Document:

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                                                                     EXHIBIT 4.2

                                                                  EXECUTION COPY

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                          SECURITY AND PLEDGE AGREEMENT

                                   DATED AS OF

                                 OCTOBER 9, 2002

                                      AMONG

                           FLAG TELECOM GROUP LIMITED,

                           THE OTHERS GRANTORS HERETO

                                       AND

                              THE BANK OF NEW YORK

                                   AS TRUSTEE

                                       AND

                              THE BANK OF NEW YORK

                              AS COLLATERAL TRUSTEE

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                                TABLE OF CONTENTS

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ARTICLE I     DEFINITIONS.......................................................................1

     Section 1.1    Definitions.................................................................1

ARTICLE II    GRANT OF SECURITY INTERESTS.......................................................6

     Section 2.1    Grant of Security Interests.................................................6

ARTICLE III   REPRESENTATIONS AND WARRANTIES....................................................6

     Section 3.1    No Other Lien...............................................................6
     Section 3.2    Perfected Liens; Priority...................................................7
     Section 3.3    Security Collateral.........................................................7
     Section 3.4    Jurisdiction of Incorporation; Chief Executive Office; Records..............8
     Section 3.5    Location of Inventory and Equipment.........................................8
     Section 3.6    Receivables.................................................................8
     Section 3.7    Farm Products...............................................................8
     Section 3.8    Intellectual Property Collateral............................................8
     Section 3.9    Deposit Accounts............................................................9
     Section 3.10   Foreclosure Value...........................................................9

ARTICLE IV    COVENANTS.........................................................................9

     Section 4.1    Further Assurances..........................................................9
     Section 4.2    Delivery of Security Collateral............................................10
     Section 4.3    Change of Jurisdiction of Incorporation or Organization....................11
     Section 4.4    Change of Location of Inventory and Equipment..............................11
     Section 4.5    Additional Deposit Accounts................................................11
     Section 4.6    Change of Name; Identity or Corporate Structure............................12
     Section 4.7    Delivery of Instruments and Chattel Paper..................................12
     Section 4.8    Maintain and Mark Records and Receivables..................................12
     Section 4.9    [Reserved].................................................................12
     Section 4.10   Right of Inspection........................................................12
     Section 4.11   Receivables................................................................13
     Section 4.12   Contracts..................................................................13
     Section 4.13   Warehouse Receipts Non-negotiable..........................................13
     Section 4.14   No Impairment..............................................................13
     Section 4.15   Limitations On Dispositions of Collateral..................................13
     Section 4.16   Notice.....................................................................13
     Section 4.17   Performance by Collateral Trustee of Grantor's Obligations; Reimbursement..14
     Section 4.18   Additional Insured.........................................................14
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                                TABLE OF CONTENTS
                                   (CONTINUED)

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ARTICLE V     SPECIAL PROVISIONS REGARDING RECEIVABLES AND CONTRACTS...........................14

     Section 5.1    Grantor Remains Liable Under Receivables and Contracts.....................14
     Section 5.2    Notice to Account Debtors and Contracting Parties..........................15
     Section 5.3    Collections on Receivables and Contracts...................................15

ARTICLE VI    SPECIAL PROVISIONS REGARDING SECURITY COLLATERAL.................................15

     Section 6.1    Voting Rights; Dividends; Etc..............................................15
     Section 6.2    Additional Shares..........................................................17

ARTICLE VII   COLLATERAL ACCOUNT...............................................................17

     Section 7.1    Collateral Account.........................................................17
     Section 7.2    Deposit of Proceeds........................................................17
     Section 7.3    Investment and Currency Exchange...........................................17

ARTICLE VIII  POWER OF ATTORNEY................................................................18

     Section 8.1    Collateral Trustee's Appointment as Attorney-in-fact.......................18

