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                                                                    EXHIBIT 99.1

                   FACTORS AFFECTING FUTURE FINANCIAL RESULTS

    This Form 10-Q, FLAG Telecom Group Limited's ("FLAG Telecom", and also
referred to, individually or collectively with one or more of its subsidiaries
as the context requires, as the "Company", "we" or "us") Quarterly Report to
Shareholders, any Form 10-K, Form 10-Q or Form 8-K or any other written or oral
statements made by or on our behalf include forward-looking statements that
reflect our current views with respect to future events and financial
performance. The forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or anticipated results. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

    The following factors could cause our actual results to differ materially
from historical results or anticipated results:

RISK FACTORS

    The following factors could cause our actual results to differ materially
from historical results or anticipated results:

RISKS RELATING TO CURRENT MARKET ENVIRONMENT

PROBLEMS BEING EXPERIENCED BY THE TELECOMMUNICATIONS INDUSTRY ARE ADVERSELY
AFFECTING OUR COMPANY

    The global telecommunications industry is experiencing significant and
well-publicized problems. A number of industry participants, including Global
Crossing, MFN, 360networks, Interroute, Carrier 1, PSINet, Teleglobe, WorldCom
and KPNQwest, have either filed for chapter 11 protection, been liquidated or
restructured. Customers, lenders, suppliers and investors have expressed
increasing concern about the inability of a large number of industry
participants. Share prices across the sector have declined dramatically over the
past three years, and the capital markets generally have closed to industry
participants. These industry-wide factors have affected share prices and the
ability to raise capital, and have led to concern regarding viability of
industry participants as expressed by customers and suppliers.

    Substantial excess fiber capacity in most markets has driven prices
dramatically lower over the past two years. Prices are continuing to fall. We
expect that the insolvency of various industry participants will create further
downward pressure on prices. To the extent that well-financed competitors
acquire distressed assets from insolvent companies, they will be able to offer
capacity at significantly lower marginal costs than the companies that
originally built the systems.

    The financial difficulties faced by a number of our competitors, suppliers
and customers, such as Global Crossing, 360networks, Reach, Carrier 1, PSINet,
Teleglobe, WorldCom and KPNQwest, as referred to above, have exacerbated the
oversupply situation by putting further downward pressures on margins as a
result of the need to dispose of so-called distressed assets to achieve some
return on initial capital investments. We anticipate that assets may be recycled
and obtained by competitors at a much lower cost structure than has been
achieved by those companies that built the networks themselves. Continuing
weakness in prices caused by overcapacity, together with continued problems
experienced by other industry participants and skepticism about the sector
generally, can be expected to adversely affect our business and our liquidity.

RISKS RELATING TO OUR BUSINESS

OUR ABILITY TO DEFEND CHALLENGES FROM CERTAIN CUSTOMERS WHO ARE CHALLENGING AND,
IN CERTAIN CASES, REFUSING TO PAY CERTAIN OPERATIONS AND MAINTENANCE CHARGES ON
OUR FEA SYSTEM COULD RESULT IN A MATERIAL ADVERSE EFFECT ON OUR BUSINESS OR
FINANCIAL CONDITION

    A number of our original customers who purchased certain capacity from us on
our FEA cable system are challenging the operations and maintenance ("O&M")
charges on the system, pursuant to the FEA Construction and Maintenance
Agreement ("FEA C&MA"). In certain cases, despite their
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contractual obligations, some of these customers refuse to pay the O&M charges
which are due, claiming that they should be lowered to better reflect current
market prices, even though such a price adjustment mechanism is not contemplated
by the FEA C&MA.

    While we are in the process of obtaining an agreement with these customers
that the O&M fees are appropriate and in line with their payment obligations
under the FEA C&MA, we cannot guarantee that all of them will be persuaded and
continue their payments. If we are not able to collect fees relating to the O&M
charges or if we are forced to take a reduction on the charges by agreeing upon
an amendment to the FEA C&MA, which cannot be reflected by reducing underlying
third party O&M costs, we could experience a material adverse effect on our
business or financial condition.

IF WE ARE UNABLE TO OBTAIN CONTINUED SUPPORT FROM EXISTING CUSTOMERS, WE MAY NOT
BE ABLE TO REACH OUR RECURRING QUARTERLY REVENUES TARGETS

    A number of our existing customers, who have purchased capacity from us, are
experiencing financial difficulties which affect their quarterly or yearly
capital expenditure and operating costs budgets. In turn, this may have an
adverse effect on our recurring revenues on a quarterly basis. We are dependent
on the capital expenditure and purchase decisions of our customers, and cannot
assure you that we will be able to reach our recurring quarterly revenues
targets.

