAN TELECOMMUNICATIONS INDUSTRIES
MAY CREATE STRONGER COMPETITION FOR GOLDEN TELECOM
Russia
The Russian government has reorganized the telecommunications industry so
that one entity, Svyazinvest, controls Rostelecom, Golden Telecom's partner in
Sovintel, and most of Golden Telecom's other principal joint venture partners.
According to recent reports in the Russian business press,
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Rostelecom is proposed to be merged with Svyazinvest. This reorganization could
make it more difficult for Golden Telecom to attract and retain customers
because:
- Rostelecom may exercise its influence in Svyazinvest to cause regional
telephone companies to route domestic and international traffic
originating in the regions through Rostelecom rather than through Golden
Telecom;
- Golden Telecom's business relationships with its joint venture partners,
which make up a major component of our business strategy in Russia, may
suffer; and
- The effective consolidation of Rostelecom with Golden Telecom's joint
venture partners would create greater competition for Sovintel and Golden
Telecom's regional TeleRoss ventures.
Ukraine
In preparation for a large-scale privatization, the Ukrainian government
has reorganized the state telecommunications sector so that Ukrtelekom, the
state telecommunications operator, holds all the government's interests in the
telecommunications industry. Furthermore, the Ukrainian government has been
negotiating with the foreign partners of Utel, its joint venture which provides
international and domestic long distance services, to buy out their interests in
the company. It is anticipated that after the foreign partners are bought out,
Utel would then merge with Ukrtelekom.
The emergence of a single powerful Ukrainian telecommunications provider
could make it more difficult for Golden Telecom to attract and retain customers
because:
- A single Ukrainian operator with political connections would be more
likely to be able to influence the Ukrainian government to create
favorable market conditions for itself and cause unfavorable conditions
for Golden Telecom;
- The new company is likely to become a stronger competitor;
- Golden Telecom's ability to negotiate reasonable interconnection rates
may suffer; and
- Any subsequent privatization of Ukrtelekom may bring in strong management
and resources from a major Western telecommunications operator,
increasing its competitive strengths.
MORE RESTRICTIVE RUSSIAN AND UKRAINIAN TELECOMMUNICATIONS POLICIES COULD
CONSTRAIN GOLDEN TELECOM'S OPERATIONS
Russian and Ukrainian telecommunications regulations govern the issuance
and continuing validity of Golden Telecom's licenses and the terms and
conditions under which it provides services. Changes to these regulations may
make it prohibitively expensive for Golden Telecom to provide services and could
have a material adverse effect on Golden Telecom's results of operations.
Russia's parliament recently adopted legislation which, if implemented,
could restrict foreign ownership of telecommunications operators if necessary to
protect the social order and national security. Any change to current government
regulations or policies that negatively affects Golden Telecom's licenses or its
ability to obtain licenses in the future would restrict our operations in
Russia.
Ukrainian regulatory authorities have established mandatory tariff
guidelines for wireline services. Golden Telecom's pricing structure in its
wireline business in Ukraine is in excess of the limits established in the
mandatory guidelines. Any enforcement action undertaken in regard to the pricing
guidelines by Ukrainian authority could result in fines or in the suspension or
revocation of its Ukrainian licenses.
Ukrainian legislation prohibits the establishment and operation of
telecommunications ventures that are more than 49%-owned by foreign investors.
Golden Telecom does not believe that this prohibition extends to indirect
investment by a foreign entity through a wholly owned Ukrainian subsidiary.
Golden Telecom's investments in Golden Telecom (Ukraine) are made both directly
through a foreign company and indirectly through a wholly owned Ukrainian
subsidiary. In connection with the initial public offering
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of common stock of Golden Telecom, its partner in Golden Telecom (Ukraine), an
affiliate of ING Barings, contributed to Golden Telecom its interest in Golden
Telecom (Ukraine) in exchange for approximately 420,000 newly issued shares of
Golden Telecom. As a result, Golden Telecom's direct and indirect investment in
Golden Telecom (Ukraine) has increased to 69%. If Ukrainian authorities
determine that the prohibition against foreign participation extends to indirect
holdings, then Golden Telecom would be in violation of this legislation. The
consequences of this violation are unpredictable and may include license
suspension or revocation, or an order to divest a portion of Golden Telecom's
holdings.
GOLDEN TELECOM MAY BE UNABLE TO ENFORCE ITS RIGHTS DUE TO CONFUSION IN
RUSSIA'S LAWS AND LEGAL STRUCTURES
The current confusion with the Russian and CIS legal structure makes it
difficult to know if Golden Telecom would be able to enforce its rights in
disputes with its joint venture partners or other parties, or if Golden Telecom
are in compliance with all applicable laws, rules and regulations. Furthermore,
the dispersion of regulatory power among a number of government agencies in
Russia and the other independent countries of the CIS has resulted in
inconsistent or contradictory regulations and unpredictable enforcement. The
Russian and other CIS governments have rapidly introduced laws and regulations
and have changed their legal structures in an effort to make their economies
more market-oriented, resulting in considerable legal confusion, especially in
areas of the law that directly affect Golden Telecom's operations. We cannot
assure you that local laws and regulations will become stable in the future.
Golden Telecom's ability to provide services in Russia and the other independent
countries of the CIS could be adversely affected by difficulties in protecting
and enforcing its rights and by future changes to local laws and regulations.
CORRUPTION AND ORGANIZED CRIME IN RUSSIA AND UKRAINE MAY ADVERSELY AFFECT
GOLDEN TELECOM'S OPERATIONS
Russia and Ukraine are both plagued with widespread corruption and criminal
activity. High levels of corruption exist among government officials and among
commercial enterprises in which the state has an ownership interest. So long as
organized crime in Russia and Ukraine remains pervasive, we believe Golden
Telecom's employees may be subjected to threats of violence, or property may be
damaged, or both.
GOLDEN TELECOM'S RUSSIAN AND UKRAINIAN TAX BURDENS MAY BE SIGNIFICANTLY
GREATER THAN CURRENTLY ANTICIPATED
Russia
It is possible that Golden Telecom's Russian taxes may be greater than the
estimated amount that Golden Telecom and we have expensed to date and accrued on
our balance sheets. The Russian tax system has many uncertainties and Russian
tax authorities have become increasingly aggressive in their interpretation of
the tax law, and in their enforcement and collection activities. Any additional
tax liability, as well as any unforeseen changes in the tax law, could have a
material adverse effect on the future results of operations or cash flows of
Golden Telecom's Russian operations in a particular period. Russian tax
authorities are conducting an examination of Golden Telecom's potential tax
liability in connection with some of its cellular operations. We cannot assure
you that this examination will not result in a fine or a revocation, suspension
or cancellation of Golden Telecom's licenses.
Ukraine
Ukrainian tax law is similarly unpredictable. Sudden shifts in tax law and
policy and retroactive legislation are common. Recent decisions by the tax
authorities may subject Golden Telecom to significantly higher tax liability
from Ukranian currency exchange gains.
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RUSSIAN AND UKRAINIAN LEGISLATION MAY NOT ADEQUATELY PROTECT AGAINST
EXPROPRIATION AND NATIONALIZATION
The governments of Russia and Ukraine have enacted legislation to protect
foreign investment and other property against expropriation and nationalization.
In the event that such property is expropriated or nationalized, legislation
provides for fair compensation. However, we cannot assure you that such
protections would be enforced. This uncertainty is due to several factors,
including:
- - the lack of state budgetary resources;
- - the apparent lack of political will to enforce legislation to protect property
against expropriation and nationalization;
- - the lack of an independent judiciary and sufficient mechanisms to enforce
judgments; and
- - widespread corruption among government officials.
Expropriation or nationalization of Golden Telecom's business would be
detrimental to our and Golden Telecom's operations.
BROAD DISCRETION OF RUSSIAN AND UKRAINIAN REGULATORS RESULTS IN INCONSISTENT
LEGISLATION AND UNPREDICTABLE ENFORCEMENT
The dispersion of regulatory powers among a number of government agencies
in Russia and Ukraine has resulted in inconsistent or contradictory regulations
and unpredictable enforcement. This situation has made it difficult for Golden
Telecom to comply with all laws and regulations that appear to apply to Golden
Telecom and has resulted in unpredictable regulatory enforcement. For example,
pursuant to the Russian Communications Law, Goskomsvyaz, the State Committee for
Telecommunications, has authority to regulate and control the development of the
communications industry in Russia. However, there is additional legislation that
recognizes and defines the roles of other regulatory organs.
The Russian Communications Law requires any entity that offers any
communications service to obtain the appropriate license in accordance with the
Communications Law and other applicable licensing regulations. A similar
licensing regime exists in Ukraine. However, neither the Communications Law nor
applicable regulations in Russia or Ukraine provide clear guidelines for the
issuance or extension of a license, and state agencies exercise broad discretion
when determining whether to approve a license application, as well as the terms
and conditions of any license. Such broad discretion in the issuance of licenses
may result in arbitrary decision making and may also give rise to opportunities
for corruption.
The Ukrainian regulatory agency requires that the terms of international
licenses include provisions requiring licensees to pay unspecified annual
amounts into local network development. The required amount of investment may be
substantial, and we cannot predict whether failure to comply will lead to the
revocation of Golden Telecom's license.
GOLDEN TELECOM'S RELATIONSHIPS WITH ITS JOINT VENTURE PARTNERS LIMIT ITS
INDEPENDENCE AND FLEXIBILITY
Golden Telecom depends to a significant degree on local partners in its
joint ventures to provide it with interconnection with local networks,
regulatory and marketing expertise, and familiarity with the local business
environment. They also help to facilitate the acquisition of necessary licenses
and permits. As a result, any significant disruption in Golden Telecom's
relationship with these parties could make it more difficult for it to expand
its operations and to maintain its existing services.
Under the terms of some of Golden Telecom's joint venture agreements, it
has the right to nominate key employees, direct operations and determine
strategies for these joint ventures. However, its partners in some ventures,
particularly in its wireless operations, have the ability to frustrate its
exercise of these rights. Significant corporate decisions by most ventures, such
as approving budgets and business plans, declaring and paying dividends, and
entering into substantial transactions, effectively require the consent of
Golden Telecom's local partners. Moreover, Golden Telecom would prefer not to
take significant actions without the consent and support of its partners.
Accordingly, Golden Telecom does not have unilateral control over the operations
of its joint ventures.
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In addition, Ukrainian legislation restricts the level of foreign ownership
in the telecommunications industry. These regulations may restrict Golden
Telecom's ability to increase its holdings in ventures and increase its reliance
on local partners who may lack significant financial resources and may be unable
to meet capital calls at the level of their ownership interests. For a
discussion of these joint ventures, see "Business -- Our operations in Russia
and other Countries of the CIS -- Golden Telecom".
GOVERNMENT INTERACTION WITH OUR OR GOLDEN TELECOM'S CURRENT OR FORMER PARTNERS
COULD HAVE ADVERSE SPILLOVER EFFECTS ON GOLDEN TELECOM
The interactions between government authorities and our or Golden Telecom's
past or current partners may create problems for us and for Golden Telecom. For
example, we are aware that U.S. and Russian authorities may be reviewing the
activities of our former partners in GTS-Vox, the holding company which formerly
owned Golden Telecom's interest in TCM. We and certain of our and Golden
Telecom's employees have been requested by such governmental authorities to
provide information as part of those inquiries, including in connection with a
U.S. grand jury investigation. The authorities' inquiries have raised issues
about the formation of TCM and the sale of the interest in GTS-Vox to us,
including issues concerning Russian anti-monopoly and securities filings and the
commercial relationship between TCM and the local telephone network in Moscow.
Golden Telecom's involvement in the authorities' review of its former partners'
activities could result in a diversion of Golden Telecom's management's time and
resources or a deterioration in its relationship with our partners. In addition,
the review could lead to the imposition of administrative fines or other
penalties and forfeitures of assets or our ownership interest in TCM.
GOLDEN TELECOM'S PARTNERS ARE OFTEN ALSO ITS COMPETITORS
Notwithstanding Golden Telecom's agreements with its joint venture
partners, they sometimes compete directly with its joint ventures. Competition
with its joint venture partners in the same markets may create conflicts of
interest and may result in a loss of customers. For example, Golden Telecom's
partner in Sovintel, Rostelecom, is the dominant international and domestic long
distance carrier in Russia. Similarly, most of Golden Telecom's regional
partners across Russia offer local and long distance services in competition
with our local joint ventures and TeleRoss, and some of these partners also
offer mobile services in direct competition with some of Golden Telecom's mobile
operations. Golden Telecom's partners in its mobile ventures also sometimes
offer independent mobile services in direct competition with its joint ventures.
Golden Telecom may consider acquiring some of its partners' interests in
certain joint ventures if it is able to do so within regulatory guidelines and
on commercially attractive terms. If Golden Telecom was to make such
acquisitions, we expect that Golden Telecom would continue to employ local
personnel in order to retain the benefit of their local expertise. After an
acquisition, however, Golden Telecom would be directly competing with a
powerful, formerly state-owned enterprise that had been its partner before
Golden Telecom acquired its interest. Golden Telecom would have to rely on this
partner-turned-competitor to gain access from its networks to customer sites
along the so-called "last mile". It is possible that this competitor would
attempt to create adverse operating conditions for Golden Telecom's business.
GOLDEN TELECOM'S TARGETED CUSTOMERS MAY NOT TRUST A PRIVATELY OWNED, FOREIGN
CONTROLLED ENTITY FOR THEIR COMMUNICATIONS NEEDS
Prior to 1991, the telecommunications industry in the countries where
Golden Telecom operates was wholly owned and controlled by the state. After
1991, private companies, including foreign controlled companies, entered these
markets as telecommunications service providers. Many potential customers may be
unwilling to entrust their communications system to non-state controlled
companies, and, in particular, to private companies controlled by foreign
investors. Furthermore, state entities that require the types of services that
Golden Telecom offers, such as the Central Bank, may refuse to select a service
provider that is controlled by foreign investors. Because Golden Telecom is
controlled by foreign investors, Golden Telecom may in some instances be unable
to reach its targeted customers.
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SIGNIFICANT STOCKHOLDERS MAY INFLUENCE MAJOR DECISIONS IN OUR BUSINESS
At December 31, 1999, the Open Society Institute, Soros Foundation Hungary,
Soros Charitable Foundation, Soros Humanitarian Foundation, Winston Partners II
LLC, Winston Partners II LDC and Chatterjee Fund Management, L.P., which we
collectively refer to as the Soros associates, beneficially owned approximately
6% of our common stock. In addition, two persons who are affiliated with the
Soros associates serve on our board. As a result, this stockholder group may
significantly influence decisions which stockholders must approve, such as the
election of directors and other decisions relating to the management of
business.
FLUCTUATIONS IN FOREIGN CURRENCIES MAY HAVE AN ADVERSE IMPACT ON OUR FINANCIAL
RESULTS AND MAY MAKE IT MORE COSTLY FOR US TO PAY OUR U.S. DOLLAR-DENOMINATED
DEBT
Although we report our results in U.S. dollars, a substantial portion of
our sales and some of our costs, assets and liabilities are denominated in
Euros, pounds sterling and other currencies. Changes in foreign currency
exchange rates can reduce the value of our assets and revenues and increase our
liabilities and costs. The weakening of the Euro against the U.S. dollar during
1999 has had the effect of decreasing reported revenues denominated in such
currency when translated into U.S. dollars.
We have substantial debt denominated in U.S. dollars. However, most of our
revenues are denominated in the Euro and other European currencies. Therefore,
our ability to pay interest and principal on such debt is dependent on the then
current exchange rates between U.S. dollars and the currencies in which our
revenues are denominated. We historically have not used hedging transactions to
limit our exposure to risks from doing business in foreign currencies. In April
1998, our subsidiary GTS Europe B.V. entered into a currency swap contract to
limit its exposure to some if its currency risks. We cannot assure you that
changes in currency exchange rates will not have a material adverse effect on
our business, financial condition and results of operations.
ANY U.S. JUDGMENTS YOU MAY OBTAIN AGAINST US MAY NOT BE ENFORCEABLE IN OTHER
COUNTRIES
Substantially all of our assets are located outside the U.S. As a result,
it will be necessary for you to comply with non-U.S. laws in order to enforce
judgments obtained in a U.S. court (including those with respect to federal
securities law claims) against the non-U.S. assets of our operating companies.
We cannot assure you that any U.S. judgments would be enforced under any such
non-U.S. laws.
OUR ABILITY TO PAY DIVIDENDS ON OUR COMMON STOCK MAY BE LIMITED
We do not expect to pay any cash dividends in the foreseeable future. Also,
our ability to pay dividends is limited under the terms of indentures governing
certain of our outstanding debt securities. If we raise any capital in the
future, we may be restricted from paying dividends under the terms of such
financings. In addition, the decision on August 17, 1998 by the Russian
government and the Central Bank of Russia to devalue the ruble and other actions
that the Russian government may take in the future may restrict the ability of
the ventures in Russia to declare and pay dividends, and, in turn the ability of
Golden Telecom to declare and pay dividends to its shareholders, including us.
SUBSTANTIAL RESALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE AND DILUTE
YOUR OWNERSHIP INTEREST
We cannot predict what effect future sales of our common stock or the
availability of our common stock for sale would have on the market price for our
common stock. Sales of large numbers of shares of our common stock in the public
market pursuant to effective registration statements under the Securities Act,
or the perception that sales could occur, may have an adverse effect on the
market price for our common stock. We filed, and the SEC has declared effective,
five registration statements covering the resale of our common stock. One
registration statement covers the resale of our convertible bonds due 2000 and
the shares of common stock into which they are convertible. We expect that a
substantial portion of these bonds will be converted to an aggregate of
approximately 10.6 million shares of our common stock as a result of our call on
December 20, 1999 to redeem these bonds on March 20, 2000.
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An additional approximately 57.5 million shares are subject to resale under the
remaining four registration statements. Additionally, three registration
statements on Form S-8 cover the resale of shares of common stock issued to
employees, officers and directors under our employee benefit plans. We are also
required under the Netcom acquisition agreement to file with the SEC and
maintain effective for a period of two years a registration statement of which
this Prospectus is a part that will enable the selling stockholders to resell
the GTS common stock covered under this Prospectus.
OUR STOCK PRICE HAS BEEN AND CONTINUES TO BE VOLATILE
The market price for our common stock could fluctuate due to various
factors. These factors include:
- failure to realize projected benefits from our recent acquisitions or
deliver on announced service innovations;
- acquisition-related announcements;
- announcements by us or our competitors of new contracts, technological
innovations or new products;
- changes in government regulations;
- fluctuations in our quarterly and annual operating results;
- political and economic development in emerging markets (including Russia
and the other independent countries of the CIS); and
- general market conditions.
