Document:

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                                                                  EXHIBIT 10.2.1

                         PACIFIC GATEWAY EXCHANGE, INC.
                         1997 LONG-TERM INCENTIVE PLAN
                         -----------------------------

                                  AS AMENDED
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                               TABLE OF CONTENTS

<TABLE>
<S>                                                                                                               <C>
SECTION 1
GENERAL.......................................................................................................    1
             1.1.  Purpose....................................................................................    1
             1.2.  Participation..............................................................................    1

SECTION 2
OPTIONS.......................................................................................................    2
             2.1.  Definition.................................................................................    2
             2.2.  Eligibility................................................................................    2
             2.3.  Price......................................................................................    2
             2.4.  Exercise...................................................................................    3
             2.5.  Post-Exercise Limitations..................................................................    3
             2.6.  Expiration Date............................................................................    3
             2.7.  Reload Provision...........................................................................    4

SECTION 3
STOCK APPRECIATION RIGHTS.....................................................................................    5
             3.1.  Definition.................................................................................    5
             3.2.  Eligibility................................................................................    5
             3.3.  Exercise...................................................................................    5
             3.4.  Settlement of Award........................................................................    5
             3.5.  Post-Exercise Limitations..................................................................    6
             3.6.  Expiration Date............................................................................    6

SECTION 4
STOCK AWARDS..................................................................................................    6
             4.1.  Definition.................................................................................    6
             4.2.  Eligibility................................................................................    7
             4.3.  Terms and Conditions of Awards.............................................................    7

SECTION 5
STOCK PURCHASE PROGRAM........................................................................................    8
             5.1.  Purchase of Stock..........................................................................    8
             5.2.  Matching Shares............................................................................    8
             5.3.  Restrictions on Shares.....................................................................    8

SECTION 6
PERFORMANCE UNITS.............................................................................................    8
             6.1.  Definition.................................................................................    8
             6.2.  Eligibility................................................................................    8
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                                      (i)
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             6.3.  Terms and Conditions of Awards.............................................................    8
             6.4.  Settlement.................................................................................    9
             6.5.  Termination during Performance Period......................................................    9

SECTION 7
OPERATION AND ADMINISTRATION..................................................................................   10
             7.1.   Effective Date............................................................................   10
             7.2.   Shares Subject to Plan....................................................................   10
             7.3.   Individual Limits on Awards...............................................................   10
             7.4.   Adjustments to Shares.....................................................................   11
             7.5.   Limit on Distribution.....................................................................   12
             7.6.   Liability for Cash Payments...............................................................   13
             7.7.   Performance-Based Compensation............................................................   13
             7.8.   Withholding...............................................................................   14
             7.9.   Transferability...........................................................................   14
             7.10.  Notices...................................................................................   14
             7.11.  Form and Time of Elections................................................................   14
             7.12.  Agreement With Company....................................................................   14
             7.13.  Limitation of Implied Rights..............................................................   14
             7.14.  Evidence..................................................................................   15
             7.15.  Action by Company or Related Company......................................................   15
             7.16.  Gender and Number.........................................................................   15

SECTION 8
COMMITTEE.....................................................................................................   15
             8.1.  Administration.............................................................................   15
             8.2.  Selection of Committee.....................................................................   15
             8.3.  Powers of Committee........................................................................   15
             8.4.  Delegation by Committee....................................................................   16
             8.5.  Information to be Furnished to Committee...................................................   16
             8.6.  Liability and Indemnification of Committee.................................................   16

SECTION 9
CHANGE IN CONTROL.............................................................................................   17

SECTION 10
AMENDMENT AND TERMINATION.....................................................................................   18

APPENDIX A
AWARDS TO NONEMPLOYEE DIRECTORS...............................................................................   19
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                                     (ii)
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APPENDIX B
ELECTIVE DEFERRAL............................................................................................... 21
</TABLE>

                                     (iii)
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                        PACIFIC GATEWAY EXCHANGE, INC.
                         1997 LONG-TERM INCENTIVE PLAN
                         -----------------------------

                                  AS AMENDED
                                  ----------

                                   SECTION 1
                                   ---------

                                    GENERAL
                                    -------

     a.  Purpose.  The Pacific Gateway Exchange, Inc. 1997 Long-Term Incentive
         -------
Plan (the "Plan") has been established by Pacific Gateway Exchange, Inc. (the
"Company") to:

     i.     attract and retain employees and other persons providing services to
            the Company and the Related Companies (as defined below);

     ii.    motivate Participants, by means of appropriate incentives, to
            achieve long-range goals;

     iii.   provide incentive compensation opportunities that are competitive
            with those of other major corporations; and

     iv.    further identify Participants' interests with those of the Company's
            other stockholders through compensation that is based on the
            Company's common stock;

and thereby promote the long-term financial interest of the Company and the
Related Companies, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.  The term "Related Company" means
any company during any period in which it is a "subsidiary corporation" (as that
term is defined in Code section 424(f)) with respect to the Company.

     b.  Participation.  Subject to the terms and conditions of the Plan, the
         -------------
Committee (as described in Section 8) shall determine and designate, from time
to time, from among the Eligible Individuals, those persons who will be granted
one or more awards under Sections 2, 3, 4, 5 or 6 of the Plan (an "Award"), and
thereby become "Participants" in the Plan.  In the discretion of the Committee,
and subject to the terms of the Plan, a Participant may be granted any Award
permitted under the provisions of the Plan, and more than one Award may be
granted to a Participant.  Except as otherwise agreed by the Company and the
Participant, or except as otherwise provided in the Plan, an Award under the
Plan shall not affect any previous Award under the Plan or an award under any
other plan maintained by the Company or the Related
<PAGE>

Companies. For purposes of the Plan, the term "Eligible Individual" shall mean
any employee of the Company or a Related Company, any director and any other
person providing material services to the Company or a Related Company.

