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                          FLAG Telecom Holdings Limited
                 $300,000,000 11.625% Senior Dollar Notes Due 2010

                (euro)300,000,000 11.625% Senior Euro Notes Due 2010
                               PURCHASE AGREEMENT

Dated: March 14, 2000

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<PAGE>

                          FLAG Telecom Holdings Limited

                     $300,000,000 11.625% SENIOR NOTES DUE 2010
                  (euro)300,000,000 11.625% SENIOR NOTES DUE 2010

                               PURCHASE AGREEMENT

                                                             New York, New York
                                                                 March 14, 2000
Salomon Smith Barney Inc.
Morgan Stanley & Co. International Limited
Deutsche Bank Securities Inc.
Bear, Stearns & Co. Inc.
   As Representatives of the
   Initial Purchasers
c/o Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013

Ladies and Gentlemen:

            FLAG Telecom Holdings Limited, a company organized under the laws of
Bermuda (the "Company"), proposes to issue and sell to the parties named in
Schedule I hereto (the "Initial Purchasers"), for whom you are acting as
representatives (the "Representatives"), $300,000,000 aggregate principal amount
at maturity of its 11.625% Senior Dollar Notes Due 2010 (the "Dollar Notes") and
(euro)300,000,000 aggregate principal amount at maturity of its 11.625% Senior
Euro Notes Due 2010 (the "Euro Notes" and, together with the Dollar Notes, the
"Securities"). The Securities are to be issued under two separate indentures
(the "Indentures") to be dated as of March 17, 2000 between the Company and Bank
of New York, as trustee . If you are the only Initial Purchasers, all references
herein to the Representatives shall be deemed to be to the Initial Purchasers.

            The sale of the Securities to the Initial Purchasers will be made
without registration of the Securities under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon exemptions from the
registration requirements of the Securities Act. You have advised the Company
that the Initial Purchasers will offer and sell the Securities purchased by them
hereunder in accordance with Section 4 hereof as soon as you deem advisable.

            The holders of the Securities will be entitled to the benefits of a
Registration Agreement to be dated as of March 17, 2000 between the Company and
Salomon Smith Barney Inc. (the "Registration Agreement"), pursuant to which the
Company will agree to file a registration statement with the Securities and
Exchange Commission (the "Commission") registering the Securities or New
Securities (referred to in the Registration Agreement) under the Securities Act.

<PAGE>

            In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum, dated March 3, 2000 (including any
and all exhibits thereto, the "Preliminary Memorandum") and a final offering
memorandum, dated March 14, 2000 (as amended or supplemented at the Execution
Time (as defined below), including any and all exhibits thereto, the "Final
Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets
forth certain information concerning the Company and the Securities. The Company
hereby confirms that it has authorized the use of the Preliminary Memorandum and
the Final Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Securities by the Initial Purchasers.

            1. Representations and Warranties. The Company represents and
warrants to each Initial Purchaser as set forth below in this Section 1.

            (a) The Preliminary Memorandum, at the date thereof, did not contain
      any untrue statement of a material fact or omit to state any material fact
      necessary in order to make the statements therein, in the light of the
      circumstances under which they were made, not misleading. At the Execution
      Time and on the Closing Date, the Final Memorandum did not, and will not
      (and any amendment or supplement thereto, at the date thereof and at the
      Closing Date, will not), contain any untrue statement of a material fact
      or omit to state any material fact necessary in order to make the
      statements therein, in the light of the circumstances under which they
      were made, not misleading; provided, however, that the Company
      makes no representation or warranty as to the information
      contained in or omitted from the Preliminary Memorandum or the Final
      Memorandum, or any amendment or supplement thereto, in reliance upon and
      in conformity with information furnished in writing to the Company by or
      on behalf of the Initial Purchasers through the Representatives
      specifically for inclusion therein.

            (b) Each of the Company, FLAG Atlantic Holdings Limited, FLAG
      Atlantic Limited and the Company's significant subsidiaries as identified
      on Schedule II hereto (referred to herein, together with FLAG Atlantic
      Holdings Limited and FLAG Atlantic Limited, as the "subsidiaries") has
      been duly incorporated and is validly existing as a corporation or company
      in good standing under the laws of the jurisdiction in which it is
      chartered or organized with the requisite corporate power and authority to
      own or lease, as the case may be, and to operate its properties and
      conduct its business as described in the Final Memorandum.

            (c) All the outstanding shares of capital stock of each subsidiary
      of the Company have been duly and validly authorized and issued and are
      fully paid and nonassessable, and, except as otherwise set forth in the
      Final Memorandum, all outstanding shares of capital stock of the
      subsidiaries are owned by the Company either directly or through wholly
      owned subsidiaries free and clear of any perfected security interest or
      any other security interests, claims, liens or encumbrances.

            (d) The Company has all requisite corporate power and authority to
      enter into and to perform its obligations under this Agreement, the
      Indentures, the Registration Agreement and the Securities.


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<PAGE>

            (e) The Company has an authorized, issued and outstanding common
      stock capitalization as set forth in the Final Memorandum under the
      heading "Capitalization." All of the issued and outstanding shares of
      capital stock of the Company have been duly authorized and validly issued
      and are fully paid and nonassessable.

            (f) The financial statements and schedules of the Company and FLAG
      Limited included in the Final Memorandum fairly present the financial
      position of the Company and its consolidated subsidiaries and the results
      of operations and changes in financial condition as of the dates and for
      the periods therein specified. Such financial statements and schedules
      have been prepared in accordance with generally accepted accounting
      principles of the United States of America consistently applied throughout
      the periods involved (except as otherwise noted therein). The selected
      financial data set forth under the captions "Summary Financial Data" and
      "Selected Financial Data" in the Final Memorandum fairly present, on the
      basis stated in the Final Memorandum, the information included therein.

            (g) Arthur Andersen & Co., who have certified certain financial
      statements of the Company and its consolidated subsidiaries and delivered
      their report with respect to the audited financial statements and
      schedules included in the Final Memorandum, are independent public
      accountants with respect to the Company within the meaning of the
      Securities Act and the applicable published rules and regulations
      thereunder.

            (h) This Agreement has been duly authorized, executed, and delivered
      by the Company.

            (i) The Registration Agreement has been duly authorized by the
      Company and, when duly executed and delivered by the Company, will
      constitute a legal, valid and binding obligation of the Company
      enforceable against the Company in accordance with its terms (subject, as
      to the enforcement of remedies, to applicable bankruptcy, reorganization,
      insolvency, fraudulent conveyance, moratorium or other laws affecting
      creditors', rights generally from time to time in effect, general
      principles of equity (whether considered in a proceeding in equity or at
      law) and to the possible unenforceability of the indemnification or
      contribution provisions contained therein).

            (j) Each of the Indentures has been duly authorized by the Company
      and, when duly executed and delivered by the Company and the Trustee, will
      constitute a valid and binding instrument enforceable against the Company
      in accordance with its terms (subject, as to the enforcement of remedies,
      to applicable bankruptcy, reorganization, insolvency, fraudulent
      conveyance, moratorium or other laws affecting creditors' rights generally
      from time to time in effect, and general principles of equity (whether
      considered in a proceeding in equity or at law)); the Securities have been
      duly and validly authorized and, when executed and authenticated in
      accordance with the provisions of the related Indenture and delivered to
      and paid for by the Initial Purchasers pursuant to this Agreement, will
      constitute valid and binding obligations of the Company (subject, as to
      the enforcement of remedies, to applicable bankruptcy, reorganization,
      insolvency, fraudulent conveyance, moratorium or other laws affecting
      creditors' rights generally from time to time in effect, and to general
      equitable principles (whether considered in a


                                       3
<PAGE>

      proceeding in equity or at law)) entitled to the benefits of the related
      Indenture; and the statements set forth under the heading "Description of
      Notes" in the Final Memorandum, insofar as such statements purport to
      summarize certain provisions of the Securities and the Indentures, provide
      a fair summary of such provisions.