WE HAVE ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN
CONTROL, AND THEREFORE MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON
STOCK
We have adopted anti-takeover provisions that could delay or prevent a
third party from gaining control of us in a transaction that our board of
directors had not negotiated and approved, even if such change in control would
be beneficial to you. These anti-takeover provisions could depress the market
price of our common stock. These anti-takeover provisions include:
- Section 203 of the Delaware General Corporation Law, which prohibits a
business combination between a corporation and an interested stockholder
within three years of the stockholder becoming an "interested
stockholder" except in limited circumstances.
- provisions of our charter and by-laws, including:
- a classified board of directors serving staggered three-year terms;
- restrictions on who may call a special meeting of stockholders;
- a prohibition on stockholder action by written consent;
- restrictions on the removal of directors;
- supermajority voting requirements with respect to certain amendments to
our charter;
- the authority to issue shares of preferred stock and to determine the
rights without stockholder approval; and
- a shareholders' rights plan.
For a more comprehensive discussion of the provisions of our charter and
by-laws affecting our capital stock, see "Description of Capital
Stock -- Certain Charter and By-law Provisions."
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements as to how we may
perform in the future. We have based these forward-looking statements on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. These forward-looking
statements are subject to risks, uncertainties and assumptions about us,
including, among other things:
- Risk of delay in implementing our business strategy;
- Risks relating to decline in demand for our products and services;
- Risks of completing acquisitions and integrating acquired businesses;
- Risks relating to the expansion and provision of service on our network;
- Political, economic and legal changes in the markets where we operate;
- Rapid technological and market change;
- Pressure on pricing resulting from heightened competition; and
- Our need for additional, substantial financing.
These forward-looking statements are principally contained in the following
sections of this offering memorandum:
- Risk Factors; and
- Business.
In addition, in those and other portions of this offering memorandum, the
words and phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimated," "intends," "plans," "projection" and "outlook" are
intended to identify forward-looking statements. These statements should be
viewed with caution.
These forward-looking statements may differ materially from actual results
because they involve estimates, assumptions and uncertainties. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
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USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
their shares of our common stock and we will not receive any proceeds from the
sale of those shares.
DIVIDEND POLICY
We have not paid any dividend on our common stock and do not intend to pay
dividends in the foreseeable future. In addition, the indenture governing our
9 7/8% notes currently prohibits the payment of dividends. This indenture
contains restrictions against making restricted payments (in the form of the
declaration or payment of certain dividends or distributions, the purchase,
redemption or other acquisition of any of our capital stock, the voluntary
prepayment of pari passu or subordinated indebtedness and the making of certain
investments, loans and advances) unless no default or event of default exists,
our leverage ratio does not exceed 6.0 to 1.0 and such restricted payments do
not exceed certain amounts.
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INDUSTRY OVERVIEW
EUROPEAN TELECOMMUNICATIONS MARKET
Liberalization in the European telecommunications markets has proceeded
rapidly since the late 1980s. Historically, the European public
telecommunications operators monopolized the provision of telecommunications
services in their home markets and designed their networks according to national
rather than continental and international considerations. Between 1990 and 1997,
however, the European Union implemented a series of directives designed to open
up the telecommunications markets to competition. These directives required
member states to implement legislation liberalizing their respective
telecommunications markets to permit alternative telecommunications companies
both to provide telecommunications services and to access the existing
telecommunications infrastructure controlled by these national and regional
providers. In response to these European regulatory changes, a number of new
interests, including our company, have emerged to compete with the European
public telecommunications operators.
INTERNET INDUSTRY
The Internet is a global collection of interconnected computer networks
that allows commercial organizations, educational institutions, government
agencies and individuals to communicate, access and share information and
conduct business electronically. The Internet originated with the ARPAnet, a
restricted network that was created in 1969 by the United States Department of
Defense Advanced Research Projects Agency to provide efficient and reliable long
distance data communications among the disparate computer systems used by
government-funded researchers and academic organizations. The networks that
comprise the Internet, or its backbone, are connected in a variety of ways,
including by public switched telephone networks and by high speed, dedicated
leased lines. Communications on the Internet are enabled by Internet Protocol or
IP, which is a market-based standard computer language broadly adopted on the
Internet and elsewhere that allows computers with different architectures and
operating systems software to communicate with each other on the Internet.
Over time, as businesses have begun to utilize e-mail, file transfer and,
more recently, intranet and extranet services, commercial usage has become a
major component of Internet traffic. In 1989, the U.S. government effectively
ceased directly funding any part of the Internet backbone. In the mid-1990s,
contemporaneous with the increase in commercial usage of the Internet, a new
type of provider called an Internet service provider became more prevalent.
Internet service providers offer access, e-mail, customized content and other
specialized services and products aimed at allowing both commercial and
residential customers to obtain information from, transmit information to, and
utilize resources available on the Internet.
Internet service providers generally operate networks composed of dedicated
lines leased from public telecommunications operators, local access providers
and internet service providers using IP-based switching and routing equipment
and server-based applications and databases. Customers are connected to the
Internet service provider switching equipment by facilities obtained by the
customer or the Internet service provider from either public telecommunications
operators or local access providers through a dedicated access line or the
placement of a circuit-switched local telephone to the Internet service
provider.
The Internet is quickly becoming the supporting platform for the emergence
of e-business (the use of Internet technologies to perform key business
communications processes). We believe that a wide variety of businesses will
increasingly use the Internet to communicate, improve operating efficiencies and
transact commerce in secure, reliable and cost-effective ways. Applications and
services that enable the transition to e-business platforms are typically
distributed through the Internet and supported by infrastructure such as data-
and Web-hosting centers.
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IP COMMUNICATIONS TECHNOLOGY
There are two widely used switching technologies in currently deployed
communications networks: circuit-switching systems and packet-switching systems.
Circuit-switch based communications systems establish a dedicated channel for
each communication (such as a telephone call for voice or fax), maintain the
channel for the duration of the call and disconnect the channel at the
conclusion of the call. Packet-switch based communications systems format the
information to be transmitted, such as e-mail, voice, fax and data, into a
series of shorter digital messages called "packets." Each packet consists of a
portion of the complete message plus the addressing information to identify the
destination and return address.
Packet-switch based systems offer several advantages over circuit-switch
based systems, particularly the ability to commingle packets from several
communications sources together simultaneously onto a single channel. For most
communications, particularly those with bursts of information followed by
periods of "silence," the ability to commingle packets provides for superior
network utilization and efficiency, resulting in more information being
transmitted through a given communication channel. There are, however, some
disadvantages to packet-switch based systems as currently implemented. Rapidly
increasing demands for data, in part driven by the Internet traffic volumes, are
straining capacity and contributing to latency (delays) and interruptions in
communication transmissions. In addition, there are concerns about the adequacy
of the security and reliability of packet-switch based systems as currently
implemented.
Initiatives are under way to develop technology to address these
disadvantages of packet-switch based systems. We believe that the evolving IP
standard will remain a primary focus of these development efforts. We expect the
benefits of these efforts to be improved communications, reduced latency and
declining networking hardware costs.
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BUSINESS
HISTORICAL OVERVIEW
We were founded in 1983 as a not-for-profit company under the name San
Francisco/Moscow Teleport, Inc. We incorporated as a for-profit corporation in
1986, and reincorporated in Delaware in 1993 and changed our name to Global
TeleSystems Group, Inc. in February 1995. Our principal business office is
located at 4121 Wilson Boulevard, 8th floor, Arlington, Virginia 22203, United
States, and our telephone number is (703) 236-3100.
From our inception until 1998, we focused on (1) providing
telecommunications services in emerging markets, particularly in Russia and
Central Europe and (2) establishing and developing Global TeleSystems Europe
B.V. ("GTS Europe B.V"), formerly known as Hermes Europe Railtel B.V., our
subsidiary which deployed the first high speed fiber optic network across
Western Europe and provides a range of bandwidth and internet protocol services
to traditional and emerging communications companies.
After our initial public offering in February 1998, we adapted our strategy
to address the effects of the economic crisis in emerging markets, particularly
Russia, the emergence of the Internet Protocol as a widely accepted transport
protocol and the deregulation of the provision of telecommunications services to
end-users in Western Europe. We sought to build on the success of our
pan-European fiber optic network by developing a plan to provide
telecommunications services directly to businesses and other end-users.
Accordingly, in late 1998 and in 1999, we acquired four companies that provided
such services to businesses and other high usage customers in Western Europe:
GTS (Europe) Ltd. (formerly Esprit Telecom Group plc), NetSource, Omnicom and
InTouch. In addition, in order to position ourselves as a Tier-1 Internet
service provider in Europe and target the higher growth European Internet
market, we acquired Ebone.
The former Ebone, GTS (Europe) Ltd., NetSource, Omnicom and InTouch
businesses are included within our operations. These acquisitions have provided
us with a significant business customer base and sales and distribution network
across Western Europe, as well as switches, routers and other infrastructure,
and, combined with our Central European operations, position us to offer an
expanded service portfolio of data, Internet and other business applications to
our business customers.
On September 30, 1999, we contributed all of our Russian and CIS operations
to a newly formed subsidiary, Golden Telecom, Inc., which effected an initial
public offering of its common stock on October 5, 1999. We currently own
approximately 62.6% of the common stock of Golden Telecom.
NETCOM ACQUISITION
On February 18, 2000, GTS completed its acquisition of Netcom Internet
Limited ("Netcom") for purchase consideration of approximately $91.5 million in
the form of the issuance of our common stock. Netcom is an Internet service
provider in the United Kingdom, which provides dedicated and dial-up Internet
access, Web-hosting, server co-location, Internet protocol virtual private
networks and other services. Netcom currently serves over 3,600 Web-hosting
customers, approximately 600 dedicated and high-speed Internet access customers
and 14,000 subscription-based Internet dial-up Internet access customers. Netcom
had approximately $12 million in revenues in calendar year 1999.
BUSINESS OVERVIEW AND STRATEGY
Our goal is to become Europe's premier independent e-business services
provider and to maintain and enhance our position as a leading pan-European
provider of broadband, Internet, data and voice services to communications
carriers, Internet service providers and other high-usage customers. In order to
achieve this goal, we will build on the strengths of:
- our pan-European broadband fiber optic network, which is the largest in
Europe;
- our pan-European Tier 1 Internet protocol backbone;
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- our position as a leading pan-European supplier of communications
services to approximately 100,000 small-and medium- sized business
customers, with a sales and distribution network spanning 79 European
cities in 18 countries; and
- a large base of carrier and Internet service provider customers, which
comprise a sizable percentage of European's total Internet and broadband
traffic.
The key elements of our strategy for achieving this goal are as follows:
Expand our services portfolio to support the communications and e-business
activities of our customers
We intend to capitalize on the trend of companies seeking to outsource
critical business applications and to integrate Web-based services and products
into their operations by aggressively marketing value-added data, Internet and
e-business enabling services to our existing and future business customers in
addition to the voice services we already offer in our target markets.
We already provide in certain of our target markets a range of data and
Internet services, which we are currently introducing in other countries in
which we operate. Additionally, we are planning to complement our existing
service offerings with new services that will support the e-business initiatives
of our customers, including, for example, enabling our customers to manage
on-line transactions and creating a fulfillment and procurement infrastructure
for supply chain management. These services may be developed internally or, when
speed-to-market is critical, developed and/or marketed in partnerships. We
intend to continue to develop and market advanced networking solutions, such as
outsourced infrastructure and network management to our carrier, Internet
service provider and Web-centric customers.
Leverage our distribution network to further penetrate our existing customer
base and reach new customers
Through our acquisitions of Global TeleSystems (Europe) Limited ("GTS
(Europe) Ltd."), formerly Esprit Telecom Group plc NetSource, Omnicom and
InTouch and the growth of our Central European operations, we have built a
unified pan-European sales and distribution network covering customers in 79
cities in 18 countries. As of December 31, 1999, our sales force consisted of
approximately 660 direct sales personnel. We believe that our highly qualified
sales personnel, who understand our philosophy, services and systems and are
well-trained in local languages and telecommunications business practices,
provide us with a competitive advantage. We will continue to invest in training
programs to equip our sales personnel with the skills necessary to market more
advanced, value-added services to our business customers as their
telecommunications needs evolve from basic Internet connectivity to full
utilization of the Internet, corporate intranets and virtual private networks
for more advanced, mission-critical applications. In this way, we intend to
leverage the strengths of our pan-European sales and distribution network to
capture additional revenues from our existing customer base and reach new
customers.
Build on our leadership position in the carriers' carrier market to penetrate
a broader bandwidth intensive customer base
Since we began offering service on our fiber optic network in November
1996, we have developed a significant customer base encompassing over 180
telecommunications carriers, Internet service providers and other
bandwidth-intensive customers. As a result of being first in the market, we have
gained significant experience in developing service innovations and tailoring
our service offerings to meet our customers' rapidly evolving needs. We intend
to build on our success in delivering broadband service to carriers by
increasingly focusing on emerging Web- and data-centric companies that require
large amounts of bandwidth to service their end-user customers. These types of
customers include broadband multimedia providers, content providers, such as
motion picture studios and broadcasters, Internet applications service
providers, such as portals and electronic commerce companies, and emerging data
transmission providers, such as wireless operators. By providing
mission-critical, value added solutions to our customers, we seek to establish
ourselves as their strategic partner.
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Continue to invest in the reach and capacity of our fiber optic network
We will continue to invest in our network to expand its geographic reach
and capacity in order to ensure that we can accommodate our customers' future
capacity requirements. We are continuing to build our network by extending its
coverage to include approximately 25,000 kilometers across Europe by the end of
2000. We are continuing to deploy dense wavelength division multiplexing
technology that will permit significant future enhancement of our network's
transmission capacity and will allow us to upgrade the capacity, reliability and
efficiency of the network in the future. The capacity of our network is
currently 40 wavelengths per fiber optic pair, each wavelength with a capacity
of 2.5 gigabits per second, or a total capacity of 100 gigabits per second on
the majority of our routes. We intend to install additional upgrades to further
increase our network's capacity in 2000. When introduced, these upgrades are
expected to increase the capacity of a single fiber pair to 96 wavelengths per
fiber optic pair, each wavelength with a capacity of 10 gigabits per second, or
a total capacity of 960 gigabits per second. In addition, we intend to develop
an additional ring on our network connecting the core cities of London, Paris,
Amsterdam, Frankfurt, Dusseldorf, and Brussels. We also plan to install
transmission equipment on a second, currently installed fiber pair on a number
of routes in our network to expand the transmission capacity of those routes.
Build infrastructure and extend our network closer to our customers
- Develop City Enterprise Networks. In order to offer true end-to-end
transmission services to our carrier, business and other
bandwidth-intensive customers, we intend to build intracity fiber
networks, or City Enterprise Networks, in major European cities. We
currently operate five such networks in Paris, Budapest, Prague, Berlin
and Geneva. In addition, we expect to have City Enterprise Networks
deployed in eight additional cities by year end 2000. Each City
Enterprise Network will be designed to connect, within a city, its major
Internet and telecommunications transmission centers, including points of
presence on our network, telehouses, Internet exchange points and, where
economically feasible, our existing customers' points of presence in that
city. This will allow us to reach our customers without relying on
third-party local access providers. We expect to improve service quality
and realize higher margins as we manage more traffic end-to-end over our
network.
- Expand and enhance the transatlantic capacity of our network. We believe
that a large portion of our market growth will come in the form of
Internet protocol-based data and voice services. We currently lease
transatlantic capacity from third parties. Because a majority of Internet
protocol traffic originates in the United States, we have invested in our
own transatlantic capacity infrastructure through the acquisition of a
dedicated fiber pair on the FLAG Atlantic-1 transatlantic fiber optic
link. (FLAG Atlantic is a 50/50 joint venture between GTS and Flag
Telecom.) By owning this fiber pair, we will acquire capacity of 70
gigabits per second upgradeable up to a maximum of 400 gigabits per
second of fully protected capacity from the New York City area directly
to our European network. We believe that owning a large volume of
transatlantic capacity to and from the United States will enhance our
competitive low cost position in Europe while extending our network to
the U.S. at favorable prices. In November 1999, we entered into a
memorandum of understanding with GlobeNet Communications Group Limited,
which is building a high capacity subsea cable linking key cities in
North and South America. The agreement will enable us to sell managed
bandwidth services from a variety of European cities to Latin America and
GlobeNet to sell similar services between Latin America and Europe. In
addition, in order to maintain and reinforce our strong market position
in the increasingly global carriers' carrier and data- centric markets,
we may enter into arrangements to obtain network capacity connecting
several key U.S. markets by the end of 2000.
- Build or deploy data and Web-hosting centers to support Web-based
services. We intend to develop data- and Web-hosting centers on our
network near key public Internet exchange points to strengthen our
portfolio of Web-based services. This will provide us with the necessary
facilities to undertake secure co-location, data- and Web-hosting
services and facilitate our ability to offer a
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range of e-commerce and e-business solutions. By mid-2000, we expect to
establish data- and Web-hosting capability in London, Amsterdam,
Frankfurt and Paris. We intend to deploy up to nine additional data- and
Web-hosting centers during the next two years. These centers are a
natural extension of our strategy to meet the end-to-end needs of the
Web- and media-centric content and application providers who are leading
the rapid growth of the Internet- and multimedia-related segments of our
target markets. In addition to carrying these customers' international
traffic on our network, we will be able to host and distribute their
applications, support their e-business and e-commerce activities and
provide peering arrangements.
Enhance Brand Name Recognition
In the first quarter of 2000, we launched a major marketing program to
develop and enhance the pan-European unified GTS brand name. Our branding
program will include the select use of television commercials, print ads and
direct mailings. Through our branding program we will seek to expand our market
share, increase customer loyalty and develop brand recognition in the European
broadband data, Internet and voice services market.
OUR EUROPEAN OPERATIONS
Overview
We offer a portfolio of bundled voice, data and Internet services to
small-to-medium sized enterprises, pan-European companies and select residential
end-users in 18 European countries. At December 31, 1999, we had approximately
100,000 business customers. We expect that our customer base will increasingly
include large companies with complex communications needs. We are also one of
the leading European providers of managed bandwidth and related communications
services to carriers, Internet service providers and other bandwidth-intensive
customers. We have the largest centrally managed fiber optic network in Europe
and a Tier 1 Internet backbone network. At December 31, 1999, the customers of
these services were contractually obligated to pay us an aggregate of
approximately $635.0 million for future services, provided we perform in
accordance with contractual specifications. This amount increased from $450.3
million at March 31, 1999, $498.7 million at June 30, 1999 and $548.2 million at
September 30, 1999. Such amounts are inclusive of amounts included in deferred
revenue.