                                   SECTION 2
                                   ---------

                                    OPTIONS
                                    -------

     a.  Definitions.  The grant of an "Option" under this Section 2 entitles
         -----------
the Participant to purchase shares of common stock of the Company ("Stock") at a
price fixed at the time the Option is granted, subject to the terms of this
Section.  Options granted under this Section may be either Incentive Stock
Options or Non-Qualified Stock Options, as determined in the discretion of the
Committee.  An "Incentive Stock Option" is an Option that is intended to satisfy
the requirements applicable to an "incentive stock option" described in section
422 of the Internal Revenue Code of 1986, as amended (the "Code").  A "Non-
Qualified Stock Option" is an Option that is not intended to be an Incentive
Stock Option.

     b.  Eligibility.  The Committee shall designate the Participants to whom
         -----------
Options are to be granted under this Section and shall determine the number of
shares of Stock subject to each such Option.  To the extent that the aggregate
fair market value of Stock with respect to which Incentive Stock Options are
exercisable for the first time by any individual during any calendar year (under
all plans of the Company and all Related Companies) exceeds $100,000, such
options shall be treated as Non-Qualified Stock Options, to the extent required
by section 422 of the Code.

     c.  Price.  The determination and payment of the purchase price of a share
         -----
of Stock under each Option granted under this Section shall be subject to the
following:

     i.     The purchase price shall be established by the Committee at the time
            the Option is granted; provided, however, that in no event shall
            such price be less than the par value of a share of Stock on such
            date; further, provided, in no event shall the purchase price of a
            share of Stock under an Incentive Stock Option be less than the Fair
            Market Value (defined below) of a share of stock at the time the
            Option is granted.

     ii.    Subject to the following provisions of this subsection, the full
            purchase price of each share of Stock purchased upon the exercise of
            any Option shall be paid at the time of such exercise and, as soon
            as practicable thereafter, a certificate representing the shares so
            purchased shall be delivered to the person entitled thereto.

                                       2
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     iii.   The purchase price shall be payable in cash or in shares of Stock
            (valued at Fair Market Value as of the day of exercise) that have
            been held by the Participant at least six months, or in any
            combination thereof, as determined by the Committee.

     iv.    A Participant may elect to pay the purchase price upon the exercise
            of an Option through a cashless exercise arrangement to the extent
            provided by the Committee.

     v.     The "Fair Market Value" of a share of Stock of the Company as of any
            date shall be the closing price per share of Stock (or the mean of
            the closing bid and asked prices of a share, if the Stock is so
            reported) on the National Association of Securities Dealers
            Automated Quotation System ("NASDAQ"), the NASDAQ National Market
            System or other national or regional securities exchange or market
            system on which the Stock is primarily traded, or, if there shall
            have been no such sale so reported on that date, on the last
            preceding date on which such a sale was so reported.

     vi.    Except for adjustments pursuant to paragraph 7.4(b) (relating to the
            adjustment of shares), the purchase price for a share of Stock under
            any outstanding Option granted under the Plan may not be decreased
            after the date of grant nor may an outstanding Option granted under
            the Plan be surrendered to the Company as consideration for the
            grant of a new Option with a lower exercise price.

     d.  Exercise. Except as otherwise expressly provided in the Plan, an Option
         --------
granted under this Section shall be exercisable in accordance with the following
terms of this subsection:

     i.     The terms and conditions relating to exercise of an Option shall be
            established by the Committee, and may include, without limitation,
            conditions relating to completion of a specified period of service
            (subject to paragraph (b) below), achievement of performance
            standards prior to exercise of the Option or achievement of Stock
            ownership objectives by the Participant. The Committee, in its sole
            discretion, may accelerate the vesting of any Option under
            circumstances designated by it at the time the Option is granted or
            thereafter.

     ii.    No Option may be exercised by a Participant after the Expiration
            Date (as defined in subsection 2.6) applicable to that Option.

     iii.   The exercise of an Option will result in the surrender of the
            corresponding rights under a tandem Stock Appreciation Right (as
            described in Section 3), if any.

     e.  Post-Exercise Limitations.  The Committee, in its discretion, may
         -------------------------
impose such restrictions on shares of Stock acquired pursuant to the exercise of
an Option (including stock acquired pursuant to the exercise of a tandem Stock
Appreciation Right) as it determines to be

                                       3
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desirable, including, without limitation, restrictions relating to disposition
of the shares and forfeiture restrictions based on service, performance, Stock
ownership by the Participant and such other factors as the Committee determines
to be appropriate.

     f.  Expiration Date.  The "Expiration Date" with respect to an Option means
         ---------------
the date established as the Expiration Date by the Committee at the time of the
grant; provided, however, that the Expiration Date with respect to any Option
shall not be later than the earliest to occur of:

     i.     the ten-year anniversary of the date on which the Option is granted;

     ii.    if the Participant's Date of Termination occurs by reason of death
            or Disability, the one-year anniversary of such Date of Termination;

     iii.   if the Participant's Date of Termination occurs by reason of
            Retirement, the three-year anniversary of such Date of Termination;
            or

     iv.    if the Participant's Date of Termination occurs for reasons other
            than Retirement, death or Disability, the three-month anniversary of
            such Date of Termination.

For purposes of the Plan, a Participant's "Date of Termination" shall be the
date on which he both ceases to be an employee of the Company and the Related
Companies and ceases to perform material services for the Company and the
Related Companies, regardless of the reason for the cessation; provided that a
"Date of Termination" shall not be considered to have occurred during the period
in which the reason for the cessation of services is a leave of absence approved
by the Company or the Related Company which was the recipient of the
Participant's services.  Except as otherwise provided by the Committee, a
Participant shall be considered to have a "Disability" during the period in
which he is unable, by reason of a medically determinable physical or mental
impairment, to engage in any substantial gainful activity, which condition, in
the opinion of a physician selected by the Committee, is expected to have a
duration of not less than 120 days.  "Retirement" of a Participant shall mean
the occurrence of a Participant's Date of Termination after providing at least
five years of service to the Company or the Related Companies and attaining age
65.

     g.  Reload Provision.  In the event the Participant exercises an Option and
         ----------------
pays all or a portion of the purchase price in Stock in the manner permitted by
subsection 2.3, or satisfies withholding obligations in Stock if permitted under
subsection 7.8, such Participant (either pursuant to the terms of the Option
Award, or pursuant to the exercise of Committee discretion at the time the
Option is exercised) may be issued a new Option to purchase additional shares of
Stock equal to the number of shares of Stock surrendered to the Company in such
payment. Such new Option shall have an exercise price equal to the Fair Market
Value per share on the date such new Option is granted, shall first be
exercisable six months from the date of grant of

                                       4
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the new Option and shall have an Expiration Date on the same date as the
Expiration Date of the original Option so exercised by payment of the purchase
price or withholding in shares of Stock.