            (k) No action, suit or proceeding by or before any court or
      governmental agency, authority or body or any arbitrator involving the
      Company or any of its subsidiaries or its or their property is pending or,
      to the best knowledge of the Company, threatened that (i) would have a
      material adverse effect on the performance by the Company of this
      Agreement or the consummation of any of the transactions contemplated
      hereby or (ii) would have a material adverse effect on the condition
      (financial or otherwise), prospects, earnings, business or properties of
      the Company and its subsidiaries, taken as a whole, whether or not arising
      from transactions in the ordinary course of business (a "Material Adverse
      Effect"), except as set forth in or contemplated in the Final Memorandum
      (exclusive of any supplement thereto).

            (l) The Company has filed all foreign, federal, state and local tax
      returns that are required to be filed or has requested extensions thereof
      (except in any case in which the failure so to file would not have a
      Material Adverse Effect) and has paid all taxes required to be paid by it
      and any other assessment, fine or penalty levied against it, to the extent
      that any of the foregoing is due and payable, except for any such tax
      assessment, fine or penalty that is currently being contested in good
      faith or as would not have a Material Adverse Effect.

            (m) The issuance, offering and sale of the Securities to the Initial
      Purchasers by the Company pursuant to this Agreement, the performance by
      the Company of its obligations under this Agreement, the Registration
      Agreement, the Indentures and the Securities, the consummation of the
      transactions herein and therein and the application of proceeds from the
      sale of the Securities as described in the Final Memorandum (i) do not
      require the consent, approval, authorization, registration or
      qualification of or with any governmental authority, except such as have
      been obtained and such as may be required under state securities or blue
      sky laws and the filing of the Final Memorandum with the Registrar of
      Companies of Bermuda and the consent of the Bermuda Monetary Authority,
      and except as may be required under the Securities Act and the rules and
      regulations thereunder with respect to the Registration Agreement and
      transactions contemplated thereunder and (ii) will not at the time of such
      sale, performance, consummation and application, conflict with or result
      in a breach or violation of, or imposition of any lien, charge or
      encumbrance upon any property or assets of the Company or any of its
      subsidiaries pursuant to, any of the terms and provisions of, or
      constitute a default under, any indenture, mortgage, deed of trust, lease
      or other material agreement or instrument to which the Company or any of
      its subsidiaries is a party or by which the Company's or any of is
      subsidiaries' property is bound, or the charter documents or by-laws of
      the Company or any of its subsidiaries, or any statute or any judgment,
      decree, order, rule or regulation of any court or other governmental
      authority or any arbitrator applicable to the Company or any of its
      subsidiaries.


                                       4
<PAGE>

            (n) Subsequent to the respective dates as of which information is
      given in the Final Memorandum, (i) neither the Company nor any of its
      subsidiaries has incurred any material liability or obligation, direct or
      contingent, nor entered into any material transaction not in the ordinary
      course of business except in each case as set forth or contemplated in the
      Final Memorandum (exclusive of any amendment or supplement thereto); (ii)
      the Company has not purchased any of its outstanding capital stock, nor
      declared, paid or otherwise made any dividend or distribution of any kind
      on its capital stock; (iii) there has not been any material change in the
      capital stock, short-term debt or long-term debt of the Company and its
      subsidiaries, except in each case as set forth in or contemplated by the
      Final Memorandum (exclusive of any amendment or supplement thereto); and
      (iv) there has not been any material adverse change in the condition
      (financial or otherwise), prospects, earnings, business or properties of
      the Company and its subsidiaries, taken as a whole, whether or not arising
      from transactions in the ordinary course of business.

            (o) Each of the Company and its subsidiaries owns or leases all such
      properties as are necessary to the conduct of its operations as presently
      conducted.

            (p) The Company and each of its subsidiaries are insured by insurers
      of recognized financial responsibility against such losses and risks and
      in such amounts as are prudent and customary in the businesses in which
      they are engaged; all policies of insurance and fidelity or surety bonds
      insuring the Company or any of its subsidiaries or their respective
      businesses, assets, employees, officers and directors are in full force
      and effect; the Company and its subsidiaries are in compliance with the
      terms of such policies and instruments in all material respects; and there
      are no claims by the Company or any of its subsidiaries under any such
      policy or instrument as to which any insurance company is denying
      liability or defending under a reservation of rights clause; neither the
      Company nor any such subsidiary has been refused any insurance coverage
      sought or applied for; and neither the Company nor any such subsidiary has
      any reason to believe that it will not be able to renew its existing
      insurance coverage as and when such coverage expires or to obtain similar
      coverage from similar insurers as may be necessary to continue its
      business at a cost that would not have a Material Adverse Effect, except
      as set forth in or contemplated by the Final Memorandum (exclusive of any
      amendment or supplement thereto).

            (q) No subsidiary of the Company is currently prohibited, directly
      or indirectly, from paying any dividends to the Company, from making any
      other distribution on such subsidiary's capital stock, from repaying to
      the Company any loans or advances to such subsidiary from the Company or
      from transferring any of such subsidiary's property or assets to the
      Company or any other subsidiary of the Company, except as set forth in or
      contemplated by the Final Memorandum (exclusive of any amendment or
      supplement thereto).

            (r) The Company and its subsidiaries possess all licenses,
      certificates, permits and other authorizations issued by the appropriate
      federal, state or foreign regulatory authorities necessary to conduct
      their respective businesses as presently conducted, except for those the
      failure to obtain which would not have a Material Adverse Effect,


                                       5
<PAGE>

      and neither the Company nor any such subsidiary has received any notice of
      proceedings relating to the revocation or modification of any such
      certificate, authorization or permit which, singly or in the aggregate, if
      the subject of an unfavorable decision, ruling or finding, would have a
      Material Adverse Effect, in each case except as set forth in or
      contemplated by the Final Memorandum (exclusive of any amendment or
      supplement thereto).

            (s) Each certificate signed by any officer of the Company and
      delivered to the Representatives or counsel for the Initial Purchasers
      shall be deemed to be a representation and warranty by the Company (and
      not individually by such officer) to the Initial Purchasers as to the
      matters covered thereby.

            (t) Neither the Company nor any subsidiary is in violation or
      default of (i) any provision of its charter or bylaws; (ii) the terms of
      any indenture, contract, lease, mortgage, deed of trust, note agreement,
      loan agreement or other agreement, obligation, condition, covenant or
      instrument to which it is a party or bound or to which its property is
      subject; or (iii) any statute, law, rule, regulation, judgment, order or
      decree applicable to the Company or any of its subsidiaries of any court,
      regulatory body, administrative agency, governmental body, arbitrator or
      other authority having jurisdiction over the Company or such subsidiary or
      any of its properties, as applicable (other than such violations or
      defaults that would not have a Material Adverse Effect).