ARTICLE IX    REMEDIES; RIGHTS UPON DEFAULT....................................................20

     Section 9.1    Rights and Remedies Generally..............................................20
     Section 9.2    Collection of Receivables and Other Proceeds...............................20
     Section 9.3    Direct Grantor to Dispose of Collateral....................................20
     Section 9.4    Collateral Account.........................................................20
     Section 9.5    Possession of Collateral...................................................21
     Section 9.6    Disposition of the Collateral..............................................21
     Section 9.7    Recourse...................................................................22
     Section 9.8    Expenses; Attorneys' Fees..................................................22
     Section 9.9    Limitation On Duties Regarding Preservation of Collateral..................22
     Section 9.10   Waiver of Claims...........................................................23
     Section 9.11   Discontinuance of Proceedings..............................................24
     Section 9.12   Restoration of Positions...................................................24
     Section 9.13   Instruction From Trustee...................................................24

ARTICLE X     INDEMNITY........................................................................25

     Section 10.1   Indemnity and Expenses.....................................................25
     Section 10.2   Indemnity Obligations Secured by Collateral; Survival......................26
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                                TABLE OF CONTENTS
                                   (CONTINUED)

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ARTICLE XI    MISCELLANEOUS....................................................................26

     Section 11.1   Governing Law..............................................................26
     Section 11.2   Submission to Jurisdiction.................................................26
     Section 11.3   Waiver of Trial by Jury....................................................26
     Section 11.4   Limitation of Liability....................................................27
     Section 11.5   Notices....................................................................27
     Section 11.6   Successors and Assigns.....................................................27
     Section 11.7   Waivers and Amendments.....................................................27
     Section 11.8   No Waiver; Remedies Cumulative.............................................28
     Section 11.9   Termination; Release.......................................................28
     Section 11.10. Additional Grantors........................................................28
     Section 11.11  Counterparts...............................................................28
     Section 11.12  Effectiveness..............................................................29
     Section 11.13  Headings Descriptive.......................................................29
     Section 11.14  Severability...............................................................39
     Section 11.15  Survival...................................................................39
     Section 11.16  Powers Coupled With an Interest............................................39
     Section 11.17  Acknowledgement............................................................39
     Section 11.18  Consent to Service of Process..............................................39
     Section 11.19  Incorporation by Reference.................................................30
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ANNEXES

Annex I         Initial Perfection Collateral
Annex II        Account Control Agreement

SCHEDULES

Schedule 3.2    Filing Offices For UCC Financing Statements
Schedule 3.3    Security Collateral
Schedule 3.4    Jurisdictions Of Incorporation and Locations Of Chief
                Executive Offices
Schedule 3.5    Locations Of Equipment and Inventory
Schedule 3.8a   Intellectual Property
Schedule 3.9    Deposit Accounts
Schedule 3.10   Foreclosure Value Of Assets

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                          SECURITY AND PLEDGE AGREEMENT

     This SECURITY AND PLEDGE AGREEMENT, dated as of October 9, 2002, is made
among each of the undersigned (each, a "GRANTOR") and The Bank of New York, as
collateral trustee (the "COLLATERAL TRUSTEE") and as trustee (the "TRUSTEE") for
the holders of Securities issued under the Indenture referred to below.

                                    RECITALS:

     WHEREAS, FLAG Telecom Group Limited (the "COMPANY"), Guarantors and the
Trustee have entered into an Indenture (as the same may be amended, supplemented
or otherwise modified from time to time, the "INDENTURE"), dated as of October
9, 2002 pursuant to which, among other things, the Company has provided for the
authentication and delivery of $45,000,000 aggregate principal amount of the
Company's Series A Notes Due 2005, $4,000,000 aggregate principal amount of the
Company's Series B Notes Due 2004 and $1,250,000 aggregate principal amount of
the Company's Series C Notes Due 2004 (together with any additional securities
issuable thereunder, the "SECURITIES"), and the Collateral Trustee has agreed to
act as collateral trustee for the benefit of the holders of the Securities (the
"HOLDERS");

     NOW, THEREFORE, to secure the prompt payment in full of the Secured
Obligations (as hereinafter defined) and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Grantors have agreed to pledge and grant a security interest in the Collateral
(as hereinafter defined) as security for the Secured Obligations. Accordingly
the parties hereto agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     Section 1.1    DEFINITIONS. Capitalized terms used herein but not otherwise
defined herein or therein shall have the meanings ascribed thereto in the
Indenture. The following terms shall have the following meanings:

     "ACCOUNT DEBTOR" shall mean the person who is obligated on a Receivable.