                                   SECTION 3
                                   ---------

                           STOCK APPRECIATION RIGHTS
                           -------------------------

     a.  Definition. Subject to the terms of this Section, a "Stock Appreciation
         ----------
Right" granted under the Plan entitles the Participant to receive, in cash or
Stock (as determined in accordance with subsection 3.4), value equal to all or a
portion of the excess of: (a) the Fair Market Value of a specified number of
shares of Stock at the time of exercise over (b) a specified price designated at
the time the Stock Appreciation Right is granted or, if granted in tandem with
an Option, the exercise price with respect to shares under the tandem Option.

     b.  Eligibility. Subject to the provisions of the Plan, the Committee shall
         -----------
designate the Participants to whom Stock Appreciation Rights are to be granted
under the Plan, shall determine the exercise price or a method by which the
price shall be established with respect to each such Stock Appreciation Right
and shall determine the number of shares of Stock on which each Stock
Appreciation Right is based. A Stock Appreciation Right may be granted in
connection with all or any portion of a previously or contemporaneously-granted
Option or not in connection with an Option. If a Stock Appreciation Right is
granted in connection with an Option then, in the discretion of the Committee,
the Stock Appreciation Right may, but need not, be granted in tandem with the
Option.

     c.  Exercise. The exercise of Stock Appreciation Rights shall be subject to
         --------
the following:

     i.     If a Stock Appreciation Right is not in tandem with an Option, then
            the Stock Appreciation Right shall be exercisable in accordance with
            the terms established by the Committee in connection with such
            rights; and may include, without limitation, conditions relating to
            completion of a specified period of service, achievement of
            performance standards prior to exercise of the Stock Appreciation
            Rights or achievement of objectives relating to Stock ownership by
            the Participant. The Committee, in its sole discretion, may
            accelerate the vesting of any Stock Appreciation Right under
            circumstances designated by it at the time the Stock Appreciation
            Right is granted or thereafter. No Stock Appreciation Right subject
            to this paragraph may be exercised by a Participant after the
            Expiration Date (as defined in subsection 3.6) applicable to that
            Stock Appreciation Right.

     ii.    If a Stock Appreciation Right is in tandem with an Option, then the
            Stock Appreciation Right shall be exercisable at the time the tandem
            Option is

                                       5
<PAGE>

            exercisable. The exercise of a Stock Appreciation Right will result
            in the surrender of the corresponding rights under the tandem
            Option.

     d.  Settlement of Award. Upon the exercise of a Stock Appreciation Right,
         -------------------
the value to be distributed to the Participant, in accordance with subsection
3.1, shall be distributed in shares of Stock (valued at their Fair Market Value
at the time of exercise), in cash or in a combination thereof, in the discretion
of the Committee.

     e.  Post-Exercise Limitations. The Committee, in its discretion, may impose
         -------------------------
such restrictions on shares of Stock acquired pursuant to the exercise of a
Stock Appreciation Right as it determines to be desirable, including, without
limitation, restrictions relating to disposition of the shares and forfeiture
restrictions based on service, performance, ownership of Stock by the
Participant and such other factors as the Committee determines to be
appropriate.

     f.  Expiration Date.  If a Stock Appreciation Right is in tandem with an
         ---------------
Option, then the "Expiration Date" for the Stock Appreciation Right shall be the
Expiration Date for the related Option.  If a Stock Appreciation Right is not in
tandem with an Option, then the "Expiration Date" for the Stock Appreciation
Right shall be the date established as the Expiration Date by the Committee;
provided, however, that subject to the following provisions of this subsection,
the Expiration Date with respect to any Stock Appreciation Right shall not be
later than the earliest to occur of:

     i.     the ten-year anniversary of the date on which the Stock Appreciation
            Right is granted;

     ii.    if the Participant's Date of Termination occurs by reason of death
            or Disability, the one-year anniversary of such Date of Termination;
            or

     iii.   if the Participant's Date of Termination occurs by reason of
            Retirement, the three-year anniversary of such Date of Termination;
            or

     iv.    if the Participant's Date of Termination occurs by reason other than
            Retirement, death or Disability, the three-month anniversary of such
            Date of Termination.

                                   SECTION 4
                                   ---------

                                 STOCK AWARDS
                                 ------------

     a.  Definition. Subject to the terms of this Section, a Stock Award under
         ----------
the Plan is a grant of shares of Stock to a Participant, the earning, vesting or
distribution of which is subject to one or more conditions established by the
Committee. Such conditions may relate to events

                                       6
<PAGE>

(such as performance or continued employment) occurring before or after the date
the Stock Award is granted, or the date the Stock is earned by, vested in or
delivered to the Participant. If the vesting of Stock Awards is subject to
conditions occurring after the date of grant, the period beginning on the date
of grant of a Stock Award and ending on the vesting or forfeiture of such Stock
(as applicable) is referred to as the "Restricted Period". Stock Awards may
provide for delivery of the shares of Stock at the time of grant or may provide
for a deferred delivery date. A Stock Award may, but need not, be made in
conjunction with a cash-based incentive compensation program maintained by the
Company and may, but need not, be in lieu of cash otherwise awardable under such
program.

     b.  Eligibility.  The Committee shall designate the Participants to whom
         -----------
Stock Awards are to be granted and the number of shares of Stock that are
subject to each such Award.

     c.  Terms and Conditions of Awards.  Stock Awards granted to Participants
         ------------------------------
under the Plan shall be subject to the following terms and conditions:

     i.     Beginning on the date of grant (or, if later, the date of
            distribution) of shares of Stock comprising a Stock Award, and
            including any applicable Restricted Period, the Participant as owner
            of such shares shall have the right to vote such shares.

     ii.    Payment of dividends with respect to Stock Awards shall be subject
            to the following:

            (1)  On and after date that a Participant has a fully earned and
                 vested right to the shares comprising a Stock Award, and the
                 shares have been distributed to the Participant, the
                 Participant shall have all dividend rights (and other rights)
                 of a stockholder with respect to such shares.

            (2)  Prior to the date that a Participant has a fully earned and
                 vested right to the shares comprising a Stock Award, the
                 Committee, in its sole discretion, may award Dividend Rights
                 with respect to such shares.

            (3)  On and after the date that a Participant has a fully earned and
                 vested right to the shares comprising a Stock Award, but before
                 the shares have been distributed to the Participant, the
                 Participant shall be entitled to Dividend Rights with respect
                 to such shares, at the time and in the form determined by the
                 Committee.

            (4)  A "Dividend Right" with respect to shares comprising a Stock
                 Award shall entitle the Participant, as of each dividend
                 payment date, to an amount equal to the dividends payable with
                 respect to a share of Stock multiplied by the number of such
                 shares. Dividend Rights shall be settled in cash or in shares
                 of Stock, as determined by the Committee, shall be payable at
                 the

                                       7
<PAGE>

                 time and in the form determined by the Committee and shall be
                 subject to such other terms and conditions as the Committee may
                 determine.

                                   SECTION 5
                                   ---------

                            STOCK PURCHASE PROGRAM
                            ----------------------

     a.  Purchase of Stock. The Committee may, from time to time, establish one
         -----------------
or more programs under which Participants will be permitted to purchase shares
of Stock under the Plan and shall designate the Participants eligible to
participate under such Stock purchase programs. The purchase price for shares of
Stock available under such programs, and other terms and conditions of such
programs, shall be established by the Committee; provided, however, that with
respect to shares of Stock purchased under a program that does not result in an
award of matching shares (as provided in subsection 5.2), the purchase price may
not be less than 50% of the Fair Market Value of the Stock at the time of
purchase (or, in the Committee's discretion, the average stock value over a
period determined by the Committee), and further provided that the purchase
price may not be less than par value.

     b.  Matching Shares.  Except as otherwise provided in subsection 5.1, any
         ---------------
Stock purchase program established by the Committee under this Section may
provide for the award of matching shares of Stock.

     c.  Restrictions on Shares. The Committee may impose such restrictions with
         ----------------------
respect to shares purchased under subsection 5.1, or matching shares awarded
pursuant to subsection 5.2, as the Committee determines to be appropriate. Such
restrictions may include, without limitation, restrictions of the type that may
be imposed with respect to Stock Awards under Section 4.