THE FINANCIAL DIFFICULTIES OF OUR SUPPLIERS AND PARTNERS MAY IMPAIR OUR ABILITY
TO OPERATE OUR NETWORKS

    We utilize a number of different suppliers and partners who provide
essential elements for the operations of our subsea cables, such as cable
landing facilities, backhaul (the connection between the landing station and the
PoP) or PoPs. In the case of our FNAL cable system, we are dependent on a number
of suppliers, most specifically Reach, the co-builder of the FNAL cable system.
Although Reach has a contractual obligation to transfer the ownership of its
half of the FNAL sub-sea cable segments, it currently still owns half of these
FNAL segments. On the other hand, it owns the cable landing stations in Japan
and Taiwan, whereas Korea Telecom owns the cable landing station in Korea. Our
company or our local affiliate is, and as in the case of Taiwan and Korea, close
to finalizing further details of long-term rights of use or similar lease
arrangements relating to these assets, as we have for the terrestrial backhaul
of FNAL in Taiwan and Korea with Eastern Broadband Telecom and Hansol iGlobe
Company Limited ("Hansol") respectively. With Chief Telecom in Taiwan and Hansol
in Korea, our company or our local affiliates, have long-term lease arrangements
for our PoPs located in our telehouse facilities in Taipei and Seoul. In case of
any financial difficulties of any of these suppliers or partners, our ability to
operate our networks may be significantly impaired and/or be at a higher cost.

IF WE FAIL TO MAINTAIN CO-OPERATIVE RELATIONSHIPS WITH OUR LANDING PARTIES AND
LOCAL OPERATORS, OUR OPERATIONS OR UPGRADE MAY BE IMPAIRED

    We utilize a number of different landing parties to provide access to the
origination and termination points necessary for continued operations and any
future upgrades, such as cable landing stations, at various locations on our
global network, especially for the FEA cable system. Our ability to offer
city-to-city services on the FEA cable system is dependent on our landing
parties' willingness to provide cost-effective terrestrial services and to agree
to connect other terrestrial networks to our systems. Each of these landing
parties has entered into a construction and maintenance agreement with us and
some of our customers, under which each of the landing parties commits to
provide access, to charge reasonable and uniform rates to all customers
accessing our global network through the landing party's landing station and to
maintain the terrestrial portion of our system in the landing party's country.
Despite obligations to act in the best interest of the FEA system and these
commitments, we cannot assure you that the landing parties will perform their
contractual obligations or that there will not be political events or changes in
relation to the landing parties which have adverse effects on us. In addition,
the construction and maintenance agreement does not explicitly grant us the
right to install further equipment into cable landing facilities without the
consent of our landing parties. We cannot assure you that we will be able to
obtain the consent of our landing parties to proposed future
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modifications of our landing facilities that may be advantageous to us or
necessary to operate our global network.

    Although the implementation of the FEA Construction and Maintenance
agreement is governed by a management committee who can decide by majority vote
which needs to include FLAG in case of financial impact on FLAG, a change of the
FEA Construction and Maintenance Agreement would require unanimity.

CONTINUED SEVERE COMPETITION ON MOST OF THE ROUTES OF OUR SYSTEMS WILL LIMIT OUR
ABILITY TO MAINTAIN OR IMPROVE OUR MARGINS AND OUR ABILITY TO IMPROVE OUR MARKET
SHARE

    Competition remains strong in many markets, especially in North Asia and the
Atlantic. Many of our competitors are undergoing restructuring, which makes them
extremely aggressive in pricing. Even though customers may not want to buy from
these companies, the price quotes they receive from them influence market
pricing levels and customer expectations. Whereas our current business plan
anticipates a degree of price erosion, which we are currently experiencing to a
large extent, it is contingent on pricing stabilizing on the Atlantic and Middle
Eastern routes, and on not having excess capacity in the over-supplied market in
the next two years.

CONTINUING PRICING PRESSURES, TECHNOLOGY AND OTHER FACTORS THAT COULD LEAD TO
THE RECOGNITION OF FURTHER ASSET IMPAIRMENTS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FINANCIAL POSITION

    We intend to retain capacity on all our systems for our own account, to
bundle this capacity with our other products and to sell these bundled products.
The future demand for such bundled products, or the prices we can obtain for
these products, may not be sufficient to allow us to fully utilize the retained
capacity or to recover our capital invested in the projects. The trend toward
shorter-term capacity purchases and continued declining prices makes it
increasingly uncertain that we will be able to recover our costs.

    The telecommunications industry is subject to rapid and significant changes
in technology. If we do not replace or upgrade technology and equipment that
becomes obsolete, we will be unable to compete effectively because we will not
be able to meet the expectations of our customers. Additionally, in recent
years, the useful economic life of telecommunications equipment has declined
significantly. Although we believe that, for the foreseeable future,
technological changes will not materially affect the use of our fiber-optic
system, we cannot predict the effect of technological changes on our business.
We cannot assure you that technological developments will not render the
infrastructure and technologies in which we invest obsolete before we can
adequately utilize them.