We seek to capitalize on the increasing demand in Europe for e-business
services and products, in which businesses use the Internet to perform key
business communications processes. We believe that a wide variety of businesses,
both large and small, will increasingly use the Internet to communicate, improve
operating efficiencies and transact commerce in secure, reliable and
cost-effective ways. We currently provide these customers with a range of voice
and data services, including, in selected European countries, dial-up and
dedicated Internet access and virtual private network services. As we develop
and expand our suite of e-business services to include, among others,
Web-hosting, co-location, messaging and remote access services, we expect to
realize an increasing proportion of our revenue from businesses that rely on
Web-based applications to communicate with customers, suppliers and employees as
well as from new customer segments, such as e-business application service
providers and other Web-centric companies.
We began providing broadband carrier services in November 1996 and we are
recognized as a pioneer in Europe in fiber optic network deployment and service
development. We have established long-term contracts with customers of these
services. We provide mission-critical value-added solutions to these customers
and increasingly seek to establish ourselves as their strategic partner. This
integration into our customers' operations often provides us with the
opportunity to introduce and implement additional services with the customer,
which enable us to further penetrate our customer base.
Customers of our broadband services include:
- European incumbent telecommunications operators
- Alternative carriers
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- Voice resellers
- International carriers
- Internet service providers
- Value added network service providers
- Web-centric and media-centric companies
We believe that the trend toward substantial increases in the volume of
data traffic is being driven by the rapid growth of the Internet and
data-intensive applications, such as e-business, e-commerce, application
hosting, video-conferencing and multimedia applications, that require
high-quality and cost-effective transmission capacity. In addition, we believe
that our customers will increasingly demand Internet-or Internet Protocol-based
services such as Internet access, Web-hosting and data management services in
order to participate in the expected growth of data communication and the
Internet. In order to reinforce our leadership position, we will continue to add
new services on our network and sell our services in additional markets
throughout Europe.
Voice, Data and Internet-related Services
We currently offer national and international direct and indirect access
services for voice communications as well as enhanced voice, data and e-business
services. We continue to expand our service offerings to provide our customers
with a full range of tailored telecommunications services.
Voice Services. The largest share of the European business and corporate
retail market is currently international voice and fax transmission services. We
believe that customers have selected us as a provider on the basis of
competitive pricing, network quality, responsive account management and
customized services.
We currently distinguish our retail business customers between direct
access retail customers and indirect access retail customers. Our direct access
customers use our owned or dedicated leased lines, while our indirect access
customers access our services indirectly on a switched basis using the public
telecommunications operator network by means of an access code or a carrier
pre-select arrangement. Our direct access retail customers are generally users
of telecommunication services who generate relatively large amounts of long
distance traffic, with such traffic usually being important to the execution of
their core businesses. We offer retail direct access in the majority of our
existing markets.
Our indirect access retail clients access our services by dialing an access
code, generally either using an auto dialer or via a code programmed directly
into their own switches so that it is transparent to the user or their
applicable carrier through a carrier pre-select arrangement. These customers
generally consist of small and medium-size businesses whose telecommunication
requirements do not warrant the costs associated with the dedicated leased lines
of direct access service. Contracts for both direct and indirect access are
typically for a period of one year.
Enhanced Voice Services. We have also focused on developing new voice
services which address the specific needs of our customer base, including
pre-and post-paid calling cards, national and international toll-free service,
which we target to organizations that require their customers or employees to be
able to simply and cost-effectively call them from other countries. We have
introduced or plan on introducing additional services, including conferencing
services, pre-paid mobile phone services, and virtual private networks. In
several countries, we resell mobile services which we bundle with our existing
voice services and bill on a single integrated bill.
Data, e-Business and Other Services. We currently offer dial-up and
dedicated Internet access and international private leased circuits in selected
target markets. By the end of 2000, we expect to offer these services in all the
countries where we operate. We also plan to complement these services with a
full range of value-added services including co-location, Web-hosting, messaging
and remote access. We will actively market these new services to our existing
customer base and to other European companies that view the
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Internet as critical to their expansion plans. Specifically, we plan to extend
our data-and Web-hosting services to enable customers in developing market
segments such as application service providers to distribute applications from
our data- and Web-hosting centers.
We are a leading alternative provider of data, Internet access and voice
services in the Czech Republic, Hungary, Poland, Romania and Slovakia. The
majority of our revenue in the region is derived from Very Small Aperture
Terminals (VSATs), leased lines and Internet access services. We provide these
services on a diverse set of infrastructure assets including City Enterprise
Networks, which we operate in Prague and Budapest, VSATs deployed in the Czech
Republic, Hungary and Romania, a national microwave network in Hungary, and
leased and owned dark fiber, which we expect will connect our City Enterprise
Networks to our pan-European fiber optic network in the second quarter of 2000.
We have acquired several Internet service providers in the region. In the last
24 months, we have acquired two Internet service providers in Poland, two in the
Czech Republic, one in Hungary and one in Slovakia. By year-end 2000, we expect
their networks will be integrated with our network.
Broadband Services
We have developed a broad range of services that vary in technology
(synchronous digital hierarchy, dense wavelength division multiplexing, Internet
protocol), configuration (point-to-point, ring, virtual network services),
quality requirements, and geographical reach (domestic, pan-European,
transatlantic services). Service innovation and the ability to package and price
services flexibly allow us to effectively serve the needs of our customers.
Our broadband services have the following competitive advantages:
- Tailored solutions. We have significant experience in tailoring highly
customized contract terms and volume discounts that allow our customers
to select varying capacity, access, guaranteed availability and contract
terms.
- High capacity cross-border network facilities. Our dense wavelength
division multiplexing network provides high capacity cross-border network
facilities without requiring customers to invest in network
infrastructure or to be constrained by a narrow range of capacity
offerings.
- Diverse routing. Our fiber optic network's diverse, redundant routes are
designed to allow us to provide strong performance commitments. On most
routes, the fiber optic network has performed at over 99.9% availability.
- Cost-reduction through advanced technology. We have substantially reduced
our unit cost by increasing the available capacity on a fiber pair and
deploying advanced dense wavelength division multiplexing technology on
the majority of our routes.
- Uniform network architecture. The uniform technology of our international
managed transmission network allows us to provide a better quality and
reliability of service as well as uniformity of features throughout our
fiber optic network.
Managed Bandwidth Services. We primarily provide large capacity
cross-border European and transatlantic services over an integrated, managed
network. Our network, based on dense wavelength division multiplexing and
synchronous digital hierarchy technology, provides digital transmission
capability upon which a broad range of advanced applications may be run. Our
network offers availability, flexibility, reliability and bandwidth speeds not
widely available for transport of telecommunications traffic across national
borders in Western Europe. Our network is designed to provide customers with a
wide variety of bandwidth speeds, ranging from a data transmission rate of 2
megabits per second to a data transmission rate of 2.5 gigabits per second.
Access to our network allows our customers to rapidly enter the markets they are
targeting while benefiting from its low unit cost.
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We tailor our services to meet the diverse requirements of various customer
segments which require two classes of outsourcing levels:
- Our unprotected ring service provides diversely routed paths on which
customers deploy their own termination equipment and perform their own
protection schemes. These customers tend to be medium to large carriers
and operators that prefer to have control over the physical configuration
of their networks. Through its own termination equipment, and using our
network capacity, the customer has full control of its different traffic
flows. This gives the customer the opportunity to optimize its usage of
the available ring bandwidth based on the volume requirements of its
individual applications.
- Our protected services provide domestic and international self-healing
point-to-point links managed end-to-end by us. As a result, the customer
avoids having to provide for the redundancy of its traffic. We offer
customers service level agreements with service guarantees appropriate
for mission-critical applications. These guarantees cover on-time service
delivery and service availability.
Depending on the customer's bandwidth and application requirements, these
two classes of bandwidth services run on two underlying technologies: either
synchronous digital hierarchy technology over dense wavelength division
multiplexing (for speeds ranging from 2 megabits per second to 155 megabits per
second) or directly on dense wavelength division multiplexing (for speeds
ranging from 155 megabits per second to 2.5 gigabits per second, which is
expected to be upgraded to 10 gigabits per second in 2000).
Internet Protocol Transit Services. The current and future growth of the
Internet has a significant impact on the carrier business. In addition to
increasing the amount of data that is being transported across borders, the
Internet influences the transport technologies, the traffic patterns and the
segments that require carrier-like services.
Through our GTS Ebone brand name, we offer to Internet service providers,
value added network service providers, multimedia application providers and
Web-hosting companies a carrier-grade Internet access service. Ebone Global
Carrier Services provides general purpose, congestion free access to the
worldwide Internet and Ebone Europe Carrier Services provides low delay, high
performance access to the European domain of the worldwide Internet.
In addition, we are using optical Internet protocol technology to offer in
Europe real-time Internet protocol performance that is needed by Internet
protocol operators and by voice, fax and video over Internet protocol providers.
GTS Ebone Europe Services is the first of a series of future services to fully
benefit from the performance offered by optical Internet technology.
Wholesale Services. We offer competitively priced international switching
and transit services, primarily to the "wholesale" international gateway and
carrier-to-carrier portion of the international calling market, such as public
telecommunications companies, new operators, global alliances and regional
telephone companies, providers and second carriers or resellers. Resales of
wholesale traffic will enable us to benefit from greater purchasing power and
higher network utilization. Our wholesale services include the provision of
international call termination in three main areas:
- Off-net (third party carriers' carrier traffic)
- On-net (third party carriers' carrier traffic terminating on our network)
- Mobile (termination of fixed-to-mobile and mobile-to-fixed traffic)
Although we have contracts with our wholesale customers, these contracts
generally do not include minimum usage levels and our wholesale customers
generally maintain relationships with a number of telecommunications providers.
In several cases, we will also purchase minutes from our wholesale customers as
suppliers for termination of our off-network calls. We believe that success in
the wholesale business is predicated on high network quality at a low cost base.
As we continue to increase the capacity
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of our fiber optic network, we anticipate that the decrease in our cost base
will enable us to price these services more competitively and therefore increase
the volume of these services.
Sales and Marketing
Voice, Data and Internet Services
Managing directors in each country are responsible for sales and marketing
activities in that country, local business origination, local regulatory
compliance and licensing requirements, and the relationship with the local
telecommunications companies. The marketing organization in each country is
responsible for executing market initiatives, driving product development,
market research and analysis, and promotion and advertising.
Direct sales constitute our principal sales method in the majority of our
countries of operation. We support our direct sales effort by telemarketing and
telesales, and complement it to a lesser extent by independent sales
intermediaries and resellers. In certain markets we market some of our services
principally through sales agents. In addition, because we are increasingly
focusing on specific industry groups, such as financial institutions, hotels,
travel service organizations and transport companies, we have assigned
specialists to particular industries. We also have been providing intensive
training to enable our sales force to aggressively market e-business services.
The sales operation in each European country for our voice, data and
e-business services is responsible for originating and managing business in its
respective local market, and is staffed with employees who understand our
philosophy, services and systems and local languages and telecommunications
business practices. As of December 31, 1999, we had approximately 435 direct
sales people and 73 full-time equivalent telemarketing employees in Western
Europe for these services. We have 69 sales offices in 67 cities in the
following countries: The United Kingdom, Germany, The Netherlands, Sweden,
Norway, Denmark, Spain, France, Belgium, Italy, Ireland, Luxembourg and
Switzerland. As of December 31, 1999, we had approximately 125 direct sales
personnel in our Central European operations. We have 12 sales offices in 12
cities in the Czech Republic, Hungary, Poland, Romania and Slovakia.
Broadband Services
The term of a typical customer agreement for our broadband services
currently ranges from one to ten years. Throughout 1999, a number of existing
customers have converted from short- to long-term contracts, including 10-year
contracts in which revenues are recognized ratably over the life of the
contract. We expect that this trend will continue in 2000. In addition, we offer
ten year leases which require an up-front payment and produce recurring
operation and maintenance charges. Our customer agrees to purchase, and we agree
to provide, transmission services. In general our customer agrees to pay certain
nonrecurring charges up-front and recurring charges on an annual basis, payable
in twelve monthly installments. If a customer terminates a service order prior
to the end of the contract term, the customer is generally required to pay us a
cancellation charge equal to three months of service for each of the twelve
months remaining in the contract term. We typically guarantee transmission
services to a specified service level. If such levels are not met or we fail to
deliver service by the committed delivery date, the customer is eligible for a
credit against charges otherwise payable in respect of the relevant link. Our
low cost basis is due to, among other things, our network's use of advanced
fiber optic cable and electronic equipment permitting high capacity transmission
over longer distances between regeneration/amplifier facilities than legacy
networks.
PRODUCT DEVELOPMENT
We seek to develop a wide range of premium quality and innovative
value-added services that both meet our customers' current demands and
anticipate their future requirements. Our strategy is to develop services that
will allow us to further penetrate our existing customer base and to attract new
customers with sophisticated international communications and e-business
requirements and to capitalize on the combined strength of our pan-European
broadband fiber optic network and sales and distribution channels.
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We analyze the market by industry and customer size to address individual
customer needs both now and in the future. We develop our services to provide a
balanced portfolio that can address the needs of all of our target customers,
and, accordingly, our services range from standard telephony services to very
high bandwidth solutions for medium, large and multi-national corporations.
Additionally, our country managers tailor products to meet the needs of the
local customer base.
We focus on developing services in the fastest-growing segments of the
business telecommunications market, such as enhanced voice and data services,
corporate network services, Web- and application-hosting and e-business
services. Our development efforts will rely on both internal initiatives as well
as partnerships with third parties. The partnerships may take the form of joint
development, joint marketing and/or reselling agreements. We have already
entered into such agreements with leading providers of business-to-business
Internet messaging solutions for businesses, Internet service providers and
hosting companies. As a way to speed our entry into Web-based services, we are
currently exploring several partnerships of the same type with international
leaders in their respective fields.
OUR NETWORK INFRASTRUCTURE
Overview
Our network infrastructure consists of our pan-European network, our City
Enterprise Networks, our interest in the FLAG Atlantic-1 transatlantic fiber
optic cable project, our data-and Web-hosting centers and our operations system
and support functions. In Europe, as of December 31, 1999, our network has 58
carrier points of presence in 30 cities, 18 Internet protocol nodes in 17 cities
and 46 switches in 38 cities. The fiber optic network spans approximately 17,000
kilometers and 12 countries. In addition, five intra-city fiber networks are
currently operational.
Network Design
The design of our pan-European network is based on a layered architecture
which separates the physical layer, the optical layer, the transmission layer,
the switched layer and the data (Internet protocol) layer of our network with
standard interfaces and protocols in order to optimize design and operation and
provide flexibility for introducing new technologies, new applications and new
services.
Physical Layer. The physical layer of our pan-European fiber optic network
is based on a mesh of dark fiber routes interconnecting cities on our network
via at least two or three physically diverse paths for maximum resilience
against fiber or facilities failures.
Optical Layer. The optical layer of our pan-European fiber optic network
represents the core of our network and is based on dense wavelength division
multiplexing. This layer supports the provision of optical services directly to
customers at 2.5 gigabits per second and provides for the operation of multiple
synchronous digital hierarchy and/or Internet protocol systems to run
concurrently on a single fiber pair in a highly cost efficient manner. The
optical layer of our network is based on Ciena 40 wavelength systems with a
capacity of 100 gigabits per second on a fiber pair using dense wavelength
division multiplexing technology. Dense wavelength division multiplexing, or
DWDM, is a technology that allows transmission of multiple waves of light over a
single fiber optic strand, thereby increasing network capacity. By using current
dense wavelength division multiplexing technology, we are able to derive up to
40 wavelengths per fiber optic pair, each wavelength with a capacity of 2.5
gigabits per second, for a total capacity of 100 gigabits per second over a
single fiber optic pair. We will start to deploy on our core network routes, by
the second quarter of 2000 and dependant upon traffic demand, a new generation
of wavelength division multiplexing systems scalable up to a minimum of 960
gigabits per second.
Transmission Layer. We are using synchronous digital hierarchy (SDH) time
division multiplexing equipment to consolidate, groom and add or drop low and
high order traffic coming from our various network components and to support the
provision of synchronous digital hierarchy leased line services to customers at
data transmission rates ranging from 2 megabits per second to 155 megabits per
second. The synchronous digital hierarchy layer of our pan-European fiber optic
network runs via dense wavelength
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division multiplexing channels in our network with a multilayered architecture
consisting of multiple synchronous digital hierarchy rings optimized for
different traffic characteristics.
Services using synchronous digital hierarchy technology may include local
access capacity between our network point of presence and the customer's point
of presence, depending on customer requirements. Services using dense wavelength
division multiplexing technology are delivered on a standard basis at our point
of presence. On a special project basis and shortly through our City Enterprise
Network, dense wavelength division multiplexing services may be expanded to the
customer's point of presence.
Internet Protocol Layer. Backbone links interconnect core pan-European
fiber optic network nodes at data transmission rates of 2.5 gigabits per second,
providing high quality, seamless Internet protocol connections throughout
Europe. Core network routers are deployed in a redundant configuration to ensure
maximum reliability. Since we design and operate directly both the optical
network layer and the Internet protocol layer, a further optimization of the
resulting network architecture is achieved. The Internet application implemented
on top of the gigabit Internet protocol platform places us among the prominent
Tier 1 Internet service providers in Europe, with direct connections to the
other major European Internet backbone providers. For a direct interconnection
with major U.S. Internet backbones, two network nodes are deployed in the United
States, with high speed connections to the European gigabit backbone. The high
performance core Internet protocol network is designed to support a flexible
introduction of Internet protocol based value added services at the edge of our
network.
Network Management. We control our pan-European fiber optic network through
our main network operations center, located in Brussels. The network operations
center can pinpoint potential service problems and can deal with service
rerouting, if required, much more effectively than in networks controlled by
multiple operators in different countries. Our advanced operational support
systems also allow us to manage the large number of network components and local
repair organizations required in an extensive international network of this
size, as well as for advanced customer care in managing customer operational
activities. Our backup paths and management components enable us to recover from
individual failures at the optical, synchronous digital hierarchy and Internet
protocol layers. Our resilient approach provides for a high level of network
performance and reliability. As a result, we are able to enter into strong
performance commitments with our customers, and services on most routes of our
network have performed at or above 99.9% availability.