                                   SECTION 6
                                   ---------

                               PERFORMANCE UNITS
                               -----------------

     a.  Definition.  Subject to the terms of this Section, the Award of
         ----------
Performance Units under the Plan entitles the Participant to receive value for
the units at the end of a Performance Period to the extent provided under the
Award.  The number of units earned, and the value received for them, will be
contingent on the degree to which the performance measures established at the
time of grant of the Award are met.  For purposes of the Plan, the "Performance
Period" with respect to the award of any Performance Units shall be the period
over which the applicable performance is to be measured.

     b.  Eligibility.  The Committee shall designate the Participants to whom
         -----------
Performance Units are to be granted and the number of units subject to each such
Award.

                                       8
<PAGE>

     c.  Terms and Conditions of Awards.  For each Participant, the Committee
         ------------------------------
will determine the value of units, which may be stated either in cash or in
units representing shares of Stock; the performance measures used for
determining whether the Performance Units are earned; the Performance Period
during which the performance measures will apply; the relationship between the
level of achievement of the performance measures and the degree to which
Performance Units are earned; whether, during or after the Performance Period,
any revision to the performance measures or Performance Period should be made to
reflect significant events or changes that occur during the Performance Period;
and the number of earned Performance Units that will be paid in cash and the
number of earned Performance Units to be paid in shares of Stock.

     d.  Settlement.  Settlement of Performance Units shall be subject to the
         ----------
following:

     i.    The Committee will compare the actual performance to the performance
           measures established for the Performance Period and determine the
           number of units as to which settlement is to be made, and the value
           of such units.

     ii.   Settlement of units earned shall be wholly in cash, wholly in Stock
           or in a combination of the two and distributed in a lump sum or
           installments, as determined by the Committee.

           (1)  For Performance Units stated in units representing shares of
                Stock when granted, either one share of Stock will be
                distributed for each unit earned or cash will be distributed for
                each unit earned equal to either (A) the Fair Market Value of a
                share of Stock at the end of the Performance Period or (B) the
                average Stock value over a period determined by the Committee.

           (2)  For Performance Units stated in cash when granted, the value of
                each unit earned will be distributed in its initial cash value
                or shares of Stock will be distributed based on the cash value
                of the units earned divided by (A) the Fair Market Value of a
                share of Stock at the end of the Performance Period or (B) the
                average Stock value over a period determined by the Committee.

     iii.  Shares of Stock distributed in settlement of the units shall be
           subject to such vesting requirements and other conditions, if any, as
           the Committee shall determine. Such vesting restrictions may include,
           without limitation, restrictions of the type that may be imposed with
           respect to Stock Awards under Section 4.

     3.  Termination during Performance Period.  If a Participant's Date of
         -------------------------------------
Termination occurs during a Performance Period with respect to any Performance
Units granted to him, the Committee may determine that the Participant will be
entitled to settlement of all or any portion

                                       9
<PAGE>

of the Performance Units as to which he would otherwise be eligible and may
accelerate the determination of the value and settlement of such Performance
Units or make such other adjustments as the Committee, in its sole discretion,
deems desirable.

                                   SECTION 7
                                   ---------

                         OPERATION AND ADMINISTRATION
                         ----------------------------

     a.  Effective Date.  The Plan shall be effective as of the date it is
         --------------
adopted by the Board of Directors of the Company (the "Board"); provided,
however, that Awards granted under the Plan prior to its approval by
stockholders will be contingent on approval of the Plan by the Company's
stockholders.  The Plan shall be unlimited in duration and, in the event of Plan
termination, shall remain in effect as long as any shares of Stock awarded under
it are outstanding and not fully vested; provided, however, that no new Awards
shall be made under the Plan on or after the tenth anniversary of the date on
which the Plan is adopted by the Board.

     b.  Shares Subject to Plan. The shares of Stock with respect to which
         ----------------------
Awards may be made under the Plan shall be shares currently authorized but
unissued or currently held or subsequently acquired by the Company as treasury
shares, including shares purchased in the open market or in private
transactions.  Subject to the provisions of subsection 7.4, the number of shares
of Stock which may be issued with respect to Awards under the Plan shall not
exceed 4,500,000 shares in the aggregate.  Except as otherwise provided herein,
any shares subject to an Award which for any reason expires or is terminated
without issuance of shares (whether or not cash or other consideration is paid
to a Participant in respect of such shares) shall again be available under the
Plan.

     c.  Individual Limits on Awards. Notwithstanding any other provision of the
         ---------------------------
Plan to the contrary, no Participant shall receive any Award of an Option or
Stock Appreciation Right under the Plan that is intended to constitute
"performance-based compensation" (as that term is used in section 162(m) of the
Code) to the extent that the sum of:

     i.    the number of shares of Stock subject to such Award;

     ii.   the number of shares of Stock subject to all other prior Awards of
Options and Stock Appreciation Rights under the Plan during the one-year period
ending on the date of the Award; and

     iii.  the number of shares of Stock subject to all other prior stock
options and stock appreciation rights granted to the Participant under other
plans or arrangements of the Company and Related Companies during the one-year
period ending on the date of the Award;

                                       10
<PAGE>

would exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection shall be
based on the shares subject to the awards at the time of grant, regardless of
when the awards become exercisable. Subject to the provisions of subsection 7.4,
a Participant's "Individual Limit" shall be 500,000 shares. Options and Stock
Appreciation Rights that are not intended to constitute "performance-based
compensation" shall not be subject to the limit otherwise imposed by this
subsection 7.3.

     d.  Adjustments to Shares.
         ---------------------

     i.  If the Company shall effect any subdivision or consolidation of shares
of Stock or other capital readjustment, payment of stock dividend, stock split,
combination of shares or recapitalization or other increase or reduction of the
number of shares of Stock outstanding without receiving compensation therefor in
money, services or property, then the Committee shall adjust (i) the number of
shares of Stock available under the Plan; (ii) the number of shares available
under any individual or other limits; (iii) the number of shares of Stock
subject to outstanding Awards; and (iv) the per-share price under any
outstanding Award to the extent that the Participant is required to pay a
purchase price per share with respect to the Award.

     ii. If the Company is reorganized, merged or consolidated or is party to a
plan of exchange with another corporation, pursuant to which reorganization,
merger, consolidation or plan of exchange, the stockholders of the Company
receive any shares of stock or other securities or property, or the Company
shall distribute securities of another corporation to its stockholders, there
shall be substituted for the shares subject to outstanding Awards an appropriate
number of shares of each class of stock or amount of other securities or
property which were distributed to the stockholders of the Company in respect of
such shares, subject to the following:

          (1)  If the Committee determines that the substitution described in
     accordance with the foregoing provisions of this paragraph would not be
     fully consistent with the purposes of the Plan or the purposes of the
     outstanding Awards under the Plan, the Committee may make such other
     adjustments to the Awards to the extent that the Committee determines such
     adjustments are consistent with the purposes of the Plan and of the
     affected Awards.