    Given the high degree of competition in terms of alternative supply, price
erosion and continued lack of demand, an impairment charge of $359.0 million on
our FA-1 cable system was recognized in the year ended December 31, 2001. Our
adoption of statement of Financial Accounting Standards No. 144 and the
subsequent review of future cash flows based on current service potential in the
light of the current depressed telecommunications market conditions has resulted
in an impairment of the FEA cable system of $327.9 million and an impairment of
the FNAL cable system of $225.0 million during 2002. We will continue to review
the operating performance of our systems, and we cannot assure you that
continuing pricing pressure will not require us to recognize further impairments
in the future. If we determine at any time that we are required to recognize a
further impairment and write down the value of the system, this could be
expected to have a material adverse effect on our financial condition.

GOVERNMENTAL INVESTIGATIONS WITH RESPECT TO OTHER INDUSTRY PARTICIPANTS MAY
ADVERSELY AFFECT US

    The SEC and the Federal Bureau of Investigation are conducting
investigations into the financial reporting of Global Crossing, and the SEC and
U.S. House of Representatives are also investigating the financial reporting of
other industry participants, such as Qwest. In connection with the SEC's Global
Crossing and Qwest investigations, we and other industry participants have
received third party subpoenas from the SEC requesting documents relating to our
transactions with Global Crossing and Qwest. Although we have given full
disclosure, and co-operated fully with the SEC requests, and the
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SEC has not made any adverse comments to us, it is possible that the SEC will
determine to investigate other industry participants, including us.

CUSTOMERS MAY DEMAND SHORTER-TERM ARRANGEMENTS WHICH MAKES IT DIFFICULT TO
MAINTAIN OUR CUSTOMER BASE AND MAY PUT GREATER PRESSURE ON OUR OPERATING MARGINS
OR SHORT-TERM CASH FLOWS

    As prices continue to soften, excess capacity continues to overhang the
market, customers continue to fear that suppliers are financially unstable and
customers may become increasingly unwilling to purchase capacity on an ROU basis
over an extended period of time, typically 15 years. Capacity sales may be
structured as short-term arrangements with annual repricing or, in the case of
continued long-term arrangements, increasingly spread payments are agreed. This
potential shift to shorter-term or spread payments arrangements makes it
increasingly difficult for us to maintain our existing customer base and may put
greater pressure on our operating margins or short-term cash flow. If market
conditions are materially different to the assumptions in our forecast, an
increase in short-term arrangements may have a detrimental impact on operating
margins or short-term cash flow.

OUR DEPENDENCE ON THIRD PARTIES FOR THE CRITICAL "LAST MILE" CONNECTION TO OUR
CUSTOMERS MAY ADVERSELY AFFECT OUR ABILITY TO COMPETE

    As an independent carrier, we regularly have to rely on established
telephone companies, some of whom are our competitors, for the "last mile"
connection to the individual customer's network. Our largest competitors, such
as the dominant regional operating companies and the incumbent PTO companies,
often have end-to-end connectivity and are often not reliant on third parties
for the "last mile." As a result, they may be able to provide services similar
to those which we provide on a more cost-effective basis than we can. This lack
of access, and the cost of acquiring it, may adversely affect our ability to
compete.

BECAUSE OUR COMPANY AND OUR INDUSTRY ARE HIGHLY REGULATED, OUR ABILITY TO
COMPETE IN SOME MARKETS IS RESTRICTED

    The telecommunications industry is highly regulated. The regulatory
environment varies substantially from country to country and restricts our
ability to compete and/or operate in some markets. We cannot assure you that we
will be able to obtain the authorizations that we need to implement our business
plan or enter new markets or that these authorizations, if obtained, will not be
later revoked. Regulation of the telecommunications industry is changing
rapidly, which affects our opportunities, competition and other aspects of our
business. Our operations may be subject to risks such as the imposition of
governmental controls and changes in tariffs.

IF ADVERSE FOREIGN ECONOMIC OR POLITICAL EVENTS OCCUR, OUR NETWORK AND CUSTOMER
BASE MAY BE ADVERSELY AFFECTED AND OUR FINANCIAL RESULTS COULD SUFFER

    We derive substantially all of our revenues from international operations.
We have, and expect to have, substantial physical assets in several foreign
jurisdictions along our global network. International operations are subject to
political, economic and other uncertainties, including, the risk of war,
revolution, expropriation, renegotiation or modification of existing contracts,
labor disputes and other uncertainties arising out of foreign government
sovereignty over our international operations. Some regions of the world along
our routes have a history of political and economic instability. This
instability could result in new governments or the adoption of new policies that
are hostile to foreign investment.

BECAUSE SOME OF OUR CUSTOMERS DEAL PREDOMINANTLY IN FOREIGN CURRENCIES, WE MAY
BE EXPOSED TO EXCHANGE RATE RISKS

    We invoice all capacity sales and maintenance charges in U.S. Dollars.
However, we invoice some managed services products in local currencies and most
of our customers and many of our prospective customers derive their revenues in
currencies other than U.S. Dollars. The obligations of customers with
substantial revenues in foreign currencies may be subject to unpredictable and
indeterminate increases in the event that such currencies devalue relative to
the U.S. Dollar. Furthermore, these
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customers may become subject to exchange control regulations restricting the
conversion of their revenue currencies into U.S. Dollars. In this event, the
affected customers may not be able to pay us in U.S. Dollars.