We own substantially all of our network equipment as well as some segments
of the fiber optic cable. A substantial part of the fiber is leased on a
long-term basis. Long-term leases for fiber are advantageous to us because they
reduce the burden of building large quantities of capacity before they can be
used. When we lease dark fiber, the infrastructure provider will generally be
responsible for maintaining the fiber optic cable. We have entered into
agreements with equipment vendors, infrastructure providers and other third
parties to supply and/or maintain the equipment for the network.
Switched Layer. The switched layer of the network consists of 46 voice
switches in 38 different cities. We currently have interconnect agreements in
eleven countries in Western Europe. We continually evaluate developments in
switching technology and products offered by other companies, and will add
different platforms which are complementary and beneficial to our service
network. We maintain our switches with up-to-date software and ensure their
compatibility with the large number of signaling systems in use in the European
and United States markets. Using least-cost routing technologies, each switch is
programmed to select the most cost-efficient route or carrier for the required
destination. We also employ dynamic compression equipment to improve utilization
of our most costly transmission lines.
Network Capacity
Our pan-European fiber optic network includes Ciena 40 dense wavelength
division multiplexing systems on a substantial majority of our routes. By
mid-2000, we expect that all our routes will be dense wavelength division
multiplexing based with a data transmission rate of at least 100 gigabits per
second per fiber pair. This 100 gigabits per second allows for synchronous
digital hierarchy and Internet protocol
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systems of 2.5 gigabits per second to be installed only when required, thus
providing for efficient management of capital investment.
We will deploy on our core pan-European fiber optic network routes, during
2000 and dependent upon traffic demand, per core route a new generation of
wavelength division multiplexing systems scalable up to a minimum of 960
gigabits per second. These systems will be able to handle wavelengths at 2.5 and
10 gigabits per second allowing us to increase the amount of bandwidth carried
per fiber pair as well as to reduce interface prices in both wavelength division
multiplexing and client layer equipment. We plan to extend capacity in the core
portion of our network by developing an additional ring connecting London,
Paris, Amsterdam, Frankfurt, Dusseldorf and Brussels with cable duct
accommodating up to 144 fibers. We also plan to install transmission equipment
on a second, currently installed fiber pair on a number of routes in our network
to expand the transmission capacity of those routes.
Network Agreements
We have entered into agreements and letters of intent with various
infrastructure providers for construction and/or leasing of dark fiber for
portions of our pan-European fiber optic network. Our agreements for leases of
portions of our pan-European fiber optic network typically require the
infrastructure provider to provide a certain number of pairs of dark fiber and
in some cases facilities along the network route commencing on dates we provide.
The term of a lease agreement generally ranges from 10 to 18 years. An agreement
typically contains optical specification standards for the fiber and methods of
testing. We are allowed to use the cable for the transmission of messages and
other purposes, including increasing capacity. The infrastructure provider is
responsible for maintenance of the cable facilities. The infrastructure provider
may also provide space for the location of our equipment and related
maintenance. The agreements typically provide for termination by the parties
only for material breach, but allow the breaching party 90 days to cure the
breach. The agreements typically contain a transition period after termination
of the agreement to allow us to continue to serve our customers until we can
reach agreement with an alternative infrastructure provider. In certain areas of
our network where it is not possible to lease dark fiber (which we do not expect
to exceed more than 10 percent of our network), we have signed agreements or
letters of intent for the right to use managed bandwidth. The terms of these
agreements typically range from 10 to 25 years.
We are also deploying our pan-European fiber optic network along the
rights-of-way of a variety of alternative sources, including railways,
motorways, waterways, pipelines and utilities. We constantly evaluate multiple
alternative infrastructure suppliers in order to maximize our flexibility. Many
portions of our pan-European fiber optic network utilize long term rights-of-way
agreements with landowners.
City Enterprise Networks
We currently operate five City Enterprise Networks in Paris, Budapest,
Prague, Berlin and Geneva. We expect to have intracity fiber networks deployed
in the following eight additional cities by year end 2000: Frankfurt, London,
Madrid, Amsterdam, Stockholm, Milan, Zurich and Vienna. We are also evaluating
construction of City Enterprise Networks in the following additional cities:
Brussels, Munich, Barcelona, Stuttgart and Dusseldorf.
Each City Enterprise Network will be designed to connect, within a city,
its major telecommunications transmission centers, including points of presence
on our pan-European fiber optic network, our other points of presence in such
city, telehouses, Internet exchange points and, where economically feasible, our
existing customers' points of presence in that city.
Relying on our own local infrastructure in key cities through our City
Enterprise Networks will allow us to reduce operating expenses (by avoiding or
reducing our payments to local access providers) and to enhance the robustness
of our network (through end-to-end network management and compatibility of the
City Enterprise Networks with our existing network). Such fully integrated
networks of intracity and intercity connectivity will, we believe, appeal to our
customers in need of managed bandwidth services. We also plan to introduce
wavelength services, also known as optical subnetworks, during the buildout of
our
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City Enterprise Networks. In addition, we plan to add fiber "subrings" to the
core of our City Enterprise Networks to extend our geographic reach. We will
also connect our data and Web-hosting centers to the initial core rings. By
offering co-location and data and Web-hosting capabilities as a bundled service
with our broadband network capabilities, we intend to attract Web-centric and
media-centric companies to our network without procuring expensive services from
local access providers.
Each City Enterprise Network will, subject to regulatory constraints and
market conditions, consist of up to 144 fiber pairs in underground ducts that we
will buy, lease or lay. We believe this high number of fiber pairs is justified
by the economies of the short distance environment of city centers and the
higher numbers of connection points to link customers to the network. We also
expect to install dense wavelength division multiplexing equipment to enhance
the efficiency of the City Enterprise Networks. Our intracity network rings in
Western Europe will eventually connect customers at data transmission rates of
up to 2.5 gigabits per second.
The Transatlantic Expansion of our Fiber Optic Network
We currently provide connectivity from Europe to the United States through
capacity leased from third parties. In January 1999, through a subsidiary, we
entered into an agreement with FLAG Telecom to establish a 50/50 joint venture
to build and operate the world's first transatlantic dual cable system designed
to carry voice, high speed data and video traffic at data transmission rates of
up to 2.4 terabits per second. The joint venture has announced that this high
capacity fiber optic link between Europe and the United States, which is called
FLAG Atlantic-1, is expected to begin offering unprotected services in the first
quarter of 2001 and fully protected services in the second quarter of 2001. The
joint venture plans to offer a direct link between the New York City area,
London and Paris.
On October 13, 1999, we announced that we had committed to purchase one
dedicated fiber pair on FLAG Atlantic-1. By owning this fiber pair, we will
acquire capacity of 70 gigabits per second upgradeable to a maximum capacity of
400 gigabits per second of fully protected capacity (or 800 gigabits per second
of unprotected capacity) from the New York City area directly to our network in
Europe. This supply of capacity will allow us to accommodate the growing volume
of transatlantic traffic at a competitive low cost base. We expect to commence
service on our fiber pair at the same time that FLAG Atlantic-1 begins offering
services. Finally, we have identified the need to be able to offer services
beyond the New York City area, our current point of presence in the United
States. We therefore expect to lease substantial network capacity connecting
several key U.S. markets by the end of 2000.
Data- and Web-Hosting Centers
Our strategy is to expand our Internet services portfolio by deploying data
and Web-hosting centers on our network near key public Internet exchange points.
This will establish the necessary facilities to undertake data and Web-hosting
services and facilitate the provision of e-business solutions. These centers
will allow us to meet the end-to-end needs of the providers of Web and
media-centric content and applications who are leading the rapid growth of the
Internet and multimedia related segments of our target markets in Europe. Thus,
in addition to carrying these customers' international traffic on our network,
we will be able to host and distribute their applications, support their
e-business activities and provide peering arrangements.
By mid-2000, we expect to establish data and Web-hosting capability in
London, Frankfurt, Paris and Amsterdam. We intend to construct, or arrange for
capacity at, up to nine additional data and Web-hosting centers during the next
two years. These facilities will be specifically designed to offer high speed
access to our network and provide co-location, dedicated and shared data- and
Web-hosting services.
We will offer high performance distribution of bandwidth-intensive
multimedia applications and regional content through our extensive peering
arrangements. Our networked data- and Web-hosting
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centers are a key component of the infrastructure required to serve the future
needs of our customer segments. Additional benefits of the data and Web-hosting
centers include:
- Providing Internet service providers with telehousing and managed
services for their Internet protocol routers and servers;
- Providing a NT or UNIX based server, allowing Internet service providers
and Web-centric companies to take full advantage of our expertise in
traffic and server management; and
- Providing shared server management, offering an entry solution to
emerging Internet service providers and Web-centric companies at a
reasonable cost.
Increasing Internet demand is driving Internet service providers to
co-locate their servers and Internet protocol routers closer to their customers,
thereby improving their network reach and performance. Data-and Web-hosting
centers directly connecting Web servers to an Internet protocol backbone remove
the bottlenecks associated with traditional hosting facilities. In addition,
increasing demand for Web content is driving Web-centric companies to locate
servers at those facilities to ensure superior Internet connectivity. Our data-
and Web-hosting centers will offer seamless and scalable Internet connectivity
for emerging Internet service providers and Web-centric companies, offering a
direct connection to our pan-European seamless network at bandwidths of
initially 2.5 gigabits per second, with upgrades up to 10 gigabits per second.
We believe that offering data- and Web-hosting services will provide
opportunities to cross-sell services on our fiber optic network, thereby
improving customer retention and enabling us to address new target segments.
Operations, Systems and Support
Our operations, systems and support functions consist of two main areas:
customer care and billing and network operating services and systems. In
performing our operations functions, we work with particular companies and
sub-contractors that we believe are committed to maintaining our industry-
leading service offerings.
We seek to provide premium customer care throughout our business. Our
customer care and billing system provides us with extensive customer information
which is critical to customer retention and account growth.
We have integrated, or are in the process of integrating, the various
legacy operating and support systems which we have inherited through our recent
acquisitions in order to form a single, uniform, centralized billing platform
that will enable us to execute our business plan. This platform is being
installed in two phases. The first phase was completed in December 1999 and
completion of the second phase is expected in June 2000.
OUR OPERATIONS IN RUSSIA AND OTHER COUNTRIES OF THE CIS -- GOLDEN TELECOM
Through our majority owned subsidiary, Golden Telecom, Inc., we provide
telecommunications services to business customers and telecommunications
operators in Moscow, Kiev, St. Petersburg and other major population centers
throughout Russia and other countries of the CIS. The services that Golden
Telecom provides include international long distance services, domestic long
distance services, cellular services, high speed data transmission, Internet
access and local access services. Dedicated and leased capacity supplements our
own infrastructure, allowing us to bypass the severely congested and poorly
maintained local, domestic and long distance circuits of the Russian and
Ukrainian carriers.
Golden Telecom seeks to integrate and co-market the service offerings of
its subsidiaries, utilizing TeleRoss as the long distance and local access
provider as well as the data communications and Internet access network for
business applications and on-line services, Sovintel as the international
gateway, and Golden Telecom's Mobile Services for additional local access. This
integrated marketing approach enables Golden Telecom to provide comprehensive
telecommunications solutions to multinational corporations operating throughout
Russia and other independent countries of the CIS. In addition, in February
2000,
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Golden Telecom entered into a fifteen-year lease with Sonera Corporation for
broadband fiber optic capacity from Moscow to Stockholm. Golden Telecom expects
this link will be operational during the first quarter of 2000. This link will
provide Golden Telecom and its customers with access to complementary broadband
and data networks in Europe and beyond, including our network.
COMPETITION
The ongoing liberalization of the European telecommunications market has
coincided with technological innovation to create an increasingly competitive
market, characterized by still dominant incumbent telecommunications operators
which own and operate fully built networks and infrastructure, as well as an
increasing number of new market entrants.
The markets for managed bandwidth services, local and long distance
telecommunications services, Internet connectivity and related services are
extremely competitive. We anticipate that competition will continue to intensify
as the use of the Internet grows. The tremendous growth and potential market
size of these markets, particularly the e-business services market, has
attracted many new start-ups as well as established businesses from different
industries. We compete primarily on the basis of the pan-European coverage of
our network, the range and quality of services offered, customer service and
price. Competitors may force us to lower our prices or modify our service
offerings to remain competitive.
In each of our current markets where we provide voice, data and Internet
services, we compete primarily with the national public telecommunications
providers. Other competitors of Business Services include private multinational
consortia as well as microwave and satellite carriers, mobile wireless
telecommunications providers, cable television companies, utilities and
competing local telecommunications providers and other medium-sized carriers and
resellers in Europe. Some of our competitors have established their own switch
sites and operate their own networks. Competitors in this segment include MCI
WorldCom, COLT, Viatel and RSL, which compete in multiple countries, and
country-specific competitors such as Energis (UK), Arcor (Germany), Telfort (The
Netherlands), Retevision (Spain), Infostrada (Italy) and Cegetel (France). These
providers are generally more entrepreneurial than the public telecommunications
operators and other dominant providers and sometimes bring experience from more
mature markets. Like us, these providers often target small, medium and
large-sized business customers or other market niches. As we roll-out our suite
of services supporting e-business activities of potential customers, we also
expect to enlarge the number of competitors we will be facing. These will
include a number of international companies as well as country-specific
competitors.
For our broadband customers, we compete with various telecommunications
companies, including MCI WorldCom, Inc., Viatel, Inc., KPN Qwest B.V., COLT
Telecom Group plc, Level 3 Communications, Inc., Carrier1 International S.A.,
Deutsche Telekom AG, France Telecom S.A., Global Crossing Ltd. and British
Telecommunications plc. Some of these entities have announced plans to
construct, have begun to construct or are operating high bandwidth fiber optic
networks across various European countries and in several European metropolitan
markets and in some cases, provide transatlantic connectivity, in competition
with our network and our planned City Enterprise Networks.
PROPERTIES
We lease office space to serve as sales office and/or administrative
facilities, including our approximately 35,000 square-foot corporate
headquarters in Arlington, Virginia with a ten-year lease expiring October 2009.
We maintain our operational headquarters in London in an approximately 52,000
square-foot facility under a twenty-one year lease expiring December 2020. We
have also entered into a fifteen-year lease for up to 26,000 square feet of
space in New York City to house a switch for our wholesale operations and a
technical operations center. We are initially occupying 15,000 square feet of
this facility, but have committed to lease an additional 11,000 square feet in
fall of 2000.
We own substantially all of the telecommunications equipment required for
our business; however, we lease a substantial part of our fibers on a long-term
basis. The installed fiber optic cable is laid under the
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<PAGE> 41
various rights-of-way held by us. Other fixed assets are located at various
leased locations in geographic areas that we serve.
Global TeleSystems (Europe) Ltd. (formerly Esprit Telecom Group plc) leases
its principal executive offices, located in Reading, United Kingdom, under
long-term leases, which expire 2008. The leases contain a tenant only option to
cancel in March 2003. In addition, it leases property at each of the locations
where it maintains sales offices.
GTS Europe B.V. has its principal administrative offices and its Network
Operations Center in two adjacent buildings in Hoeilaart, Belgium, just outside
Brussels. The leases on both the buildings expire on June 30, 2005. One of the
buildings has an option to cancel on January 1, 2002 with a penalty of six
months rent. In addition, GTS Europe B.V. has short-term leases expiring on
February 28, 2000 in Rixensart, Belgium and on September 1, 2000 in Kraainem,
Belgium. GTS Europe B.V. has also entered into leases for two additional
buildings in the same complex as its principal offices. GTS Europe B.V.
commenced its occupancy of these buildings in January 2000. These leases run
through January 2009 but may be terminated after six years with six months
notice plus six months rental penalty.
In addition to the offices in Belgium, GTS Europe B.V. has a leased office
space in Dublin, Ireland, which expires on October 2, 2022, in London, United
Kingdom, which expires in August 2002, in Frankfurt, Germany, which expires in
March 2004 and Madrid, Spain, which expires in January 2004. GTS Europe B.V. and
our various subsidiaries related to our Business Services operations lease
various offices on a short-term basis for regional sales and service personnel.
LEGAL PROCEEDINGS
We are subject to various claims and proceedings in the ordinary course of
our business. In addition, we are involved in the following claims, proceedings
and inquiries:
In October 1999, Interactive Communications Services (ICS) brought a claim
against our wholly owned subsidiary GTS Carrier Services (Ireland) Limited for
damages alleged to exceed E2.9 million. Although a detailed claim has not yet
been served, ICS has obtained an initial injunction preventing GTS Carrier
Services (Ireland) Limited from suspending or terminating certain
telecommunications services provided to ICS. However, the injunction was
discharged on October 26, 1999 because ICS failed to pay L267,000 to GTS Carrier
Services (Ireland) Limited, which was a condition for the injunction to remain
in place. From evidence before the court in connection with that injunction, it
appears that ICS's damages claim relates to an alleged breach of contract in GTS
Carrier Services (Ireland) Limited not commissioning or connecting
telecommunications circuits as quickly as ICS claims GTS contracted to do. We
believe that ICS's claim is without merit.
On March 26, 1999, we opposed the license fee imposed by the French
regulator as, among other things, contrary to Article 11 of EC Directive 97/13
which requires license fees to cover only the administrative cost of managing
the license. On September 23, 1999, the French regulator informed us that they
rejected our position. On November 24, 1999, we filed a complaint before the
French administrative tribunal opposing the license fee. Under French law, we
would not be required to pay the license fee and the French regulator does not
have the right to terminate our license until such time as a ruling by the
French administrative tribunal is issued. If our claim is rejected in a final
non-appealable judgment, we will be required to pay our license fee in France.
We do not believe that the outcome of this litigation will have a material
adverse effect upon our financial condition.
In addition, we and our subsidiaries, GTS-Hungaro and GTS-Hungary, are
named as defendants in an action captioned USH Ventures and USH Telecom, L.L.C.
v. Global TeleSystems Group, Inc. and GTS-Hungaro, Inc., Civil Action No.
97C-08-86, commenced in August 1997, which is currently pending in the Superior
Court of the State of Delaware in and for New Castle County. The complaint
alleges breach of contract and tortious interference with a business
relationship. Trial is scheduled for May 2000. While it is not possible at this
time to make a meaningful assessment of the outcome of this litigation,
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<PAGE> 42
based upon information currently available and upon consultation with counsel,
we do not believe that the outcome of this litigation will have a material
adverse effect upon our financial condition.