            (u) The Company has not (i) taken, directly or indirectly, any
      action designed to cause or to result in, or that has constituted or which
      might reasonably be expected to constitute, the stabilization or
      manipulation of the price of any security of the Company to facilitate the
      sale or resale of the Securities or (ii) paid or agreed to pay to any
      person any compensation for soliciting another to purchase the Securities
      (except for the sale of Securities by the Initial Purchasers under this
      Agreement).

            (v) Neither the Company, nor, to the best knowledge of the Company,
      any of its Affiliates (as defined in Rule 501(b) of Regulation D under the
      Securities Act ("Regulation D")), nor any person acting on its or their
      behalf has, directly or indirectly, made offers or sales of any security,
      or solicited offers to buy any security, under circumstances that would
      require the registration of the Securities under the Securities Act.

            (w) Neither the Company, nor, to the best knowledge of the Company,
      any of its Affiliates, nor any person acting on its or their behalf has
      engaged in any form of general solicitation or general advertising (within
      the meaning of Regulation D) in connection with any offer or sale of the
      Securities in the United States.

            (x) The Securities satisfy the eligibility requirements of Rule
      144A(d)(3) under the Securities Act.

            (y) Neither the Company, nor, to the best knowledge of the Company,
      any of its Affiliates, nor any person acting on its or their behalf has
      engaged in any directed selling efforts with respect to the Securities;
      and the Company and, to the best knowledge of the


                                       6
<PAGE>

      Company, each of the others has complied with the offering restrictions
      requirement of Regulation S ("Regulation S") under the Securities Act.
      Terms used in this paragraph have the meanings given to them by Regulation
      S.

            (z) The Company as of the Execution Time expects to be and as of the
      Closing Date will have been advised by the National Association of
      Securities Dealers, Inc. PORTAL Market that the Dollar Notes have been
      designated "PORTAL-eligible securities" in accordance with the rules and
      regulations of the National Association of Securities Dealers, Inc.

            (aa) The Company is not and, after giving effect to the offering and
      sale of the Securities and the application of the proceeds thereof as
      described in the Final Memorandum, will not be an "investment company" as
      defined in the Investment Company Act of 1940, as amended (the "Investment
      Company Act").

            (bb) The Company is subject to and in full compliance with the
      reporting requirements of Section 13 or Section 15(d) of the Securities
      Exchange Act of 1934, as amended (the "Exchange Act").

            (cc) The Company and each of its subsidiaries maintain a system of
      internal accounting controls sufficient to provide reasonable assurance
      that (i) transactions are executed in accordance with management's general
      or specific authorizations; (ii) transactions are recorded as necessary to
      permit preparation of financial statements in conformity with generally
      accepted accounting principles and to maintain asset accountability; (iii)
      access to assets is permitted only in accordance with management's general
      or specific authorization; and (iv) the recorded accountability for assets
      is compared with the existing assets at reasonable intervals and
      appropriate action is taken with respect to any differences.

            (dd) None of the Company or any of its subsidiaries or, to the
      knowledge of the Company, any director, officer, agent, employee or other
      person acting on behalf of the Company or any of its subsidiaries, has (i)
      used any corporate funds of the Company or any of its subsidiaries for any
      unlawful contribution, gift, entertainment or other unlawful expense
      relating to political activity, or (ii) made any direct or indirect
      unlawful payment to any foreign or domestic government official or
      employee from corporate funds of the Company or any of its subsidiaries.

            (ee) No strike, work stoppage or slow-down by employees of the
      Company or any of its subsidiaries exists or, to the knowledge of the
      Company, is threatened, and the Company is not aware of any existing or
      threatened strikes, work stoppages or slow-downs by the employees of any
      of its or its subsidiaries' principal suppliers, contractors or customers,
      that would have a Material Adverse Effect, except as set forth or
      contemplated by the Final Memorandum (exclusive of any amendment or
      supplement thereto).

            (ff) No violation of, or liabilities or obligations pursuant to, any
      applicable laws, statutes, ordinances, codes, orders, judgments, licenses,
      permits, authorizations,


                                       7
<PAGE>

      rules, regulations or governmental requirements, including without
      limitation common law, relating to protection of human health and safety,
      hazardous or toxic substances or wastes, pollutants or contaminants
      ("Hazardous Substances"), or the environment ("Environmental Laws"), and
      no conditions relating to Hazardous Substances, human health and safety or
      the environment, exist that could reasonably be expected, individually or
      in the aggregate, to have a Material Adverse Effect

            (gg) No pending or threatened claims or proceedings pursuant to
      Environmental Law, or relating to Hazardous Substances, human health or
      safety or the environment, exist that could reasonably be expected to (i)
      have, individually or in the aggregate, a Material Adverse Effect, or (ii)
      result in monetary sanctions by a governmental authority of $100,000 or
      more.

            (hh) Neither the Company nor any person that would be treated as a
      single employer with the Company under Section 414(b), (c), (m) or (o) of
      the Code has incurred any liability under Title IV or Section 302 of the
      Employee Retirement Income Security Act of 1974, as amended ("ERISA") or
      Section 412 of the Code or maintains or contributes to or is or has been
      required to maintain or contribute to, any employee benefit plan subject
      to Title IV of ERISA or Section 412 of the Code.

            (ii) The Company and its subsidiaries have not, as of the Execution
      Time, experienced any material disruption to their business or operations
      associated with the failure of computer hardware and software to recognize
      and properly execute date-sensitive functions involving certain dates
      prior to and any dates after December 31, 1999 ( the "Year 2000 Problem"),
      including as a result of the failure of suppliers, vendors, customers or
      financial services organizations used or serviced by the Company to remedy
      the Year 2000 Problem.

            (jj) Neither the Company nor any of its subsidiaries nor any of its
      or their properties or assets has any immunity from the jurisdiction of
      any court or from any legal process (whether through service or notice,
      attachment prior to judgment, attachment in aid of execution or otherwise)
      under the laws of their respective jurisdictions of incorporation.

            (kk) There is no contract or other document of a character that
      would be required to be described or referred to in the Final Memorandum,
      if it were a prospectus filed as part of a registration statement on Form
      F-1 under the Securities Act, that is not described or referred to as
      would be so required, and the description thereof or references thereto
      are correct in all material respects.

            (ll) Subject to compliance by the Initial Purchasers with the
      representations and warranties set forth in Section 4, it is not necessary
      in connection with the offer, sale and delivery of the Securities to the
      Initial Purchasers and the resale to each subsequent purchaser in the
      manner contemplated by this Agreement and the Final Memorandum to register
      the Securities under the Securities Act or to qualify the Indentures under
      the Trust Indenture Act of 1939, as amended.


                                       8
<PAGE>

            2. Purchase and Sale. Subject to the term and conditions and in
reliance upon the representations, warranties and agreements herein set forth,
the Company agrees to sell to each Initial Purchaser, and each Initial Purchaser
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of 98% of the aggregate principal amount at maturity thereof, plus accrued
interest, if any, from March 17, 2000 to the Closing Date, the aggregate
principal amount of Dollar Notes and Euro Notes set forth opposite such Initial
Purchaser's name in Schedule I hereto.