     "ACCOUNTS" shall mean "accounts" as such term is defined in Section
9-102(a)(2) of the UCC.

     "AGREEMENT" shall mean this Security and Pledge Agreement, as the same may
from time to time be amended, supplemented or otherwise modified.

     "BANKS" shall mean the banks with which the Deposit Accounts are
maintained.

     "CHARGE AGREEMENTS" shall mean the debenture from each of the Guarantors
organized under the laws of the United Kingdom and the mortgage and charge
agreement from each of the Guarantors organized under the laws of Ireland, each
in favor of the Collateral Trustee named therein.

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     "CHATTEL PAPER" shall mean "chattel paper" as such term is defined in
Section 9-102(a)(11) of the UCC.

     "COLLATERAL" shall have the meaning set forth in Section 2.1.

     "COLLATERAL ACCOUNT" shall mean the account(s) (which may be a securities
account and which account shall be an interest bearing account) maintained
pursuant to this Agreement by the Collateral Trustee, and all funds, investment
property and instruments or other items from time to time credited to such
account(s) and all interest thereon.

     "COLLATERAL DOCUMENTS" shall have the meaning set forth in the Indenture.

     "COLLATERAL RECORDS" shall mean books, records, computer software, computer
printouts, customer lists, blueprints, technical specifications, manuals, and
similar items that relate to any Collateral other than such items obtained under
license or franchise agreements which prohibit assignment or disclosure of such
items.

     "CONTRACTS" shall mean all contracts to which each Grantor now is, or
hereafter will be, bound, or a party, beneficiary or assignee and all other
instruments, agreements and documents executed and delivered with respect to
such contracts, and all revenues, rentals, Proceeds and other sums of money due
and to become due from any of the foregoing, as the same may be modified,
supplemented or amended from time to time in accordance with their terms.

     "CONTROL" shall have the meaning ascribed to it in Section 3.1 hereof.

     "CONTROL AGREEMENT" shall mean an agreement among the Collateral Trustee,
the respective Grantors and each Bank substantially in the form of Annex II
hereto.

     "CORPORATE CHANGES" shall have the meaning ascribed to it in Section 4.16
hereof.

     "COPYRIGHTS" shall have the meaning ascribed to it in Section 3.8(a)(3).

     "DEBTOR TERMINATION STATEMENT" shall have the meaning ascribed to it in
Section 4.14 hereof.

     "DEPOSIT ACCOUNTS" shall mean the Collateral Account and any deposit
account, including without limitation, "deposit accounts" as such term is
defined in Section 9-102(a)(29) of the UCC and any other deposit or securities
account, together with any funds, instruments or other items credited to any
such account from time to time, and all interest thereon.

     "DOCUMENTS" shall mean "documents" as such term is defined in Section
9-102(a)(30) of the UCC.

     "EXCLUDED ASSETS" shall have the meaning ascribed to it in Section 2.1
hereof.

     "EQUIPMENT" shall mean "equipment" as such term is defined in Section
9-102(a)(33) of the UCC, including, without limitation, machinery, manufacturing
equipment, data processing equipment, computers, office equipment, furniture,
appliances, tools, furnishings, fixtures,

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vehicles, motor vehicles, and any manuals, instructions, blueprints, computer
software and similar items which relate to the above, and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all improvements thereon and all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.

     "EVENT OF DEFAULT" shall have the meaning assigned thereto in the
Indenture.

     "FIXTURES" shall mean "fixtures" as such term is defined in Section
9-102(a)(41) of the UCC.