BECAUSE MANY OF OUR CUSTOMERS OPERATE IN A WEAK ECONOMIC ENVIRONMENT WITH A LACK
OF EXTERNAL INVESTMENT, WE MAY BE EXPOSED TO BAD DEBT RISKS

    As a result of the current uncertain global economic environment and
challenges facing the industry, we may experience collection delays or
non-payment and we have experienced, and may continue to experience, deferrals
of purchases of our products and services by our customers.

RISKS RELATING TO OUR COMPANY

OUR ABILITY TO OPERATE SUCCESSFULLY UNDER A REDUCED BUDGET AFTER EMERGENCE FROM
CHAPTER 11 PROCEEDINGS MAY DIRECTLY IMPACT OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

    We emerged from chapter 11 proceedings with a reduced debt liability, a
reduced budget and a smaller organization. In the event of further deterioration
in the market, we cannot assure you that we will have sufficient resources to
implement our business plan and secure additional growth.

OUR FAILURE TO MAINTAIN OUR KEY SKILLS COULD SEVERELY IMPAIR OUR ACTIVITIES AND
THE IMPLEMENTATION OF OUR STRATEGY

    Our business is managed by a number of key employees who have the expertise
and experience which are critical to our global business and the implementation
of our strategy. Competition for key skills remains intense in the current
unstable telecommunications market. If we are unable to retain our key skills,
our activities could be severely impaired and our ability to carry out our
strategy could be materially and adversely affected.

IF WE FAIL TO HAVE OUR COMMON SHARES LISTED ON NASDAQ OR A NATIONAL SECURITIES
EXCHANGE, OUR ABILITY TO RAISE CAPITAL MAY BE ADVERSELY IMPACTED

    Our common shares currently trade on the over-the-counter market. Pursuant
to the Plan, we must use commercially reasonable efforts to cause our common
shares to be listed on the NASDAQ National Market or a national securities
exchange. However, we must first fulfill the minimum market price and other
requirements set out by NASDAQ or a national securities exchange, and our
listing applications will be subject to review and approval by NASDAQ or such
exchange. We cannot assure you that we will be able to re-list our common shares
on the NASDAQ National Market or a national securities exchange in the imminent
future.

    Although our current plans do not assume additional financing, it may be
difficult for us to raise equity capital, especially through the sale of our
common shares, while our common shares are trading on the over-the-counter
market because of the substantially lower liquidity in that market relative to
the NASDAQ National Market or a national securities exchange such as the New
York Stock Exchange. Even if we were able to raise equity capital while our
common shares are trading on the over-the-counter market, it is likely that it
would be at a discount relative to what we could receive for our common shares
if they were listed on the NASDAQ National Market or a national securities
exchange. If we need to raise a certain amount of cash, this discount could
result in the sale of a greater number of shares, which could result in
additional dilution to existing holders of our common shares.

THE PRICES OF OUR COMMON SHARES CAN BE EXPECTED TO BE VOLATILE

    The market price of our common shares, like the stock prices of many
publicly traded telecommunications companies, may be highly volatile. The market
price of the common shares could be affected by:

    - The depth and liquidity of the market for the common shares (there are
      relatively few shares outstanding and they are currently thinly traded, on
      average);

    - Investor perceptions of our financial condition and results of operations;
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    - Increased price competition;

    - Quarterly variations in our operating results; and

    - Changes in general economic conditions of the telecommunications industry
      and volatility in the financial markets.

U.S. PERSONS WHO OWN OUR COMMON SHARES MAY HAVE MORE DIFFICULTY IN PROTECTING
THEIR INTERESTS THAN U.S. PERSONS WHO ARE SHAREHOLDERS OF A U.S. CORPORATION

    The Companies Act 1981 of Bermuda (the "Bermuda Act"), which applies to us,
differs in certain material respects from laws generally applicable to U.S.
corporations and their shareholders. Set forth below is a summary of certain
significant provisions of the Bermuda Act (including modifications adopted
pursuant to our Bye-Laws) applicable to us, which differ in certain respects
from provisions of Delaware corporate law. Because the following statements are
summaries, they do not purport to deal with all aspects of Bermuda law that may
be relevant to our company and our shareholders.