            3. Delivery and Payment. Delivery of and payment for the Securities
shall be made at 10:00 AM, New York City time, on March 17, 2000, or such later
date (not later than March 24, 2000) as the Representatives shall designate,
which date and time may be postponed by agreement between the Representatives
and the Company or as provided in Section 9 hereof (such date and time of
delivery and payment for the Securities being herein called the "Closing Date").
Delivery of the Securities shall be made to the Representatives for the
respective accounts of the Initial Purchasers against payment by the Initial
Purchasers through the Representatives of the purchase price thereof to or upon
the order of the Company by wire transfer of federal funds or other immediately
available funds or such other manner of payment as may be agreed by the Company
and the Representatives. Delivery of the Securities shall be made at such
location as the Representatives shall reasonably designate at least one business
day in advance of the Closing Date and payment for the Securities shall be made
at the office of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New
York, New York. Certificates for the Securities shall be registered in such
names and in such denominations as the Representatives may request not less than
three full business days in advance of the Closing Date.

            The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the business day prior to the Closing Date.

            4. Offering of Securities. Each Initial Purchaser, severally and not
jointly, represents and warrants to and agrees with the
Company that:

            (a) It has not offered or sold, and will not offer or sell, any
      Securities except (i) to those it reasonably believes to be qualified
      institutional buyers (as defined in Rule 144A under the Securities Act)
      and that, in connection with each such sale, it has taken or will take
      reasonable steps to ensure that the purchaser of such Securities is aware
      that such sale is being made in reliance on Rule 144A, or (ii) in
      accordance with the restrictions set forth in Exhibit A hereto.

            (b) Neither it nor any person acting on its behalf has made or will
      make offers or sales of the Securities by means of any form of general
      solicitation or general advertising (within the meaning of Regulation D)
      or in any manner involving a public offering within the meaning of Section
      4(2) of the Securities Act in the United States or, with respect to
      Securities to be sold in reliance on Regulation S, by means of any
      directed selling efforts.

            (c) It is a qualified institutional buyer (as defined in Rule 144A
      under the Securities Act) and it will offer the Securities for resale only
      upon the terms and conditions set forth in this Agreement and in the Final
      Memorandum.


                                       9
<PAGE>

            5. Agreements. The Company agrees with each Initial Purchaser that:

            (a) The Company will furnish to each Initial Purchaser and to
      counsel for the Initial Purchasers, without charge, during the period
      referred to in paragraph (c) below, as many copies of the Final Memorandum
      and any amendments and supplements thereto it may reasonably request.

            (b) The Company will not amend or supplement the Final Memorandum
      without the prior consent of the Initial Purchasers as contemplated by
      paragraph (c) below.

            (c) If at any time prior to the completion of the sale of the
      Securities by the Initial Purchasers (as determined by the
      Representatives), any event occurs as a result of which the Final
      Memorandum, as then amended or supplemented, would include any untrue
      statement of a material fact or omit to state any material fact necessary
      to make the statements therein, in the light of the circumstances under
      which they were made, not misleading, or if it should be necessary to
      amend or supplement the Final Memorandum to comply with applicable law,
      the Company will promptly notify the Representatives of the same and,
      subject to the requirements of paragraph (b) of this Section 5, will
      prepare and, provide as promptly as practicable to the Representatives
      pursuant to paragraph (a) of this Section 5 an amendment or supplement
      which will correct such statement or omission or effect such compliance.

            (d) The Company will use its best efforts to arrange for the
      qualification of the Securities for sale by the Initial Purchasers under
      the laws of such jurisdictions as the Initial Purchasers may reasonably
      designate and will use its best efforts to maintain such qualifications in
      effect so long as required for the sale of the Securities. Notwithstanding
      the foregoing, the Company shall not be obligated to qualify as a foreign
      corporation in any jurisdiction in which it is not so qualified, to file a
      general consent to service of process in any jurisdiction or to take any
      action which would result in its being required to pay taxes in any
      jurisdiction where it is not currently required to do so. The Company will
      promptly advise the Representatives of the receipt by the Company of any
      notification with respect to the suspension of the qualification of the
      Securities for sale in any jurisdiction or the initiation or threatening
      of any proceeding for such purpose.

            (e) The Company will not resell any Securities that have been
      acquired by the Company.

            (f) The Company (i) will not, directly or indirectly, make offers or
      sales of any security, or solicit offers to buy any security, under
      circumstances that would require the registration of the securities under
      the Securities Act and (ii) will use its best efforts to cause any of its
      Affiliates or any person authorized to act on its or their behalf not to
      engage, directly or indirectly, in the activities described in (i) above.

            (g) The Company (i) will not engage in any form of general
      solicitation or general advertising (within the meaning of Regulation D)
      in connection with any offer or sale of the Securities in the United
      States and (ii) will use its best efforts to cause any of its


                                       10
<PAGE>

      Affiliates, or any person authorized to act on its or their behalf not to
      engage in the activities described in (i) above.

            (h) So long as any of the Securities are "restricted securities"
      within the meaning of Rule 144(a)(3) under the Securities Act, the Company
      will, during any period in which it is not subject to and in compliance
      with Section 13 or 15(d) of the Exchange Act and it is not exempt from
      such reporting requirements pursuant to and in compliance with Rule
      12g3-2(b) under the Exchange Act, provide to each holder of such
      restricted securities and to each prospective purchaser (as designated by
      such holder) of such restricted securities, upon the request of such
      holder or prospective purchaser, any information required to be provided
      by Rule 144A(d)(4) under the Securities Act and such information will not,
      as of the date of such information, contain any untrue statement of a
      material fact or omit to state any material fact necessary to make the
      statements therein, in the light of the circumstances under which they
      were made, not misleading. This covenant is intended to be for the benefit
      of the holders, and the prospective purchasers designated by such holders,
      from time to time of such restricted securities.

            (i) The Company (i) will not engage in any directed selling efforts
      with respect to the Securities and (ii) will use its best efforts to cause
      any of its Affiliates or any person authorized to act on its or their
      behalf not to engage in the activities described in (i), and the Company
      will and will use its best efforts to cause each of the others to comply
      with the offering restrictions requirement of Regulation S. Terms used in
      this paragraph have the meanings given to them by Regulation S.

            (j) The Company will cooperate with the Representatives and use its
      best efforts to permit the Dollar Notes to be eligible for clearance and
      settlement through The Depository Trust Company and to permit the Euro
      Notes to be eligible for clearance and settlement through Euroclear and
      Clearstream, Luxembourg (each as defined in the Indentures).

            (k) The Company will use the net proceeds received by it from the
      sale of the Securities in the manner specified in the Final Memorandum
      under "Use of Proceeds."

            6. Conditions to the Obligations of the Initial Purchasers. The
obligations of the Initial Purchasers to purchase the Securities shall be
subject to the accuracy of the representations and warranties on the part of the
Company contained herein at the date and time that this Agreement is executed
and delivered by the parties hereto (the "Execution Time") and the Closing Date,
to the accuracy of the statements of the Company made in any certificates
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder and to the following additional conditions:

            (a) The Company shall have furnished to the Representatives the
      opinion of Morgan, Lewis & Bockius LLP, counsel for the Company, dated the
      Closing Date, to the effect that:

                  (i) this Agreement has been duly executed and delivered by the
            Company under New York law;


                                       11
<PAGE>

                  (ii) the information contained in the Final Memorandum under
            the heading "Tax Considerations--Taxation of the Company--United
            States Federal Income Tax Considerations" fairly summarizes in all
            material respects the matters therein described and to the extent
            that such statements purport to describe certain provisions of U.S.
            federal laws, rules or regulations, have been reviewed by such
            counsel and are correct as to legal matters in all material
            respects;

