SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934

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Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12

GLOBAL TELESYSTEMS GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
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GLOBAL TELESYSTEMS GROUP, INC.
1751 PINNACLE DRIVE
NORTH TOWER, 12TH FLOOR
MCLEAN, VA 22102

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998
MCLEAN, VIRGINIA

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April 15, 1998

To the Stockholders of
Global TeleSystems Group, Inc.

The 1998 annual meeting of stockholders of Global TeleSystems Group, Inc.
(the "Company" or "GTS") will be held at the Holiday Inn Tysons Corner, 1960
Chain Bridge Road, McLean, Virginia on May 20, 1998 at 10:00 a.m. local time, to
consider and act on the following matters:

1. The election of 4 directors to hold office for a term of three years or
until their successors are elected and qualified (Item No. 1).

2. Approval of the Fourth Amended and Restated 1992 Stock Option Plan of
the Company (Item No. 2).

3. Approval of certain grants of stock options to certain members of the
Board of Directors of the Company (Item No. 3).

4. Ratification of the selection of auditors of the Company for fiscal year
1998 (Item No. 4).

5. The transaction of such other business as may properly come before the
meeting.

Eligible stockholders of record at the close of business on March 31, 1998
will be entitled to vote at the meeting. A list of stockholders entitled to vote
at the meeting may be examined at the executive offices of the Company at 1751
Pinnacle Drive, North Tower, 12th Floor, McLean, Virginia 22102.

By Order of the Board of Directors

GRIER C. RACLIN
Corporate Secretary

IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
3

GLOBAL TELESYSTEMS GROUP, INC.
1751 PINNACLE DRIVE
NORTH TOWER, 12TH FLOOR
MCLEAN, VA 22102

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

PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1998

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

INTRODUCTION

This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board of Directors") of Global TeleSystems Group,
Inc. (the "Company" or "GTS") of proxies to be voted at the annual meeting of
stockholders in McLean, Virginia on May 20, 1998. Enclosed with this Proxy
Statement is notice of the meeting, together with a proxy for your signature if
you are unable to attend. Stockholders who execute proxies may revoke them at
any time before they are voted. Any proxy may be revoked by the person giving it
any time before it is voted by delivering to the Corporate Secretary of the
Company at 1751 Pinnacle Drive, North Tower, 12th Floor, McLean, Virginia 22102,
on or before the business day prior to the meeting or at the meeting itself, a
subsequent written notice of revocation or a subsequent proxy relating to the
same shares or by attending the meeting and voting in person. The approximate
date on which this Proxy Statement and the accompanying form of proxy will first
be sent to the Company's stockholders is April 15, 1998.

Shares of the Company's common stock, par value $0.10 per share ("Common
Stock"), represented by properly executed proxies received prior to or at the
meeting, unless such proxies have been revoked, will be voted in accordance with
the instructions indicated in the proxies. If no instructions are indicated on a
properly executed proxy of the Company, the shares will be voted in accordance
with the recommendations of the Board of Directors.

Common stockholders of record at the close of business on March 31, 1998
(the "Record Date") are entitled to vote at the meeting. On March 31, 1998, the
Company had outstanding 51,722,640 shares of Common Stock (excluding treasury
stock). The number of outstanding shares and all other data in this Proxy
Statement regarding shares of Common Stock, including without limitation stock
ownership, stock option, and per share pricing information, reflect a
three-for-two split of the Common Stock effective on December 1, 1997.

REQUIRED VOTES

The vote of the holders of a plurality of the votes cast by holders of
shares of Common Stock will elect candidates for director (Item No. 1 on your
proxy). Abstentions or broker non-votes as to the election of directors will not
affect the election of the candidates receiving the plurality of votes. The vote
of the holders of at least a majority of the shares of Common Stock present in
person or represented by proxy at the meeting and entitled to vote, voting
together as a single class, is required to approve the Fourth Amended and
Restated 1992 Stock Option Plan of the Company (Item No. 2 on your proxy),
approve certain grants of stock options to certain members of the Board of
Directors of the Company (Item No. 3 on your proxy), and ratify the Board of
Directors' appointment of Ernst & Young LLP as the Company's independent public
accountants for 1998 (Item No. 4 on your proxy). Therefore, abstentions as to
these particular proposals will have the same effect as votes against such
proposals. Broker non-votes as to these particular proposals, however, will be
deemed shares of stock not entitled to vote on such proposals, will not be
counted as votes for or against such proposals, and will not be included in
calculating the number of votes necessary for approval of such proposals.

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BENEFICIAL SECURITY OWNERSHIP

The following table sets forth certain information regarding ownership of
the Common Stock and rights to acquire Common Stock by (i) stockholders that
manage or own, either beneficially or of record, five percent or more of the
Common Stock of the Company, (ii) each of the Company's directors and nominees
for director, (iii) each of the named officers and (iv) all directors, nominees
for director and executive officers of the Company as a group as of March 31,
1998. For the purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares which such 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.

NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1)(2) OWNED(1)
------------------------ ----------- --------

George Soros affiliates.................................... 10,837,791(3) 19.3%
c/o Soros Fund Management 888 Seventh Avenue, 31st Floor
New York, NY 10106
Alan B. Slifka and affiliates.............................. 5,492,981(4) 10.6%
c/o Halcyon/Alan B. Slifka Management Company LLC 477
Madison Avenue, 8th Floor New York, NY 10022
Capital Research International............................. 5,347,620(5) 9.7%
c/o Capital Research International 25 Bedford Street
London WC2E England
Emerging Markets Management................................ 2,767,046(6) 5.3%
1001 19th Street North, 16th Floor Arlington, VA 22209
David Dey.................................................. -- *
Gary Gladstein............................................. 30,000(7) *
Roger W. Hale.............................................. -- *
Bernard McFadden........................................... 37,500 *
Michael A. Greeley......................................... 13,500(8) *
Stewart J. Paperin......................................... 9,000(7) *
W. James Peet.............................................. 13,500(7) *
Jean Salmona............................................... 13,500 *
Morris A. Sandler.......................................... 351,000 *
Joel Schatz................................................ 500,250 *
Adam Solomon............................................... 57,414 *
Gerald W. Thames........................................... 740,924 1.4%
Bruno d'Avanzo............................................. 44,419 *
Jan Loeber................................................. 30,000(9) *
Raymond I. Marks........................................... 299,687 *
Louis T. Toth.............................................. 293,023 *
Other officers............................................. 169,376 *
All Directors, nominees for Director, and Executive
Officers as a group (22 persons)......................... 2,586,179 4.8%
Total of above............................................. 29,274,933
Total shares on a fully diluted basis:..................... 59,500,416

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* Less than 1%

(1) The percentage of ownership is based upon 59,500,416 shares, comprised of
51,722,640 shares of Common Stock issued and outstanding, and warrants to
purchase 7,777,776 shares of Common Stock. Excluded from the calculation
are: 5,152,452 shares of Common Stock issued to employees under the Third
Amended and Restated 1992 Stock Option Plan of the Company (the "Stock
Option Plan"), of which 2,010,260 are vested at March 31, 1998; 759,000
options to purchase shares of Common Stock issued to employees prior to the
adoption of the Stock Option Plan and options issued pursuant to the Global
TeleSystems Group, Inc. Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") and the SFMT, Inc. Equity Compensation Plan (the "Equity
Compensation Plan"); and an option to convert a debt put right to 713,311
shares of Common Stock.

(2) Includes shares of Common Stock issuable upon the exercise of stock options
and stock warrants within 60 days of March 31, 1998.

(3) Comprised of 3,074,199 shares of Common Stock held by the Soros
Foundation-Hungary; 1,125,000 shares of Common Stock held by the Soros
Charitable Foundation; 319,149 shares of Common Stock held by Soros
Humanitarian Foundation; 1,125,000 shares and warrants to purchase 3,333,333
shares of Common Stock held by The Open Society Institute; 500,000 and
250,001 shares of Common Stock held by Winston Partners II LDC and Winston
Partners II LLC, respectively; warrants to purchase 370,371, 185,184 and
555,555 shares of Common Stock held by Winston Partners II LDC, Winston
Partners II LLC and Chatterjee Fund Management, respectively, all of which
are affiliates of George Soros. Information in the above table excludes the
30,000 9,000 and 13,500 shares of, and options for the purchase of, Common
Stock held by Gary Gladstein, Stewart J. Paperin and W. James Peet,
respectively, over which the George Soros affiliates disclaim ownership.

(4) Includes 2,788,784 shares of Common Stock owned by Mr. Slifka, shares of
Common Stock held in trust for a minor child and options to purchase 225,000
shares of Common Stock; 2,563,041 shares of Common Stock owned by various
Halcyon Partnerships which are managed by Halcyon/Alan B. Slifka Management
Company LLC, of which Mr. Slifka is the Managing Principal and over which
Mr. Slifka disclaims beneficial ownership; 67,500 shares of Common Stock
held by GTS 1995 Partners, LP; 4,500 shares of Common Stock held by Kevah
Konner, a Principal of Halcyon/Alan B. Slifka Management Company LLC; 19,656
shares of Common Stock held by John M. Bader, a Principal of Halcyon/Alan B.
Slifka Management Company LLC; and 49,500 shares of Common Stock owned by
Randolph Slifka, Mr. Slifka's son, over all of which Mr. Slifka disclaims
beneficial ownership.

(5) Includes 2,014,287 shares of Common Stock and warrants to purchase 3,333,333
shares of Common Stock held by funds managed by affiliates of Capital
Research International.

(6) Shares of Common Stock held by funds managed by Emerging Markets Management.

(7) Excludes the shares of Common Stock held by the George Soros affiliates over
which Gary Gladstein, Stewart J. Paperin and W. James Peet disclaim
ownership.

(8) Excludes the 1,819,149 shares of Common Stock owned by Chestnut Hill Telecom
Inc., an affiliate of Michael A. Greeley, over which Mr. Greeley disclaims
ownership.

(9) Includes 10,000 restricted shares of Common Stock.

ELECTION OF DIRECTORS (ITEM NO. 1)

The Company's Certificate of Incorporation, as amended, classifies the
Board of Directors into three classes, as nearly equal in number as possible,
all of the members of which will ultimately serve for terms of three years. The
provision classifying the Board of Directors was implemented in 1998, and,
accordingly, the Board of Directors has classified its members into three
classes. The members of Class I have terms expiring at this Annual Meeting; the
members of Class II have terms expiring at the 1999 annual stockholders meeting
and the members of Class III have terms expiring at the 2000 annual stockholders
meeting. Thereafter, the

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terms of office of the members of one class of directors expire each year in
rotation so that the members of one class are elected at each annual
stockholders meeting for full three-year terms.

The terms of office of four of the present directors will expire at this
Annual Meeting. Two of these directors, Messrs. Gladstein and Sandler, have
decided not to stand for re-election. Two new nominees, Messrs. Dey and Hale,
and two incumbent directors, Messrs. Salmona and Solomon have been nominated for
election for three-year terms expiring at the Annual Meeting in 2001, or until
their successors are elected and qualified. The terms of the other seven
directors will continue as indicated below.

The ages and business experience of directors set forth below are as of
March 31, 1998.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" EACH OF THE NOMINEES LISTED BELOW.

NOMINEES FOR TERMS EXPIRING IN 2001

David Dey, 60. Since 1995, Mr. Dey has served as an independent consultant,
particularly to high technology start-up companies in Europe. In that capacity,
he has served as Chairman of The Connections Group, a provider of branded
Internet services and Web-based electronic mail, and as Chairman of STARTECH
Scotland, a high technology incubator that focuses on telecommunications and
software start-up companies. From 1992 to 1995, Mr. Dey served as Chief
Executive Officer of Energis Communications, which grew from a start-up company
to become the United Kingdom's third national telecommunications operation
during his tenure. Mr. Dey was employed by British Telecom plc from 1987 to
1991, most recently as Managing Director of its Business Communications
Division, and he held various management positions at IBM Corporation where he
was employed from 1961 to 1985.