          (2)  All or any of the Awards may be cancelled by the Committee on or
     immediately prior to the effective date of the applicable transaction, but
     only if the Committee gives reasonable advance notice of the cancellation
     to each affected Participant, and only if either: (A) the Participant is
     permitted to exercise the Award for a reasonable period prior to the
     effective date of the cancellation; or (B) the Participant receives payment
     or other benefits that the Committee determines to be reasonable
     compensation for the value of the cancelled Awards.

                                       11
<PAGE>

          (3)  Upon the occurrence of a reorganization of the Company or any
     other event described in this paragraph (b), any successor to the Company
     shall be substituted for the Company to the extent that the Company and the
     successor agree to such substitution.

     (iii)  Upon (or, in the discretion of the Committee, immediately prior to)
the sale to (or exchange with) a third party unrelated to the Company of all or
substantially all of the assets of the Company, all Awards shall be cancelled.
If Awards are cancelled under this paragraph, then, with respect to any affected
Participant, either:

          (1)  the Participant shall be provided with reasonable advance notice
     of the cancellation, and the Participant shall be permitted to exercise the
     Award for a reasonable period prior to the effective date of the
     cancellation; or

          (2)  the Participant shall receive payment or other benefits that the
     Committee determines to be reasonable compensation for the value of the
     cancelled Awards.

     The foregoing provisions of this paragraph shall also apply to the sale of
all or substantially all of the assets of the Company to a related party, if the
Committee determines such application is appropriate.

     (iv)  In determining what action, if any, is necessary or appropriate under
the foregoing provisions of this subsection, the Committee shall act in a manner
that it determines to be consistent with the purposes of the Plan and of the
affected Awards and, where applicable or otherwise appropriate, in a manner that
it determines to be necessary to preserve the benefits and potential benefits of
the affected Awards for the Participants and the Company.

     (v)   The existence of this Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting the Company's Stock or the rights
thereof, the dissolution or liquidation of the Company, any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.

     (vi)  Except as expressly provided by the terms of this Plan, the issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property or for labor or services,
either upon direct sale, upon the exercise of rights or warrants to subscribe
therefor or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof, shall be made with respect to Awards then outstanding hereunder.

                                       12
<PAGE>

     (vii)  Awards under the Plan are subject to adjustment under this
subsection only during the period in which they are considered to be outstanding
under the Plan. For purposes of this subsection, an Award is considered
"outstanding" on any date if the Participant's ability to obtain all benefits
with respect to the Award is subject to limits imposed by the Plan (including
any limits imposed by the Agreement reflecting the Award). The determination of
whether an Award is outstanding shall be made by the Committee.

     e   Limit on Distribution. Distribution of shares of Stock or other amounts
         ---------------------
amounts under the Plan shall be subject to the following:

     (i)    Notwithstanding any other provision of the Plan, the Company shall
have no liability to deliver any shares of Stock under the Plan or make any
other distribution of benefits under the Plan unless such delivery or
distribution would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity.

     (ii)   In the case of a Participant who is subject to Section 16(a) and
16(b) of the Securities Exchange Act of 1934, the Committee may, at any time,
add such conditions and limitations to any Award to such Participant, or any
feature of any such Award, as the Committee, in its sole discretion, deems
necessary or desirable to comply with Section 16(a) or 16(b) and the rules and
regulations thereunder or to obtain any exemption therefrom.

     (iii)  To the extent that the Plan provides for issuance of certificates to
reflect the transfer of shares of Stock, the transfer of such shares may be
effected on a non-certificated basis, to the extent not prohibited by applicable
law or the rules of any stock exchange.

     f   Liability for Cash Payments. Subject to the provisions of this Section,
         ---------------------------
each Related Company shall be liable for payment of cash due under the Plan with
respect to any Participant to the extent that such benefits are attributable to
the service rendered for that Related Company by the Participant. Any disputes
relating to liability of a Related Company for cash payments shall be resolved
by the Committee.

     g   Performance-Based Compensation. To the extent that the Committee
         ------------------------------
determines that it is necessary or desirable to conform any Awards under the
Plan with the requirements applicable to "Performance-Based Compensation", as
that term is used in Code section 162(m)(4)(C), it may, at or prior to the time
an Award is granted, take such steps and impose such restrictions with respect
to such Award as it determines to be necessary to satisfy such requirements
including, without limitation:

     (i)    The establishment of performance goals that must be satisfied prior
to the payment or distribution of benefits under such Awards.

                                       13
<PAGE>

     (ii)   The submission of such Awards and performance goals to the Company's
stockholders for approval and making the receipt of benefits under such Awards
contingent on receipt of such approval.

     (iii)  Providing that no payment or distribution be made under such Awards
unless the Committee certifies that the goals and the applicable terms of the
Plan and Agreement reflecting the Awards have been satisfied.

To the extent that the Committee determines that the foregoing requirements
relating to Performance-Based Compensation do not apply to Awards under the Plan
because the Awards constitute Options or Stock Appreciation Rights, the
Committee may, at the time the Award is granted, conform the Awards to
alternative methods of satisfying the requirements applicable to Performance-
Based Compensation.

     h   Withholding. All Awards and other payments under the Plan are subject
         -----------
to withholding of all applicable taxes, which withholding obligations may be
satisfied, with the consent of the Committee, through the surrender of shares of
Stock which the Participant already owns or to which a Participant is otherwise
entitled under the Plan.

     i   Transferability. Awards under the Plan are not transferable except as
         ---------------
designated by the Participant by will or by the laws of descent and
distribution. To the extent that the Participant who receives an Award under the
Plan has the right to exercise such Award, the Award may be exercised during the
lifetime of the Participant only by the Participant. Notwithstanding the
foregoing provisions of this subsection, the Committee may permit Awards under
the Plan to be transferred to or for the benefit of the Participant's family
(including, without limitation, to a trust for the benefit of a Participant's
family), subject to such limits as the Committee may establish. In no event
shall an Incentive Stock Option be transferable to the extent that such
transferability would violate the requirements applicable to such option under
Code section 422.

     j   Notices. Any notice or document required to be filed with the Committee
         -------
under the Plan will be properly filed if delivered or mailed by registered mail,
postage prepaid, to the Committee, in care of the Company, at its principal
executive offices. The Committee may, by advance written notice to affected
persons, revise such notice procedure from time to time. Any notice required
under the Plan (other than a notice of election) may be waived by the person
entitled to notice.

     k   Form and Time of Elections.  Unless otherwise specified herein, each
         --------------------------
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.