     "GENERAL INTANGIBLES" shall mean "general intangibles" as such term is
defined in Section 9-102(a)(42) of the UCC, including, without limitation,
rights to the payment of money (other than Receivables), Trademarks, Copyrights,
Patents and Contracts, licenses and franchises, partnership interests, joint
venture interests, federal income tax refunds, computer software, databases,
inventions, designs, trade secrets, goodwill, tradenames, fictitious business
names, business names, company names, business identifiers, trade styles and
service marks (whether or not registered), proprietary rights, customer lists,
supplier and customer contracts, sale orders, correspondence, advertising
materials, payments due in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property, reversionary interests in
pension and profit-sharing plans and reversionary, beneficial and residual
interests in trusts, credits with and other claims against any Person, insurance
policies and all rights and claims therein or thereunder (including prepaid and
unearned premiums), including insurance against casualty (including by fire or
earthquake) or liability (including against environmental cleanup costs), title
insurance, business interruption insurance and builders risk insurance, whether
covering personal or real property, together with any collateral for any of the
foregoing and the rights under any security agreement granting a security
interest in such collateral.

     "INSTRUMENT" shall mean "instrument" as such term is defined in Section
9-102(a)(47)of the UCC.

     "INTELLECTUAL PROPERTY" shall mean, collectively, the Copyrights, the
Patents and the Trademarks.

     "INTEREST RATE AGREEMENTS" shall mean interest rate or currency protection
or hedging arrangements, including without limitation, caps, collars, floors,
forwards and any other similar or dissimilar interest rate or currency exchange
agreements or other interest rate or currency hedging arrangements.

     "INVENTORY" shall mean "inventory" as such term is defined in Section
9-102(a)(48) of the UCC, including, without limitation, all goods (whether such
goods are in the possession of a Grantor or of a bailee or other Person for
sale, lease, storage, transit, processing, use or otherwise and whether
consisting of whole goods, spare parts, components, supplies, materials or
consigned or returned or repossessed goods), including without limitation, all
such goods whether raw, in process or finished, all materials usable in
processing the same and all documents of title covering any inventory,
including, but not limited to, work in process, materials used or consumed in
such Grantor's business, now owned or hereafter acquired or manufactured by such
Grantor and held for sale in the ordinary course of its business; all present

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and future substitutions therefor, parts and accessories thereof and all
additions thereto; and all proceeds thereof and products of such inventory in
any form whatsoever.

     "INVESTMENT PROPERTY" shall mean "investment property" as such term is
defined in Section 9-102(a)(49) of the UCC and including all "financial assets"
and "security entitlements" as each term is defined in Section 8-102 of the UCC.

     "LIENS" shall have the meaning set forth in the Indenture.

     "MONEY" shall mean "money" as such term is defined in Section 1-201(24) of
the UCC.

     "MOTOR VEHICLES" shall mean motor vehicles, tractors, trailers and other
like property, if title thereto is governed by a certificate of title ownership.

     "PATENTS" shall have the meaning ascribed to it in Section 3.8(a)(1).

     "PERMITTED LIENS" has the meaning set forth in the Indenture.

     "PERSON" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or any other entity
or organization, including a government or any agency or political subdivision
thereof.

     "PLEDGED NOTES" shall mean any promissory notes listed on Schedule 3.3
hereto and all promissory notes at any time issued to a Grantor.

     "PLEDGED STOCK" shall mean any shares of Capital Stock listed on Schedule
3.3 hereto, together with any other shares, stock certificates, options or
rights of any nature whatsoever in respect of the Capital Stock of any Person
that may be issued or granted to, or held by, a Grantor while this Agreement is
in effect.

     "PROCEEDS" shall mean "proceeds" as such term is defined in Section
9-102(a)(64) of the UCC.