    INTERESTED DIRECTORS.  Bermuda law requires that a director declare, at the
first opportunity at a meeting of the directors or by writing to the directors,
his interest in any material contract or proposed material contract with the
company or any of the subsidiaries, or his material interest in any person that
is a party to a material contract or proposed material contract with the company
or any of its subsidiaries. Any director or officer who fails to make such
declaration is deemed not to be acting honestly and in good faith. Our Bye-Laws
provide that no director is accountable to our company in respect of any
remuneration or other benefits received as a director of our company or person
promoted by our company or in which our company has an interest. Under Delaware
law, such transaction would not be voidable if (1) the material facts as to such
interested director's relationship or interests are disclosed or are known to
the board of directors and the board in good faith authorizes the transaction by
the affirmative vote of a majority of the disinterested directors, (2) such
material facts are disclosed or are known to the stockholders entitled to vote
on such transaction and the transaction is specifically approved in good faith
by vote of the majority of shares entitled to vote thereon or (3) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be held
liable for a transaction in which such director derived an improper personal
benefit.

    MERGERS AND SIMILAR ARRANGEMENTS.  We may acquire the business of another
Bermuda exempted company or a company incorporated outside Bermuda. We will be
permitted, with the approval, as required under Bye-Law 96 of the Bye-Laws, of
75% of votes cast at a general meeting of its shareholders at which the quorum
required under Bye-law 39 (consisting of two persons holding or representing in
person or by proxy in excess of 50% of the outstanding shares) is present, to
amalgamate with another Bermuda company or with a body incorporated outside
Bermuda. Any shareholder of a Bermuda company that is amalgamating may, subject
to meeting certain requirements, apply to a Bermuda court for a determination of
the fair value of such shareholder's shares. Under Delaware law, with certain
exceptions, a merger, consolidation or sale of all or substantially all the
assets of a corporation must be approved by the board of directors and a
majority of the outstanding shares entitled to vote thereon. Under Delaware law,
a stockholder of a corporation participating in certain major corporate
transactions may, under certain circumstances, be entitled to appraisal rights
pursuant to which such stockholder may receive cash in the amount of the fair
value of the shares held by such stockholder (as determined by a court) in lieu
of the consideration such stockholder would otherwise receive in the
transaction.

    TAKEOVERS.  Bermuda law provides that where an offer is made for shares of a
company and, within four months of the offer, the holders of not less than 90%
of the shares which are the subject of the offer accept, the offeror may by
notice require the non-tendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. Bermuda law also affords the
holder of 95% or more of the issued shares of a company the right to acquire the
balance of the issued shares, but also gives a right to the minority
shareholders to apply to the court for an appraisal of the fair value of their
shares. Delaware law provides that a parent corporation, by resolution of its
board of directors and without any
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shareholder vote, may merge with any subsidiary of which it owns at least 90% of
each class of capital stock. Upon any such merger, dissenting stockholders of
the subsidiary would have appraisal rights.

    SHAREHOLDER'S SUIT.  The rights of shareholders under Bermuda law are not as
extensive as the rights of shareholders under legislation or judicial precedent
in many United States jurisdictions. Class actions and derivative actions are
generally not available to shareholders under the laws of Bermuda. However, the
Bermuda courts ordinarily would be expected to follow English case law
precedent, which would permit a shareholder to commence an action in the name of
the company to remedy a wrong done to the company where the act complained of is
alleged to be an infringement of a personal right vested in the shareholder, or
to be beyond the corporate power of the company, or is illegal, or would
constitute a fraud against the minority shareholders. The court in Bermuda has
discretion to require one party to pay a proportion of the legal costs of the
other party. Usually, the winning party in such an action would be able to
recover from the losing party a portion of attorneys' fees incurred in
connection with such action. Our Bye-Laws provide that shareholders waive all
claims or rights of action that they might have, individually or in the right of
the Company, against any director or officer for any act or failure to act in
the performance of such director's or officer's duties, except with respect to
any fraud or dishonesty of such director or officer. Class actions and
derivative actions generally are available to stockholders under Delaware law
for, among other things, breach of fiduciary duty, corporate waste and actions
not taken in accordance with applicable law. In such actions, the court has
discretion to permit the winning party to recover attorneys' fees incurred in
connection with such action.

    INDEMNIFICATION OF DIRECTORS.  Under Bermuda law, we may indemnify our
directors or officers in their capacity as directors or officers for any loss
arising or liability attaching to them by virtue of any rule of law in respect
of any negligence, default, breach of duty or breach of trust of which a
director or officer may be guilty in relation to the company other than in
respect of his own fraud or dishonesty. Under Delaware law, a corporation may
indemnify a director or officer of the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in defense of an action, suit or proceeding by reason of
such position if (i) such director or officer acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation and (ii) with respect to any criminal action or
proceeding, such director or officer had no reasonable cause to believe his or
her conduct was unlawful.