                  (iii) assuming the due authorization of the Indentures by the
            Company under Bermuda law, each of the Indentures has been duly
            executed and delivered and constitutes a legal, valid and binding
            instrument enforceable against the Company in accordance with its
            terms (subject, as to the enforcement of remedies, to applicable
            bankruptcy, reorganization, insolvency, fraudulent conveyance,
            moratorium or other laws affecting creditors' rights generally from
            time to time in effect, and to general principles of equity (whether
            considered in a proceeding in equity or at law)); when the
            Securities have been duly and validly authorized and are executed
            and authenticated in accordance with the provisions of the related
            Indenture, and when the Securities are delivered to and paid for by
            the Initial Purchasers pursuant to this Agreement, the Securities
            will constitute legal, valid and binding obligations of the Company
            (subject, as to the enforcement of remedies, to applicable
            bankruptcy, reorganization, insolvency, fraudulent conveyance,
            moratorium or other laws affecting creditors' rights generally from
            time to time in effect, and to general equitable principles)
            entitled to the benefits of the related Indenture; and the
            Securities and the Indentures conform as to legal matters in all
            material respects to the descriptions thereof set forth under the
            heading "Description of Notes" in the Final Memorandum;

                  (iv) the Registration Agreement has been duly executed and
            delivered by the Company, and constitutes the legal, valid and
            binding obligation of the Company enforceable against the Company in
            accordance with its terms (subject, as to the enforcement of
            remedies, to applicable bankruptcy, reorganization, insolvency,
            fraudulent conveyance, moratorium or other laws affecting creditors'
            rights generally from time to time in effect, and to general
            principles of equity), and further such counsel expresses no opinion
            as to (i) the enforceability of the indemnification or contribution
            provisions contained therein or (ii) the enforceability of any
            provision of the Registration Agreement that requires or relates to
            the payment of any interest at a rate or in an amount which a court
            would determine in the circumstances under applicable law to be
            commercially unreasonable or a penalty or a forfeiture, and the
            Registration Agreement conforms as to legal matters in all material
            respects to the description thereof contained in the Final
            Memorandum;

                  (v) to the best of such counsel's knowledge, no consent,
            approval, authorization or order of any court or governmental agency
            or body (other than such as may be required under the applicable
            securities laws of the various jurisdictions in which the Securities
            will be offered or sold, as to which such counsel expresses not
            opinion, or as required in connection with the
            transactions contemplated by the Registration Agreement) is required
            in connection with

                                       12
<PAGE>

            the due execution and delivery of this Agreement, the Registration
            Agreement, the Indentures or the Securities, the performance by the
            Company of its obligations thereunder, the consummation of the
            transactions therein, the application of proceeds from the sale of
            the Securities as described in the Final Memorandum or for the
            issuance, offering and sale or delivery of the Securities to the
            Initial Purchasers or the resale of the Securities by the Initial
            Purchasers in accordance with this Agreement;

                  (vi) to the best of such counsel's knowledge, there is no
            pending or threatened action, suit or proceeding by or before any
            court or governmental agency, authority or body or any arbitrator
            involving the Company or any of its subsidiaries or its or their
            respective property of a character that would be required to be
            described or referred to in the Final Memorandum, if it were a
            prospectus filed as part of a registration statement on Form F-1
            under the Securities Act, that is not described or referred to as
            would be so required, and the descriptions thereof or references
            thereto are correct in all material respects; and, there is no
            franchise, contract or other document of a character that would be
            required to be described or referred to in the Final Memorandum, if
            it were a prospectus filed as part of a registration statement on
            Form F-1 under the Securities Act, that is not described or referred
            to as would be so required, and the descriptions thereof or
            references thereto are correct in all material respects.

                  (vii) the issue, offering and sale of the Securities, the
            execution and delivery of this Agreement, the Registration
            Agreement, the Indentures and the Securities, the consummation of
            the transactions contemplated therein and the application of
            proceeds from the sale of the Securities as described in the Final
            Memorandum and the compliance by the Company with its obligations
            under this Agreement, the Registration Agreement, the Indentures or
            the Securities, will not conflict with, result in a breach or
            violation of, or constitute a default under any applicable U.S. law
            or the terms of any material indenture or other material agreement
            or instrument to which the Company or any of its subsidiaries is a
            party which is known to such counsel or which would have been
            required to have been filed as an exhibit to the Offering Memorandum
            if it had been filed as part of a Registration Statement on Form F-1
            or any judgment, order or decree known to such counsel to be
            applicable to the Company or any of its subsidiaries of any court,
            regulatory body, administrative agency, governmental body or
            arbitrator having jurisdiction over the Company or any of its
            subsidiaries;

                  (viii) assuming the accuracy of the representations and
            warranties and compliance with the agreements contained in this
            Agreement, no registration of the Securities under the Securities
            Act is required, and no qualification of the Indentures under the
            Trust Indenture Act of 1939 is necessary, for the purchase by the
            Initial Purchases of the Securities, or the offer and sale by the
            Initial Purchasers of the Securities, in each case, in the manner
            contemplated by this Agreement (and not taking into account the
            transactions contemplated by the Registration Agreement);


                                       13
<PAGE>

                  (ix) the Company is not and, after giving effect to the
            offering and sale of the Securities and the application of the
            proceeds thereof as described in the Final Memorandum, will not be
            an "investment company" within the meaning of the Investment Company
            Act of 1940, as amended.

            Such counsel shall also state that they have no reason to believe
that at the Execution Time or at the Closing Date the Final Memorandum contained
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that such counsel expresses no belief as to the financial statements, including
the notes thereto, or supporting schedules or other financial, statistical and
accounting data included in the Final Memorandum.

            All references in this Section 6(a) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date

            (b) The Company shall have requested and caused Appleby, Spurling &
      Kempe, Bermuda counsel for the Company, to have furnished to the
      Representatives their opinion, dated the Closing Date and addressed to the
      Representatives, to the effect that:

                  (i) the Company and each of its subsidiaries organized under
            the laws of Bermuda has been duly organized and is validly existing
            as a company in good standing under the laws of Bermuda, with full
            corporate power and authority to own or lease its properties and
            conduct its business as described in the Final Memorandum, and the
            Company has full corporate power and authority to enter into and
            perform its obligations under this Agreement, the Registration
            Agreement, the Indentures and the Securities;

                  (ii) all of the outstanding shares of capital stock of the
            Company have been duly and validly authorized and issued and are
            fully paid and nonassessable, and the Company's authorized common
            stock capitalization is as set forth in the Final Memorandum under
            the heading "Capitalization";

                  (iii) all the outstanding shares of capital stock of each
            subsidiary organized under the laws of Bermuda have been duly and
            validly authorized and issued and are fully paid and nonassessable
            and, except as otherwise set forth in the Final Memorandum, all
            outstanding shares of capital stock of the subsidiaries are owned by
            the Company either directly or through wholly owned subsidiaries
            free and clear of any security interest and, to the knowledge of
            such counsel, after due inquiry, any other security interest, claim,
            lien or encumbrance;

                  (iv) each of this Agreement, the Registration Agreement, the
            Indentures and the Securities has been duly authorized by the
            Company;

                  (v) to the best of such counsel's knowledge, no consent,
            approval, authorization or order of any court or governmental agency
            or body of Bermuda (other than the filing of the Final Memorandum
            with the Registrar of Companies and the consent of the Bermuda
            Monetary Authority) is required in connection


                                       14
<PAGE>

            with the due authorization, execution and delivery of this
            Agreement, the Registration Agreement, the Indentures or the
            Securities, the performance by the Company of its obligations
            thereunder, the consummation of the transactions therein, the
            application of proceeds from the sale of the Securities as described
            in the Final Memorandum or for the issuance, offering and sale or
            delivery of the Securities to the Initial Purchasers or the resale
            of the Securities by the Initial Purchasers in accordance with this
            Agreement;