Roger W. Hale, 54. Mr. Hale is Chairman, President and Chief Executive
Officer of LG&E Energy Corp., a diversified energy services and marketing
company with businesses in retail gas and electric utility services, energy
marketing and trading, and power generation and project development. Mr. Hale
has served in that capacity since August 1990. Previously, Mr. Hale served as
Executive Vice President of Bell South Enterprises, Inc. from 1986 to 1989 and
with AT&T Corporation from 1966 to 1986, serving in various management positions
including Vice President of Marketing, Southern Region. Mr. Hale is a Director
of H&R Block, Inc. and PNC Bank, Kentucky, Inc.

Jean Salmona, 62. Mr. Salmona has served as a director of GTS since March
1996. Since 1989, Mr. Salmona has been Chairman and Chief Executive Officer of
CESIA Consulting Group ("CESIA"), a consulting concern based in France that
specializes in information and communications systems and technologies. Mr.
Salmona is also Chairman and Director General, Data for Development
International Association, a nongovernmental organization with consultative
status to the United Nations Economic and Social Council. Mr. Salmona is a
graduate of Ecole Polytechnique, Paris, Institut d'Etudes Politiques, Paris and
Ecole Naqtionale de la Statistique et de l'Administration Economique, Paris. Mr.
Salmona is a member of the Audit and Budget Committee of the Board of Directors.

Adam Solomon, 45. Mr. Solomon has served as a director of the Company since
June 1995. Mr. Solomon is also Chairman of Shaker Investments, Inc., a growth
equity investment firm and Chairman of Signature International, L.P., a
venture/development firm whose initial focus is redeveloping existing
residential/golf communities, and a member of the board of directors of MetaSolv
Software, Inc. Prior to that, Mr. Solomon spent eleven years with E.M. Warburg,
Pincus & Co., Inc., where he was Managing Director from 1988 to 1992. While at
E.M. Warburg, Pincus & Co., Inc., Mr. Solomon served as a member of the board of
directors of LCI International, Inc., a regional long-distance carrier. Mr.
Solomon is a member of the Compensation and Executive Committees of the Board of
Directors.

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DIRECTORS WHOSE TERMS EXPIRE IN 1999

Michael A. Greeley, 35. Mr. Greeley has served as a director of GTS since
September 1996. Mr. Greeley is the Senior Vice President of GCC Investments,
Inc., the investment group of GC Companies, Inc. From June 1989 to July 1994,
Mr. Greeley was a Vice President at Wasserstein Perella & Co., Inc., an
international investment bank, specializing in mergers and acquisitions and
corporate finance transactions. Mr. Greeley is also a director of Teletrac,
Inc., Crescent Communications, American Capital Access Holdings, LLC and
Fuelman, Inc. By contractual arrangement, GCC Investments, Inc. has the right to
designate one person for nomination to the Board of Directors as long as it
holds not less than two and one-half percent of the issued and outstanding
shares of the Common Stock on a fully diluted basis. Mr. Greeley is the designee
of GCC Investments, Inc. to the Board of Directors. Mr. Greeley is a member of
the Audit and Budget and Compensation Committees of the Board of Directors.

W. James Peet, 43. Mr. Peet has served as a director of GTS since January
1996. Mr. Peet has been affiliated with The Chatterjee Group, an investment
firm, since 1991. Mr. Peet is a director of: Viatel Global Communications, a
public company, and several private companies. Immediately prior to joining The
Chatterjee Group, Mr. Peet spent six years with McKinsey & Company. By
contractual arrangement, The Chatterjee Group has the right to designate one
person for nomination to the Board of Directors, which right expires in 2001.
Mr. Peet is the designee of The Chatterjee Group to the Board of Directors. Mr.
Peet is a member of the Executive Committee of the Board of Directors.

Joel Schatz, 61. Mr. Schatz has served as a director of GTS since the
inception of the Company. Mr. Schatz was a founder of the Company and served as
its President from 1985 to 1991. Mr. Schatz is presently the Chairman and Chief
Executive Officer of Datafusion, Inc., a company developing software to
accelerate knowledge synthesis. Mr. Schatz is a member of the Audit and Budget
Committee of the Board of Directors.

Gerald W. Thames, 51. Mr. Thames joined GTS as Chief Executive Officer in
February 1994, and has served as a director of GTS since February 1994. From
1990 to 1994, Mr. Thames was President and Chief Executive Officer for British
Telecom North America and Syncordia, a joint venture company focused on the
international outsourcing market. Mr. Thames has spent over 18 years in senior
positions with telecommunications companies, where he was responsible for
developing start-up telecommunications companies, including 15 years with AT&T,
where he rose to the position of General Manager of Network Services for the
Northeast Region of AT&T Communications. Mr. Thames is a member of the Executive
Committee of the Board of Directors.

DIRECTORS WHOSE TERMS EXPIRE IN 2000

Bernard McFadden, 64. Mr. McFadden has served as a director of GTS since
February 1994. Mr. McFadden currently serves as an independent consultant for
GTS and is a GTS representative on the supervisory board of Hermes Europe
Railtel B.V., a subsidiary of the Company. Mr. McFadden's career in
international telecommunications includes 32 years with ITT Corporation, where
he served as President and Chief Executive Officer of ITT's Telecom
International Group, and a four and one-half year assignment as President and
Chief Operating Officer of Alcatel Trade International, S.A. Mr. McFadden is
Chairman of the Compensation Committee and is a member of the Governance and
Executive Committees of the Board of Directors.

Stewart J. Paperin, 50. Mr. Paperin has served as a director of GTS since
March 1997. Mr. Paperin serves as Executive Vice President of the Soros
Foundations (Open Society Institute). In addition, he has served as the
President of Capital Resource East since October 1993. Prior to that, Mr.
Paperin was President of Brooke Group International, from 1990 to 1993, where he
was responsible for investments in the former Soviet Union. Mr. Paperin also
served as Chief Financial Officer of Western Union Corporation from 1989 to
1990. Mr. Paperin serves as a director of the Board of Penn Octane Corporation.
Mr. Paperin is Chairman of the Audit and Budget Committee and is a member of the
Compensation and Governance Committees of the Board of Directors.

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Alan B. Slifka, 68, Chairman of the Board of Directors. Mr. Slifka has
served as a director of GTS since 1990. Mr. Slifka is a New York investment
banker and the Managing Principal of Halcyon/Alan B. Slifka Management Company
LLC, an asset management firm specializing in nontraditional investments,
specifically corporate event investing. Previously, Mr. Slifka was a partner of
L.F. Rothschild, Unterberg, Towbin from 1961 to 1982. He is a director of Pall
Corporation and is active in other business, civic and philanthropic affairs as
founder, director or officer of numerous for-profit and not-for-profit
corporations and foundations. Mr. Slifka served as acting Chief Executive
Officer of GTS during most of 1993. Mr. Slifka is Chairman of the Executive and
Governance Committees of the Board of Directors.

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS

The Board of Directors of the Company held nineteen meetings in 1997.
During 1997, the Board of Directors had established the following standing
committees: Audit Committee, Executive Committee, Finance Committee and
Compensation Committee. During 1997, the Audit Committee held six meetings, the
Executive Committee held two meetings, the Finance Committee held seventeen
meetings, and the Compensation Committee held nine meetings.

During 1997, the Audit Committee, in consultation with financial officers
of the Company and the independent public accountants, assisted in establishing
the scope of the annual audit. The Audit Committee (1) reviewed annual and
quarterly financial statements, (2) recommended to the Board of Directors the
appointment of independent public accountants, (3) reviewed the annual programs
of the internal audit staff and (4) reviewed programs designed to protect and
maintain the assets of the Company, including insurance and internal security
programs.

The Compensation Committee reviewed the salaries, incentive compensation,
stock option and restricted stock grants, retirement and other benefits which
accrued to officers of the Company and its subsidiaries, including the Chief
Executive Officer, administered the Stock Option Plan and the Equity
Compensation Plan, and set compensation guidelines for the Company and its
subsidiaries.

During 1997, each of the incumbent directors, except Mr. Solomon, attended
75 percent or more of the meetings of the Board of Directors and of the
committees on which the directors served.

In March 1998, the Company's Board of Directors reconstituted its
committees and established the Executive, Audit and Budget, Compensation and
Governance Committees. The Audit and Budget Committee reviews and recommends to
the Boards of Directors corporate budget and capital expenditure requests,
reviews the financial integrity of the corporate books and records, conducts
special audits as may be recommended by the Board of Directors, the Chief
Executive Officer and the Chief Financial Officer of the Company and reviews the
policies of the Company regarding compliance with applicable laws. The
Compensation Committee performs the same functions it carried out in 1997 as
described above.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

COMPENSATION OF DIRECTORS

Each Director of GTS, except Mr. Thames, receives an annual directors' fee
of $15,000. In addition, the fee paid to each Director, except for Mr. Thames,
for attending any meeting of the Board of Directors is $1,500 per meeting,
except for telephonic Board of Directors meetings of two hours or less, where
the fee is $750 for each such meeting. Each Director, except Mr. Thames, who
attends a committee meeting is entitled to a directors' fee of $1,000 per
meeting, except for telephonic committee meetings of a duration of two hours or
less, for which a fee of $500 is paid. See "Approval of Stock Options Granted to
Certain Members of the Board of Directors (Item 3)"

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EXECUTIVE COMPENSATION

The following table sets forth each component of compensation paid or
awarded to, or earned by, the Chief Executive Officer and the four other most
highly compensated executive officers serving as of December 31, 1997
(collectively, the "Named Executive Officers") for the years indicated.

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------- ------------------------
RESTRICTED SECURITIES
PAID OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)(9)
--------------------------- ---- -------- -------- ------------ ---------- ----------- ------------

Gerald W. Thames............... 1997 $375,417 $140,000 (1) -0- 141,195(5) $ 19,850
President and Chief Executive 1996 $325,000 $113,750 (1) -0- 112,500(5) $ 9,954
Officer
Bruno d'Avanzo................. 1997 $340,000 $ 83,313(2) -0- -0- 104,475(5) $ 21,675
Executive Vice President and 1996 $141,667 $ 33,333(2) -0- -0- 83,025(5) $ 5,650
Chief Operating Officer
Jan Loeber..................... 1997 $235,000 $ 78,608 46,598(3) -0- 4,812(6) $179,450
Senior Vice President -- HER 1996 $235,000 $ 78,608 42,806(3) 30,000(4) 3.5(7) $ 12,986
Raymond I. Marks............... 1997 $231,008 $ 49,826 (1) -0- 27,750(5) $ 12,250
Senior Vice President -- Asia 1996 $230,091 $ 46,200 (1) -0- 55,500(5) $ 13,788
Louis T. Toth.................. 1997 $204,750 $ 50,307 60,106(8) -0- 45,000(5) $ 14,550
Senior Vice 1996 $203,937 $ 40,950 33,602(8) -0- 43,500(5) $ 13,004
President -- Central Europe

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(1) Perquisites and other personal benefits paid to the Named Executive Officer
were less than the lesser of $50,000 and 10 percent of the total of annual
salary and bonus reported for the Named Executive Officer.

(2) Mr. D'Avanzo's bonuses in 1997 and 1996 include the first two installments
of a $100,000 sign-on bonus that the Company agreed to pay in three equal
annual installments when he was hired in 1996.

(3) For 1997, the amount listed represents the sum of a cost of living
allowance of $16,450, a tax equalization payment of $13,953 that
compensates Mr. Loeber for the higher taxes he pays because he resides in
Belgium instead of the United States, use of a car, which was valued at
$4,547, and a gross-up payment of $11,648 for certain tax liabilities. For
1996, the amount listed represents the sum of a cost of living allowance of
$16,450, paid home leave of 9,031, use of a car valued at $4,547 and a
gross-up payment of $12,778 for certain tax liabilities.

(4) Shares of restricted stock that vest in an amount of one-third each year on
the three anniversary dates of grant, beginning on January 2, 1997.

(5) Stock options awarded under the Stock Option Plan.

(6) Stock options awarded under The Key Employee Stock Option Plan of Hermes
Europe Railtel B.V.(the "HER Stock Option Plan").

(7) Stock options awarded under the GTS-Hermes, Inc. Stock Option Plan (the
"GTS-Hermes Stock Option Plan"), which will be terminated. The stock
options granted to Mr. Loeber in 1997 and described in footnote (6) are in
substitution for the 3.5 stock options granted to Mr. Loeber in 1996, which
have been cancelled.