    INSPECTION OF CORPORATE RECORDS.  Members of the general public will have
the right to inspect our public documents at the office of the Registrar of
Companies in Bermuda, which will include our memorandum of association
(including its objects and powers) and any alteration to our memorandum of
association and documents relating to any increase or reduction of authorized
capital. Our shareholders have the additional right to inspect our Bye-Laws,
minutes of general meetings and audited financial statements, which must be
presented to the general meeting of shareholders. The register of our
shareholders is also open to inspection by shareholders without charge, and to
members of the public for a fee. We are required to maintain our share register
in Bermuda but may establish a branch register outside Bermuda. We are required
to keep at our registered office a register of our directors and officers which
is open for inspection by members of the public without charge. Bermuda law does
not, however, provide a general right for shareholders to inspect or obtain
copies of any other corporate records. Delaware law permits any shareholder to
inspect or obtain copies of a corporation's shareholder list and its other books
and records for any purpose reasonably related to such person's interest as a
shareholder.

    ENFORCEMENT OF JUDGMENTS AND OTHER MATTERS.  We have been advised by Appleby
Spurling & Kempe, our Bermuda counsel, that a Bermuda court will not enforce, in
the courts of Bermuda, judgments of United States courts based upon the civil
liability provisions of the United States federal securities laws, unless such
judgments are monetary judgments, and certain criteria are met. Additionally,
Appleby Spurling & Kempe has advised us that an investor would not be able to
bring an original action in the Bermuda courts to enforce liabilities against us
or our directors and officers who reside outside the United States based solely
upon United States federal securities laws, but could
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enforce rights which constituted rights capable of enforcement under Bermuda law
which might be equivalent to the rights of such investors under the requirements
of the United States federal securities law.

    We have been advised by Appleby Spurling & Kempe that there is no treaty in
effect between the United States and Bermuda providing for the enforcement in
Bermuda of a monetary judgment entered by a United States court. Because of the
absence of such a treaty, a litigant's ability to enforce a United States
monetary judgment against us will be impaired to the extent that the litigant is
actually required to bring an action to enforce the judgment in a Bermuda court.
Appleby Spurling & Kempe has advised us that, assuming that they meet certain
criteria, such judgments are the proper subject of an action in the Supreme
Court of Bermuda and that, on general principles, such an action should be
successful without having to prove any of the facts underlying the judgment as
long as two standard principles are established: first, the United States court
rendering the judgment must have been competent to hear the action, and second,
the judgment may not be contrary to Bermuda public policy, obtained by fraud or
in proceedings contrary to natural justice of Bermuda and should not be based on
an error in Bermuda law.

    Some of our directors and officers reside outside the United States, and all
or a substantial portion of their assets and our assets may be located in
jurisdictions outside the United States. Therefore, it may be difficult for
investors to effect service of process within the United States upon non-U.S.
directors and officers or to recover against our company, or non-U.S. directors
and officers on judgments of U.S. courts, including judgments predicated upon
the civil liability provisions of the U.S. federal securities laws. However, we
may be served with process in the United States with respect to actions against
it arising out of or in connection with violations of U.S. federal securities
laws relating to offers and sales of our common shares by serving our U.S. agent
irrevocably appointed for that purpose. We have retained CT Corporation System,
111 Eighth Avenue, New York, New York 10011, as our U.S. agent irrevocably
appointed for the service of process as described in the preceding sentence.

CERTAIN SHAREHOLDERS MAY BE SUBJECT TO THE CONTROLLED FOREIGN CORPORATION RULES

    United States shareholders who, directly or indirectly (taking into account
certain complex attribution rules), own or will own 10% or more of the total
combined voting power of all classes of our shares (each a "10% United States
shareholder") should consider the possible application of the controlled foreign
corporation ("CFC") rules. If five or fewer 10% United States shareholders
collectively own more than 50% of the total combined voting power or total value
of our capital stock, we will be treated as a CFC. Each 10% United States
shareholder of a CFC generally must include in its gross income for U.S. federal
income tax purposes its pro rata share of the CFC's "subpart F income," even if
the subpart F income has not been distributed, and is also subject to current
U.S. tax on its pro rata share of the CFC's earnings invested in U.S. property.
In addition, gain from the sale or exchange of stock in a CFC by a U.S. person
that is or was a United States shareholder may be treated as ordinary income
under certain circumstances.

LIMITATIONS IMPOSED BY THE INDENTURE GOVERNING CERTAIN OF OUR NEW NOTES AND THE
FNAL NOTES IMPOSE CERTAIN RESTRICTIONS ON OUR OPERATIONS

    The indenture between ourselves and Bank of New York, the Trustee, dated as
of the Effective Date, which we entered into pursuant to the Plan, imposes
certain restrictions on our operations. Under the indenture, we are not allowed
to freely issue parental guarantees and changes to our corporate structure or
dispositions of any surplus subsidiaries must be approved by the Board of
Directors subject to restrictions in the indenture and with consent from the
Trustee. Our inability to issue parental guarantees could adversely impact our
ability to retain new business.

    Certain of our notes become immediately due and payable in the event of a
change of control or an event of default. There is a risk that we would not
cover these repayments in these circumstances. In addition, pursuant to the
Indenture for the Series A Notes we have the right to redeem the aggregate
principal amount of these Notes at a discount until April 2004. If a "Change in
Control" (as defined in the Indenture) were to occur, we would lose the right to
redeem the notes at a discount.
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    The indenture and the FNAL Notes become immediately due in the event of a
Change of Control or the Event of Default. There is a risk that we could not
cover these repayments in these circumstances.