We and certain of our and Golden Telecom's employees have been requested by
Russian and U.S. governmental authorities to provide information apparently in
connection with inquiries into the activities of the former owners of GTS Vox,
which formerly owned Golden Telecom's interests in TCM, including in connection
with a U.S. grand jury investigation. Their inquiries have raised issues about
the formation of TCM and the sale of the interest in GTS-Vox to us. We have
cooperated and intend to continue to cooperate with any legitimate governmental
inquiries.
Based on information currently available, we believe that none of such
current claims, proceedings or inquiries, individually or in the aggregate, will
have a material adverse effect on our financial condition or results of
operations, although there can be no assurance that this will remain the case.
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<PAGE> 43
SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
GTS common stock and rights to acquire common stock by (1) stockholders that
manage or own, either beneficially or of record, five percent or more of the
common stock of the Company and (2) each of the selling stockholders under this
prospectus. 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
of persons 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.
The percentage of ownership for each beneficial owner is based upon
196,157,980 shares of our common stock issued and outstanding as of March 31,
1999.
The selling stockholders may sell their shares on the New York Stock
Exchange, in privately negotiated transactions or otherwise. Shares will be sold
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Transferees of these
stockholders or other persons acquiring shares, including brokers who borrow the
shares to settle short sales of shares of the common stock, may also use this
prospectus.
The selling stockholders will receive all of the net proceeds from the sale
of shares and will pay any underwriting discounts and selling commissions.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER THE
PRIOR TO SHELF OFFERING SHELF OFFERING
-------------------------- NUMBER OF -------------------
NUMBER OF SHARES BEING NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
------------------------ ----------- ------------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Providence Equity Partners L.P........ 4,318,359 2.2 4,318,359 0 0
Providence Equity Partners II L.P..... 60,252 * 60,252 0 0
Geoff Arnold.......................... 1,622 * 1,622 0 0
Rodney Philip Attwooll................ 191,381 * 191,381 0 0
Penny Best............................ 324 * 324 0 0
Donna Blackmore....................... 811 * 811 0 0
Sharon Brautigam...................... 811 * 811 0 0
Gill Collins.......................... 9,730 * 9,730 0 0
Alan Cornforth........................ 1,622 * 1,622 0 0
Mark Cox.............................. 4,865 * 4,865 0 0
Jean Ellison.......................... 811 * 811 0 0
Sanjay Ghandi......................... 4,054 * 4,054 0 0
John Goodman.......................... 1,622 * 1,622 0 0
Paul Halsey........................... 2,432 * 2,432 0 0
Barry Hunter.......................... 1,622 * 1,622 0 0
Naomi Iliff........................... 811 * 811 0 0
Minos Makris.......................... 3,243 * 3,243 0 0
Clive Malcolm......................... 1,622 * 1,622 0 0
Sasha Martin.......................... 811 * 811 0 0
Jonathan Matthews..................... 324 * 324 0 0
Stephen Moore......................... 24,324 * 24,324 0 0
Steve O'Neill......................... 324 * 324 0 0
Joe Owen.............................. 811 * 811 0 0
Steve Powell.......................... 4,054 * 4,054 0 0
Sue Salkeld........................... 811 * 811 0 0
Tom Scuffham.......................... 9,730 * 9,730 0 0
Aamar Shafi........................... 324 * 324 0 0
Robert Sinkinson...................... 811 * 811 0 0
Darren Stewart........................ 2,432 * 2,432 0 0
</TABLE>
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<PAGE> 44
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED AFTER THE
PRIOR TO SHELF OFFERING SHELF OFFERING
-------------------------- NUMBER OF -------------------
NUMBER OF SHARES BEING NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
------------------------ ----------- ------------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Adam Strawson......................... 1,622 * 1,622 0 0
Roz Taphouse.......................... 3,243 * 3,243 0 0
Dominic Thomas........................ 1,622 * 1,622 0 0
Derek Thomas.......................... 3,243 * 3,243 0 0
Sally Thompson........................ 811 * 811 0 0
Chris Walters......................... 9,730 * 9,730 0 0
Steve Wyles........................... 1,622 * 1,622 0 0
Kate Mulenje.......................... 162 * 162 0 0
Alexia Clarke......................... 811 * 811 0 0
Tim Hodgson........................... 324 * 324 0 0
Simon Hunt............................ 811 * 811 0 0
Martin Rogers......................... 324 * 324 0 0
Malcolm Thornton...................... 3,243 * 3,243 0 0
Kamran Khan........................... 324 * 324 0 0
Julian Dale........................... 811 * 811 0 0
Haley Bullock......................... 1,622 * 1,622 0 0
Jim Jeater............................ 811 * 811 0 0
Simon Parkyn.......................... 324 * 324 0 0
Roeland Mertens....................... 811 * 811 0 0
Asim Hussain.......................... 324 * 324 0 0
Paul Dowles........................... 811 * 811 0 0
Frank Tsang........................... 324 * 324 0 0
Tendai Warambwa....................... 811 * 811 0 0
Tristram Bardick...................... 324 * 324 0 0
Ben Gilbert........................... 811 * 811 0 0
Vicki Mandy........................... 324 * 324 0 0
Gary Dressell......................... 324 * 324 0 0
Denise Summerton...................... 324 * 324 0 0
Nigel Hackett......................... 162 * 162 0 0
Saadia Field.......................... 811 * 811 0 0
Josie Hembra.......................... 324 * 324 0 0
Craig Martin.......................... 162 * 162 0 0
Michael Montague...................... 324 * 324 0 0
Chris Taylor.......................... 324 * 324 0 0
Joanne White.......................... 324 * 324 0 0
Vivien Morris......................... 1,622 * 1,622 0 0
William Rigby......................... 1,622 * 1,622 0 0
Keith Heron........................... 1,622 * 1,622 0 0
Estate of Robert J. Hausman and its
beneficiaries....................... 15,000 * 15,000 0 0
Total................................. 4,709,695
</TABLE>
- ---------------
* Less than one percent.
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<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 270,000,000 shares of common
stock, par value $0.10 per share, of which approximately 196,157,980 shares were
issued and outstanding as of March 31, 2000, and 10,000,000 shares of preferred
stock, par value $0.0001 per share, of which 100,000 were issued and outstanding
as of March 31, 2000. For a discussion of the risks associated with these
additional issuances of stock, see "Risk Factors -- Substantial resales of our
common stock may depress our stock price and dilute stockholders' ownership
interest following conversion of your debentures."
On April 23, 1999, we issued 100,000 shares of the 7 1/4% convertible
preferred stock.
In our annual shareholders meeting on June 16, 1999, we obtained approval
to increase our authorized common stock from 135,000,000 shares to 270,000,000
shares. Furthermore, on June 21, 1999, we announced a two-for-one stock split,
in the form of a stock dividend. The dividend was issued on July 21, 1999 to
stockholders of record as of the close of business on July 1, 1999. We will seek
shareholder approval of an increase in our authorized common stock to
540,000,000 shares at our 2000 annual shareholders meeting.
The following summary of the rights, privileges, restrictions and
conditions of each of the classes of shares we issue does not purport to be
complete and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Certificate of Incorporation and By-laws, and to
the applicable provisions of the General Corporation Law of the State of
Delaware, which we refer to as the DGCL.
OUR COMMON STOCK
Holders of common stock are entitled to one vote for one share held of
record on all matters upon which shareholders have the right to vote. There are
no cumulative voting rights. All issued and outstanding shares of common stock
are, and the offered shares, when issued and paid for, will be, validly issued,
fully paid and non-assessable. Holders of common stock are entitled to all
dividends that are declared from time to time by the board of directors out of
funds legally available for that purpose. For more information, we refer you to
"Dividend Policy." Upon dissolution, holders of common stock are entitled to
share pro rata in our assets remaining after payment in full of all of our
liabilities and obligations, including payment of the liquidation preference, if
any, of any preferred stock then outstanding.
OUR PREFERRED STOCK
The board of directors may authorize the issuance of one or more series of
preferred stock having rights, including voting, conversion and redemption
rights, and preferences, including dividend and liquidation preferences, that
our board of directors may determine, without further action by our
stockholders.
The issuance of preferred stock by the board of directors could adversely
affect the rights of the holders common stock. For example, the issuance of
preferred stock could result in a series of securities outstanding that would
have preferences over the common stock with respect to dividends and in
liquidation and that could, upon conversion or otherwise, have all the rights
appurtenant to the common stock. As of March 31, 2000, we have authorized
200,000 shares of Series A junior participating preferred stock, par value
$.0001 per share. Other than our convertible preferred stock, no other series of
preferred stock has been issued. There are no issued and outstanding shares of
Series A preferred stock and no Series A preferred stock is being offered by
this prospectus. A right to purchase shares of Series A preferred stock,
however, is attached to each share of common stock. We have authorized 200,000
shares of Series A preferred stock initially for issuance upon exercise of those
rights.
The units of Series A preferred stock that may be acquired upon exercise of
the rights will be nonredeemable and subordinate to any other shares of
preferred stock that we may issue. Each unit of Series A preferred stock will
have a minimum preferential quarterly dividend of $.01 per unit or any higher
per share dividend declared on the common stock. In the event of liquidation,
the holder of a unit of Series A preferred stock will receive a preferred
liquidation payment equal to the greater of $.01 per unit and the per share
amount paid in respect of a share of common stock.
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<PAGE> 46
Each unit of Series A preferred stock will have one vote, voting together
with the common stock. The holders of units of Series A preferred stock, voting
as a separate class, shall be entitled to elect two directors if dividends on
the Series A preferred stock are in arrears for six fiscal quarters.
In the event of any merger, consolidation or other transaction in which
shares of common stock are exchanged, each unit of Series A preferred stock will
be entitled to receive the per share amount paid in respect of each share of
common stock. The rights of holders of the Series A preferred stock to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions. Because of
the nature of the Series A preferred stock's dividend, liquidation and voting
rights, the economic value of one unit of Series A preferred stock that may be
acquired upon the exercise of each right is expected to approximate the economic
value of one share of common stock.
OUR DEPOSITARY SHARES AND 7 1/4% CONVERTIBLE PREFERRED STOCK
In April 1999, we issued and sold pursuant to exemptions from registration
under the Securities Act, 10,000,000 depositary shares. Each depositary share
represents 1/100 of a share of our 7 1/4% convertible preferred stock deposited
under the deposit agreement dated as of April 23, 1999, among GTS, The Bank of
New York as depositary, and all holders from time to time of depositary receipts
issued under the deposit agreement. Subject to the terms of the deposit
agreement, each owner of a depositary share is entitled, proportionately, to all
the rights, preferences and privileges of the shares of 7 1/4% convertible
preferred stock represented by those depositary shares (including dividend,
conversion, voting, and liquidation rights), and is subject to all of the
limitations of the fractional shares of 7 1/4% convertible preferred stock
represented by those depositary shares. The depositary shares are evidenced by
depositary receipts.
In summary, the holders of the depositary shares
- may convert the 7 1/4% convertible preferred stock represented by those
depositary shares into our common stock,
- are entitled to receive dividends at the rate of $0.90625 per quarter,
and
- are entitled to vote in certain circumstances.
DTC will act as securities depositary for the depositary shares.
The following is a summary of certain terms of the 7 1/4% convertible
preferred stock. The terms of the 7 1/4% convertible preferred stock are
contained in the Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions which shall be referred to as the
"certificate of designations." This summary is not intended to be complete and
is subject to, and qualified in its entirety by reference to, the certificate of
designations.
Under the certificate of designations, 100,000 shares of 7 1/4% convertible
preferred stock with a liquidation preference of $5,000 per share have been
authorized for issuance. The 7 1/4% convertible preferred stock is fully paid
and nonassessable, and the holders have no preemptive rights in connection with
those shares. We do not expect that there will be any trading market for the
7 1/4% convertible preferred stock except as represented by the depositary
shares.
The 7 1/4% convertible preferred stock:
- ranks junior in right of payment to all of our existing and future debt
obligations and to each senior class or series of our capital stock, and
pari passu or senior to all of our capital stock,
- has a liquidation preference of $5,000 per share ($50 per depositary
share) plus accrued and unpaid dividends and additional dividends,
- is convertible at the option of the holder into shares of our common
stock at a rate of 144.92 shares of common stock per convertible
preferred share (1.4492 share of common stock per depository share),
- is redeemable in whole or in part, at our option at any time on or after
March 15, 2002 at certain prices, plus accrued and unpaid dividends, if
any, to the redemption date.
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<PAGE> 47
The holders of 7 1/4% convertible preferred stock (and the corresponding
depositary shares):
- will have no voting rights except as required by law and as specified in
the certificate of designations unless the events described below happen,
and
- may require us, upon a change of control event, to repurchase all of a
portion of such holder's convertible preferred stock (and the
corresponding depositary shares).
SECTION 145 OF DGCL AND CERTAIN CHARTER PROVISIONS
Section 145 of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal or investigative (other than an action by or in the right of the
corporation). A corporation may indemnify that person if he or she is or was a
director, officer, employee or agent of the corporation. A corporation may also
indemnify that person if he or she is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. That person may recover
the following from the corporation:
- expenses (including attorneys' fees);
- judgments;
- fines; and
- amounts paid in settlement actually and reasonably incurred by him or her
in connection with any action, suit or proceeding if he or she acted in
good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any
such person serving in any such capacity who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor. Such person
may recover expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation. However, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders,
- for acts or omission not in good faith or which involve intentional
misconduct or a knowing violation of law,
- under Section 174 of the DGCL (relating to unlawful payment of dividends
and unlawful stock purchase and redemption), or
- for any transaction from which the director derived an improper personal
benefit.
Our Certificate of Incorporation provides that our directors shall not be
liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director provided, however, that such exculpation from liabilities is
not permitted with respect to liability arising from items described in the
preceding paragraph. Our Certificate of Incorporation and our By-laws further
provide that we will indemnify our directors and officers to the fullest extent
permitted by the DGCL.
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<PAGE> 48
Our directors and officers are covered under directors' and officers'
liability insurance policies that we maintain.
CERTAIN CHARTER AND BY-LAW PROVISIONS
Shareholders' rights and related matters are governed by the DGCL, the
Certificate of Incorporation and By-laws. Provisions of the Certificate of
Incorporation and the By-laws, which are summarized below, may discourage or
make more difficult a takeover attempt that a shareholder might consider in its
best interest, although certain of such provisions in the By-laws are subject to
final approval by our board of directors. Such provisions may also adversely
affect prevailing market prices for the common stock which is discussed in the
section "Risk Factors -- We have anti-takeover provisions that could delay or
prevent a change in control, and therefore may adversely affect the trading
price of the debentures."
Classified Board of Directors and Related Provisions
Our Certificate of Incorporation provides that our board of directors be
divided into three classes of directors serving staggered three-year terms. The
classes of directors (designated class I, class II and class III) shall be, as
nearly as possible, equal in number. Accordingly, one-third of our board of
directors will be elected each year.
- The terms of the initial class I directors terminated at the May 20, 1998
annual meeting of stockholders and those directors were re-elected to a
three-year term terminating on the date of the 2001 annual meeting of
stockholders.
- The term of the initial class II directors terminated on the date of the
1999 annual meeting of stockholders and the directors standing for
re-election at that meeting were re-elected to a three-year term
terminating on the date of the 2002 annual meeting of stockholders.
- The term of the initial class III directors terminates on the date of the
2000 annual meeting of stockholders.
The classified board provision may prevent a party who acquires control of
a majority of our outstanding voting stock from obtaining control of the board
of directors until the second annual shareholders meeting following the date
that party obtains the controlling interest.
Subject to the rights of the holders of any series of preferred stock or
any other class of our capital stock (other than common stock) then outstanding,
directors may only be removed for cause by a majority vote of our holders of
capital stock issued and outstanding and entitled to vote generally in the
election of directors, voting together as a single class.
No Shareholder Action by Written Consent; Special Meetings
Our Certificate of Incorporation prohibits shareholders from taking action
by written consent in lieu of an annual or special meeting, and thus
shareholders may take action at an annual or special meeting called in
accordance with our By-laws. Our Certificate of Incorporation and By-laws
provide that special meetings of shareholders may only be called only by the
Chairman of the board of directors, the Chief Executive Officer or a majority of
the board of directors. Special meetings may not be called by the shareholders,
except as permitted by the shareholder rights By-law described below.
Amendments to the Certificate of Incorporation
The provisions of the Certificate of Incorporation described above may not
be amended, altered, changed or repealed without the affirmative vote of the
holders of at least 75% of the shares of our capital stock issued and
outstanding and entitled to vote.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW AND CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder." An interested stockholder is
defined as a person who, together with any affiliates or associates of that
person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting
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<PAGE> 49
shares of a Delaware corporation. This provision prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder.
Section 203 further provides that under certain circumstances, business
combinations are allowed, such as when:
- the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder becomes an
interested stockholder,
- the interested stockholder acquired at least 85% of the voting stock of
the corporation (other than stock held by directors who are also officers
or by certain employee stock plans) in the transaction in which it
becomes an interested stockholder, or
- the business combination is approved by a majority of the board of
directors and by the affirmative vote of 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
In addition, our Certificate of Incorporation grants the board of directors
the authority to issue up to 10,000,000 shares of preferred stock in one or more
series and to determine the rights, voting powers, dividend rate, conversion
rights, redemption price, liquidation preference and other terms of the issued
preferred stock without any further vote or action by the stockholders. The
provisions of Section 203 of the DGCL described above and our Certificate of
Incorporation, and any issuance of preferred stock with voting or conversion
rights, may adversely affect your voting power and may have the effect of
delaying or preventing a change of control of GTS or adversely affect the market
price of our common stock.
SHAREHOLDER RIGHTS AGREEMENT AND SHAREHOLDER RIGHTS BY-LAW
Shareholder Rights Plan
We have entered into a rights agreement. In connection with the rights
agreement, our board of directors declared a distribution of one right for each
outstanding share of common stock, each share of common stock offered by this
prospectus and each share of our common stock issued (including shares
distributed from treasury) thereafter and prior to a distribution date. Each
right will entitle the registered holder, subject to the terms of the rights
agreement, to purchase from us one one-thousandth of a share or a unit of Series
A preferred stock at a purchase price of $75 per unit, subject to adjustment.