(8) For 1997, the amount listed represents the sum of a cost of living
allowance of $30,000, use of a car valued at $10,800, paid home leave of
$12,501, and a gross-up payment for certain tax liabilities in the amount
of $6,805. For 1996, the amount listed represents the sum of a cost of
living allowance of $27,500 and paid home leave of $6,102 paid to Mr. Toth.

(9) Amounts hereunder represent the sum of premiums paid by GTS for $1,000,000
in term life insurance for each Named Executive Officer and contributions
by GTS under the 401(k) Plan, as defined below, to each Named Executive
Officer's account, except for Mr. D'Avanzo who does not participate in the
401(k) plan because of his foreign citizenship. In the case of Mr. Loeber,
the amount also includes $156,700 which represents the value, as of
December 31, 1997 of 10,000 shares of restricted stock which vested in
1997.

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RETIREMENT BENEFITS

The GTS 401(k) Plan (the "401(k) Plan") is a defined contribution
retirement benefit plan that is qualified for favorable tax treatment under
Section 401 of the Internal Revenue Code (the "Code"). All employees of GTS,
subject to certain regulatory qualifications, including the Named Executive
Officers, who are at least 21 years of age and have completed the minimum
service requirement are eligible to participate in the 401(k) Plan. The 401(k)
Plan participants may defer pre-tax income by contributing to the plan up to the
maximum amount permitted by law. After-tax contributions are also permitted
under the 401(k) Plan. GTS matches 50% of each participant's pre-tax
contribution to the 401(k) Plan up to 5% of the participant's total
compensation. In addition, GTS may, in its sole discretion and in a
nondiscriminatory manner, contribute additional amounts as profit sharing to
each participant's account. The amounts that are deposited into each
participant's account are invested among various investment options according to
the direction of the participant. Each participant's pre-tax and after-tax
contributions are immediately vested and nonforfeitable. GTS's matching
contribution and profit sharing allocations to each participant's account do not
vest until the participant has completed three years of service with GTS, at
which time the matching contribution and profit sharing allocations become 100%
vested. Each participant is eligible to begin receiving benefits under the
401(k) Plan on the first day of the month coincident with or following the
attainment of normal retirement age. There is no provision for early retirement
benefits under the 401(k) Plan.

OPTION GRANTS IN THE LAST FISCAL YEAR

The following table provides information on stock option grants to the
Named Executive Officers in 1997 under the Stock Option Plan.

NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR PRICE($/SH.) DATE VALUE($)(2)
---- ---------- ------------ ------------ ---------- -----------

Gerald W. Thames...................... 88,695(1) 4.11 $13.33 02-03-07 $597,000
52,500(1) 2.43 15.67 10-10-07 415,300
Bruno d'Avanzo........................ 66,975(1) 3.11 13.33 02-03-07 450,700
37,500(1) 1.74 15.67 10-10-07 296,600
Jan Loeber............................ -- -- -- -- --
Raymond I. Marks...................... 27,750(1) 1.29 13.33 02-03-07 186,800
Louis T. Toth......................... 22,500(1) 1.04 13.33 02-03-07 151,400
22,500(1) 1.04 15.67 10-10-07 178,000

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(1) Each option vests one-fourth on each of the first four anniversaries of the
date of grant.

(2) The present value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: dividend yield 0%, expected volatility of 0.50, risk-free
interest rate of 5.79% and expected life of five years.

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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

The following table provides information on the number of options under the
Stock Option Plan held by the Named Executive Officers at December 31, 1997, and
the value of all unexercised options held by such persons as of that date.

NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS AT
FY-END(#)(1) VALUE OF UNEXERCISED
EXERCISABLE/ IN-THE-MONEY OPTIONS
NAME UNEXERCISABLE AT FY-END($)(2)
---- --------------- ---------------------

Gerald W. Thames..................................... 676,562/327,133 $7,539,655/$1,321,913
Bruno d'Avanzo....................................... 27,675/159,825 64,676/285,874
Jan Loeber........................................... -- --
Raymond I. Marks..................................... 246,937/121,313 2,671,519/675,211
Louis T. Toth........................................ 256,537/97,613 3,090,927/355,013

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(1) No options were exercised during the year ended December 31, 1997.

(2) Based on $15.67 per share value of Common Stock as of December 31, 1997 less
the exercise price.

OPTION GRANTS IN THE LAST FISCAL YEAR -- HER STOCK OPTION PLAN (1)

The following table provides information on stock option grants to one of
the Named Executive Officers, Jan Loeber, in 1997 under the HER Stock Option
Plan. As of December 31, 1997, Mr. Loeber was not granted in 1997, and does not
hold, any options to purchase Common Stock.

% OF
TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE OR GRANT DATE
OPTIONS IN FISCAL BASE EXPIRATION PRESENT
NAME GRANTED(#) YEAR PRICE($/SH.) DATE VALUE($)(2)
---- ---------- --------- ------------ ---------- -----------

Jan Loeber............................. 4812 47.3 $83.12 2006 $2,234,019

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(1) Each stock option vests one-third on each of the first three anniversaries
of the date of grant. During the fourth quarter of 1997, HER established the
HER Stock Option Plan to replace the GTS-Hermes Stock Option Plan. The
options outstanding under the GTS-Hermes Plan were cancelled and replaced by
options under the HER Stock Option Plan.

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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-ENDED OPTION VALUES -- HER STOCK OPTION PLAN

The following table provides information on the number of options held by
Mr. Loeber under the HER Stock Option Plan at December 31, 1997, and the value
of all unexercised options held by Mr. Loeber as of that date.

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
---- ---------------------------- ----------------------------

Jan Loeber.................................... 3,208/1,604 1,417,551/708,775

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(1) No options were exercised during the year ended December 31, 1997.

(2) Based on $525.00 per share value of common stock as of December 31, 1997
less the exercise price.

EMPLOYMENT AGREEMENTS

GTS has executed employment agreements (together, the "Employment
Agreements") with all the Named Executive Officers. The agreements with Messrs.
Thames, and Marks include a three-year term of employment commencing on February
1, 1997 and April 1, 1996, respectively. Mr. D'Avanzo's employment agreement has
a three-year term commencing on March 1, 1997. The agreements with Mr. Toth and
Mr. Loeber include a two-year term of employment commencing on April 1, 1996 and
January 3, 1995, respectively. All the Employment Agreements, except for Mr.
Thames' and Mr. D'Avanzo's agreements, provide for the automatic renewal of the
term for additional one-year periods after the initial term unless written
notice of intent to terminate is provided by either party within a stated period
of between 120 days and six months prior to the renewal date. Mr. Thames
agreement provides for an automatic renewal each year for a new three-year
period. Mr. D'Avanzo's agreement terminates on March 1, 2000, unless either GTS
or Mr. D'Avanzo requests an extension 180 days prior to such termination and the
parties agree upon an extension. The salary of each Named Executive Officer is
reviewed yearly and may be increased at the sole discretion of the Board of
Directors. In addition to salary, each Named Executive Officer is eligible for a
performance-based annual bonus, to participate in the Stock Option Plan (with
the exception of Mr. Loeber whose employment agreement provides him with an
option grant under the HER Stock Option Plan), to receive standard health and
insurance benefits that are provided to executives of GTS, to receive certain
other fringe benefits and to be reimbursed for all reasonable expenditures
incurred in the execution of each Named Executive Officer's respective duties.
In addition, Mr. Loeber's employment agreement provides him with 30,000 shares
of restricted stock that vest in an amount of one-third each year for three
years beginning on January 2, 1997.

The Employment Agreements provide for severance payments in the event of
(a) termination without cause, as defined, or (b) resignation for good reason,
as defined, following a change of control event, as defined. Mr. Thames would be
eligible for severance payments of base salary for the greater of 24 months or
the remaining term of his agreement. Severance arrangements with other named
officers are for a period of six to eighteen months of base salary. If the Named
Executive Officer is terminated for cause or if he voluntarily terminates his
employment other than for good reason after a change of control event, he shall
not be entitled to any salary, bonus or severance payments (other than accrued
salary).

Each Employment Agreement includes noncompetition and nonsolicitation
clauses that are effective during the term of employment and for a period of
from four months to one year thereafter. In addition, the Employment Agreements
include an unlimited covenant of confidentiality and nondisclosure. Any dispute
arising under an employment agreement must be resolved through arbitration,
except that each agreement also provides for specific performance and for a
court injunction in the event of a breach by the Named Executive Officer.

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REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

The Compensation Committee of the Board of Directors has responsibility for
setting the compensation of the Chief Executive Officer, reviews compensation
proposals for other key executives, approves stock option grants for all
executive officers, and establishes broad compensation practices for the
Company.

The Company operates in a highly competitive and rapidly evolving
international technology marketplace. The Compensation Committee believes that
the remuneration programs for the executive officers of the Company should
reflect the following objectives:

- To offer total compensation packages that allow the Company to attract,
retain, and motivate executives in consideration of compensation
practices at selected companies with whom the Company competes for
executive talent.

- To provide performance-based compensation that reflects the overall
financial performance of the Company and individual executive achievement
against pre-established goals.

- To include significant ownership of the Company's Common Stock in order
to align the executive officers' objectives with the interest of
maximizing shareholder value.

Compensation for the Company's executive officers is comprised of three
major components: (i) base salary, (ii) incentive bonus awards, and (iii)
long-term stock option awards. Each year, the Compensation Committee reviews
comparative compensation information as analyzed by an external consulting firm.
Peer companies are identified within the telecommunications and technology
industries and are analyzed for similarity of product lines, size, and
complexity of structure.

Based upon competitive information and individual performance, Mr. Thames'
base salary for 1997 was established at the fiftieth percentile level relative
to peer companies. The amount of Mr. Thames' bonus paid in 1997 took into
consideration the growth in Company revenues, the improvement in overall
financial measurements, strategic planning, and individual leadership
contribution. Stock option awards in 1997 were granted at a level to reflect Mr.
Thames' individual contribution and long term commitment to growth of the
Company, and are considered a critical component in retention of key executives.

Each year, the Compensation Committee reviews the other executive officers'
base salaries considering relevant competitive data and each executive's
individual performance level. Executive bonus awards are based upon overall
company financial performance and achievement of individual goals and
objectives. The level of stock option award reflects individual past performance
and potential for future contribution to the Company.

The Company is subject to Internal Revenue Code Section 162 (m), which
could limit the deductibility of certain compensation payments to its senior
executive officers. The Company generally intends to comply with the
requirements of Section 162 (m) in connection with the incentive bonus program
and stock option plan.

Bernard McFadden, Chairman
Stewart J. Paperin
Jean Salmona
Alan B. Slifka
(Members of the Compensation
Committee during 1997)

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Alan B. Slifka, Chairman of the Board of Directors, owns an interest in an
office building in New York in which GTS leased office space until the corporate
headquarters were moved to McLean, Virginia on March 1, 1995. Until April 1,
1998, GTS retained a small office space in New York City that was leased from
Mr. Slifka on a monthly basis, and the annual expense for 1997 was $30,690. Mr.
Slifka also has a consulting agreement with GTS pursuant to which he is paid
consulting fees of $100,000 per year.
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Halcyon/Alan B. Slifka Management Company LLC (formerly Alan B. Slifka and
Company), a company principally owned by Mr. Slifka, holds 225,000 stock options
to purchase Common Stock that were granted in 1991 pursuant to a stock option
agreement that is not subject to any stock option plan. The options have an
exercise price of $0.533 per share and are fully vested. Any of the stock
options that remain unexercised after November 30, 2001 shall lapse and become
void. Generally, in the event that Mr. Slifka ceases to be an employee or
nonemployee director of GTS, any of such unexercised stock options shall lapse
thirty days after such termination.

In August and September 1997, affiliates of Mr. Slifka purchased 57,015
shares of Common Stock, at a price of $15.67 per share in the Company's private
stock offering. In addition, in September 1997, affiliates of Mr. Slifka
purchased $2.9 million of the Company's Senior Subordinated Convertible Bonds
(the "Convertible Bonds") due 2000. Pursuant to the terms of the indenture
related to the Convertible Bonds, the Convertible Bonds will be convertible into
such shares of Common Stock as is equal to the principal amount of such
Convertible Bonds divided by the conversion price of $20.