WE MAY BE UNABLE TO REPAY OR SERVICE DEBT

    Our ability to pay the principal of and interest on the notes issued by us
on Effective Date, described under Item 2 of this Form 10-Q, and to satisfy our
other payment obligations will depend upon our future performance, which will be
affected by prevailing economic conditions and financial, business and other
factors and our level of indebtedness from time to time. Many of these
conditions and factors are beyond our control.

THE MARKET VALUE OF OUR ASSETS IS SUBJECT TO MARKET FLUCTUATIONS, AND WE MAY NOT
REALIZE SUFFICIENT VALUE ON THE SALE OF COLLATERAL TO SATISFY OUR PAYMENT
OBLIGATIONS IF WE WERE TO DEFAULT ON OUR NOTES

    Certain of the Notes issued by us on Effective Date are secured by a first
priority lien on all of our assets. In the event that we default on our
obligations to make payments in respect of the Notes, holders of the Notes would
be entitled to payment out of proceeds from the sale of the collateral, prior in
right, to any general unsecured creditors. Our ability to realize such value
upon the sale of the collateral and to satisfy our obligations with respect to
these Notes, however, will depend upon general market and economic conditions,
the physical condition of the collateral, the availability of buyers and other
similar factors at the time of sale. The value of the collateral will decline
over time due to usage and wear and tear or in response to market fluctuations,
and there can be no assurance that the future value of the collateral will not
be considerably less than their current appraised value or the amount actually
paid for such assets. Accordingly, there can be no assurance that the proceeds
of any sale of the collateral following an event of default on the Notes would
be sufficient to satisfy payments due on the Notes.

IF FUTURE COSTS EXCEED OUR CURRENT ESTIMATE OF FUTURE PERFORMANCE OBLIGATIONS,
OUR FINANCIAL RESULTS COULD SUFFER

    In accordance with fresh start accounting rules, we have made a provision
for future costs in respect of services for which we have already received
payment subsequent to this reporting. Whilst this is an estimate and we do not
expect any material variation from this, we cannot guarantee that these costs
will be as predicted when they arise.

    If we determine at any time that we are required to recognize a further
provision in respect of these costs, this could be expected to have a material
adverse effect on our financial condition.

CERTAIN ASPECTS OF OUR CORPORATE STRUCTURE MAY RESTRICT OUR ABILITY TO SATISFY
OUR PAYMENT OBLIGATIONS

    FLAG Telecom Group Limited has no business operations of its own and has no
significant assets other than the shares of its subsidiaries. It derives all of
its cash flow from dividend and other payments from its direct and indirect
subsidiaries, which in turn derive all of their cash flows from payments from
their respective subsidiaries.

    Our ability to pay the principal of, premium, if any, and interest on our
indebtedness is dependent on the generation of cash flow by these subsidiaries
and their ability to make such cash available to us by dividend or otherwise.
The ability of these subsidiaries to transfer funds by dividend or otherwise may
be restricted by their ability to generate cash flow from operations, the law of
the jurisdiction of their incorporation, applicable bankruptcy, federal, state
or foreign fraudulent conveyance or dividend restriction laws and any financing
agreements to which they are parties.

THERE ARE ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR BYE-LAWS THAT COULD IMPEDE
AN ATTEMPT TO REPLACE OR REMOVE OUR MANAGEMENT OR DELAY OR PREVENT THE SALE OF
OUR COMPANY, WHICH COULD DIMINISH THE VALUE OF OUR COMMON SHARES

    Our Bye-Laws contain provisions that could delay or prevent changes in our
management or a change of control that a shareholder might consider favorable,
including:

    - election of our directors is staggered, meaning that the members of only
      one of three classes of our directors are elected each year;
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    - shareholders have limited ability to remove directors; and

    - shareholders must give advance notice to nominate directors at shareholder
      meetings.

    These provisions may prevent a shareholder from receiving the benefit from
any premium over the market price of our common shares offered by a bidder in a
potential takeover. Even in the absence of a takeover attempt, these provisions
may adversely affect the prevailing market price of our common shares if they
are viewed as discouraging takeover attempts in the future.