Initially, the rights will attach to all certificates representing shares
of outstanding common stock, and no separate rights certificates will be
distributed. The rights will separate from the common stock and the distribution
date will occur upon the earlier of:
- 10 days following a public announcement that a person or group of
affiliated or associated persons (other than us, any of our subsidiaries
or any of our employee benefit plans or such subsidiary) has acquired,
obtained the right to acquire, or otherwise obtained beneficial ownership
of 15% or more of the then outstanding shares of common stock, and
- 10 business days (or such later date determined by action of the board of
directors prior to such time as any person makes such announcement)
following the commencement of a tender offer or exchange offer that would
result in a person or group beneficially owning 15% or more of the then
outstanding shares of common stock.
The Soros associates and Alan B. Slifka and his affiliates are excluded from
being an acquiring person described above under the rights agreement unless they
increase the aggregate percentage of their ownership interest in us to 20%.
Until a distribution date:
- the rights will be evidenced by common stock certificates and will be
transferred with and only with such common stock certificates,
48
<PAGE> 50
- new common stock certificates issued after date of consummation of the
offerings in July 1998 (also including shares distributed from treasury)
will contain a notation incorporating the rights agreement by reference,
and
- the surrender for transfer of any certificates representing outstanding
common stock will also constitute the transfer of the rights associated
with the common stock represented by those certificates.
The rights will not be exercisable until a distribution date and will
expire at the close of business on the tenth anniversary of the rights agreement
unless we redeem them earlier.
In the event that:
- we are the surviving corporation in a merger with an acquiring person
described above and shares of common stock shall remain outstanding,
- a person becomes an acquiring person,
- an acquiring person engages in one or more "self-dealing" transactions as
set forth in the rights agreement, or
- during such time as there is an acquiring person, an event occurs which
results in that person's ownership interest being increased by more than
1% (e.g., by means of a recapitalization),
then, in each such case, each holder of a right (other than such person) will
thereafter have the right to receive, upon exercise, units of Series A preferred
stock (or, in some circumstances, our common stock, cash, property or other
securities) having a value equal to two times the exercise price of the right.
The exercise price is the purchase price multiplied by the number of units of
Series A preferred stock issuable upon exercise of a right prior to the events
described in this paragraph.
In the event that, at any time following a stock acquisition date:
- we are acquired in a merger or other business combination transaction and
we are not the surviving corporation (other than a merger described in
the preceding paragraph),
- any person consolidates or merges with us and all or part of our common
stock is converted or exchanged for securities, cash or property of any
other person, or
- 50% or more of our assets or earning power is sold or transferred,
each holder of a right (other than an acquiring person) shall thereafter have
the right to receive, upon exercise, common stock of the ultimate parent of such
person having a value equal to two times the exercise price of the right.
The purchase price payable, and the number of units of Series A preferred
stock issuable, upon exercise of the rights are subject to adjustment from time
to time to prevent dilution:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A preferred stock,
- if holders of the Series A preferred stock are granted certain rights or
warrants to subscribe for Series A preferred stock or convertible
securities at less than the current market price of the Series A
preferred stock, or
- upon the distribution to the holder of the Series A preferred stock of
evidences of indebtedness, cash or assets (excluding regular quarterly
cash dividends) or of subscription rights or warrants (other than those
referred to above).
At any time until ten business days following a stock acquisition date,
either
- 75% of our board of directors, or
- a majority of our board of directors and a majority of the continuing
directors,
49
<PAGE> 51
may redeem the rights in whole, but not in part, at a nominal price. Immediately
upon the action of a majority of our board of directors ordering the redemption
of the rights, the rights will terminate and the only right of the holders of
rights will be to receive the redemption price. As used in the rights agreement,
a continuing director means any person (other than a person attempting to
acquire us or an affiliate or associate of such a person or a representative of
such person or of any such affiliate or associate) who was a director prior to
the date of the rights agreement and any person (other than an acquiring person
or an affiliate or associate of an acquiring person or a representative of an
acquiring person or of any such affiliate or associate) nominated for selection
or elected to the board of directors pursuant to the approval of a majority of
the continuing directors.
At its option, either:
- 75% of our board of directors, or
- a majority of our board of directors and a majority of the continuing
directors, may exchange each right for (1) one unit of Series A preferred
stock or (2) such number of units of Series A preferred stock as will
equal the spread between the market price of each unit to be issued and
the purchase price of such unit set forth in the rights agreement.
None of the provisions of the rights agreement may be amended without the
approval of either:
- 75% of our board of directors, or
- a majority of our board of directors and a majority of the continuing
directors, may exchange each right for (1) one unit of Series A preferred
stock or (2) such number of units of Series A preferred stock as will
equal the spread between the market price of each unit to be issued and
the purchase price of such unit set forth in the rights agreement.
50
<PAGE> 52
PLAN OF DISTRIBUTION
The shares may be sold from time to time to purchasers directly by the
selling stockholders. Alternatively, the selling stockholders may from time to
time offer the shares to or through underwriters, broker/dealers or agents, who
may receive compensation in the form of underwriting discounts, concessions or
commissions from the selling stockholders or the purchasers of such securities
for whom they may act as agents. The selling stockholders and any underwriters,
broker/dealers or agents that participate in the distribution of the shares may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of such securities and any discounts, commissions,
concessions or other compensation received by any such underwriter,
broker/dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
The shares may be sold from time to time in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the selling stockholders or by agreement between such selling
stockholders and underwriters or dealers who receive fees or commissions in
connection therewith. The sale of the shares may be effected in transactions
(which may involve crosses, block transactions and borrowings, returns and
reborrowings of the shares pursuant to stock loan agreements to settle short
sales of the common stock) (1) on any national securities exchange or quotation
service on which the shares may be listed or quoted at the time of the sale, (2)
in the over-the-counter markets, (3) in transactions otherwise than on such
exchange or in the over-the-counter market or (4) through the writing of
options. Shares also may be delivered in connection with the issuance of
securities by issuers other than GTS that are exchangeable for (whether optional
or mandatory) or payable in, such shares or pursuant to which such shares may be
distributed. At the time a particular offering of the shares is made, a
Prospectus Supplement, if required, will be distributed which will set forth the
aggregate amount and type of the shares being offered and the terms of the
offering, including the name or names of any underwriter, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the selling stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to broker/ dealers. This prospectus also may be
used by pledgees, donees and transferees of the selling stockholders or by other
persons acquiring shares, including brokers who borrow the shares to settle
short sales of shares of the common stock. In addition, the shares which qualify
for sale under an applicable exemption from registration under the Securities
Act may be sold pursuant to such exemption rather than this prospectus.
To comply with the securities laws of certain jurisdictions, if applicable,
the shares will be offered or sold in such jurisdictions only through registered
or licensed brokers or dealers. In addition, in certain jurisdictions the shares
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdictions or any exemption from registration or qualification
is available and is complied with.
The selling stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provision may limit
the timing of purchases and sales of any of the shares by the selling
stockholders. The foregoing may affect the marketability of such securities.
The selling stockholders will pay all underwriting discounts and selling
commissions, if any. We will indemnify any underwriters in an underwritten
offering against certain civil liabilities, including certain liabilities under
the Securities Act, or we will contribute to payments the underwriters may have
to make in respect thereof.
LEGAL MATTERS
The validity of our common stock offered hereby has been passed upon for us
by Arnold Y. Dean, our Deputy General Counsel.
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<PAGE> 53
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy these reports, proxy statements
and other information at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices located at 7 World Trade Center, 13th floor, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may
also obtain copies of such material at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, Washington, D.C. 20549. You
may obtain copies from the Public Reference Room by calling the SEC at (800)
732-0330. In addition, we are required to file electronic versions of such
material with the SEC through the SEC's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Our common stock is listed on the New York Stock Exchange and Easdaq and reports
and other information concerning us can also be inspected at the offices of the
New York Stock Exchange, Inc. at 20 Broad Street, New York, New York 10005
U.S.A., and the Easdaq Market Authority, Rue des Colonies 56, Brussels 1000,
Belgium.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means that:
- documents incorporated by reference are considered part of this offering
memorandum;
- we can disclose important information to you by referring you to those
documents; and
- information that we file with the SEC will automatically update and
supersede this offering memorandum.
We incorporate by reference the documents listed below which were filed
with the SEC under the Exchange Act:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
1999, filed on March 9, 2000;
- our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999 and September 30, 1999; and
- our Current Reports on Form 8-K filed on January 13, 1999, March 9, 1999,
April 28, 1999, and July 23, 1999, January 31, 2000 and February 8, 2000
and our Amendment to our Current Reports on Form 8-K/A filed on January
20, 1999 and August 13, 1999.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus but before all the
common stock offered by this prospectus has been sold:
- reports filed under Sections 13(a) and (c) of the Exchange Act;
- definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- any reports filed under Section 15(d) of the Exchange Act.
52
<PAGE> 54
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address:
Global TeleSystems Group, Inc.
4121 Wilson Boulevard
8th Floor
Arlington, VA 22203
(703) 236-3100
EXPERTS
The consolidated financial statements and schedules of Global TeleSystems
Group, Inc. as of December 31, 1998 and 1999, and for each of the three years in
the period ended December 31, 1999 appearing in Global TeleSystems Group, Inc.'s
Annual Report (Form 10-K) for the year ended December 31, 1999, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
therein which is based in part on the report of PricewaterhouseCoopers,
independent accountants, and incorporated herein by reference.
53
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by GTS in
connection with the offering of the securities being hereby registered.
<TABLE>
<CAPTION>
ITEM
----
<S> <C>
SEC Registration Fee........................................ $30,159*
Accounting Fees and Expenses................................ 5,000
Legal Fees and Expenses..................................... 10,000
Printing Expenses........................................... 10,000
Miscellaneous............................................... 5,000
-------
TOTAL............................................. $60,159
=======
</TABLE>
- ---------------
* $26,563 of the registration fee was paid on March 17, 2000 in connection with
the filing of a registration statement (SEC File No. 333-32760). $3,596 of the
registration fee is being paid herewith.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omission not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
GTS' Certificate of Incorporation (the "Certificate") provides that the
GTS' Directors shall not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director provided, however,
that such exculpation from liabilities is not permitted with respect to
liability arising
II-1
<PAGE> 56
from items described in clauses (i) through (iv) in the preceding paragraph. The
Certificate and the GTS' By-Laws further provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by the
DGCL.
The directors and officers of GTS are covered under directors' and
officers' liability insurance policies maintained by GTS.
ITEM 16. EXHIBITS
(a) Exhibits:
The following is a list of exhibits filed as a part of this registration
statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1******* -- Indenture relating to the 10 1/2% Senior Notes due 2006,
dated as of November 24, 1999, between Global TeleSystems
Europe B V and United States Trust Company of New York,
as Trustee
1.2******* -- Indenture relating to the 11% Senior Notes due 2009,
dated as of November 24, 1999, between Global TeleSystems
Europe B V and United States Trust Company of New York,
as Trustee
1.3******* -- Registration Rights Agreement, dated as of November 24,
1999, between Global TeleSystems Europe B V and Initial
Purchasers
2.1*** -- Offer Agreement dated as of December 8, 1998 between the
Registrant and Esprit Telecom Telecom Group plc
2.2*** -- Irrevocable Undertaking by Walter Anderson dated as of
December 8, 1998
2.3*** -- Irrevocable Undertaking by Apax Funds Nominees Limited
dated as of December 8, 1998
2.3(a)*** -- Amendment to the Irrevocable Undertaking by Apax Funds
Nominees Limited dated as of December 8, 1998, dated
December 12, 1998
2.4*** -- Irrevocable Undertaking by Gold & Appel Transfer S.A.
dated as of December 8, 1998
2.5*** -- Irrevocable Undertaking by Warburg, Pincus Ventures, L.P.
dated as of December 8, 1998
2.6*** -- Irrevocable Undertaking by Sir Robin Biggam dated as of
December 8, 1998
2.7*** -- Irrevocable Undertaking by John McMonigall dated as of
December 8, 1998
2.8*** -- Irrevocable Undertaking by Roy Merritt dated as of
December 8, 1998
2.9*** -- Irrevocable Undertaking by David Oertle dated as of
December 8, 1998
2.10*** -- Irrevocable Undertaking by Michael Potter dated as of
December 8, 1998
2.11*** -- Irrevocable Undertaking by Dominic Shorthouse dated as of
December 8, 1998
3.1** -- Certificate of Incorporation of SFMT, Inc.
3.2** -- Certificate of Correction to the Certificate of
Incorporation of SFMT, Inc., filed with the Delaware
Secretary of State on October 8, 1993
3.3** -- Certificate of Ownership and Merger Merging San
Francisco/Moscow Teleport, Inc. into SFMT, Inc., filed
with the Delaware Secretary of State on November 3, 1993
3.4** -- Certificate of Amendment to the Certificate of
Incorporation of SFMT, Inc., filed with the Delaware
Secretary of State on January 12, 1995
3.5** -- Certificate of Amendment to the Certificate of
Incorporation of SFMT, Inc., filed with the Delaware
Secretary of State on February 22, 1995
</TABLE>
II-2
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.6** -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc., filed
with the Delaware Secretary of State on October 16, 1996
3.7** -- By-laws of SFMT, Inc.
3.8** -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc., filed
with the Delaware Secretary of State on December 1, 1997
3.9** -- Form of Amended and Restated By-laws of Global
TeleSystems Group, Inc. (supersedes By-laws of SFMT, Inc.
filed as Exhibit 3.7)
3.10+ -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc. filed
with the Delaware Secretary of State on January 29, 1998
3.11+ -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc. filed
with the Delaware Secretary of State on February 9, 1998.
3.12+ -- Certificate of Designation of the Series A Preferred
Stock of Global TeleSystems Group, Inc.
3.13++++++ -- Certificate of Designation of the 7 1/4% Cumulative
Convertible Preferred Stock of Global TeleSystems Group,
Inc.
3.14++++++++ -- Certificate of Amendment to the Certificate of
Incorporation of Global Telesystems Group, Inc. filed
with the Delaware Secretary of State on June 18, 1999.
4.1** -- Form of Specimen Stock Certificate for Common Stock of
the Registrant
4.2** -- Indenture dated as of July 14, 1997 between Global
TeleSystems Group, Inc. and The Bank of New York
(including the form of Senior Subordinated Convertible
Bond due 2000 as an exhibit thereto)
4.3** -- Registration Rights Agreement, dated as of July 14, 1997,
between Global TeleSystems Group, Inc. and UBS Securities
LLC.
4.4** -- Indenture dated as of August 19, 1997 between Hermes
Europe Railtel B.V. and The Bank of New York (including
the form of 11 1/2% Senior Note due 2007 as an exhibit
thereto)
4.5** -- Registration Rights Agreement dated as of August 19, 1997
between Hermes Europe Railtel B.V. and Donaldson, Lufkin
& Jenrette Securities Corporation, UBS Securities LLC,
and Lehman Brothers, Inc.
4.6** -- Form of Rights Agreement between Global TeleSystems
Group, Inc. and The Bank of New York, as Rights Agent
4.7+ -- Indenture dated as of February 10, 1998 between Global
TeleSystems Group, Inc. and The Bank of New York
(including the form of 9 7/8% Senior Notes due 2005 as an
exhibit thereto)
4.8++ -- Indenture dated as of July 8, 1998 between Global
TeleSystems Group, Inc. and The Bank of New York relating
to the Company's 5 3/4% Convertible Senior Debentures due
2010
4.9*** -- Registration Rights Agreement dated as of December 8,
1998 by and among the Registrant, Apax Funds Nominees
Limited and Warburg, Pincus Ventures, L.P.
4.10***** -- Registration Rights Agreement dated as of April 23, 1999
by and among Global TeleSystems Group, Inc., and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson
Lufkin & Jenrette Securities Corporation, Bear, Stearns &
Co. Inc., BT Alex. Brown Incorporated and Lehman Brothers
Inc.
</TABLE>
II-3
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5.1# -- Opinion of Arnold Y. Dean, Deputy General Counsel of the
Registrant respecting the Securities registered hereby.
10.1** -- Senior Note Purchase Agreement, dated as of January 19,
1996, among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.
10.1(a)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated June 6, 1996
10.1(b)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated June 6, 1996
10.1(c)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated July 23, 1996
10.1(d)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated September 16, 1996
10.1(e)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated July 11, 1997
10.1(f)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated July 29, 1997
10.1(g)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated September 29, 1997
10.2** -- Registration Rights Letter Agreement, dated as of January
19, 1996, among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.
10.3** -- Warrant Agreement, dated as of January 19, 1996, among
Global TeleSystems Group, Inc., The Open Society
Institute and Chatterjee Fund Management, L.P.
10.4** -- Joint Venture Letter Agreement, dated January 19, 1996,
among Global TeleSystems Group, Inc., The Open Society
Institute and Chatterjee Fund Management, L.P.
10.5 -- Intentionally Omitted
10.6** -- Registration Rights Letter Agreement, dated June 6, 1996,
among Global TeleSystems Group, Inc., The Open Society
Institute, Winston Partners II LDC and Winston Partners
II LLC
10.7** -- Warrant Agreement, dated as of June 6, 1996, between
Global TeleSystems Group, Inc., The Open Society
Institute, Winston Partners II LDC and Winston Partners
II LLC
10.8** -- Senior Note Purchase Agreement, dated as of February 2,
1996, between Global TeleSystems Group, Inc. and Emerging
Markets Growth Fund, Inc.
10.8(a)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated June 6,
1996 (see Exhibit No. 10.1(b))
</TABLE>
II-4
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8(b)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated June 6,
1996
10.8(c)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated July 25,
1996
10.8(d)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated September
10, 1996
10.8(e)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated September
16, 1996
10.8(f)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated December
30, 1996
10.8(g)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated May 13,
1997
10.8(h)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated June 20,
1997
10.8(i)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated July 11,
1997
10.8(j)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated July 21,
1997
10.8(k)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated August 14,
1997
10.8(l)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated September
29, 1997
10.9** -- Registration Rights Letter Agreement, dated as February
2, 1996, between Global TeleSystems Group, Inc. and
Emerging Markets Growth Fund, Inc.
10.10** -- Warrant Agreement, dated as of February 2, 1996, between
Global TeleSystems Group, Inc. and Emerging Markets
Growth Fund, Inc.
10.11 -- Intentionally Omitted
10.12** -- Registration Rights Letter Agreement, dated as February
2, 1996, between Global TeleSystems Group, Inc. and
Capital International Emerging Markets Funds
10.13** -- Warrant Agreement, dated as of February 2, 1996, between
Global TeleSystems Group, Inc. and Capital International
Emerging Markets Funds
10.14+ -- Restated and Amended Global TeleSystems Group, Inc.