                                       14
<PAGE>

     l   Agreement With Company. At the time of an Award to a Participant under
         ----------------------
the Plan, the Committee may require a Participant to enter into an agreement
with the Company (the "Agreement") in a form specified by the Committee,
agreeing to the terms and conditions of the Plan and to such additional terms
and conditions, not inconsistent with the Plan, as the Committee may, in its
sole discretion, prescribe.

     m   Limitation of Implied Rights.
         ----------------------------

     (i)  Neither a Participant nor any other person shall, by reason of the
Plan, acquire any right in or title to any assets, funds or property of the
Company or any Related Company whatsoever, including, without limitation, any
specific funds, assets, or other property which the Company or any Related
Company, in its sole discretion, may set aside in anticipation of a liability
under the Plan.  A Participant shall have only a contractual right to the
amounts, if any, payable under the Plan, unsecured by any assets of the Company
and any Related Company.  Nothing contained in the Plan shall constitute a
guarantee by the Company or any Related Company that the assets of such
companies shall be sufficient to pay any benefits to any person.

     (ii) The Plan does not constitute a contract of employment, and selection
as a Participant will not give any employee the right to be retained in the
employ of the Company or any Related Company, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan.  Except as otherwise provided in the Plan, no Award
under the Plan shall confer upon the holder thereof any right as a stockholder
of the Company prior to the date on which he fulfills all service requirements
and other conditions for receipt of such rights and shares of Stock are
registered in his name.

     n   Evidence. Evidence required of anyone under the Plan may be by
         --------
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.

     o   Action by Company or Related Company. Any action required or permitted
         ------------------------------------
to be taken by the Company or any Related Company shall be by resolution of its
board of directors, or by action of one or more members of the board (including
a committee of the board) who are duly authorized to act for the board or
(except to the extent prohibited by applicable law or the rules of any stock
exchange) by a duly authorized officer of the company.

     p   Gender and Number.  Where the context admits, words in any gender shall
         -----------------
shall include any other gender, words in the singular shall include the plural
and the plural shall include the singular.

                                   SECTION 8
                                   ---------

                                   COMMITTEE
                                   ---------

                                       15
<PAGE>

     a   Administration. The authority to control and manage the operation and
         --------------
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Section 8.

     b   Selection of Committee. The Committee shall be selected by the Board,
         ----------------------
and shall consist of not fewer than two members of the Board or such greater
number as may be required for compliance with Rule 16b-3 issued under the
Securities Exchange Act of 1934.

     c   Powers of Committee. The authority to manage and control the operation
         -------------------
and administration of the Plan shall be vested in the Committee, subject to the
following:

     (i)    Subject to the provisions of the Plan, the Committee will have the
authority and discretion to select employees to receive Awards, to determine the
time or times of receipt, to determine the types of Awards and the number of
shares covered by the Awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such Awards, and to cancel or
suspend Awards.  In making such Award determinations, the Committee may take
into account the nature of services rendered by the respective employee, his
present and potential contribution to the Company's success and such other
factors as the Committee deems relevant.

     (ii)   Subject to the provisions of the Plan, the Committee will have the
authority and discretion to determine the extent to which Awards under the Plan
will be structured to conform to the requirements applicable to Performance-
Based Compensation, and to take such action, establish such procedures, and
impose such restrictions at the time such Awards are granted as the Committee
determines to be necessary or appropriate to conform to such requirements.

     (iii)  The Committee will have the authority and discretion to interpret
the Plan, to establish, amend and rescind any rules and regulations relating to
the Plan, to determine the terms and provisions of any agreements made pursuant
to the Plan and to make all other determinations that may be necessary or
advisable for the administration of the Plan.

     (iv)   Any interpretation of the Plan by the Committee and any decision
made by it under the Plan is final and binding on all persons.

     (v)    Except as otherwise expressly provided in the Plan, where the
Committee is authorized to make a determination with respect to any Award.

     d   Delegation by Committee. Except to the extent prohibited by applicable
         -----------------------
law or the rules of any stock exchange, the Committee may allocate all or any
portion of its responsibilities and powers to any one or more of its members and
may delegate all or any part of its responsibilities and powers to any person or
persons selected by it. Any such allocation or delegation may be revoked by the
Committee at any time.

                                       16
<PAGE>

     e   Information to be Furnished to Committee. The Company and Related
         ----------------------------------------
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties.  The records of the Company and Related
Companies as to an employee's or Participant's employment (or other provision of
services), termination of employment (or cessation of the provision of
services), leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect.  Participants and other
persons entitled to benefits under the Plan must furnish the Committee such
evidence, data or information as the Committee considers desirable to carry out
the terms of the Plan.

     f   Liability and Indemnification of Committee.  No member or authorized
         ------------------------------------------
delegate of the Committee shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan unless attributable to
his own fraud or willful misconduct; nor shall the Company or any Related
Company be liable to any person for any such action unless attributable to fraud
or willful misconduct on the part of a director or employee of the Company or
Related Company.  The Committee, the individual members thereof, and persons
acting as the authorized delegates of the Committee under the Plan, shall be
indemnified by the Company against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature which
may be imposed on, incurred by or asserted against the Committee or its members
or authorized delegates by reason of the performance of a Committee function if
the Committee or its members or authorized delegates did not act dishonestly or
in willful violation of the law or regulation under which such liability, loss,
cost or expense arises.  This indemnification shall not duplicate but may
supplement any coverage available under any applicable insurance.