Bernard McFadden, a Director and Chairman of the Compensation Committee,
has a consulting agreement with GTS pursuant to which he is paid $100,000 in
consulting fees each year.

Jean Salmona, a director of GTS, is the Chairman and Chief Executive
Officer of CESIA. CESIA also provides consultancy services for C-Datacomm
International, Inc. ("CDI"), a wholly owned subsidiary of the Company, which
provides digital international private line communication to and from India for
multiple applications, including data and voice and for Hermes Europe Railtel
B.V. ("HER"), another subsidiary of the Company, which is constructing a
pan-European fiber optic network. The Company paid $37,500 in 1997 to CESIA for
consulting services related to CDI. In addition, HER paid $405,893 in 1997 to
CESIA for consulting services. Further, the Company paid $5,843 to CESIA in
1997, pursuant to the purchase agreement with CESIA related to the CDI business.

APPROVAL OF FOURTH AMENDED AND RESTATED 1992 STOCK OPTION PLAN
OF THE COMPANY (ITEM NO. 2)

The Stock Option Plan was adopted by the Board of Directors of GTS and
approved by stockholders in 1992 and has been subsequently amended, among other
things, to increase the number of shares available for grant. The Board of
Directors of GTS adopted the Fourth Amended and Restated Plan on April 9, 1998,
subject to stockholder approval at the Annual Meeting: (i) to modify the
provisions relating to the number of shares with respect to which options to
purchase shares of Common Stock may be granted under the Stock Option Plan; (ii)
to extend eligibility under the Stock Option Plan to nonemployee directors and
independent contractors of the Company (as defined in the Stock Option Plan, as
it is proposed to be amended), its subsidiaries and affiliates; (iii) to provide
the Stock Option Committee (as defined in the Stock Option Plan, as it is
proposed to be amended) with more flexibility to specify the terms of options
granted under the Stock Option Plan; (iv) to specify that the options covering
not more than 1.5 million shares of Common Stock may be granted to any employee
during any calendar year; (v) to extend the term of the Stock Option Plan, as
amended, to April 9, 2008 and (vi) to eliminate certain provisions that are not
necessary or desirable in an option plan of a public company. As of March 31,
1998, there were approximately 1,800 employees, non-employee directors and
independent contractors of GTS and its subsidiaries and affiliates who were
eligible to participate in the Stock Option Plan, as it is proposed to be
amended.

The principal provisions of the Stock Option Plan, as it is proposed to be
amended, are summarized below. Such summary does not, however, purport to be
complete and is qualified in its entirety by the terms of the Stock Option Plan.
A copy of the Stock Option Plan, as amended, is attached hereto as Exhibit A and
is incorporated herein by reference.

The Board of Directors of GTS believes that stock options are important to
attract and to encourage the continued employment and service of officers, other
selected employees, non-employee directors and selected independent contractors
by facilitating their acquisition of a stock interest in GTS. The acquisition
and holding of an equity interest in GTS by such individuals is in the best
interest of GTS because equity

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ownership will even more closely align their interests with the interests of
GTS's stockholders. As of March 31, 1998, 446,464 shares remain available for
the grant of options under the Stock Option Plan, before the amendments
contemplated hereunder.

The Board has determined that it is desirable to amend the Stock Option
Plan so that increases in the number of outstanding shares will be taken into
account immediately for purposes of determining the number of shares available
under the Stock Option Plan for the grant of options. The Board also has
determined to specify a fixed number of shares that will be available for the
grant of options qualifying as incentive stock options for tax purposes
("incentive options"). The Fourth Amended and Restated Plan incorporates a
provision establishing a limit on annual grants to employees to enable grants
under the plan to satisfy the requirements applicable to "qualified
performance-based compensation" under the Code. The Board believes that it is
desirable and in the best interests of GTS to be able to grant options to key
independent contractors and to nonemployee directors of the Company (as defined)
and the Fourth Amended and Restated Plan extends eligibility to those
individuals. The Board also believes that the terms of the Stock Option Plan
should be extended to provide a full ten-year period in which grants can be
made. Finally, with the advice of counsel, the Board has amended the Stock
Option Plan to provide greater flexibility and to eliminate certain provisions
that are not necessary or desirable now that GTS is a public company.

The amendment of the Stock Option Plan is subject to stockholder approval
at the Annual Meeting. GTS is submitting the Fourth Amended and Restated Stock
Option Plan for stockholder approval at the Annual Meeting to allow GTS to
obtain a tax deduction for the full amount allowable with respect to the
exercise of options granted under the Stock Option Plan and to provide
flexibility to grant incentive options, although GTS intends that most or all of
the options granted under the Stock Option Plan will be nonqualified options.
See "--Federal Income Tax Consequences of the Stock Option Plan."

DESCRIPTION OF THE STOCK OPTION PLAN

The Stock Option Plan, as proposed to be amended, provides for the grant of
options to employees, non-employee directors, and independent contractors of GTS
and any subsidiary or affiliate of GTS. A total of 9,568,688 shares of Common
Stock will be reserved for issuance to employees, non-employee directors and
independent contractors under the Stock Option Plan, as it is proposed to be
amended, representing 18.5% of the outstanding shares of Common Stock on March
31, 1998. Based on the closing price of a share of Common Stock on the NASDAQ
Stock Market on March 31, 1998, the aggregate value of the 9,568,688 shares
reserved for issuance under the Stock Option Plan, as it is proposed to be
amended, is $447,336,182. Prior to the proposed amendment of the Stock Option
Plan, a total of 6,957,260 shares of Common Stock, representing 18.5% of
outstanding shares of Common Stock on January 1, 1998, would have been available
for the grant of options. On March 31, 1998, 5,152,453 shares of Common Stock
were subject to outstanding options granted under the Stock Option Plan and
1,358,343 options had been exercised, leaving 446,464 shares of Common Stock
with respect to which Options could be granted under the Stock Option Plan,
before the proposed amendment. As amended, the Stock Option Plan provides that
the number of shares available for issuance under options granted pursuant to
the Stock Option Plan is the greater of 9,568,688 shares or 18.5% of the
outstanding shares of Common Stock at the time of grant. A total of 1 million
shares of Common Stock may be issued pursuant to options qualifying as incentive
options under the Stock Option Plan.

The Stock Option Plan is administered by the Stock Option Committee, which
consists of not less than two directors appointed by the Board of Directors. The
Stock Option Committee selects the employees, independent contractors and
directors of GTS and its subsidiaries and affiliates to whom options will be
granted. Options covering not more than 1.5 million shares of Common Stock may
be granted to any employee during any calendar year.

The option exercise price under the Stock Option Plan may not be less than
the exercise price determined by the Stock Option Committee (or 110% of the fair
market value of the Common Stock on the date of grant of the option in the case
of an incentive option granted to an optionee beneficially owing more than 10%
of the outstanding Common Stock). The maximum option term is 10 years and one
day (or five years in the case of

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an incentive option granted to an optionee beneficially owning more than 10% of
the outstanding Common Stock). Options become vested and exercisable at the time
and to the extent provided in the option agreement related to such Option. The
Stock Option Committee has the discretion to accelerate the vesting and
exercisability of options.

There is a $100,000 limit on the value of stock (determined at the time of
grant) covered by incentive options that first become exercisable by an optionee
in any calendar year. No option may be granted more than 10 years after the
effective date of the Stock Option Plan. Generally, during an optionee's
lifetime, only the optionee (or a guardian or committee if the optionee is
incapacitated) may exercise an option except that, upon approval by the Stock
Option Committee, nonqualified options may be transferred to the spouse of the
optionee and certain nonqualified options may be granted or transferred to the
GTS Employee Stock Option Plan Trust for the benefit of one or more designated
foreign employees, independent contractors or directors. Incentive stock options
are non-transferable except at death.

Payment for shares purchased under options granted pursuant to the Stock
Option Plan may be made either in cash or by exchanging shares of Common Stock
of GTS (which shares have been held by the optionee for at least six months)
with a fair market value of up to the total option exercise price and cash for
any difference. Options may be exercised by directing that certificates for the
shares purchased be delivered to a licensed broker-dealer as agent for the
optionee, provided that the broker-dealer tenders to GTS cash or cash
equivalents equal to the option exercise price plus the amount of any taxes that
GTS may be required to withhold in connection with the exercise of the option.

If an optionee's employment or service with GTS or a subsidiary or
affiliate terminates by reason of death, retirement or permanent and total
disability, his or her vested options may be exercised within one year after
such death, retirement or disability, unless otherwise provided with respect to
a particular option (but not later than the date the option would otherwise
expire). If the optionee's employment or service with GTS or a subsidiary or
affiliate terminates for any reason other than death, retirement or disability,
options held by such optionee terminate 90 days after such termination, unless
otherwise provided with respect to a particular option (but not later than the
date the options would otherwise expire), except that options terminate
immediately upon termination of an employee or independent contractor for
"cause" (as defined), unless the Stock Option Committee determines otherwise.
Each option would be exercisable to the extent it had become vested before the
termination of employment or service (unless otherwise provided in the option
agreement).

If the outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or securities
of GTS, by reason of merger, consolidation, reorganization, recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend, spin-off or other distribution payable in capital stock, or
other increase or decrease in such shares without receipt of consideration by
GTS, an appropriate and proportionate adjustment will be made in the number and
kinds of shares subject to the Stock Option Plan, and in the number, kinds and
per share exercise price of shares subject to the unexercised portion of options
granted prior to any such change, in order to preserve the value of any granted
options. Any such adjustment in an outstanding option, however, will be made
without a change in the total price applicable to the unexercised portion of the
option, but with a corresponding adjustment in the per share option price.

Upon any dissolution or liquidation of GTS, or upon a reorganization,
merger or consolidation in which GTS is not the surviving corporation, or upon
the sale of substantially all of the assets of GTS to another corporation, or
upon any transaction (including, without limitation, a merger or reorganization
in which GTS is the surviving corporation) approved by the Board of Directors
which results in any person or entity owning 80% or more of the total combined
voting power of all classes of stock of GTS, the Stock Option Plan and the
options issued thereunder will terminate, unless provision is made in connection
with such transaction for the continuation of the Stock Option Plan, the
assumption of such options or for the substitution for such options of new
options covering the stock of a successor corporation or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
the per share exercise price. In the event of such termination, all outstanding
options shall be exercisable in full during such period immediately prior to the
occurrence of such termination as the Board of Directors in its discretion shall
determine.

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The Board of Directors may further amend the Stock Option Plan with respect
to shares of the Common Stock as to which options have not been granted.
However, GTS's stockholders must approve any amendment that would (i) change the
requirements as to eligibility to receive incentive options; or (ii) increase
the maximum number of shares in the aggregate for which incentive options may be
granted (except for adjustments upon changes in capitalization); or (iii)
otherwise to the extent required by applicable law, rule or regulation.

The Board of Directors at any time may terminate or suspend the Stock
Option Plan. Unless previously terminated, the Stock Option Plan will terminate
automatically on April 9, 2008. No termination, suspension or amendment of the
Stock Option Plan may, without the consent of the person to whom an option has
been granted, adversely affect the rights of the holder of the option.

No grants of options have been made under the Stock Option Plan, as it is
proposed to be amended, that are subject to shareholder approval.

FEDERAL INCOME TAX CONSEQUENCES OF THE STOCK OPTION PLAN

The grant of an option under the Stock Option Plan is not a taxable event
for the optionee or GTS.

Upon exercising a non-qualifying option, an optionee will recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of the Common Stock on the date of exercise (except
that, if the optionee is subject to certain restrictions on transfer of shares
of Common Stock, the measurement date may be delayed, unless the optionee makes
a special tax election within 30 days after exercise to have income determined
without regard to the restrictions). If the Company complies with applicable
reporting requirements, it will be entitled to a business expense deduction in
the same amount. Non-qualifying options under the Stock Option Plan are intended
to satisfy the requirements applicable to "qualified performance-related
compensation" under the Code, so that the Company should be entitled to deduct
the full amount of such compensation income without regard to the $1,000,000
limitation imposed on the deduction of annual compensation paid to each of the
chief executive officer and the four other most highly compensated officers of a
publicly held corporation. Upon a taxable disposition of shares acquired
pursuant to the exercise of a non-incentive option, the optionee will have
taxable gain or loss, measured by the difference between the amount realized on
the disposition and the tax basis of the shares (generally, the amount paid for
the shares plus the amount treated as ordinary income at the time the option was
exercised).