                  (vi) neither the issue and sale of the Securities, nor the
            consummation of any other of the transactions contemplated in this
            Agreement nor the fulfillment of the terms of this Agreement will
            conflict with, result in a breach or violation of or imposition of
            any lien, charge or encumbrance upon any property or assets of the
            Company or its subsidiaries pursuant to, (i) the charter or by-laws
            of the Company or its subsidiaries or (ii) any statute, law, rule,
            regulation, judgment, order or decree applicable to the Company or
            its subsidiaries of any court, regulatory body, administrative
            agency, governmental body, arbitrator or other authority having
            jurisdiction over the Company or its subsidiaries or any of its or
            their properties; and

                  (vii) the choice of law provision set forth in Section 14
            hereof is legal, valid and binding under the laws of Bermuda and
            such counsel knows of no reason why the courts of Bermuda would not
            give effect to the choice of New York law as the proper law of this
            Agreement; the Company has the legal capacity to sue and be sued in
            its own name under the laws of Bermuda; the Company has the power to
            submit, and has irrevocably submitted, to the non-exclusive
            jurisdiction of the New York Courts; the irrevocable submission of
            the Company to the non-exclusive jurisdiction of the New York Courts
            and the waivers by the Company of any immunity and any objection to
            the venue of the proceeding in a New York Court herein are legal,
            valid and binding under the laws of Bermuda and such counsel knows
            of no reason why the courts of Bermuda would not give effect to the
            submission and waivers; service of process in the manner set forth
            in Section 17 hereof, will be effective to confer valid personal
            jurisdiction over the Company under the laws of Bermuda; and the
            courts in Bermuda will recognize as valid and final, and will
            enforce, any final and conclusive judgment against the Company
            obtained in a New York Court arising out of or in relation to the
            obligations of the Company under this Agreement.

            All references in this Section 6(b) to the Final Memorandum shall be
deemed to include any amendment or supplement thereto at the Closing Date.

            (c) The Company shall have requested and caused Stuart Rubin,
      General Counsel for the Company, to have furnished to the Representatives
      his opinion, dated the Closing Date and addressed to the Representatives,
      in form and substance satisfactory to the Representatives, relating to
      certain regulatory matters in respect of the Company and certain of its
      subsidiaries.


                                       15
<PAGE>

            (d) The Representatives shall have received from Cleary, Gottlieb,
      Steen & Hamilton, counsel for the Initial Purchasers, such opinion or
      opinions, dated the Closing Date, with respect to the issuance and sale of
      the Securities, the Final Memorandum (as amended or supplemented at the
      Closing Date) and other related matters as the Representatives my
      reasonably require, and the Company shall have furnished or made available
      to such counsel such documents as they request for the purpose of enabling
      them to pass upon such matters.

            (e) The Company shall have furnished to Representatives a
      certificate of the Company, signed by any two of the following officers:
      the President, the Chief Operating Officer, the Chief Executive Officer,
      the Chief Financial Officer, the Treasurer or the General Counsel of the
      Company, dated the Closing Date, to the effect that the signers of such
      certificate have carefully reviewed the Final Memorandum, any amendment or
      supplement to the Final Memorandum and this Agreement and that:

                  (i) the representations and warranties of the Company in this
            Agreement are true and correct in all material respects on and as of
            the Closing Date with the same effect as if made on the Closing
            Date, except to the extent such representations and warranties speak
            as of an earlier date in which case they shall be true in all
            material respects as of such earlier date, and the Company has
            complied in all material respects with all the agreements and
            satisfied all the conditions on its part to be performed or
            satisfied hereunder at or prior to the Closing Date; and

                  (ii) since the date of the most recent financial statements
            included in the Final Memorandum, there has been no material adverse
            change in the condition (financial or otherwise), prospects,
            earnings, business or properties of the Company and its
            subsidiaries, taken as a whole, whether or not arising from
            transactions in the ordinary course of business, except as set forth
            in or contemplated in the Final Memorandum (exclusive of any
            amendment or supplement thereto).

            (f) (A) At the Execution Time, Arthur Andersen & Co. shall have
      furnished to the Representatives a letter dated such date, in form and
      substance satisfactory to the Initial Purchasers, containing statements
      and information of the type ordinarily included in accountants' "comfort
      letters" to underwriters with respect to the financial statements and
      certain financial information contained in the Final Memorandum and (B) at
      the Closing Date, Arthur Andersen & Co. shall have furnished to the
      Representatives a letter dated such date, in form and substance
      satisfactory to the Initial Purchasers, to the effect that they reaffirm
      the statements made in the letter furnished pursuant to clause (A) of this
      sentence, except that the specified date referred to shall be a date not
      more than three business days prior to the Closing Date.

            (g) Subsequent to the Execution Time or, if earlier, the dates as of
      which information is given in the Final Memorandum, there shall not have
      been (i) any change or decrease specified in the letters referred to in
      paragraph (e) of this Section 6 or (ii) any change, or any development
      involving a prospective change, in or affecting the condition


                                       16
<PAGE>

      (financial or otherwise), prospects, earnings, business or properties of
      the Company and its subsidiaries, taken as a whole, whether or not arising
      from transactions in the ordinary course of business, except as set forth
      or contemplated in the final Memorandum (exclusive of any amendment or
      supplement thereto), the effect of which, in any case referred to in
      clause (i) or (ii) above, is, in the sole judgment of the Representatives,
      so material and adverse as to make it impractical or inadvisable to market
      the Securities as contemplated by the Final Memorandum (exclusive of any
      amendment or supplement thereto).

            (h) The Dollar Notes shall have been designated as PORTAL-eligible
      securities in accordance with the rules and regulations of the National
      Association of Securities Dealers, Inc.

            (i) Subsequent to the Execution Time, there shall not have been any
      decrease in the rating of any of FLAG Limited's debt securities by any
      "nationally recognized statistical rating organization" (as defined for
      purposes of Rule 436(g) under the Securities Act) or any notice given of
      any intended or potential decrease in any such rating or of a possible
      change in any such rating that does not indicate the direction of the
      possible change.

            (j) Prior to the Closing Date, the Company shall have furnished to
      the Representatives such reasonable further information, certificates and
      documents as the Representatives may reasonably request.

            If any of the conditions specified in this Section 6 shall
not have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Representatives and counsel for the
Initial Purchasers, this Agreement and all obligations of the Initial Purchasers
hereunder may be cancelled at, or at any time prior to, the Closing Date by the
Representatives. Notice of such cancellation shall be given to the Company in
writing, by facsimile or by telephone confirmed in writing.

            The documents required to be delivered by this Section 6 shall be
delivered at the office of counsel for the Initial Purchasers at One Liberty
Plaza, New York, New York, or such other place as the Representatives and the
Company shall mutually agree, on the Closing Date.

            7. Reimbursement of Expenses. If the sale of the Securities provided
for herein is not consummated because any condition to the obligations of the
Initial Purchasers set forth in Section 6 hereof is not satisfied, because of
any termination pursuant to Section 10(i)(A) hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by any of
the Initial Purchasers as described in Section 9 hereof, the Company will remain
obligated to reimburse the Initial Purchasers severally upon demand for all
reasonable and documented out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities.