     "RECEIVABLES" shall mean all rights to payment for goods sold or leased or
services rendered, whether or not earned by performance and all rights in
respect of an Account Debtor, including, without limitation, all such rights in
which a Grantor has any right, title or interest by reason of the purchase
thereof by such Grantor, and including, without limitation, all such rights
constituting or evidenced by any Account, Chattel Paper, Instrument, General
Intangible, note, contract, invoice, purchase order, draft, acceptance,
intercompany account, security agreement, or other evidence of indebtedness or
security, together with (a) any collateral assigned, hypothecated or held to
secure any of the foregoing and the rights under any security agreement granting
a security interest in such collateral, (b) all goods, the sale of which gave
rise to any of the foregoing, including, without limitation, all rights in any
returned or repossessed goods and unpaid seller's rights, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing and (d) all
powers of attorney for the execution of any evidence of indebtedness or security
or other writing in connection therewith.

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     "RECEIVABLES RECORDS" shall mean (a) all original copies of all documents,
instruments or other writings evidencing the Receivables, (b) all books,
correspondence, credit or other files, records, ledger sheets or cards,
invoices, and other papers relating to Receivables, including without
limitation, all tapes, cards, computer tapes, computer discs, computer runs,
record keeping systems and other papers and documents relating to the
Receivables, whether in the possession or under the control of a Grantor or any
computer bureau or agent from time to time acting for such Grantor or otherwise,
(c) all evidences of the filing of financing statements and the registration of
other instruments in connection therewith and amendments, supplements or other
modifications thereto, notices to other creditors or secured parties, and
certificates, acknowledgments, or other writings, including, without limitation,
charge or Lien search reports, from filing or other registration officers, (d)
all credit information, reports and memoranda relating thereto, and (e) all
other written or non-written forms of information related in any way to the
foregoing or any Receivable.

     "SECURED OBLIGATIONS" shall mean each Grantor's obligations under the
Indenture, the Securities, the Subsidiary Guaranties and the Collateral
Documents.

     "SECURITY COLLATERAL" shall mean:

          (i)     any Pledged Stock and the certificates representing the
     Pledged Stock, and all dividends, cash, instruments and other property from
     time to time received, receivable or otherwise distributed in respect of or
     in exchange for any or all of the Pledged Stock;

          (ii)    any Pledged Notes and the instruments evidencing the Pledged
     Notes, and all interest, cash, instruments and other property from time to
     time received, receivable or otherwise distributed in respect of or in
     exchange for any or all of the Pledged Notes;

          (iii)   all additional shares of Capital Stock (of any issuer of the
     Pledged Stock) from time to time acquired by each Grantor in any manner,
     and the certificates representing such additional shares, and all
     dividends, cash, instruments and other property from time to time received,
     receivable or otherwise distributed in respect of or in exchange for any or
     all of such shares; and

          (iv)    all additional indebtedness from time to time owed to each
     Grantor by any obligor of the Pledged Notes and the instruments evidencing
     such indebtedness, and all interest, cash, instruments and other property
     from time to time received, receivable or otherwise distributed in respect
     of or in exchange for any or all of such indebtedness.

     "SECURITY INTEREST" shall mean "Security Interest" as such term is defined
in Section 1-201(37) of the UCC, and the other Liens in the Collateral granted
pursuant to Section 2.1.

     "TRADEMARKS" shall have the meaning ascribed to it in Section 3.8(a)(2).

     "UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the State of New York.

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                                   ARTICLE II

                           GRANT OF SECURITY INTERESTS

     Section 2.1  GRANT OF SECURITY INTERESTS. As security for the prompt and
complete payment and performance in full of all the Secured Obligations when due
(whether at stated maturity, by acceleration or otherwise), each Grantor hereby
grants to the Collateral Trustee a security interest in and lien on all of such
Grantor's right, title and interest in, to and under the all of its assets of
any kind or character, including, without limitation, all Accounts, Capital
Stock, Chattel Paper, Contracts, Equipment, Fixtures, General Intangibles,
Instruments, Intellectual Property, Interest Rate Agreements, Inventory,
Investment Property, Money, Motor Vehicles, Pledged Notes, Pledged Stock,
Receivables, Receivable Records and Security Collateral, including, without
limitation, the assets listed opposite such Grantor's name on Annex I hereto, in
each case, whether now owned or existing or hereafter acquired or arising and
wherever located and any and all Proceeds and products of the foregoing, but
excluding the Excluded Assets (collectively, the "COLLATERAL"). For purposes
hereof, the term "EXCLUDED ASSETS" means, collectively, (i) the assets of the
Grantors pledged as of the Issue Date pursuant to the Liens listed on Schedule
8.04 of the Indenture and (ii) assets of the Grantors subjected after the Issue
Date to Liens incurred pursuant to and in compliance with Section 8.04(12) of
the Indenture, in each case to the extent of such Liens for as long as such
Liens exist.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES

     Each Grantor hereby represents and warrants to the Collateral Trustee,
which representations and warranties shall survive execution and delivery of
this Agreement, as follows:

     Section 3.1  NO OTHER LIEN.

          (a)     Each Grantor owns and, as to all of its Collateral, whether
now existing or hereafter acquired, will continue to own, each item of its
Collateral free and clear of any and all Liens, rights or claims of all other
Persons other than Permitted Liens; such Grantor has the right to pledge, sell,
assign or transfer such Collateral, subject to the terms of the Indenture, and
such Grantor shall defend such Collateral against all claims and demands of all
Persons (except beneficiaries of Permitted Liens) at any time claiming the same
or any interest therein adverse to the Collateral Trustee.

          (b)     No effective financing statement or other evidence of a Lien
covering or purporting to cover any of such Grantor's Collateral is or will be
on file in any public office other than (i) financing statements filed or to be
filed in connection with the Security Interests and liens granted to the
Collateral Trustee hereunder and under the other Collateral Documents, (ii)
financing statements or equivalent instruments for which proper termination
statements have been delivered to the Collateral Trustee for filing and (iii)
financing statements or equivalent instruments filed in connection with
Permitted Liens. None of the Grantors have consented to

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any other Person other than the Collateral Trustee having "control" (within the
meaning of Section 9-104 of the UCC) over the Collateral Account or any other
Collateral.

     Section 3.2  PERFECTED LIENS; PRIORITY.

          (a)     The Security Interests in such Grantor's Collateral granted to
the Collateral Trustee hereunder constitute valid Security Interests in such
Collateral.

          (b)     (i) Upon filing the financing statements or equivalent
instrument listed in Schedule 3.2 naming each Grantor as "debtor" and the
Collateral Trustee as "secured party" and describing such Grantor's Initial
Perfection Collateral in the filing offices set forth on Schedule 3.2 hereto,
(ii) in the case of such Grantor's Deposit Account, if any (other than the
Collateral Account which does not require the execution of a Control Agreement
to be perfected), upon the execution by each of the Banks of a counterpart of
the Control Agreement in the form of Annex II hereto with respect to a Deposit
Account held by a Bank domiciled in the United States (or upon taking equivalent
steps with respect to a Deposit Account held by a Bank not domiciled in the
United States), and (iii) to the extent not subject to Article 9 of the UCC, in
the case of such Grantor's Security Collateral, if any, upon the delivery of
such Grantor's Security Collateral and Investments, to the Collateral Trustee,
then in each instance, the Security Interests in such Grantor's Collateral
described in subsections (i), (ii) and (iii) above granted to the Collateral
Trustee hereunder will constitute perfected first priority Security Interests
therein superior and prior to all Liens (other than Permitted Liens pursuant to
Section 8.04(4)(a), (b) or (c) of the Indenture and the Trustee's lien pursuant
to Section 12.06 of the Indenture), rights or claims of all other Persons;
PROVIDED, HOWEVER, that the foregoing is accurate only to the extent that a
Security Interest can be perfected by such filings or delivery.

     Section 3.3  SECURITY COLLATERAL.