If the optionee surrenders shares of Common Stock in payment of part or all
of the exercise price for nonqualifying options, no gain or loss will be
recognized with respect to the shares surrendered and the optionee will be
treated as receiving an equivalent number of shares pursuant to the exercise of
the option in a non-taxable exchange. The basis of the shares surrendered will
be treated as the substituted tax basis for an equivalent number of option
shares received. However, the fair market value of any shares received in excess
of the number of shares surrendered will be taxed as ordinary income.

With respect to "incentive options," an optionee will not recognize taxable
income upon exercise of an incentive option, and any gain realized upon a
disposition of shares received pursuant to the exercise of an incentive option
will be taxed as long-term capital gain if the optionee holds the shares for at
least two years after the date of grant and for one year after the date of
exercise of the option. However, the excess of the fair market value of the
shares subject to an incentive option on the exercise date over the option
exercise price will be included in the optionee's alternative minimum taxable
income in the year of exercise (except that, if the optionee is subject to
certain restrictions on transfer, the determination of the amount included in
alternative minimum taxable income may be delayed, unless the optionee elects
within 30 days following exercise to have income determined without regard to
such restrictions) for purposes of the alternative minimum tax. An optionee may
be entitled to a credit against regular tax liability in future years for
minimum taxes paid with respect to the exercise of incentive options. the
Company and its subsidiaries and affiliates will not be entitled to any business
expense deduction with respect to the grant or exercise of an incentive option,
except as discussed below.

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For the exercise of an incentive option to qualify for the foregoing tax
treatment, the optionee generally must be an employee of the Company or its
subsidiaries from the date the option is granted through a date within three
months before the date of exercise. In the case of an optionee who is disabled,
this three-month period is extended to one year. In the case of an employee who
dies, the three-month period and the holding period for shares received pursuant
to the exercise of the option are waived.

If all of the foregoing requirements for incentive option treatment are met
except for the special holding period rules set forth above, the optionee will
recognize ordinary income upon the disposition of the shares in an amount equal
to the excess of the fair market value of the shares at the time the option was
exercised (or at the time of the disposition, if less) over the option exercise
price. However, if the optionee was subject to certain restrictions on transfer
of Common Stock at the time the option was exercised, the measurement date may
be delayed, unless the optionee has made a special tax election within 30 days
after the date of exercise to have taxable income determined without regard to
such restrictions. The balance of the realized gain, if any, will be short- or
long-term capital gain, and the tax rate will depend upon how long the shares
were held after the option was exercised. If the optionee sells the shares prior
to the satisfaction of the holding period rules but at a price below the fair
market value of the shares at the time the option was exercised (or other
applicable measurement date), the amount of ordinary income (and the amount
included in alternative minimum taxable income, if the sale occurs during the
same year as the option was exercised) will be limited to the excess of the
amount realized on the sale over the option exercise price. If the Company
complies with applicable (if any) reporting requirements, it will be allowed a
business expense deduction to the extent the optionee recognizes ordinary
income.

If an optionee exercises an incentive option by tendering shares of Common
Stock with a fair market value equal to part or all of the option exercise
price, the exchange of shares generally will be treated as a nontaxable exchange
(except that this treatment would not apply if the optionee had acquired the
shares being transferred pursuant to the exercise of an incentive option and had
not satisfied the special holding period requirements summarized above). If the
exercise is treated as a tax free exchange, the optionee would have no taxable
income from the exchange and exercise (other than minimum taxable income as
discussed above) and the tax basis of the shares exchanged would be treated as
the substituted basis for the shares received. If the optionee used shares
received pursuant to the exercise of an incentive option (or another statutory
option) as to which the optionee had not satisfied the applicable holding period
requirement, the exchange would be treated as a taxable disqualifying
disposition of the exchanged shares.

The foregoing is a brief summary of some of the principal federal income
tax consequences of stock option grants under the Stock Option Plan and
recipients of grants under the Stock Option Plan, as amended, should consult
with their personal tax advisors with respect to such grants and transactions in
stock acquired pursuant to the Stock Option Plan, as amended.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
FOURTH AMENDED AND RESTATED STOCK OPTION PLAN (ITEM NO. 2)

APPROVAL OF STOCK OPTIONS GRANTED TO CERTAIN MEMBERS OF THE
BOARD OF DIRECTORS (ITEM NO. 3)

On February 27, 1998, the Board of Directors granted to each of its then
incumbent members, except Mr. Thames, options to purchase 15,000 shares of
Common Stock, or a total of 150,000 shares. Messrs. Dey and Hale were not
granted such stock options. These options were awarded, on a one-time basis, by
the Board of Directors to such persons in recognition of the extraordinary
efforts of each then non-employee Director in successfully accomplishing the
initial public offering ("IPO") of the Company's Common Stock; and to reflect
the increased responsibilities of directors of publicly-held reporting
companies. In connection with its IPO, the Company issued 12,765,000 shares
(including exercise of an underwriters' overallotment option) of Common Stock at
$20 per share and realized net proceeds of $238.7 million, after the payment of
underwriting discounts and commissions. Accordingly, the awarded stock options
have an exercise price of $20 per share. The grant of these options is subject
to stockholder approval at the Annual Meeting.

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The stock options are not subject to any stock option plan and will be
covered by an agreement between the Company and each optionee. The options will
vest over the following schedule: 5,000 options will vest on August 27, 1998;
5,000 options will vest on August 27, 1999; and 5,000 options will vest on
August 27, 2000. The stock options will expire on February 28, 2008, ten years
and one day after grant. As discussed below, the stock options are nonqualified
options which are not qualified for special tax treatment. The full purchase
price of the shares of Common Stock covered by the stock options must be paid,
either in cash, by delivery of shares owned at least six months prior thereto,
or by delivering a written direction to the Company that the option be exercised
pursuant to a "cashless" exercise/sale procedure through a licensed
broker-dealer whereby a stock certificate or certificates will be delivered to
the broker-dealer as the agent for the Director exercising the option and the
broker-dealer will deliver to the Company cash or cash equivalents equal to the
exercise price for the shares of Common Stock purchased pursuant to the exercise
of the options, plus the amount of any federal and other taxes that the Company
may be required to withhold with respect to the exercise of the Option.

If an optionee's service with the Company terminates by reason of death or
disability, his vested options may be exercised within one year after death or
declared disability (but not later than the date the options would otherwise
expire). If the optionee's service with GTS terminates as a result of any other
event other than to take an employment position with the Company, vested options
held by such optionee will be exercisable for 90 days following such
termination. (but not later than the date the options would otherwise expire).
Unvested stock options will terminate if and when the optionee terminates his
position on the Company's Board of Directors for any reason, subject to
acceleration of vesting by the Board of Directors at its discretion.

If the outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or securities
of the Company, by reason of merger, consolidation, reorganization,
recapitalization, reclassification, stock split-up, combination of shares,
exchange of shares, stock dividend, spin-off or other distribution payable in
capital stock, or other increase or decrease in such shares without receipt of
consideration by the Company, an appropriate and proportionate adjustment will
be made in the number and kinds of shares subject to the options, and in the
number, kinds and per share exercise price of shares subject to the unexercised
portion of options granted prior to any such change, in order to preserve the
value of any granted options. Any such adjustment in an outstanding option,
however, will be made without a change in the total price applicable to the
unexercised portion of the option, but with a corresponding adjustment in the
per share option price.

Any unvested options will vest and become exercisable upon any dissolution
or liquidation of the Company in connection with a "change of control" over the
Company, which is defined to include the purchase by any person or entity of a
majority of the voting stock of the Company; a reorganization, merger or
consolidation (a "Transaction") in which the Company is not the surviving
corporation or after which the shareholders of the Company prior to the
Transaction do not control the majority of the voting securities of the
surviving entity; and the sale of all or substantially all of the assets of the
Company to another corporation; in each case unless provision is made in
connection with such transaction for the continuation of the options, the
assumption of the options or both the continuation of the options and the
assumption of such options, or for the substitution for such options of new
options covering the stock of a successor corporation or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
the per share exercise price.

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NEW PLAN BENEFITS

The table below provides certain information as of the date of this Proxy
Statement regarding the stock options granted to non-executive directors of the
Company on the date of grant, February 27, 1998. All such grants are subject to
stockholder approval.

NEW PLAN BENEFITS(1)

NUMBER OF
NAME AND POSITION(S) DOLLAR VALUE(2) OPTIONS GRANTED
-------------------- --------------- ---------------

Non-Executive Director Group (10 persons)................... $3,000,000 150,000

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

(1) The option grants were made pursuant to a "plan," as defined under the
applicable rules of the Securities and Exchange Commission (the "SEC"). In
addition, such rules require the inclusion of this table in this Proxy
Statement.

(2) Represents the aggregate exercise price of the options granted.

Depending on the fair market value of the Common Stock on the date that the
grants of such stock options are approved by the Company's stockholders, the
Company will record a compensation charge equal to the difference, if any,
between the fair market value per share of the Common Stock on such date and the
$20 exercise price per share, multiplied by 150,000. Such compensation charge,
if any, will be expensed over the vesting schedule of the options. The Company
has entered into a hedging transaction to cap its exposure to such compensation
charge with respect to any appreciation in the per share value of the Common
Stock in excess of $40.

FEDERAL INCOME TAX CONSEQUENCES OF THE OPTIONS

The grant of an option is not a taxable event for the optionee or the
Company.

The foregoing is a brief summary of some of the principal federal income
tax consequences of the stock option grants to the Directors described below.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM NO. 3

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RATIFICATION OF APPOINTMENT OF AUDITORS
(ITEM NO. 4)

The Board of Directors has selected Ernst & Young LLP ("Ernst & Young"),
independent public accountants, to audit the consolidated financial statements
of the Company for the fiscal year ending December 31, 1998 and recommends that
the stockholders ratify such selection. This appointment will be submitted to
the stockholders for ratification at the Annual Meeting.

The submission of the appointment of Ernst & Young is not required by law
or by the By-laws of the Company. The Board of Directors is nevertheless
submitting it to the stockholders to ascertain their views. If the stockholders
do not ratify the appointment, the selection of other independent public
accountants will be considered by the Board of Directors. If Ernst & Young shall
decline to accept or become incapable of accepting its appointment, or if its
appointment is otherwise discontinued, the Board of Directors will appoint other
independent public accountants.

A representative of Ernst & Young is expected to be present at the Annual
Meeting, will have the opportunity to make a statement, and will be available to
respond to appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM NO. 4.

PERFORMANCE GRAPH

At the end of 1997, the Company was not subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company's Common Stock has only been subject to such requirements since February
5, 1998. Accordingly, the inclusion of a performance graph in this Proxy
Statement is not required.

RELATED PARTY TRANSACTIONS

Joel Schatz, a director of GTS, and Ms. Sandler, the wife of Morris A.
Sandler, a director of GTS were granted in 1991 stock options to purchase Common
Stock pursuant to stock option agreements that are not subject to any stock
option plan. Mr. Schatz holds 50,250 of such stock options to purchase Common
Stock with an exercise price of $0.533 per share. Mr. Schatz's options are fully
vested and any unexercised options he holds after November 4, 2001 shall lapse
and become void. Generally, in the event that Mr. Schatz ceases to be an
employee or nonemployee director of GTS any of his unexercised stock options
shall lapse thirty days after such termination. The stock options held by the
spouse of Mr. Sandler were granted to Mr. Sandler in November 1991 and, with the
approval of the Board, were immediately assigned to his spouse, whom the
stand-alone stock option agreement names as the optionee. Pursuant to such stock
option agreement, the spouse of Mr. Sandler was granted 225,000 stock options to
purchase Common Stock at an exercise price of $.533 per share. The options are
fully vested and any unexercised options held after November 4, 2001 shall lapse
and become void. Generally, in the event that Mr. Sandler ceases to be an
employee or nonemployee director of GTS, any of such unexercised stock options
shall lapse thirty days after such termination.