Non-Employee Directors' Stock Option Plan
10.15+ -- Restated and Amended GTS-Hermes, Inc. 1994 Stock Option
Plan
10.16** -- Restricted Stock Grant letter, dated as of January 1,
1995
</TABLE>
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<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17+++++++ -- Employment Agreement dated as of April 1, 1999 between
the Company and H. Brian Thompson
10.18++++++++ -- Employment Agreement dated as of March 22, 1999 between
the Company and Robert Amman
10.19++++++++ -- Employment Agreement dated as of January 3, 1995 between
the Company and Gerard Caccappolo
10.20++++++++ -- Employment Agreement dated as of July 1, 1998 between
Esprit Telecom and Hans Peter Kohlhammer
10.21++++++++ -- Employment Agreement dated as of February 22, 1999
between the Company and Robert Schriesheim
10.22** -- SFMT, Inc. Equity Compensation Plan
10.23** -- Form of Non-Statutory Stock Option Agreement
10.24+ -- Third Amended and Restated 1992 Stock Option Plan of
Global TeleSystems Group Inc. dated as of September 25,
1997
10.25** -- GTS-Hermes 1994 Stock Option Grant, Non-Qualified Stock
Option Grant
10.26** -- Agreement on the Creation and Functions of the Joint
Venture of EDN Sovintel, dated June 18, 1990
10.27** -- Stock Purchase Agreement among Global TeleSystems Group,
Inc, Kompaniya "Invest-Project," Swinton Limited, GTS-Vox
Limited, and MTU-Inform, dated September 6, 1995
10.28** -- Certificate of Registration of Revised and Amended
Foundation Document in the State Registration of
Commercial Organizations, dated May 30, 1996
10.29** -- Agreement on the Creation and Functions of the Joint
Venture Sovam Teleport, dated May 26, 1992
10.30** -- Amended and Restated Joint Venture Agreement between GTS
Cellular, Tricor B.V., Gerard Essing, Ivan Laska, and
Erik Jennes, dated July 6, 1995
10.31** -- Amended and Restated Shareholders' Agreement between HIT
Rail B.V., GTS-Hermes, Inc., Nationale Maatschappij Der
Belgische Spoorwegen, Teleport B.V., AB Swed Carrier, and
Hermes Europe Railtel B.V., dated July, 1997
10.31(a)** -- Shareholders' Agreement among the Hermes Europe Railtel,
B.V., GTS-Hermes Inc., HIT Rail B.V., SNCB/NMBS and AB
Swed Carrier (incorporated by reference to Exhibit 10.1
to the Hermes Europe Railtel B.V.'s Registration
Statement on Form S-4 (File No. 333-37719) filed on
December 11, 1997) (supersedes the Amended and Restated
Shareholders' Agreement incorporated by reference as
Exhibit 10.31 to this Registration Statement)
10.32** -- Company Agreement between The Societe National de
Financement, GTS S.A.M. and The Principality of Monaco,
dated September 27, 1995
10.33** -- Joint Venture Agreement between SFMT-Hungaro Inc. and
Montana Holding Vagyonkezelo Kft., dated December 23,
1993
10.34** -- Joint Venture and Shareholders' Agreement among Gerard
Aircraft Sales and Leasing Company, SFMT-Hungaro Inc.,
and Microsystem Telecom Rt., dated August 5, 1994
10.35** -- Agreement on the Establishment of Limited Liability
Company between SFMT-Czech, Inc. and B&H s.r.o., dated
July 12, 1994
10.36** -- Formation of the Equity Joint Venture between GTS and
SSTIC, dated April 12, 1995
</TABLE>
II-6
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.37** -- Contract to Establish the Sino-foreign Cooperative Joint
Venture Beijing Tianmu Satellite Communications
Technology Co., Ltd, amended, by and between China
International Travel Service Telecom Co., Ltd. and
American China Investment Corporation, dated March 27,
1996
10.38** -- Joint Venture Contract between GTS TransPacific Ventures
Limited and Shanghai Intelligence Engineering, Inc.,
dated March 28, 1996
10.39** -- Agreement between Global TeleSystems Group, Inc. and
Cesia S.A., dated June 21, 1997
10.40** -- Consulting Agreement between SFMT, Inc. and Alan B.
Slifka, dated March 1, 1994
10.41** -- Consulting Agreement between Global TeleSystems Group,
Inc. and Bernard J. McFadden, dated August 15, 1996
10.42** -- Consulting Agreement between CESIA S.A. and Hermes Europe
Railtel B.V., dated June 20, 1997
10.43++ -- Master Agreement, dated June , 1998 between Ebone
Holding Association, Ebone A/S, Hermes Europe Railtel
Holdings B.V. and Hermes Europe Railtel (Ireland) Limited
10.44+++ -- Plusnet Acquisition Agreement between Esprit Telecom
Group plc and Plusnet Gesellschaft fur Netzwerk Services
GmbH
10.45**** -- Press Announcement of Esprit Telecom Group plc, dated
December 8, 1998, announcing the signing of a definitive
offer agreement with Global TeleSystems Group, Inc.
10.46++++ -- Form of Undertaking of shareholders of NetSource ASA made
in connection with the acquisition of NetSource ASA by
Global TeleSystems Group, Inc.
10.47++++ -- Form of Amendment Agreement to the Undertaking of
shareholders of NetSource ASA made in connection with the
acquisition of NetSource ASA by Global TeleSystems Group,
Inc.
10.48++++ -- Form of Waiver Agreement in made connection with the
acquisition of NetSource ASA by Global TeleSystems Group,
Inc.
10.49++++ -- Form of Waiver Agreement with certain shareholders of
NetSource ASA made in connection with the acquisition of
NetSource ASA by Global TeleSystems Group, Inc.
10.50+++++ -- Indenture dated as of December 18, 1997 between Esprit
Telecom Group plc, as Issuer, and The Bank of New York,
as Trustee, Registrar and Paying Agent, relating to the
Esprit Telecom Group plc 11 1/2% Dollar Senior Notes due
2007 and 11 1/2% DM Senior Notes due 2007
10.51+++ -- Indenture dated as of June 24, 1998 between Esprit
Telecom Group plc, as Issuer, and The Bank of New York,
as Trustee, Registrar and Paying Agent, relating to the
Esprit Telecom Group plc 10 7/8% Dollar Senior Notes due
2008 and 11% DM Senior Notes due 2008
10.52*** -- Supplemental Indenture, dated December 23, 1998 of
$230,000,000 11 1/2% Senior Notes due 2007, supplementing
the indenture dated as of December 18, 1997, between
Esprit Telecom Group plc, as issuer, and The Bank of New
York, as Trustee, Registrar and Paying Agent
10.53*** -- Supplemental Indenture, dated December 23, 1998 of DM
125,000,000 11 1/2% Senior Notes due 2007, supplementing
the indenture dated as of December 18, 1997, between
Esprit Telecom Group plc, as issuer, and The Bank of New
York, as Trustee, Registrar and Paying Agent
</TABLE>
II-7
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.54*** -- Supplemental Indenture, dated December 23, 1998 of DM
150,000,000 11% Senior Notes due 2008, supplementing the
indenture dated as of June 24, 1998, between Esprit
Telecom Group plc, as issuer and The Bank of New York, as
Trustee, Registrar and Paying Agent
10.55*** -- Supplemental Indenture, dated December 23, 1998 of
$150,000,000 10 7/8% Senior Notes due 2008, supplementing
the indenture dated as of June 24, 1998, between Esprit
Telecom Group plc, as issuer, and The Bank of New York,
as Trustee, Registrar and Paying Agent
10.56***** -- Purchase Agreement dated as of April 19, 1999 by and
among Global TeleSystems Group, Inc., and Apax Funds
Nominees Limited and Warburg, Pincus Ventures, L.P. and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Bear, Stearns & Co. Inc.,
Dresdner Kleinwort Benson North American LLC, BT Alex.
Brown Incorporated, Lehman Brothers Inc., Prudential
Securities Incorporated, ING Baring Furman Selz LLC,
BancBoston Robertson Stephens Inc., CIBC Oppenheimer
Corp., ABN AMRO Incorporated, Arnhold and S.
Bleichroeder, Inc. and Credit Suisse First Boston
Corporation.
10.57***** -- Purchase Agreement dated as of April 19, 1999 by and
among Global TeleSystems Group, Inc. and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation,
Bear, Stearns & Co., Inc., BT Alex. Brown Incorporated,
and Lehman Brothers Inc.
10.58***** -- Agreement for the transfer of Omnicom Shares dated as of
April 14, 1999 by and among Alain Nicolazzi, Florent
Martenne-Duplan, Philippe Ait Yahia and various other
Omnicom shareholders and Esprit Telecom Holdings, Limited
and Global TeleSystems Group, Inc.
12.1++++++ -- Statement Re: Computation of Deficiency of Earnings
Available to Cover Fixed Charges
21.1++++++++ -- List of Subsidiaries of the Registrant
23.1# -- Consent of Ernst & Young LLP, Independent Auditors
23.2# -- Consent of PricewaterhouseCoopers, Independent
Accountants
23.3# -- Consent of Arnold Y. Dean, Deputy General Counsel of the
Registrant (included in his opinion delivered under
Exhibit No. 5.1)
24.1# -- Powers of Attorney (included on signature page to this
registration statement)
27.1++++++++ -- Financial Data Schedule extracted from our December 31,
1999 audited financial statements
</TABLE>
- ---------------
# Filed herewith.
* Incorporated by reference to the corresponding exhibit to our Annual
Report on Form 10-K for the year ended December 31, 1998, filed on
March 23, 1999.
** Incorporated by reference to the corresponding exhibit to our
Registration Statement on Form S-1 (File No. 333-36555), filed on
September 26, 1997.
*** Incorporated by reference to the corresponding exhibit to our
Registration Statement on Form S-4 (File No. 333-68511), filed on
December 8, 1998.
**** Incorporated by reference to the corresponding exhibit to the Esprit
Telecom Group plc Annual Report on Form 20-F for the year ended
September 30, 1998, filed on December 24, 1998.
***** Incorporated by reference to the corresponding exhibit to our Current
Report on Form 8-K, dated April 14, 1999 and filed on April 28, 1999
II-8
<PAGE> 63
****** Incorporated by reference to the corresponding exhibit to our
Quarterly Report on Form 10-Q for the three month period ended March
31, 1999, filed on May 17, 1999
******* Incorporated by reference to the corresponding exhibit to the Global
TeleSystems Europe B V Registration Statement on Form S-4/A (File No.
333-94339), filed on February 2, 2000.
+ Incorporated by reference to the corresponding exhibit to our Annual
Report on Form 10-K for the year ended December 31, 1997, filed on
March 31, 1998.
++ Incorporated by reference to the corresponding exhibit to our
Registration Statement on Form S-1 (File No. 333-52733), filed on May
14, 1998.
+++ Incorporated by reference to the corresponding exhibit to the Esprit
Telecom Group plc Registration Statement on Form F-4 (File No.
333-9292), filed on August 13, 1998.
++++ Incorporated by reference to the corresponding exhibit to the Global
TeleSystems Group, Inc. Form 8-K, filed on November 30, 1998.
+++++ Incorporated by reference to the corresponding exhibit to the Esprit
Telecom Group plc Registration Statement on Form F-1 (File No.
333-8012), filed on December 10, 1997.
++++++ Incorporated by reference to the corresponding exhibit to our
Amendment No. 1 Registration Statement on Form S-3 (File No.
333-78097), filed on June 3, 1999.
+++++++ Incorporated by reference to Exhibit No. 10 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1999.
++++++++ Incorporated by reference to the correspondingly numbered Exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item
14 -- Indemnification of Directors and Officers" hereof, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the forms of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
forms of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-9
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Arlington, Commonwealth of Virginia, on this 19th day of April, 2000.
GLOBAL TELESYSTEMS GROUP, INC.
By: /s/ H. BRIAN THOMPSON
----------------------------------
Name: H. Brian Thompson
Title: Chairman and Chief
Executive Officer
We, the undersigned officers and directors of Global Telesystems Group,
Inc. hereby severally constitute and appoint, H. Brian Thompson, Robert A.
Schriesheim and Grier C. Raclin, and each of them, with full power of
substitution, our true and lawful attorney with full power to him singly to sign
for us and in our names in the capacities indicated below the Registration
Statement on Form S-1 filed herewith and any and all pre-effective and
post-effective amendments to said Registration Statement, and, in connection
with any registration of additional securities pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, to sign any abbreviated registration
statement and any and all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, in each case, with
the Securities and Exchange Commission, and generally to do all such things in
our names and on our behalf in our capacities as officers and directors to
enable Global TeleSystems Group, Inc. to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to said Registration Statement and any and all
amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 19th day of April, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ H. BRIAN THOMPSON Chairman and Chief Executive
- ----------------------------------------------------- Officer (principal executive
H. Brian Thompson officer)
/s/ ROBERT J. AMMAN President and Director
- -----------------------------------------------------
Robert J. Amman
/s/ ROBERT A. SCHRIESHEIM Executive Vice President-
- ----------------------------------------------------- Corporate Development and Chief
Robert A. Schriesheim Financial Officer (principal
financial and accounting
officer)
/s/ GERALD W. THAMES Executive Vice Chairman of the
- ----------------------------------------------------- Board of Directors
Gerald W. Thames
/s/ ALAN B. SLIFKA Vice Chairman of the Board of
- ----------------------------------------------------- Directors
Alan B. Slifka
/s/ DAVID DEY Director
- -----------------------------------------------------
David Dey
</TABLE>
II-10
<PAGE> 65
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ ROGER HALE Director
- -----------------------------------------------------
Roger Hale
/s/ BERNARD MCFADDEN Director
- -----------------------------------------------------
Bernard McFadden
/s/ STEWART J. PAPERIN Director
- -----------------------------------------------------
Stewart J. Paperin
Director
- -----------------------------------------------------
W. James Peet
/s/ JEAN SALMONA Director
- -----------------------------------------------------
Jean Salmona
Director
- -----------------------------------------------------
Frank V. Sica
/s/ ADAM SOLOMON Director
- -----------------------------------------------------
Adam Solomon
</TABLE>
II-11
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1******* -- Indenture relating to the 10 1/2% Senior Notes due 2006,
dated as of November 24, 1999, between Global TeleSystems
Europe B V and United States Trust Company of New York,
as Trustee
1.2******* -- Indenture relating to the 11% Senior Notes due 2009,
dated as of November 24, 1999, between Global TeleSystems
Europe B V and United States Trust Company of New York,
as Trustee
1.3******* -- Registration Rights Agreement, dated as of November 24,
1999, between Global TeleSystems Europe B V and Initial
Purchasers
2.1*** -- Offer Agreement dated as of December 8, 1998 between the
Registrant and Esprit Telecom Telecom Group plc
2.2*** -- Irrevocable Undertaking by Walter Anderson dated as of
December 8, 1998
2.3*** -- Irrevocable Undertaking by Apax Funds Nominees Limited
dated as of December 8, 1998
2.3(a)*** -- Amendment to the Irrevocable Undertaking by Apax Funds
Nominees Limited dated as of December 8, 1998, dated
December 12, 1998
2.4*** -- Irrevocable Undertaking by Gold & Appel Transfer S.A.
dated as of December 8, 1998
2.5*** -- Irrevocable Undertaking by Warburg, Pincus Ventures, L.P.
dated as of December 8, 1998
2.6*** -- Irrevocable Undertaking by Sir Robin Biggam dated as of
December 8, 1998
2.7*** -- Irrevocable Undertaking by John McMonigall dated as of
December 8, 1998
2.8*** -- Irrevocable Undertaking by Roy Merritt dated as of
December 8, 1998
2.9*** -- Irrevocable Undertaking by David Oertle dated as of
December 8, 1998
2.10*** -- Irrevocable Undertaking by Michael Potter dated as of
December 8, 1998
2.11*** -- Irrevocable Undertaking by Dominic Shorthouse dated as of
December 8, 1998
3.1** -- Certificate of Incorporation of SFMT, Inc.
3.2** -- Certificate of Correction to the Certificate of
Incorporation of SFMT, Inc., filed with the Delaware
Secretary of State on October 8, 1993
3.3** -- Certificate of Ownership and Merger Merging San
Francisco/Moscow Teleport, Inc. into SFMT, Inc., filed
with the Delaware Secretary of State on November 3, 1993
3.4** -- Certificate of Amendment to the Certificate of
Incorporation of SFMT, Inc., filed with the Delaware
Secretary of State on January 12, 1995
3.5** -- Certificate of Amendment to the Certificate of
Incorporation of SFMT, Inc., filed with the Delaware
Secretary of State on February 22, 1995
3.6** -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc., filed
with the Delaware Secretary of State on October 16, 1996
3.7** -- By-laws of SFMT, Inc.
3.8** -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc., filed
with the Delaware Secretary of State on December 1, 1997
3.9** -- Form of Amended and Restated By-laws of Global
TeleSystems Group, Inc. (supersedes By-laws of SFMT, Inc.
filed as Exhibit 3.7)
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.10+ -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc. filed
with the Delaware Secretary of State on January 29, 1998
3.11+ -- Certificate of Amendment to the Certificate of
Incorporation of Global TeleSystems Group, Inc. filed
with the Delaware Secretary of State on February 9, 1998.
3.12+ -- Certificate of Designation of the Series A Preferred
Stock of Global TeleSystems Group, Inc.
3.13++++++ -- Certificate of Designation of the 7 1/4% Cumulative
Convertible Preferred Stock of Global TeleSystems Group,
Inc.
3.14++++++++ -- Certificate of Amendment to the Certificate of
Incorporation of Global Telesystems Group, Inc. filed
with the Delaware Secretary of State on June 18, 1999.
4.1** -- Form of Specimen Stock Certificate for Common Stock of
the Registrant
4.2** -- Indenture dated as of July 14, 1997 between Global
TeleSystems Group, Inc. and The Bank of New York
(including the form of Senior Subordinated Convertible
Bond due 2000 as an exhibit thereto)
4.3** -- Registration Rights Agreement, dated as of July 14, 1997,
between Global TeleSystems Group, Inc. and UBS Securities
LLC.
4.4** -- Indenture dated as of August 19, 1997 between Hermes
Europe Railtel B.V. and The Bank of New York (including
the form of 11 1/2% Senior Note due 2007 as an exhibit
thereto)
4.5** -- Registration Rights Agreement dated as of August 19, 1997
between Hermes Europe Railtel B.V. and Donaldson, Lufkin
& Jenrette Securities Corporation, UBS Securities LLC,
and Lehman Brothers, Inc.