                                   SECTION 9
                                   ---------

                               CHANGE IN CONTROL
                               -----------------

Except as otherwise provided in the Plan or in the agreement reflecting the
applicable Award, ten days prior to the occurrence of a Change in Control (i)
all outstanding Options and Stock Appreciation Rights shall become immediately
exercisable, (ii) all shares of Restricted Stock and Performance Stock shall
become fully vested, (iii) all vesting restrictions imposed under subsection 6.3
(relating to restrictions on shares purchased by Participants and matching
shares) shall cease to apply, and (iv) Performance Units may be paid out in such
manner and amounts as determined by the Committee; provided, however, such
vesting, lapse of restrictions and payments shall be contingent upon the
consummation of the Change in Control.  For purposes of the Plan, a "Change in
Control" shall be deemed to occur on the earliest of the existence of one of the
following events:

     (a)  the acquisition, other than from the Company, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or

                                       17
<PAGE>

more of either the then outstanding shares of common stock of the Company
entitled to vote generally in the election of directors, but excluding, for this
purpose, any such acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Corporation, or any corporation
with respect to which, following such acquisition, more than 50% of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
common stock and voting securities of the Company immediately prior to such
acquisition in substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding shares of common stock of the
Company or the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors, as the
case may be;

     (b) individuals who, as of the date hereof, constitute the Board (as of the
date hereof the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened "election contest" relating to the election of the
directors of the Company (as such term is used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or

     (c) approval by the Company's shareholders of a reorganization, merger or
consolidation of the Company, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the common stock and voting securities of the Company
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly and indirectly, more than 50% of, respectively, the then outstanding
shares of common stock or the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such reorganization, merger
or consolidation, or of a complete liquidation or dissolution of the Company or
of the sale or other disposition of all or substantially all of the assets of
the Company.

                                  SECTION 10
                                  ----------

                           AMENDMENT AND TERMINATION
                           -------------------------

     The Board may, at any time, amend or terminate the Plan, provided that,
subject to subsection 7.4 (relating to certain adjustments to shares), no
amendment or termination may

                                       18
<PAGE>

materially adversely affect the rights of any Participant or beneficiary under
any Award made under the Plan prior to the date such amendment is adopted by the
Board; and further provided that the provisions of paragraph 2.3(f) (relating to
Option repricing) cannot be amended unless the amendment is approved by the
Company's stockholders.

                                       19
<PAGE>

                                  APPENDIX A
                                  ----------

                        AWARDS TO NONEMPLOYEE DIRECTORS
                        -------------------------------

1.   Eligible Directors.  Each director of the Company who is not an employee of
     ------------------
the Company or Related Company and who does not own stock possessing more than
3% of the total combined voting power of all classes of stock of the Company (a
"Nonemployee Director") shall be eligible for awards under this Appendix A.

2.   Awards.  Each individual who is a Nonemployee Director shall be granted the
     ------
following awards:

     (a)  Initial Option Award - Upon his or her initial election or appointment
          to the Board, the Nonemployee Director shall be awarded an Option to
          purchase 20,000 shares of Stock upon such initial election or
          appointment (an "Initial Option").

     (b)  Annual Option Award - On each subsequent anniversary of a Nonemployee
          Director's election or appointment, if the Nonemployee Director is
          then a member of the Board, the Nonemployee Director shall
          automatically be awarded an Option to purchase 6,000 shares of Stock
          (an "Annual Option").

     (c)  Annual Stock Award - On January 1 of each year, if the Nonemployee
          Director is then a member of the Board, the Nonemployee Director shall
          automatically be awarded 3,000 shares of Stock (an "Annual Stock
          Award"); provided however, the Annual Stock Award shall not be made to
          a Nonemployee Director who has not been a member of the Board for the
          entire 12 month period preceding such award date.

     Nonemployee Directors who were first appointed to the Board prior to the
     effective date of this Plan and received an Initial Option under the
     Pacific Gateway Exchange, Inc. 1995 Stock Option Plan (the "1995 Plan")
     shall be eligible for Annual Options under this Plan on the anniversary of
     the Initial Option awarded under the 1995 Plan, to the extent that the
     Company determines that Annual Awards will no longer be made under the 1995
     Plan.

3.   Exercise Price.  The exercise price per share with respect to an Option
     --------------
awarded under this Appendix A shall be the Fair Market Value of a share of Stock
on the date such Option is awarded.

4.   Vesting.  Each Option granted under this Appendix A shall become
     -------
exercisable: (i) with respect to 1/4 of the shares awarded, on the first
anniversary of the grant date (the "Initial Vesting Date");  and (ii) with
respect to an additional 1/16 of the shares awarded, on each

                                       20
<PAGE>

subsequent 3-month anniversary of the Initial Vesting Date until such time as
this Option is fully exercisable.

5.   Expiration. The Expiration Date with respect to any Option awarded under
     ----------
this Appendix A shall be the earliest to occur of:

     (i)   the ten-year anniversary of the date on which the Option is granted;

     (ii)  if the Nonemployee Director's service on the Board terminates by
           reason of death or Disability, the one-year anniversary of such
           termination of service;

     (iii) if the Nonemployee Director's service on the Board terminates for any
           reason other than death or Disability, the three-month anniversary of
           such termination of service.

6.   Other Terms and Conditions.  Except as provided in this Appendix A, the
     --------------------------
Option shall be subject to all of the terms and conditions of the Plan.

                                       21
<PAGE>

                                  APPENDIX B
                                  ----------

                               ELECTIVE DEFERRAL
                               -----------------

1.   Deferral Election. A Nonemployee Director may elect to defer delivery of
     ------------------
all or a portion of the shares of Stock otherwise distributable to him or her as
an Annual Stock Award.  An election to defer the receipt of Stock shall be filed
at such time as the Committee may determine, but in all events prior to the date
the Stock would otherwise be distributable to the Nonemployee Director.

2.   Accounts.  An "Account" shall be maintained on behalf of each Nonemployee
     ---------
Director who elects to defer the distribution of shares of Stock under this
Appendix B, for the period during which delivery of shares of Stock is deferred.
A Nonemployee Director's Account shall be subject to the following adjustments:

     (a)  The Account will be credited with Stock Units equal to the number of
          shares of Stock as to which the Nonemployee Director has elected
          deferred receipt, with such Stock Units to be credited as of the date
          on which the shares would otherwise have been delivered to him in the
          absence of the deferral.

     (b)  As of each dividend record date for the Stock following the date any
          Stock Units are credited to the Nonemployee Director's Account, and
          prior to the date of distribution of shares of Stock with respect to
          those Stock Units, the Nonemployee Director's Account shall be
          credited with additional Stock Units (including fractional Stock
          Units) equal to (i) the amount of the dividend that would be payable
          with respect to the number of shares of Stock equal to the number of
          Stock Units credited to the Nonemployee Director's Account on the
          dividend record date; divided by (ii) the Fair Market Value of a share
                                ----------
          of Stock on the date of payment of the dividend.

     (c)  As of the date of any distribution of shares of Stock with respect to
          a Nonemployee Director's Account under subsection 3 of this Appendix
          B, the Stock Units credited to a Nonemployee Director's Account shall
          be reduced by the number of Shares so distributed to the Nonemployee
          Director.

     (d)  The Account shall be adjusted from time to time, as necessary, in
          accordance with subsection 7.4.

3.   Distributions.
     --------------

                                       22
<PAGE>

     (a)  Subject to the terms of this subsection 3, a Nonemployee Director
          shall specify in writing the time of distribution with respect to
          Stock Units deferred in accordance with this Appendix B.