In August and September, 1997 affiliates of George Soros purchased 319,149
shares of Common Stock at a price of $15.67 per share in the Company's private
stock offering. In addition, affiliates of Soros Fund Management purchased $40
million of notes from GTS in 1996, which notes bear interest at 10% per annum,
in partial consideration of which (i) W. James Peet was appointed to the Board
of Directors and (ii) the affiliates received warrants to purchase 4,444,443
shares of Common Stock. Together with their prior equity interests in GTS, these
affiliates currently hold, on a fully diluted basis (excluding shares underlying
stock options), in excess of 19% of the Company's Common Stock. In accordance
with the terms of the warrant agreement, the exercise price of the warrants was
reduced from $10.27 per share to $9.33 per share as the outstanding debt had not
been repaid prior to December 31, 1996. On February 10, 1998, the Company repaid
the $40 million in notes, plus accrued interest, using, in part, the proceeds of
a sale of senior notes by the Company. In addition, these affiliates collect a
monitoring fee of $40,000 per month. Under certain agreements, these affiliates
have the right to co-invest with GTS in all of its new ventures throughout Asia,

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excluding countries in the former Soviet Union, and pursuant to this right, one
of these affiliates holds a 25% interest in GTS China Investments LLC, an
affiliate of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons or entities who own more than 10% of the
Company's Common Shares, to file with the SEC and the Nasdaq Stock Market
initial reports of beneficial ownership and changes in beneficial ownership of
the Company's Common Shares. Such persons are also required by SEC regulations
to furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company as to transactions for which reports are required, all
Section 16(a) filing requirements applicable to such individuals or entities
have been complied since the Company become subject on February 5, 1998 to the
reporting requirements of the Exchange Act.

OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING

The Board of Directors knows of no business which may come before the
meeting except that indicated above. However, if other business is brought
before the meeting, the persons acting under the enclosed form of proxy may vote
thereunder in accordance with their best judgment.

COST AND METHOD OF PROXY SOLICITATION

Proxies will be solicited by mail. The expense of such solicitation will be
borne by the Company. Directors, officers, or regular employees of the Company
may solicit proxies by telephone or in person. The cost of such solicitation
will be nominal. In addition, Corporate Investor Communications, Inc. has been
retained by the Company to assist in soliciting proxies from brokerage firms,
bank nominees and other institutional holders to assure a timely vote by the
beneficial owners of stock held of records by such firms, banks and
institutions. This firm will receive a fee not to exceed $4,000 for its
services.

DATE FOR SUBMISSION OF STOCKHOLDER
PROPOSALS FOR 1998 ANNUAL MEETING

Stockholder proposals, in order to be timely submitted for inclusion in the
Company's proxy materials for the 1999 annual meeting of stockholders, must be
received at the Company's principal executive offices by January 30, 1999.

* * *

The Company will provide, without charge, to each person to whom this Proxy
Statement is delivered, upon written request of such person, a copy of the
Company's annual report on From 10-K for the year ended December 31, 1997.
Requests should be addressed to the Vice President-Investor Relations and
Corporate Communications, Global TeleSystems Group, Inc. 1751 Pinnacle Drive,
North Tower, 12th Floor, McLean, VA 22102.

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EXHIBIT A
FOURTH AMENDED AND RESTATED
1992 STOCK OPTION PLAN OF
GLOBAL TELESYSTEMS GROUP, INC.
(AS OF APRIL 9, 1998)

1. PURPOSES OF THE PLAN. The purposes of the Fourth Amended and Restated
1992 Stock Option Plan of Global TeleSystems Group, Inc. are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentives to Employees of the Company and its Parent or
Subsidiaries, and to promote the success of the business of the Company and its
Parent or Subsidiaries. At the discretion of the Committee, Options granted
hereunder may be either Incentive Stock Options or Nonstatutory Stock Options.
Each Option shall be a Nonstatutory Stock Option unless such Option is granted
to an Employee and is specifically designated at the time of grant as being an
Incentive Stock Option.

2. DEFINITIONS. As used herein, and in any Option granted hereunder, the
following definitions shall apply:

(a) "Board" shall mean the Board of Directors of GTS.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Company" shall mean GTS, any Parent, Subsidiary or affiliate of
GTS, and except as provided in Section 11 below, any successors in interest
to GTS or such Parent, Subsidiary or affiliate.

(e) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Section 4 of the Plan. If the Board does not
appoint or ceases to maintain a Committee, the term "Committee" shall refer
to the Board.

(f) "Continuous Employment" shall mean the absence of any interruption
or termination of service as an Employee, independent contractor or
director with the Company. For purposes of the preceding sentence, service
shall not be considered interrupted during any period of vacation, sick
leave, military leave or any other absence approved by the Board and shall
not be considered terminated as a result of a transfer between locations
within the Company.

(g) "Director" shall mean any person serving on the Board of Directors
of the Company or analogous governing body in the case of entities
organized in jurisdictions outside the United States.

(H) "Employee" shall mean any person, including any officer (whether
or not he or she is a director of the Company), employed by the Company.

(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(j) "GTS" shall mean Global TeleSystems Group, Inc., a Delaware
corporation, and except as provided in Section 11 below, its successors in
interest.

(k) "Incentive Stock Option" shall mean any option granted under this
Plan and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code and the regulations promulgated
thereunder.

(l) "Non-Employee Director" shall mean a "non-employee director" of
GTS within the meaning of Rule 16b-3 promulgated under the Exchange Act who
is an "outside director" for purposes of Section 162(m) of the Code.

(m) "Nonstatutory Stock Option" shall mean any Option granted under
the Plan that is not an Incentive Stock Option.

(n) "Option" shall mean a stock option granted pursuant to the Plan.

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(o) "Option Agreement" shall mean a written agreement between the
Company and the Optionee or the Trust regarding the grant and exercise of
Options to purchase Shares and the terms and conditions thereof as
determined by the Committee pursuant to the Plan.

(p) "Optioned Shares" shall mean the Common Stock subject to an
Option.

(q) "Optionee" shall mean an Employee, independent contractor or
director who receives an Option under the Plan, either directly or as a
beneficiary of the Trust.

(r) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

(s) "Plan" shall mean this Fourth Amended and Restated 1992 Stock
Option Plan of GTS

(t) "Registration Date" shall mean February 5, 1998, the effective
date of the first registration statement filed by GTS, pursuant to Section
12(g) of the Exchange Act, with respect to any class of equity securities.

(u) "Securities Act" shall mean the Securities Act of 1933, as
amended.

(v) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.

(w) "Subsidiary" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.

(x) "Trust" shall mean the GTS Employee Stock Option Plan Trust, as
may be amended from time to time.

(y) "Trustee" shall mean the trustee of the Trust, as may be
designated from time to time in accordance with the terms and provisions of
the Trust.

3. STOCK SUBJECT TO THE PLAN. Without limiting the application of Section
11 of the Plan, the maximum aggregate number of Shares which may be subject to
Options and sold under the Plan is the greater of 9,568,688 or 18.5% of the
total number of Shares outstanding at the time of the grant of such Options or
on any other relevant date. The number of Shares that may be issued pursuant to
Incentive Stock Options granted under the Plan shall not exceed in the aggregate
1 million Shares, subject to adjustment as provided in Section 11 below (the
"Incentive Option Pool"). Incentive Stock Options shall be granted under the
Plan only to the extent that Shares remain available in the Incentive Option
Pool. Unless otherwise specified by the Committee at the time of the grant of a
Nonstatutory Stock Option, Nonstatutory Stock Options shall be granted only with
respect to Shares available under this Section 3 in excess of the number of
Shares in the Incentive Option Pool. If any Incentive Stock Option or any
Nonstatutory Stock Option that was designated at the time of grant as having
been granted from the Incentive Option Pool expires, terminates, or is
terminated or becomes unexercisable for any reason (other than settlement in
cash) prior to exercise in full, the Shares that were subject to the unexercised
portion of such Option shall be restored to the Incentive Option Pool and shall
be available for future Incentive Stock Option grants under the Plan, unless the
Plan shall have been terminated. If an Option is surrendered to the Company for
cash or other consideration (including Shares withheld in payment of taxes
relating to awards or in payment of the exercise price of Options), if Shares
are surrendered to the Company in payment of the exercise price of Options or
taxes relating to awards, or if a Nonstatutory Stock Option that was not
designated as having been granted from the Incentive Option Pool expires,
terminates, or is terminated or becomes unexercisable for any reason without
having been exercised in full, the Shares that were subject to the unexercised
portion of such Option and the Shares surrendered to the Company shall become
available for future Nonstatutory Stock Option grants under the Plan, unless the
Plan shall have been terminated, but such Shares shall not be included in the
Incentive Option Pool. The Shares may include authorized but unissued or
reacquired Common Stock.

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The Committee may adopt reasonable counting procedures to ensure
appropriate counting, avoid double counting and make adjustments if the number
of Shares actually delivered differs from the number of Shares previously
counted in connection with an award.

4. ADMINISTRATION OF THE PLAN.

(a) Procedure. The Plan shall be administered by the Board. The Board may
appoint a Stock Option Committee consisting of not less than two members of the
Board to administer the Plan, subject to the direction of the Board and such
terms and conditions as the Board may prescribe. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. In the discretion
of the Board, the Committee may be comprised of members each of whom qualifies
as a Non-Employee Director.

From time to time, the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and, thereafter, directly administer the
Plan. Members of the Board or Committee who are either eligible for Options or
have been granted Options (either directly or as a beneficiary of the Trust) may
vote on any matters affecting the administration of the Plan or the grant of
Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option to such member (either directly or as a beneficiary of the
Trust) but any such member may be counted in determining the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of an Option to such member (either directly or as
a beneficiary of the Trust).

The Committee shall meet at such times and places and upon such notice as
the Chairperson determines. A majority of the Committee shall constitute a
quorum. Any acts by the Committee may be taken at any meeting at which a quorum
is present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.

(b) Procedure After Registration Date. After the Registration Date, the
Board shall take all action necessary to administer the Plan in accordance with
the then effective provisions of Rule 16b-3 promulgated under the Exchange Act,
provided that any amendment to the Plan required for compliance with such
provisions shall be made in accordance with Section 13 of the Plan.

(c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have discretionary authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii) to
determine the exercise price of Options to be granted, the persons (including
the Trust) to whom and the time or times at which Options shall be granted, and
the number of Shares to be represented by each Option; (iii) to interpret the
Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the
Plan; (v) to establish the terms and conditions of each Option granted under the
Plan (which terms and conditions need not be identical in any two Options) and,
with the consent of the holder thereof, to modify or amend any Option; (vi) to
authorize any person to execute on behalf of the Company any instruments
required to effect the grant of an Option awarded by the Committee; (vii) to
accelerate or (with the consent of an Optionee) to defer an exercise date of any
Option subject to the provisions of Section 9(a) of the Plan; (viii) to
determine whether Options granted under the Plan will be Incentive Stock Options
or Nonstatutory Stock Options; and (ix) to make all other determinations deemed
necessary or advisable for the administration of the Plan.

(d) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all potential or
actual Optionees, any other holder of an Option or other equity security of the
Company and all other persons. In any controversy regarding the administration
of the Plan, any arbitrator or court reviewing any decision, determination or
interpretation by the Committee shall not set aside or modify such decision,
determination or interpretation unless it is arbitrary, capricious or clearly
contrary to the terms of the Plan.

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5. ELIGIBILITY.

(a) Persons Eligible to Participate. Options under the Plan may be granted
only to (i) Employees, (ii) the Trust for the benefit of Employees; (iii)
independent contractors performing services for the Company, whom the Committee
may designate from time to time and (iv) Directors of the Company who are not
Employees. Each Employee in certain jurisdictions, as designated by the
Committee from time to time, must be a beneficiary of the Trust in order to be a
participant under this Plan. Incentive Stock Options may be granted only to
Employees. An Optionee who has been granted an Option may receive an additional
Option or Options, if he or she is otherwise eligible for such grant. Such
additional Option or Options may be granted to the Trust for the benefit of such
eligible Optionee. However, an Option intended to constitute an Incentive Stock
Option (and so designated at the time of grant) shall qualify as an Incentive
Stock Option only to the extent that the aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year (under the Plan and all other plans of the Optionee's employer
corporation and its parent and subsidiary corporations within the meaning of
Section 422(d) of the Code) does not exceed $100,000. This limitation shall be
applied by taking Options into account in the order in which they were granted.