OTHER RISKS

CHANGES ARISING FROM THE RECENTLY IMPLEMENTED SARBANES-OXLEY ACT OF 2002 ("THE
SARBANES-OXLEY ACT") WHICH FOCUS ON FINANCIAL REPORTING PRINCIPLES AND CORPORATE
GOVERNANCE ISSUES COULD MAKE IT DIFFICULT FOR US TO MAINTAIN OUR TIMELY
CORPORATE GOVERNANCE COMPLIANCE AND ARE LIKELY TO INCREASE OUR COSTS

    The Sarbanes-Oxley Act of 2002 that became law in July 2002 has increased
the focus on our financial reporting principles and corporate governance
compliance. The Act also requires the Securities and Exchange Commission to
promulgate new rules and regulations on a variety of subjects. Although we have
been in compliance with relevant financial reporting rules, the introduction of
the Sarbanes-Oxley Act, with increased and newly-introduced emphasis on various
financial reporting and corporate governance, has prompted changes in our
financial reporting procedures and corporate governance measures. As the
Sarbanes-Oxley Act introduces substantial changes within a relatively short
period of time, we cannot assure you that we would not unintentionally default
on some of the changes. We expect that the Sarbanes-Oxley Act and these new SEC
rules and regulations will increase our legal and financial compliance costs and
will make some activities more difficult, time consuming and/or costly.

IF THERE IS ANY CHANGE IN OUR TAX STATUS OR INCOME TAX REGULATIONS OF THE
COUNTRIES WHERE WE OPERATE, OUR FINANCIAL RESULTS COULD BE NEGATIVELY AFFECTED

    We believe that a significant portion of our income will not be subject to
tax by Bermuda, which currently has no corporate income tax, or by certain other
countries in which either we conduct activities or in which our customers are
located. However, we base this belief upon the anticipated nature and conduct of
our business, which may change, and upon our understanding of our position under
the tax laws of the various countries in which we have assets or conduct
activities, or upon the location of our customers. Our tax position is subject
to review and possible challenge by taxing authorities and to possible changes
in law which may have retroactive effect. We cannot determine in advance the
extent to which certain jurisdictions may require us to pay tax or to make
payments in lieu of tax. In addition, payments due to us from our customers may
be subject to withholding tax or other tax claims in amounts that exceed the
taxation that we expect based on our current and anticipated business practices
and current tax regimes.

CHANGES IN U.S. FEDERAL INCOME TAX LAW COULD MATERIALLY ADVERSELY AFFECT
SHAREHOLDERS' INVESTMENT

    Recently proposed U.S. legislation targeting so-called "inversion
transactions" would under certain circumstances treat a foreign corporation as a
U.S. corporation for U.S. federal income tax purposes and under other
circumstances would require obtaining IRS approval of the terms of related-party
transactions. In addition, interest deductions on debt borrowed from or
guaranteed by a related non-U.S. party would be more severely limited than under
existing so-called "earning stripping" provisions.

    We would appear generally not to be subject to the proposed legislation
directed at inversion transactions as currently drafted. However, the proposed
changes to the earnings stripping provisions could impose significant
restrictions on the amount of interest deductible by our U.S. subsidiaries on
certain debt owed to or guaranteed by related non-U.S. parties. We cannot
predict whether the proposed legislation (or any similar legislation) will be
enacted or, if enacted, what the specific provisions or the effective date of
any such legislation would be, or whether it would have any effect on our
company.
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    If the inversion legislation were enacted and made applicable to us, we
could be treated as a U.S. corporation. If we were treated as a U.S.
corporation, we would be subject to taxation in the U.S. at regular corporate
rates, in which case our earnings and shareholders' investments would be
materially adversely affected. If the inversion legislation were to apply,
however, the earnings stripping provisions would, if also enacted, be
inapplicable to the extent the non-U.S. related-party lender or guarantor was
treated as a U.S. corporation under the inversion legislation.

    Enactment of this legislation could materially adversely affect our earnings
and shareholders' investment.

WE MAY BECOME SUBJECT TO TAXES IN BERMUDA AFTER 2016

    The Bermuda Minister of Finance, under The Exempted Undertakings Tax
Protection Act 1966 of Bermuda, assured Predecessor that if any legislation is
enacted in Bermuda that would impose tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature of
estate duty or inheritance tax, then the imposition of any such tax will not be
applicable to us or to any of our operations or our shares, debentures or other
obligations until March 28, 2016. We cannot assure you that we will not be
subject to any Bermuda tax after that date.

THE IMPACT OF BERMUDA'S LETTER OF COMMITMENT TO THE ORGANIZATION FOR ECONOMIC
COOPERATION AND DEVELOPMENT TO ELIMINATE HARMFUL TAX PRACTICES IS UNCERTAIN AND
COULD ADVERSELY AFFECT OUR TAX STATUS IN BERMUDA

    The Organization for Economic Cooperation and Development, which is commonly
referred to as the OECD, has published reports and launched a global dialogue
among member and non-member countries on measures to limit harmful tax
competition. These measures are largely directed at counteracting the effects of
tax havens and preferential tax regimes in countries around the world. In the
OECD's report dated June 26, 2000, Bermuda was not listed as a tax haven
jurisdiction because it had previously signed a letter committing itself to
eliminate harmful tax practices by the end of 2005 and to embrace international
tax standards for transparency, exchange of information and the elimination of
any aspects of the regimes for financial and other services that attract
business with no substantial domestic activity. We cannot predict what changes
will arise from the commitment.