                                       17
<PAGE>

            8. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, the directors, officers,
employees and agents of each Initial Purchaser and each person who controls any
Initial Purchaser within the meaning of either the Securities Act or the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or other federal or state or foreign statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Preliminary Memorandum, the Final Memorandum (or in any supplement or
amendment thereto) or any information provided by the Company to any holder or
prospective purchaser of Securities pursuant to Section 5(h), or in any
amendment thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the Preliminary Memorandum or the Final Memorandum, or in any amendment thereof
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any of the Initial
Purchasers through the Representatives specifically for inclusion therein; and
provided further, that the foregoing indemnity agreement with respect to the
Preliminary Memorandum shall not inure to the benefit of the Initial Purchasers
from whom the person asserting or causing any such losses, claims, damages or
liabilities purchased Securities (or to the benefit of any person controlling
any Initial Purchaser or any directors, officers, employees and agents of any
Initial Purchaser), if a copy of the Final Memorandum (or the Final Memorandum
as amended or supplemented) (if the Company shall have timely furnished the
Initial Purchasers with sufficient copies thereof) was not sent or given by or
on behalf of the Initial Purchasers to such person at or prior to the written
confirmation of the sales of the Securities to such person and if the Final
Memorandum (or the Final Memorandum as amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.

            (b) Each Initial Purchaser severally agrees to indemnify and hold
harmless the Company, its directors, its officers, employees and agents and each
person who controls the Company within the meaning of either the Securities Act
or the Exchange Act, to the same extent as the foregoing indemnity from the
Company to each Initial Purchaser, but only with reference to written
information relating to such Initial Purchaser furnished to the Company by or on
behalf of such Initial Purchaser through the Representatives specifically for
inclusion in the Preliminary Memorandum or the Final Memorandum (or in any
amendment or supplement thereto). This indemnity agreement will be in addition
to any liability which any Initial Purchaser may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the heading "Plan of Distribution" in the Preliminary Memorandum
and the Final Memorandum constitute the only information furnished in writing by
or an behalf of the Initial Purchasers for inclusion in the Preliminary
Memorandum and the Final Memorandum (or in any amendment or supplement thereto).


                                       18
<PAGE>

            (c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will notify the indemnifying party in writing of the commencement thereof; but
the failure so to notify the indemnifying party (i) will not relieve the
indemnifying party from liability under paragraph (a) or (b) above unless and to
the extent the indemnifying party did not otherwise learn of such action and
such failure results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be satisfactory to
the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. No indemnifying party shall be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.

            (d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Initial Purchasers agree
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the Initial Purchasers may be subject in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and by the Initial Purchasers on the other from the offering of the
Securities; provided, however, that in no case shall any Initial Purchaser
(except as may be provided in any agreement among the Initial Purchasers
relating to the


                                       19
<PAGE>

offering of the Securities) be responsible for any amount in excess of the
purchase discount or commission applicable to the Securities purchased by such
Initial Purchaser hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Company and the Initial
Purchasers shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and of the Initial Purchasers on the other in connection with the
statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Company shall be
deemed to be equal to the total net proceeds from the offering (before deducting
expenses), and benefits received by the Initial Purchasers shall be deemed to be
equal to the total purchase discounts and commissions received by the Initial
Purchasers from the Company in connection with the purchase of the Securities
hereunder, in each case as set forth on the cover of the Final Memorandum.
Relative fault shall be determined by reference to whether any untrue or any
alleged untrue statement or omission relates to information provided by the
Company on the one hand or the Initial Purchasers on the other. The Company and
the Initial Purchasers agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d) , no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls an Initial Purchaser within the meaning of either the
Securities Act or the Exchange Act and each director, officer, employee and
agent of an Initial Purchaser shall have the same rights to contribution as such
Initial Purchaser, and each person who controls the Company within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
employee, and agent of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of this
paragraph (d).

            9. Default by an Initial Purchaser. If any one or more Initial
Purchasers shall fail to purchase and pay for any of the Securities agreed to be
purchased by such Initial Purchaser hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Initial Purchasers shall be obligated severally to take
up and pay for (in the respective proportions which the principal amount of
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate principal amount of Securities set forth opposite the names of all the
remaining Initial Purchasers) the Securities which the defaulting Initial
Purchaser or Initial Purchasers agreed but failed to purchase; provided,
however, that in the event that the aggregate principal amount of Securities
which the defaulting Initial Purchaser or Initial Purchasers agreed but failed
to purchase shall exceed 10% of the aggregate principal amount of Securities set
forth in Schedule I hereto, the remaining Initial Purchasers shall have the
right to purchase all, but shall not be under any obligation to purchase any, of
the Securities, and if such non-defaulting Initial Purchasers do not purchase
all the Securities, this Agreement will terminate without liability to any
non-defaulting Initial Purchaser or the Company. In the event of a default by
any Initial Purchaser as set forth in this Section 9, the Closing Date shall be
postponed for such period, not exceeding seven days, as the Representatives
shall determine in order that the required changes in the Final Memorandum or in
any other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Initial Purchaser of its liability, if
any, to the Company or any non-defaulting Initial Purchaser for damages
occasioned by its default hereunder.


                                       20
<PAGE>

            10. Termination. This Agreement shall be subject to termination in
the absolute discretion of the Representatives, by notice given to the Company
prior to delivery of and payment for the Securities, if prior to such time (i)
(A) trading in the Company's securities shall have been suspended by the
Commission, the Nasdaq National Market or the London Stock Exchange, or trading
in securities generally on the New York Stock Exchange, the Nasdaq National
Market or the London Stock Exchange shall have been suspended or limited or (B)
minimum prices shall have been established on the New York Stock Exchange, the
Nasdaq National Market or the London Stock Exchange, (ii) a banking moratorium
shall have been declared either by federal or New York state authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Final Memorandum (exclusive of any amendment or supplement thereto).

            11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Initial Purchasers or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Securities. The
provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.

            12. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telefaxed and confirmed to them, care of Salomon Smith Barney Inc.,
at 388 Greenwich Street, New York, New York 10013, attention: General Counsel
(fax no. (212) 816-7912); or, if sent to the Company, will be mailed, delivered
or telefaxed to the attention of Stuart Rubin, General Counsel (fax no. (44)
171-317-0808) and confirmed to it at 3rd Floor, 103 Mount Street, London W1Y
5HE.

            13. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and,
except as expressly set forth in Section 5(h) hereof, no other person will have
any right or obligation hereunder.

            14. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the state of New York applicable to agreements
made and to be performed in said state.

            15. Business Day. For Purposes of this Agreement, "business day"
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in the City of New York, New York are authorized or
obligated by law, executive order or regulation to close.


                                       21
<PAGE>

            16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.