(b) No Right to Continuing Employment or Service. Neither the
establishment nor operation of the Plan or the Trust shall confer upon any
Optionee or any other person any right with respect to continuation of
employment or other service with the Company, nor shall the Plan or the Trust
interfere in any way with the right of the Optionee or other person or the right
of the Company to terminate such employment or service at any time.

6. TERM OF PLAN. This Fourth Amended and Restated Plan shall become
effective upon its adoption by the Board. The Plan shall continue until April 9,
2008 unless sooner terminated under Section 11 or 13 of the Plan.

7. TERM OF OPTION. Unless the Committee determines otherwise, at the time
of the grant of an Option, the term of each Nonstatutory Stock Option granted
under the Plan shall be 10 years and one day from the date of grant; and the
term of each Incentive Stock Option shall be 10 years from the date of grant. No
Option shall be exercisable after the expiration of its term. In all cases the
terms of an Option shall be set forth in the Option Agreement.

8. OPTION PRICE, CONSIDERATION AND RESTRICTIONS.

(a) Option Price. Except as provided in subsection 8(b), the option price
for the Shares to be issued pursuant to any Option shall be such price as is
determined by the Committee which, in the case of Incentive Stock Options, shall
in no event be less than the fair market value of such Shares on the date the
Option is granted. Fair market value of the Common Stock shall be determined by
the Committee using such criteria as it deems relevant; provided, however, that
where there is a public market for the Common Stock, the fair market value per
Share shall be the average of the last reported bid and asked prices of the
Common Stock on the date of grant, as reported in The Wall Street Journal (or,
if not so reported, as otherwise reported by the National Association of
Securities Dealers Automated Quotation ("NASDAQ") System; or, in the event the
Common Stock is listed on a national securities exchange, within the meaning of
Section 6 of the Exchange Act, the fair market value per Share shall be the
closing price on such exchange on the date of grant of the Option, as reported
in The Wall Street Journal.

(b) Ten Percent Shareholders. No Incentive Stock Option shall be granted
to any Employee who, at the date such Option is granted, owns (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company, unless the option price for
the Shares to be issued pursuant to such Incentive Stock Option is equal to at
least 110% of the fair market value of such Shares on the grant date as
determined by the Committee in the manner set forth in subsection (a) above.

(c) Consideration. The consideration to be paid for the Shares to be issued
upon exercise of an Option shall be payment in cash or by check or with Shares
of the Company's Common Stock. The Committee may also, in its discretion,
authorize at the time of the grant of the Option payment in some other
consideration or method (such as by promissory note) for the issuance of Shares
as may be permitted under Section 157 of the
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General Corporation Law of the State of Delaware. Any cash or other property
received by the Company from the sale of Common Stock pursuant to the Plan shall
constitute part of the general assets of the Company.

(d) Code Section 162(m). The maximum number of Shares subject to Options
that may be granted during any calendar year under the Plan to any executive
officer or other Employee whose compensation is or may be subject to Code
Section 162(m) is 1,500,000 shares (subject to adjustment as provided in Section
11 hereof).

9. EXERCISE OF OPTION.

(a) Vesting Period. Any Option granted hereunder shall be exercisable at
such times and under such conditions as determined by the Committee and as shall
be permissible under the terms of the Plan, which times and conditions shall be
specified in the Option Agreement evidencing the grant of the Option. Unless the
Committee specifically determines otherwise in the Option Agreement, each Option
shall vest and become exercisable, cumulatively, by an Optionee or by the Trust
on behalf of an Optionee, to the extent of (i) one-fourth of the Optioned Shares
as of the first anniversary of the date on which the Option is granted, (ii)
one-half of the Optioned Shares as of the second anniversary of the date on
which the Option is granted, (iii) three-fourths of the Optional Shares as of
the third anniversary of the date on which the Option is granted, and (iv) all
of the Optioned Shares as of the fourth anniversary of the date on which the
Option is granted, subject to the Optionee's Continuous Employment; provided,
however, that the Optionee must complete 12 months of employment to exercise an
Incentive Stock Option. An Option may not be exercised for fractional Shares or
for less than 10 Shares.

(b) Exercise Procedures. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option Agreement by an Optionee or by the Trust on behalf of an
Optionee and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. As soon as administratively
practicable following the exercise of an Option in the manner set forth above,
the Company shall issue or cause its transfer agent to issue stock certificates
representing the Shares purchased. Until the issuance of such stock certificates
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to the Optioned
Shares notwithstanding the exercise of the Option. Except as provided in Section
11 below, no adjustment will be made for a dividend or other rights for which
the record date occurs prior to the date the stock certificates are issued.

(c) Exercise of Option with Stock, by Cashless Exercise or Net of Exercise
Price. The consideration to be paid for the Shares to be issued upon exercise
of an Option shall be made (i) in cash or in cash equivalents; (ii) through the
tender to the Company of Shares, which Shares shall be valued, for purposes of
determining the extent to which the Option price has been paid thereby, as
provided below, and which Shares have been held by the Optionee for at least six
months; (iii) by delivering a written direction to the Company that the Option
be exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to the Company by a broker
upon receipt of stock certificates from the Company) or a cashless exercise/loan
procedure (pursuant to which the Optionee would obtain a margin loan from a
broker to fund the exercise) through a licensed broker acceptable to the Company
whereby the stock certificate or certificates for the Shares for which the
Option is exercised will be delivered to such broker as the agent for the person
exercising the Option and the broker will deliver to the Company cash (or cash
equivalents acceptable to the Company) equal to the option price for the Shares
purchased pursuant to the exercise of the Option, plus the amount (if any) of
federal and other taxes that the Company, may, in its judgment, be required to
withhold with respect to the exercise of the Option; or (iv) by a combination of
the methods described in (i), (ii) and (iii). The Committee, in its discretion,
may permit an Optionee or the Trust on behalf of an Optionee to exercise an
Option in whole or in part by delivering that number of whole Shares, that have
been held by the Optionee for at least six months, having a fair market value
equal to the Option price. Shares of the Company's Common Stock so delivered
shall be valued at their fair market value at the close of the last business day
immediately preceding the date of exercise of the Option, as determined by the
Committee. Any balance of the Option price shall be paid in cash. Any Shares
delivered in accordance

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28

with this provision shall again become available for purposes of the Plan and
for Nonstatutory Stock Options subsequently granted thereunder.

(d) Termination of Status as Employee, Contractor or Director. If an
Optionee shall cease to be an Employee, independent contractor or director of
the Company for any reason other than permanent and total disability (within the
meaning of Section 22(e)(3) of the Code as determined in the sole discretion of
the Committee), retirement, death or, in the case of an Employee or independent
contractor, involuntary termination for "cause," such individual's Option
(irrespective of whether such Option has been transferred to the Trust) shall
automatically terminate 90 days following the date he or she ceases to be an
Employee, independent contractor or director of the Company, unless the
Committee, in its discretion, determines to provide a different post-termination
exercise period under the Option Agreement with respect to such Option or any
amendment thereto (which period shall in no event extend beyond the term of the
relevant Option).

(1) If an Optionee's employment or service as an independent
contractor of the Company is terminated involuntarily by the Company for
"cause," such individual's Option (irrespective of whether such Option has
been transferred to the Trust) shall automatically terminate on the date he
or she ceases to be an Employee or independent contractor of the Company,
unless the Committee, in its discretion, determines to determines to
provide a different post-termination exercise period under the Option
Agreement with respect to such Option or any amendment thereto (which shall
in no event extend beyond the term of the relevant Option). Prior to such
termination of the Option, the Optionee or the Trust on behalf of an
Optionee may exercise such Option to the extent that the Optionee or the
Trust on behalf of an Optionee was entitled to exercise on the exercise
date, subject to the condition that no Option shall be exercised after the
expiration of the term of the Option. For this purpose, "cause" shall have
the meaning set out in the Option Agreement relating to a particular
Option, or, in the absence of such a definition, shall mean:

(i) fraud, embezzlement, or any other illegal act in connection
with the Optionee's duties as an Employee of the Company which causes or
may reasonably be expected to cause substantial economic injury to or
substantial injury to the reputation of the Company,

(ii) conviction of any crime which causes or may reasonably be
expected to cause substantial economic injury to or substantial injury
to the reputation of the Company,

(iii) material breach of any fiduciary duty owed to the Company,

(iv) willful misconduct in connection with the Optionee's duties to
the Company which causes or may reasonably be expected to cause
substantial economic injury to or substantial injury to the reputation
of the Company,

(v) willful failure to perform assigned duties as an Employee of
the Company,

(vi) misrepresentation of qualifications for position,

(vii) the commission of any other act which causes or may
reasonably be expected to cause substantial economic injury to or
substantial injury to the reputation of the Company, including, without
limitation, any material violation of the Foreign Corrupt Practices Act,
as described herein below;

(viii) a continuing conflict of interest or continuing failure to
perform duties or to follow reasonable directions or instructions of the
Optionee's superiors. For purposes of this provision, a conflict of
interest or failure to perform or follow directions shall be deemed to
be "continuing" if the Optionee does not correction the conflict or
failure within ten (10) days of receipt of written notice of such
conflict or failure; or

(ix) an extended period of absence or repeated absences by the
Optionee from the performance of Optionee's duties, which absence shall
be for a reason other than vacation, illness or disability, or which has
not been approved by the Optionee's immediate supervisor; or

(x) material breach of a material provision of any employment
agreement by the Optionee.
6
29

(e) Disability of Optionee. In the event of the permanent and total
disability (within the meaning of Section 22(e)(3) of the Code as determined in
the sole discretion of the Committee) during the term of the Option of an
Optionee who is at the time of such disability, or was within the 90-day period
prior thereto, an Employee, independent contractor or Director of the Company
and who was in Continuous Employment as such from the date of the grant of the
Option until the date of disability or termination, the Option may be exercised
at any time within one year following the date of disability, unless the
Committee, in its discretion, determines to provide a different post-termination
exercise period under the Option Agreement with respect to such Option or any
amendment thereto, but only to the extent that the Optionee or the Trust was
entitled to exercise the Option at the time of the termination or disability,
whichever comes first, unless otherwise determined by the Committee in its
discretion, and subject to the condition that no Option shall be exercised after
the expiration of the term of the Option.

(f) Retirement of Optionee. In the event of the retirement during the
Option period of an Optionee who is at the time of such retirement, or was
within the 90-day period prior thereto, an Employee and who was in Continuous
Employment as such from the date of the grant of the Option until the date of
the retirement, the Option may be exercised by the Optionee or the Trust on
behalf of an Optionee at any time within one year following the retirement date,
unless the Committee, in its discretion, determines to provide a different post-
termination exercise period under the Option Agreement with respect to such
Option or any amendment thereto, but only to the extent that the Optionee or the
Trust was entitled to exercise the Option at the time of the Optionee's
retirement, unless otherwise determined by the Committee in its discretion, and
subject to the condition that no Option shall be exercised after the expiration
of the Option period. For purposes of this Section 9, the term "retirement"
shall mean voluntary termination of employment by an Employee who is at least
age 55 and who has completed five years of employment with the Company.

(g) Death of Optionee. In the event of the death during the term of the
Option of an Optionee who is at the time of his or her death, or was within the
90-day period immediately prior thereto, an Employee, independent contractor or
Director of the Company and who was in Continuous Employment as such from the
date of the grant of the Option until the date of death, the Option may be
exercised for a period up to one year following the date of death, unless the
Committee, in its discretion, determines to provide a different post-
termination exercise period under the Option Agreement with respect to such
Option or any amendment thereto, at any time prior to the expiration of the term
of the Option, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest, inheritance or otherwise as a result of the
Optionee's death, or by the Trust for the benefit of such estate or person, but
only to the extent that the Optionee or Trust was entitled to exercise the
Option at the time of the death, unless otherwise determined by the Committee in
its discretion, and subject to the condition that no Option shall be exercised
after the expiration of the Option period.