     (b)  At the time of distribution of deferred shares in accordance with the
          Nonemployee Director's election, the Nonemployee Director shall
          receive a distribution of shares of Stock equal to the number of Stock
          Units credited to his Account immediately prior to such distribution.
          If the scheduled distribution date would otherwise occur after a
          dividend record date but before the payment of the dividend,
          distribution shall be deferred (not more than 30 days) until the
          dividend is paid.

     (c)  In determining a Nonemployee Director's right to distributions of
          stock under this subsection 3, the vesting provisions of subsection
          2.3 of the Plan shall apply to the Stock Units credited to the
          Nonemployee Director's Account as though each unit represented one
          share of Stock, and with all units attributable to payment of
          dividends being fully vested as of the date they are credited to the
          Nonemployee Director's Account.

     (d)  an the event that a distribution of a Nonemployee Director's Account
          is made in installments, the Stock to be distributed shall be charged
          to the Account and shall be distributed in whole shares of Stock. The
          number of shares to be distributed in any installment shall be
          determined by rounding to the next highest integer the product
          obtained by multiplying the number of Stock Units then credited to the
          Nonemployee Director's Account by a fraction, the numerator of which
          is one and the denominator of which is the number of remaining
          payments to be made, including such payment.

     (e)  If a Nonemployee Director dies before payment of his Account
          commences, all amounts then credited to his Account shall be
          distributed to his Beneficiary (as described below), as soon as
          practicable after his death, in a lump sum. If a Nonemployee Director
          dies after payment of his Account has commenced but before the entire
          balance of such Account has been distributed, the remaining balance
          thereof shall be distributed to his Beneficiary, as soon as
          practicable after his death, in a lump sum. For purposes of the Plan,
          the Nonemployee Director's "Beneficiary" is the person or persons the
          Nonemployee Director designates, which designation shall be in
          writing, signed by the Nonemployee Director and filed with the
          Committee prior to the Nonemployee Director's death. A Beneficiary
          designation shall be effective when filed with the Committee in
          accordance with the preceding sentence. If more than one Beneficiary
          has been designated, the balance in the Nonemployee Director's Account
          shall be distributed to each such Beneficiary as indicated, and if not
          indicated, per capita.

                                       23
<PAGE>

          In the absence of a Beneficiary designation or if no Beneficiary
          survives the Nonemployee Director, the Beneficiary shall be the
          Nonemployee Director's estate.

     (f)  Notwithstanding the foregoing, the Committee, in its sole discretion,
          as of any date, may accelerate the distribution of the balance in the
          Account of any Nonemployee Director, with such acceleration to be paid
          in a single lump sum (or former Nonemployee Director).

     (g)  To the extent provided by the Committee, all or any portion of any
          Account balance may be settled by distribution of cash equal to the
          Fair Market Value of the Stock corresponding to the Stock Units as to
          which distribution is made, with the Fair Market Value determined for
          the date immediately prior to the date on which the distribution is
          made.

     (h)  Notwithstanding the foregoing provisions of this subsection 3, if any
          Stock Units are credited to a Nonemployee Director's Account as of the
          date of a Change in Control, the Nonemployee Director shall receive a
          distribution of shares of Stock equal to the number of such Stock
          Units.  Such distribution shall be in settlement of the Nonemployee
          Director's rights to distribution under this subsection 3, provided
          that if the record date for a dividend is prior to a Change in
          Control, but the dividend payment is to occur after such Change in
          Control, the additional shares attributable to such dividends shall be
          distributed as soon as practicable thereafter.

4.   Limitation of Implied Rights.  Neither the Nonemployee Director nor any
     ----------------------------
other person shall, by reason of deferral of shares of Stock under this Appendix
B, acquire any right in or title to any assets, funds or property of the Company
whatsoever prior to the date such shares are distributed.  A Nonemployee
Director shall have only a contractual right to the shares and cash, if any,
distributable under the Plan, unsecured by any assets of the Company.  Nothing
contained in the Plan shall constitute a guarantee by the Company that the
assets of the Company shall be sufficient to provide any benefits to any person.

                                       24<PAGE>

                                                                  EXHIBIT 10.4.6

                     IRREVOCABLE PROXY AND VOTING AGREEMENT

     I, Gail E. Granton, a shareholder of Pacific Gateway Exchange, Inc., a
Delaware corporation (the "Corporation"), individually and as the trustee of the
Granton Foundation (the "Foundation") hereby appoint Howard A. Neckowitz to be
my proxy agent and the proxy agent of the Foundation and to vote all of my
shares in the Corporation and all shares in the Corporation held by the
Foundation (the "Shares") with respect to all matters submitted to the
stockholders at all meetings of the stockholders, or any adjournments thereof,
and in all consents to any actions taken without a meeting.  This appointment
shall commence immediately and end on January 1, 2001.  During said period,
Howard A. Neckowitz shall have all of the power that I or the Foundation would
possess with respect to the voting of my shares and all of the Foundation's
shares and granting my consent and the Foundation's consent.  I hereby ratify
and confirm all acts that the proxy pursuant to this Irrevocable Proxy and
Voting Agreement (the "Proxy") shall do or cause to be done by virtue of and
within the limitations set forth in this Proxy.

     If, during the term of this Proxy, Howard A. Neckowitz becomes unable to
perform his duties as an officer of Pacific Gateway Exchange, Inc. due to his
voluntary resignation, termination for cause, long-term disability, physical or
mental incapacity, or death, then this Proxy shall be null and void.  Except as
set forth in this paragraph, this Proxy shall be irrevocable.

     I agree that any transfer of the Shares by me or the Foundation prior to
January 1, 2001 other than pursuant to a registered underwritten offering under
the Securities Act of 1933, as amended, (the "Act") or pursuant to Rule 144
under the Act shall be subject to this Proxy.  It shall be a condition of such
transfer that the transferee appoint Howard A. Neckowitz as such stockholder's
proxy on terms identical to this Proxy for the term ending upon termination of
this Proxy.

     I agree that the Shares shall bear the following legend until this Proxy
terminates as set forth above:

          The shares represented by this certificate are subject to a
          Irrevocable Proxy and Voting Agreement dated as of March 23, 2000, a
          copy of which is on file with the Secretary of the Corporation.  Any
          purchaser of such shares prior to January 1, 2001, other than pursuant
          to a registered underwritten offering under the Securities Act of
          1933, as amended, (the "Act") or pursuant to Rule 144 under the Act
          shall be bound by such agreement.

     IN WITNESS WHEREOF, I have executed this Proxy effective as of the 23rd day
of March, 2000.

                                                 /s/ Gail E. Granton
                                            ------------------------------------
                                                 Gail E. Granton

                                            The Granton Foundation

                                            By:  /s/ Gail E. Granton
                                               ---------------------------------
                                                 Gail E. Granton
                                                 Trustee

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