            17. Submission to Jurisdiction; Appointment of Agents for Service;
Currency Indemnity. (a) To the fullest extent permitted by applicable law, the
Company irrevocably submits to the jurisdiction of any Federal or State court in
the Borough of Manhattan, in the City of New York, New York, in any suit, action
or proceeding based on or arising under this Agreement (solely in connection
with any such suit or proceeding), and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in any such court. The
Company irrevocably waives, to the fullest extent permitted by law, any
objection which it may have to the laying of the venue of any such suit, action
or proceeding brought in such a court and any claim that any suit, action or
proceeding brought in such a court has been brought in an inconvenient forum.
The Company agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be conclusive and binding upon the Company and may
be enforced in the courts of Bermuda (or any other courts to the jurisdiction of
which the Company is subject) by a suit upon such judgment, provided that
service of process is effected upon the Company in the manner specified herein
or as otherwise permitted by law. The Company hereby irrevocably designates and
appoints FLAG Telecom USA Ltd., 570 Lexington Avenue, New York, New York 10020,
U.S.A. (the "Process Agent"), as the authorized agent of the Company upon whom
process may be served in any such suit or proceeding, it being understood that
the designation and appointment of the Process Agent as such authorized agent
shall become effective immediately without any further action on the part of the
Company. The Company represents to the Initial Purchasers that it has notified
the Process Agent of such designation and appointment and that the Process Agent
has accepted the same in writing. The Company hereby irrevocably authorizes and
directs the Process Agent to accept such service. The Company further agrees
that service of process upon the Process Agent and written notice of said
service to the Company mailed by prepaid registered first class mail or
delivered to the Process Agent at its principal office, shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Initial Purchasers or
any person controlling the Initial Purchasers to serve process in any other
manner permitted by law. The Company further agrees to take any and all action,
including the execution and filing of any and all such documents and instruments
as may be necessary to continue such designation and appointment of the Process
Agent in full force and effect so long as the Company has any outstanding
obligations under this Agreement, the Securities or the Indentures. To the
extent that the Company has or hereafter may require any immunity from
jurisdiction of any court or from any legal process (whether through service of
note, attachment prior to judgment, attachment in aid of execution, executor or
otherwise) with respect to itself or its property, the Company hereby
irrevocably waives such immunity in respect of its obligations under this
Agreement, to the extent permitted by law.

            (b) The obligation of the parties to make payments hereunder for the
Dollar Notes is in U.S. dollars and the obligation of the parties to make
payments hereunder for the Euro Notes is in Euros (in each case, the "Obligation
Currency") and, unless otherwise agreed by the parties hereto, such obligations
shall not be discharged or satisfied by any tender or recovery pursuant to any
judgment expressed in or converted into any currency other than the applicable
Obligation Currency or any other realization in such other currency, whether as
proceeds of


                                       22
<PAGE>

set-off, security, guarantee, distributions, or otherwise, except to the extent
such tender, recovery or realization shall result in the effective receipt by
the party which is to receive such payment of the full amount of the applicable
Obligation Currency payable hereunder, and the party liable to make such payment
agrees to indemnify the party which is to receive such payment (as an
additional, separate and independent obligation) for the amount (if any) by
which such effective receipt is less than the full amount of the applicable
Obligation Currency payable hereunder and such obligation to indemnify shall not
be affected by judgment being obtained for any other sums due under this
Agreement.

            18. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

            19. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.


                                       23
<PAGE>

            If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this Agreement and your acceptance shall represent a binding agreement between
the Company and the several Initial Purchasers.

                                          Very truly yours,
                                          FLAG Telecom Holdings Limited
                                          By
                                            -------------------------------
                                             Name:
                                             Title:

The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.

Salomon Smith Barney Inc.

   By
     -------------------------------
      Name:
      Title:

Morgan Stanley & Co. International Limited

   By
     -------------------------------
      Name:
      Title:

Deutsche Bank Securities Inc.

   By
     -------------------------------
      Name:
      Title:

Bear, Stearns & Co. Inc.

   By
     -------------------------------
      Name:
      Title:

For themselves and the other Initial
Purchasers named in Schedule I to
the foregoing Agreement


                                       24
<PAGE>

                                                                  Schedule I

                                                         Principal Amount at
                                  Principal Amount at      Maturity of Euro
                                  Maturity of Dollar            Notes
Initial Purchasers               Notes to be Purchased     to be Purchased
------------------               ---------------------   -------------------
Salomon Smith Barney Inc.......      $150,000,000           (euro)150,000,000
Morgan Stanley & Co.
      International Limited....      $ 60,000,000            (euro)60,000,000
Deutsche Bank Securities Inc. .      $ 45,000,000            (euro)45,000,000
Bear, Stearns & Co. Inc. ......      $ 45,000,000            (euro)45,000,000
                                     ------------           -----------------
      Total....................      $300,000,000           (euro)300,000,000


                                       25
<PAGE>

                                                                    Schedule II

               LIST OF SUBSIDIARIES OF FLAG TELECOM HOLDINGS LIMITED

FLAG Limited
FLAG Telecom Asia Limited
FLAG Wholesale Services Limited
FLAG Telecom Wholesale Services Ireland Limited
FLAG Telecom Ireland Limited
FLAG Telecom Japan Limited
FLAG Telecom Ireland Network Limited
FLAG Telecom Ireland Services Limited
FLAG Telecom Espana SA
FLAG Telecom Group Services Limited
FLAG Telecom Limited
FLAG Telecom USA Ltd.
FLAG Atlantic Holdings Limited
FLAG Atlantic Limited
FLAG Atlantic UK Limited
FLAG Atlantic USA Limited
FLAG Atlantic France SARL

                                       26
<PAGE>


                                                                      EXHIBIT A

                       Selling Restrictions for Offers and
                         Sales Outside the United States

            1. (a) The Securities have not been and will not be registered under
the Securities Act and may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. persons except in accordance with
Regulation S under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act. Each Initial Purchaser
represents and agrees that, except as otherwise permitted by Section 4(a)(i) of
(ii) of the Agreement to which this is an exhibit, it has offered and sold the
Securities, and will offer and sell the Securities, (i) as part of their
distribution at any time and (ii) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date, only in accordance with Rule
903 of Regulation S under the Securities Act. Accordingly, each Initial
Purchaser represents and agrees that neither it, nor any of its affiliates nor
any person acting on its or their behalf has engaged or will engage in any
directed selling efforts with respect to the Securities, and that it and they
have complied and will comply with the offering restrictions requirement or
Regulation S. Each Initial Purchaser agrees that, at or prior to the
confirmation of sale of Securities (other than a sale of Securities pursuant to
Section 4(a)(i) or (ii) of the Agreement to which this is an exhibit), it shall
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases Securities from it during the
restricted period a confirmation or notice to substantially the following
effect:

            "The Securities covered hereby have not been registered
            under the U.S. Securities Act of 1933 (the "Securities
            Act") and may not be offered or sold within the United
            States or to, or for the account or benefit of, U.S.
            persons (i) as part of their distribution at any time or
            (ii) otherwise until 40 days after the later of the
            commencement of the offering and March 17, 2000, except
            in either case in accordance with Regulation S or Rule
            144A under the Securities Act. Terms used above have the
            meanings given to them by Regulation S."

            (b) Each Initial Purchaser represents, warrants and agrees that it
has not entered and will not enter into any contractual arrangement with any
distributor with respect to the distribution of the Securities, except with its
affiliates or with the prior written consent of the Company.

            (c) Terms used in this section have the meanings given to them by
Regulation S.

            (d) Each Initial Purchaser represents, warrants and agrees that (i)
it has not offered or sold, and will not offer or sell, any Securities to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their business or in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations 1995
(the "Regulations"), (ii) it has complied and will comply with all applicable
provisions of the


                                       A-1
<PAGE>

Financial Services Act 1986 of the United Kingdom and the Regulations with
respect to anything done by it in relation to the Securities in, from or
otherwise involving the United Kingdom, and (iii) it has only issued or passed
on, and will only issue or pass on, to any person in the United Kingdom any
document received by it in connection with the issue of the Securities if that
person is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemption) Order 1995 or is a person to whom
the document may otherwise lawfully be issued or passed on.


                                      A-2