(h) Tax Withholding. When an Optionee or the Trust on behalf of an Optionee
is required to pay to the Company an amount with respect to income or employment
tax withholding obligations in connection with the exercise of an Option granted
under the Plan, the Optionee or the Trust on behalf of an Optionee may elect,
prior to the date the amount of such withholding is determined (the "Tax Date")
to make such payment, or such increased payment as the Optionee or the Trust on
behalf of an Optionee elects to make up to the maximum federal, state and local
marginal tax rates (including any related obligation under the Federal Insurance
Contribution Act) applicable to the Optionee and the particular transaction, by
(i) delivering cash; (ii) delivering part or all of the payment in previously
owned stock (whether or not acquired through the prior exercise of a stock
option); or (iii) subject to the consent of the Committee, irrevocably directing
the Company to withhold from the Shares that would otherwise be issued upon
exercise of the Option that number of whole Shares having a fair market value
equal to the amount of tax required or elected to be withheld (a "Withholding
Election"). If an Optionee's Tax Date is deferred beyond the date of exercise
and the Optionee or the Trust on behalf of an Optionee makes a Withholding
Election, the Optionee or the Trust on behalf of an Optionee will receive the
full amount of Shares otherwise issuable upon exercise of the Option minus the
number of Shares necessary to satisfy the minimum withholding requirements
measured on the date the Option is exercised (or such higher payment as the
Optionee or the Trust may have elected to make) with adjustments to be made in
cash after the Tax Date. Any adverse consequences incurred by an Optionee

7
30

with respect to his or her participation in the Plan or the Trust, the use of
Shares to pay any part of the Option price or income or employment tax arising
in connection with the exercise of an Option (including without limitation any
adverse tax consequences arising as result of a disqualifying disposition within
the meaning of Section 422 of the Code) shall be the sole responsibility of the
Optionee or Trust. The Company does not warrant or represent to the Optionee any
tax consequence of any transaction under this Plan or the Trust, including the
initial and continuing satisfaction of the conditions for an Incentive Stock
Option under Section 422 of the Code.

10. NON-TRANSFERABILITY OF OPTIONS AND SHARES OF COMMON STOCK.

(a) Options. An Option may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. Notwithstanding the preceding sentence, (i) an
Optionee who is eligible to participate in the Trust may transfer or direct the
Company to transfer Nonstatutory Stock Options or Optioned Shares to the Trust,
subject to the terms and conditions of this Plan and the Trust, and (ii) a
Nonstatutory Stock Option may be transferred to a spouse of the Optionee only
upon approval of the Committee, providing all the conditions of exercisability
and vesting have been met. If the Option Agreement permits, the Optionee may
designate a beneficiary who may (i) exercise an Option under Section 9(g) above,
or (ii) receive Shares issued pursuant to the exercise of an Option where the
death of an Optionee occurs between the date on which the Optionee exercises the
Option and the date the Company issues the Shares.

(b) Shares of Common Stock. The Committee may impose such other
restrictions on Shares issued under this Plan as it deems advisable. The
certificates representing the Optioned Shares shall bear a legend which shall
give notice of such restrictions.

11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of Shares of Common Stock
covered by each outstanding Option and the per share price thereof in each such
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares of Common Stock resulting from a stock split, reverse
stock split, combination, reclassification, the payment of a stock dividend on
the Common Stock or any other increase or decrease in the number of such Shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect (and no adjustment
by reason thereof shall be made with respect to) the number or price of Shares
subject to an Option.

The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the number or class of securities
covered by any Option, as well as the price to be paid therefor, in the event of
the Company's effecting one or more reorganizations, recapitalizations, rights
offerings, spin-offs, or other increases or reductions of the number of Shares
of its outstanding Common Stock, or in the event of the Company's being
consolidated with or merged into any other corporation.

Unless otherwise determined by the Committee, upon the dissolution or
liquidation of the Company, or upon a merger, consolidation or reorganization of
the Company with one or more other corporations in which the Company is not the
surviving corporation, or upon a sale of all or substantially all of the assets
of the Company to another corporation, or upon any transaction (including,
without limitation, a merger or reorganization in which the Company is the
surviving corporation) approved by the Board which results in any person or
entity owning 80% or more of the combined voting power of all classes of stock
of the Company, the Plan and all Options outstanding hereunder shall terminate,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan and/or the assumption of the
Options theretofore granted, or for the substitution for such Options of new
options covering the stock of a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. Except as otherwise
provided in the Option Agreement with respect
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31

to such Option, in the event of any such termination of the Plan, each person
holding an Option shall have the right (subject to the general limitations on
exercise set forth herein), immediately prior to the occurrence of such
termination and during such period occurring prior to such termination as the
Committee in its sole discretion shall determine and designate, to exercise such
Option in whole or in part, and the exercisability of each outstanding Option
shall be accelerated so that the Optionee and the Trust may within such period
exercise up to the entire unexercised portion of their respective Options. The
Committee shall send written notice of an event that will result in such a
termination to the Trust and all persons who hold Options not later than the
time at which the Company gives notice thereof to its stockholders and, in any
event, not less than 10 days before such event. Upon the occurrence of any such
event, any Option not exercised prior thereto shall terminate.

12. TIME OF GRANTING OPTIONS. Unless otherwise specified by the Committee
or as may be required by applicable law, regulation or rule (including rules of
stock exchanges or other self-regulatory organizations), the date of grant of an
Option under the Plan shall be the date on which the Committee makes the
determination to grant such Option or, if later, the date on which are satisfied
any conditions precedent to such grant. As soon as feasible after the Committee
makes its determination regarding the grant of an Option, the Committee shall
notify the person or class of persons who are the recipients of the grant.

13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable,
except that amendments or modifications to the Plan shall be subject to
shareholder approval (a) if such amendment or modification increases the Shares
available for issuance under Incentive Stock Options granted under the Plan or
changes the requirements as to eligibility to receive Incentive Stock Options or
(b) to the extent required by applicable law, regulation or rule (including
rules of stock exchanges or other self-regulatory organizations). Any amendment
or termination of the Plan shall not adversely affect any Option already granted
without the relevant Optionee's consent; and if no such consent is secured such
Option shall remain in full force and effect as if the Plan had not been amended
or terminated.

14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an Option granted under the Plan unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance. As a condition to the exercise of an Option, the Company may
require the Optionee to represent and warrant, at the time of any such exercise,
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.

15. RESERVATION OF SHARES. During the term of this Plan, the Company will
at all times reserve and keep available the number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain from any regulatory body having jurisdiction and authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect to the
nonissuance or sale of such Shares as to which such requisite authority shall
not have been obtained.

16. INFORMATION TO OPTIONEE. During the term of any Option granted under
the Plan, the Company shall provide or otherwise make available to each Optionee
and the Trust a copy of its annual report to shareholders and financial
information which is provided to its shareholders in accordance with the
provisions of the Company's Bylaws and applicable law.

17. OPTION AGREEMENT. All Options granted under the Plan shall be evidenced
by Option Agreements.

18. BEST PAYMENTS. If the gross amount of any payment or benefit under the
Plan, either separately or in combination with any other payment or benefit
payable by the Company or pursuant to a plan of the Company would constitute a
parachute payment within the meaning of Code Section 280G, then the total

9
32

payments and benefits accrued and payable under this Plan shall not exceed the
amount necessary to maximize the amount received by the Optionee after payment
of all employment, income and excise taxes imposed on the Optionee with respect
to such payments and benefits. The Optionee may elect, by written notice to the
Committee, which items of compensation, if any, shall be reduced so as to meet
the requirements of the preceding sentence. If there is a dispute between the
Company and the Optionee regarding (i) the extent, if any, to which any payments
or benefits to the Optionee are parachute payments or excess parachute payments,
under Code Section 280G, (ii) the base amount of such Optionee's compensation,
under Code Section 280G, or (iii) the status of such Optionee as a disqualified
individual, under Code Section 280G, such dispute shall be resolved as provided
in Section 19 below. Within 30 days of the Optionee's receiving notice of (a) a
change of control of the Company within the meaning of Code Section 280G or (b)
the Optionee's termination of service with the Company or the Company's
receiving notice of such termination, either the Optionee or the Company may
request, in accordance with Section 19 below, (a) a determination of the amount
of any parachute payment, excess parachute payment, or base amount of
compensation, or (b) a determination of the reduction necessary to maximize the
amount receivable by the Optionee as described above. Any fees, costs or
expenses incurred by the Optionee or the Trust in connection with such
determinations shall be paid by the Optionee.

19. MANDATORY ARBITRATION. Any dispute arising out of or relating to this
Plan or any Option Agreement shall be resolved solely by arbitration before one
arbitrator in accordance with the Employee Benefit Plan Claim Rules of the
American Arbitration Association. The location of the arbitration proceeding
shall be in McLean, Virginia. Judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction. Each party to any dispute
regarding the Plan or an Option Agreement shall pay the costs and fees
(including attorneys' fees) of presenting his, her or its case in arbitration.
All other costs of arbitration, including the costs of any transcript of the
proceedings, administrative fees and the arbitrator's fees, shall be borne
equally by the parties. All statutes of limitation which would otherwise be
applicable shall apply to any arbitration proceeding. The provisions of this
Section 19 are exclusive for all purposes and applicable to any and all disputes
arising out of or relating to the Plan or any Option Agreement. The arbitrator
who hears and decides any dispute shall have jurisdiction and authority to award
only compensatory damages to make whole a person or entity sustaining
foreseeable economic loss, and shall not have jurisdiction or authority to make
any other award of any type, including, without limitation, punitive damages,
unforeseeable economic damages, adverse tax consequences, damages for pain,
suffering or emotional distress, or any other kind or form of damages. The
remedy, if any, awarded by the arbitrator shall be the sole and exclusive remedy
for any dispute which is subject to arbitration under this Plan.

20. GOVERNING LAW. The validity, construction and effect of the Plan and
any agreement hereunder shall be determined in accordance with the laws of the
State of Delaware and applicable federal law.

* * *

This Plan was duly adopted and approved by the Board of Directors of the
Company by resolution at a meeting held on the 9th day of April, 1998.

/s/ GRIER C. RACLIN
--------------------------------------
Secretary of the Company

This Plan was duly approved by the stockholders of the Company at a meeting
held on the day of , 1998.

--------------------------------------
Secretary of the Company

10
33
[Form of Proxy]

[Front of Proxy]

GLOBAL TELESYSTEMS GROUP, INC.
1751 PINNACLE DRIVE
NORTH TOWER, 12TH FLOOR
MCLEAN, VIRGINIA 22102

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby makes, constitutes and appoints Gerald W. Thames,
William H. Seippel and Grier C. Raclin and each of them, lawful attorney and
proxies of the undersigned, with full power of substitution, for and in the
name, place and stead of the undersigned to attend the Annual Meeting of
Stockholders of Global TeleSystems Group, Inc. at the Holiday Inn Tysons
Corner, 1960 Chain Bridge Road, McLean, Virginia on Wednesday, May 20, 1998 at
10:00 a.m., local time, and at any adjournment(s) thereof, with all powers the
undersigned would be entitled to vote if personally present.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ITEMS 1, 2, 3 AND 4.

(Continued, and to be signed and dated, on reverse side.)

34
[Reverse of Proxy]

1. ELECTION OF DIRECTORS

FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] EXCEPTIONS [ ]
listed below for all nominees listed below

Nominees: David Dey, Roger W. Hale, Jean Salmona and Adam Solomon
(INSTRUCTIONS: To withhold authority to vote for any individual nominee
mark the "Exceptions" box and write that nominee's name in space provided
below.)
*Exceptions_______________________________________________________________

2. Approval of the Fourth Amended and Restated Stock Option Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. Approval of stock option grants to certain Directors.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. Proposal to ratify the appointment of Ernst & Young LLP as the
Company's auditors.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

5. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.

I/we will attend [ ] Address Change [ ]
meeting. Mark Here

Please sign exactly as name appears. When shares are
held by joint tenants, both should sign . When signing
as attorney, executor, administrator, trustee or guardian,
please give full title as such.

Dated:_______________________________________________,1998

__________________________________________________________
Signature

__________________________________________________________
Signature if held jointly

VOTES MUST BE INDICATED [ ]
(X) IN BLACK OR BLUE INK.

PLEASE SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.