4.6** -- Form of Rights Agreement between Global TeleSystems
Group, Inc. and The Bank of New York, as Rights Agent
4.7+ -- Indenture dated as of February 10, 1998 between Global
TeleSystems Group, Inc. and The Bank of New York
(including the form of 9 7/8% Senior Notes due 2005 as an
exhibit thereto)
4.8++ -- Indenture dated as of July 8, 1998 between Global
TeleSystems Group, Inc. and The Bank of New York relating
to the Company's 5 3/4% Convertible Senior Debentures due
2010
4.9*** -- Registration Rights Agreement dated as of December 8,
1998 by and among the Registrant, Apax Funds Nominees
Limited and Warburg, Pincus Ventures, L.P.
4.10***** -- Registration Rights Agreement dated as of April 23, 1999
by and among Global TeleSystems Group, Inc., and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson
Lufkin & Jenrette Securities Corporation, Bear, Stearns &
Co. Inc., BT Alex. Brown Incorporated and Lehman Brothers
Inc.
5.1# -- Opinion of Arnold Y. Dean, Deputy General Counsel of the
Registrant respecting the Securities registered hereby.
10.1** -- Senior Note Purchase Agreement, dated as of January 19,
1996, among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.
10.1(a)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated June 6, 1996
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1(b)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated June 6, 1996
10.1(c)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated July 23, 1996
10.1(d)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated September 16, 1996
10.1(e)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated July 11, 1997
10.1(f)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated July 29, 1997
10.1(g)** -- Amendment to Senior Note Purchase Agreement dated January
19, 1996 among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.,
dated September 29, 1997
10.2** -- Registration Rights Letter Agreement, dated as of January
19, 1996, among Global TeleSystems Group, Inc., The Open
Society Institute and Chatterjee Fund Management, L.P.
10.3** -- Warrant Agreement, dated as of January 19, 1996, among
Global TeleSystems Group, Inc., The Open Society
Institute and Chatterjee Fund Management, L.P.
10.4** -- Joint Venture Letter Agreement, dated January 19, 1996,
among Global TeleSystems Group, Inc., The Open Society
Institute and Chatterjee Fund Management, L.P.
10.5 -- Intentionally Omitted
10.6** -- Registration Rights Letter Agreement, dated June 6, 1996,
among Global TeleSystems Group, Inc., The Open Society
Institute, Winston Partners II LDC and Winston Partners
II LLC
10.7** -- Warrant Agreement, dated as of June 6, 1996, between
Global TeleSystems Group, Inc., The Open Society
Institute, Winston Partners II LDC and Winston Partners
II LLC
10.8** -- Senior Note Purchase Agreement, dated as of February 2,
1996, between Global TeleSystems Group, Inc. and Emerging
Markets Growth Fund, Inc.
10.8(a)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated June 6,
1996 (see Exhibit No. 10.1(b))
10.8(b)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated June 6,
1996
10.8(c)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated July 25,
1996
10.8(d)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated September
10, 1996
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.8(e)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated September
16, 1996
10.8(f)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated December
30, 1996
10.8(g)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated May 13,
1997
10.8(h)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated June 20,
1997
10.8(i)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated July 11,
1997
10.8(j)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated July 21,
1997
10.8(k)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated August 14,
1997
10.8(l)** -- Amendment to Senior Note Purchase Agreement, dated as of
February 2, 1996, between Global TeleSystems Group, Inc.
and Emerging Markets Growth Fund, Inc., dated September
29, 1997
10.9** -- Registration Rights Letter Agreement, dated as February
2, 1996, between Global TeleSystems Group, Inc. and
Emerging Markets Growth Fund, Inc.
10.10** -- Warrant Agreement, dated as of February 2, 1996, between
Global TeleSystems Group, Inc. and Emerging Markets
Growth Fund, Inc.
10.11 -- Intentionally Omitted
10.12** -- Registration Rights Letter Agreement, dated as February
2, 1996, between Global TeleSystems Group, Inc. and
Capital International Emerging Markets Funds
10.13** -- Warrant Agreement, dated as of February 2, 1996, between
Global TeleSystems Group, Inc. and Capital International
Emerging Markets Funds
10.14+ -- Restated and Amended Global TeleSystems Group, Inc.
Non-Employee Directors' Stock Option Plan
10.15+ -- Restated and Amended GTS-Hermes, Inc. 1994 Stock Option
Plan
10.16** -- Restricted Stock Grant letter, dated as of January 1,
1995
10.17+++++++ -- Employment Agreement dated as of April 1, 1999 between
the Company and H. Brian Thompson
10.18++++++++ -- Employment Agreement dated as of March 22, 1999 between
the Company and Robert Amman
10.19++++++++ -- Employment Agreement dated as of January 3, 1995 between
the Company and Gerard Caccappolo
10.20++++++++ -- Employment Agreement dated as of July 1, 1998 between
Esprit Telecom and Hans Peter Kohlhammer
10.21++++++++ -- Employment Agreement dated as of February 22, 1999
between the Company and Robert Schriesheim
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.22** -- SFMT, Inc. Equity Compensation Plan
10.23** -- Form of Non-Statutory Stock Option Agreement
10.24+ -- Third Amended and Restated 1992 Stock Option Plan of
Global TeleSystems Group Inc. dated as of September 25,
1997
10.25** -- GTS-Hermes 1994 Stock Option Grant, Non-Qualified Stock
Option Grant
10.26** -- Agreement on the Creation and Functions of the Joint
Venture of EDN Sovintel, dated June 18, 1990
10.27** -- Stock Purchase Agreement among Global TeleSystems Group,
Inc, Kompaniya "Invest-Project," Swinton Limited, GTS-Vox
Limited, and MTU-Inform, dated September 6, 1995
10.28** -- Certificate of Registration of Revised and Amended
Foundation Document in the State Registration of
Commercial Organizations, dated May 30, 1996
10.29** -- Agreement on the Creation and Functions of the Joint
Venture Sovam Teleport, dated May 26, 1992
10.30** -- Amended and Restated Joint Venture Agreement between GTS
Cellular, Tricor B.V., Gerard Essing, Ivan Laska, and
Erik Jennes, dated July 6, 1995
10.31** -- Amended and Restated Shareholders' Agreement between HIT
Rail B.V., GTS-Hermes, Inc., Nationale Maatschappij Der
Belgische Spoorwegen, Teleport B.V., AB Swed Carrier, and
Hermes Europe Railtel B.V., dated July, 1997
10.31(a)** -- Shareholders' Agreement among the Hermes Europe Railtel,
B.V., GTS-Hermes Inc., HIT Rail B.V., SNCB/NMBS and AB
Swed Carrier (incorporated by reference to Exhibit 10.1
to the Hermes Europe Railtel B.V.'s Registration
Statement on Form S-4 (File No. 333-37719) filed on
December 11, 1997) (supersedes the Amended and Restated
Shareholders' Agreement incorporated by reference as
Exhibit 10.31 to this Registration Statement)
10.32** -- Company Agreement between The Societe National de
Financement, GTS S.A.M. and The Principality of Monaco,
dated September 27, 1995
10.33** -- Joint Venture Agreement between SFMT-Hungaro Inc. and
Montana Holding Vagyonkezelo Kft., dated December 23,
1993
10.34** -- Joint Venture and Shareholders' Agreement among Gerard
Aircraft Sales and Leasing Company, SFMT-Hungaro Inc.,
and Microsystem Telecom Rt., dated August 5, 1994
10.35** -- Agreement on the Establishment of Limited Liability
Company between SFMT-Czech, Inc. and B&H s.r.o., dated
July 12, 1994
10.36** -- Formation of the Equity Joint Venture between GTS and
SSTIC, dated April 12, 1995
10.37** -- Contract to Establish the Sino-foreign Cooperative Joint
Venture Beijing Tianmu Satellite Communications
Technology Co., Ltd, amended, by and between China
International Travel Service Telecom Co., Ltd. and
American China Investment Corporation, dated March 27,
1996
10.38** -- Joint Venture Contract between GTS TransPacific Ventures
Limited and Shanghai Intelligence Engineering, Inc.,
dated March 28, 1996
10.39** -- Agreement between Global TeleSystems Group, Inc. and
Cesia S.A., dated June 21, 1997
10.40** -- Consulting Agreement between SFMT, Inc. and Alan B.
Slifka, dated March 1, 1994
10.41** -- Consulting Agreement between Global TeleSystems Group,
Inc. and Bernard J. McFadden, dated August 15, 1996
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.42** -- Consulting Agreement between CESIA S.A. and Hermes Europe
Railtel B.V., dated June 20, 1997
10.43++ -- Master Agreement, dated June , 1998 between Ebone
Holding Association, Ebone A/S, Hermes Europe Railtel
Holdings B.V. and Hermes Europe Railtel (Ireland) Limited
10.44+++ -- Plusnet Acquisition Agreement between Esprit Telecom
Group plc and Plusnet Gesellschaft fur Netzwerk Services
GmbH
10.45**** -- Press Announcement of Esprit Telecom Group plc, dated
December 8, 1998, announcing the signing of a definitive
offer agreement with Global TeleSystems Group, Inc.
10.46++++ -- Form of Undertaking of shareholders of NetSource ASA made
in connection with the acquisition of NetSource ASA by
Global TeleSystems Group, Inc.
10.47++++ -- Form of Amendment Agreement to the Undertaking of
shareholders of NetSource ASA made in connection with the
acquisition of NetSource ASA by Global TeleSystems Group,
Inc.
10.48++++ -- Form of Waiver Agreement in made connection with the
acquisition of NetSource ASA by Global TeleSystems Group,
Inc.
10.49++++ -- Form of Waiver Agreement with certain shareholders of
NetSource ASA made in connection with the acquisition of
NetSource ASA by Global TeleSystems Group, Inc.
10.50+++++ -- Indenture dated as of December 18, 1997 between Esprit
Telecom Group plc, as Issuer, and The Bank of New York,
as Trustee, Registrar and Paying Agent, relating to the
Esprit Telecom Group plc 11 1/2% Dollar Senior Notes due
2007 and 11 1/2% DM Senior Notes due 2007
10.51+++ -- Indenture dated as of June 24, 1998 between Esprit
Telecom Group plc, as Issuer, and The Bank of New York,
as Trustee, Registrar and Paying Agent, relating to the
Esprit Telecom Group plc 10 7/8% Dollar Senior Notes due
2008 and 11% DM Senior Notes due 2008
10.52*** -- Supplemental Indenture, dated December 23, 1998 of
$230,000,000 11 1/2% Senior Notes due 2007, supplementing
the indenture dated as of December 18, 1997, between
Esprit Telecom Group plc, as issuer, and The Bank of New
York, as Trustee, Registrar and Paying Agent
10.53*** -- Supplemental Indenture, dated December 23, 1998 of DM
125,000,000 11 1/2% Senior Notes due 2007, supplementing
the indenture dated as of December 18, 1997, between
Esprit Telecom Group plc, as issuer, and The Bank of New
York, as Trustee, Registrar and Paying Agent
10.54*** -- Supplemental Indenture, dated December 23, 1998 of DM
150,000,000 11% Senior Notes due 2008, supplementing the
indenture dated as of June 24, 1998, between Esprit
Telecom Group plc, as issuer and The Bank of New York, as
Trustee, Registrar and Paying Agent
10.55*** -- Supplemental Indenture, dated December 23, 1998 of
$150,000,000 10 7/8% Senior Notes due 2008, supplementing
the indenture dated as of June 24, 1998, between Esprit
Telecom Group plc, as issuer, and The Bank of New York,
as Trustee, Registrar and Paying Agent
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.56***** -- Purchase Agreement dated as of April 19, 1999 by and
among Global TeleSystems Group, Inc., and Apax Funds
Nominees Limited and Warburg, Pincus Ventures, L.P. and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Bear, Stearns & Co. Inc.,
Dresdner Kleinwort Benson North American LLC, BT Alex.
Brown Incorporated, Lehman Brothers Inc., Prudential
Securities Incorporated, ING Baring Furman Selz LLC,
BancBoston Robertson Stephens Inc., CIBC Oppenheimer
Corp., ABN AMRO Incorporated, Arnhold and S.
Bleichroeder, Inc. and Credit Suisse First Boston
Corporation.
10.57***** -- Purchase Agreement dated as of April 19, 1999 by and
among Global TeleSystems Group, Inc. and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation,
Bear, Stearns & Co., Inc., BT Alex. Brown Incorporated,
and Lehman Brothers Inc.
10.58***** -- Agreement for the transfer of Omnicom Shares dated as of
April 14, 1999 by and among Alain Nicolazzi, Florent
Martenne-Duplan, Philippe Ait Yahia and various other
Omnicom shareholders and Esprit Telecom Holdings, Limited
and Global TeleSystems Group, Inc.
12.1++++++ -- Statement Re: Computation of Deficiency of Earnings
Available to Cover Fixed Charges
21.1++++++++ -- List of Subsidiaries of the Registrant
23.1# -- Consent of Ernst & Young LLP, Independent Auditors
23.2# -- Consent of PricewaterhouseCoopers, Independent
Accountants
23.3# -- Consent of Arnold Y. Dean, Deputy General Counsel of the
Registrant (included in his opinion delivered under
Exhibit No. 5.1)
24.1# -- Powers of Attorney (included on signature page to this
registration statement)
27.1++++++++ -- Financial Data Schedule extracted from our December 31,
1999 financial statements
</TABLE>
- ---------------
# Filed herewith.
* Incorporated by reference to the corresponding exhibit to our Annual
Report on Form 10-K for the year ended December 31, 1998, filed on
March 23, 1999.
** Incorporated by reference to the corresponding exhibit to our
Registration Statement on Form S-1 (File No. 333-36555), filed on
September 26, 1997.
*** Incorporated by reference to the corresponding exhibit to our
Registration Statement on Form S-4 (File No. 333-68511), filed on
December 8, 1998.
**** Incorporated by reference to the corresponding exhibit to the Esprit
Telecom Group plc Annual Report on Form 20-F for the year ended
September 30, 1998, filed on December 24, 1998.
***** Incorporated by reference to the corresponding exhibit to our Current
Report on Form 8-K, dated April 14, 1999 and filed on April 28, 1999
****** Incorporated by reference to the corresponding exhibit to our
Quarterly Report on Form 10-Q for the three month period ended March
31, 1999, filed on May 17, 1999
******* Incorporated by reference to the corresponding exhibit to the Global
TeleSystems Europe B V Registration Statement on Form S-4/A (File No.
333-94339), filed on February 2, 2000.
+ Incorporated by reference to the corresponding exhibit to our Annual
Report on Form 10-K for the year ended December 31, 1997, filed on
March 31, 1998.
++ Incorporated by reference to the corresponding exhibit to our
Registration Statement on Form S-1 (File No. 333-52733), filed on May
14, 1998.
<PAGE> 73
+++ Incorporated by reference to the corresponding exhibit to the Esprit
Telecom Group plc Registration Statement on Form F-4 (File No.
333-9292), filed on August 13, 1998.
++++ Incorporated by reference to the corresponding exhibit to the Global
TeleSystems Group, Inc. Form 8-K, filed on November 30, 1998.
+++++ Incorporated by reference to the corresponding exhibit to the Esprit
Telecom Group plc Registration Statement on Form F-1 (File No.
333-8012), filed on December 10, 1997.
++++++ Incorporated by reference to the corresponding exhibit to our
Amendment No. 1 Registration Statement on Form S-3 (File No.
333-78097), filed on June 3, 1999.
+++++++ Incorporated by reference to Exhibit No. 10 to the Company's Report on
Form 10-Q for the quarter ended March 31, 1999.
++++++++ Incorporated by reference to the correspondingly numbered Exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
<PAGE> 1
EXHIBIT 5.1
[GLOBAL TELESYSTEMS GROUP, INC. LETTERHEAD]
April , 2000
Global TeleSystems Group, Inc.
4121 Wilson Boulevard
8th Floor
Arlington, Virginia 22203
Ladies and Gentlemen:
I am Deputy General Counsel to Global TeleSystems Group, Inc., a
Delaware corporation ("GTS"), and have advised GTS in connection with the
preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, the Registration Statement on Form S-3 (the
"Registration Statement") of GTS with respect to 4,709,695 shares of common
stock, par value $0.10 per share, of GTS ("Common Stock"). Of such 4,709,695
shares of Common Stock, (i) 4,440,263 shares have been, or will be, issued by
GTS in connection with its acquisition of Netcom Internet Limited ("Netcom"),
(ii) 254,432 shares will be issued by GTS in connection with stock options
granted to Netcom employees and (iii) 15,000 shares will be issued by GTS
pursuant to a stock option agreement between GTS and a former consultant (the
shares described in the foregoing clauses (i), (ii) and (iii), being
collectively referred to as the "Shares"). The Common Stock is described in the
prospectus (the "Prospectus") included in the Registration Statement. This
opinion is an exhibit to the Registration Statement.
In that capacity, I have reviewed the Registration Statement and
originals, or copies certified or otherwise identified to our satisfaction, of
other documents, corporate records, certificates and other instruments as I have
deemed necessary or appropriate for purposes of this opinion. In such
examination, I have assumed the genuineness of all signatures and the
authenticity of all documents submitted to me as copies.
Based upon the foregoing, I am of the opinion that the Shares
have been, or when issued will be, duly authorized, validly issued, fully paid
and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to me under the heading "LEGAL
MATTERS" contained in the Prospectus.
Very truly yours,
/s/ Arnold Y. Dean
Arnold Y. Dean
Deputy General Counsel
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-32760) and related Prospectus of Global
TeleSystems Group, Inc. for the registration of 4,709,695 shares of its common
stock and to the incorporation by reference therein of our report dated February
4, 2000, with respect to the consolidated financial statements and schedule of
Global TeleSystems Group, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
McLean, Virginia
April 19, 2000
<PAGE> 1
EXHIBIT 23.2
[PRICEWATERHOUSECOOPERS -- LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S3 (No. 333-32760) of Global TeleSystems Group, Inc., of our
report dated March 3, 1999 relating to the consolidated financial statements of
Esprit Telecom Group plc, which is incorporated by reference in the Global
TeleSystems Group, Inc. Annual Report on Form 10-K for the year ended December
31, 1999.
/s/ PricewaterhouseCoopers
- ---------------------------------------
PricewaterhouseCoopers
London, England
April 19, 2000