          (a)     Such Grantor's Pledged Stock, if any, has been and when issued
to any Grantor hereafter will be duly authorized and validly issued, and such
Pledged Stock is fully paid, non-assessable and freely transferable to the
Collateral Trustee. An appropriate notation has been or will be placed on the
stock ledger or other books and records of the respective issuer of such Pledged
Stock in the case of Pledged Stock included in the Initial Perfection Collateral
(and, subject to the exceptions contained in Section 16.02 of the Indenture, in
the case of Pledged Stock that is not Initial Perfection Collateral or that is
hereafter acquired by the Grantors, will be so placed on the stock ledger or
other books and records of the respective issuer of such stock pledged
hereunder) in order to reflect the pledge in favor of the Collateral Trustee for
the ratable benefit and security of the Holders created or provided for in this
Agreement. Each of such Grantor's Pledged Notes, if any, has been duly
authorized, authenticated or issued and delivered, and is the legal, valid and
binding obligation of the issuer or issuers thereof, is freely transferable to
the Collateral Trustee and is not in default.

          (b)     Such Grantor's Pledged Stock, if any, constitutes (i) the
percentage of the issued and outstanding shares of Capital Stock of the
respective issuers thereof indicated on Schedule 3.3 hereto and (ii) all of the
shares of Capital Stock of the respective issuer held by the Grantor. There are
no outstanding options, warrants or other rights to purchase any shares of the

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Pledged Stock. Such Grantor's Pledged Notes, if any, are outstanding in the
principal amount indicated on Schedule 3.3 hereto.

     Section 3.4  JURISDICTION OF ORGANIZATION; CHIEF EXECUTIVE OFFICE;
RECORDS. The jurisdiction of organization, exact legal name and jurisdiction of
chief executive office of each Grantor is as specified on Schedule 3.4 hereto.
Such Grantor's Receivables Records, Contracts and Collateral Records are at the
locations identified on Schedule 3.4 hereto as such or at the chief executive
office of such Grantor. All such Grantor's Receivables and Contracts are
identified on Schedule 3.4 and maintained at and controlled and directed
(including, without limitation, for general accounting purposes) from the chief
executive office of the applicable Grantor that owns such Receivables and
Contracts or the offices identified on Schedule 3.4 hereto as such.

     Section 3.5  LOCATION OF INVENTORY AND EQUIPMENT. All such Grantor's
Inventory and Equipment now or from time to time included in the Collateral are
kept only at the locations listed on Schedule 3.5 hereto. None of such Inventory
or Equipment is in the possession of an issuer of a negotiable document (as
defined in Section 7-104 of the UCC) therefor or otherwise in the possession of
a bailee.

     Section 3.6  RECEIVABLES. All Accounts and other Receivables of such
Grantor, to the Company's knowledge, represent enforceable obligations of the
Account Debtor thereunder, except Accounts or other Receivables not exceeding
$5,000,000 in the aggregate with respect to all Grantors.

     Section 3.7  FARM PRODUCTS. None of such Grantor's Collateral constitutes,
or is the proceeds of, Farm Products (as defined in the UCC).

     Section 3.8  INTELLECTUAL PROPERTY COLLATERAL.

          (a)     Schedule 3.8(a) lists all of the following in which any
Grantor that has granted a Security Interest in Intellectual Property pursuant
to Section 2.1 has an interest or uses on the date hereof:

                  (i)    all patents and patent applications (including all
     amendments, "PATENTS");

                  (ii)   all trademarks, trademark applications, service marks,
     service mark applications, tradenames and trade dress, including logos and
     designs, and whether or not registered (including all amendments from time
     to time, the "TRADEMARKS"); and

                  (iii)  all copyrights and copyright applications, whether or
     not registered (including all amendments from time to time, "COPYRIGHTS").

          (b)     Except as disclosed in Schedule 3.8(b)

                  (i)    all such Grantor's Patents, Trademarks and Copyrights
     are valid and enforceable;

                                        8
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                  (ii)   the relevant Grantor is the sole and exclusive owner of
     each of the Patents, Trademarks and Copyrights, free and clear of any Liens
     other than Permitted Liens (including licenses, shop rights and covenants
     not to sue); and

                  (iii)  the relevant Grantor is not aware of any claim by any
     third party that, or any reason why, any of the Patents, Trademarks and
     Copyrights are or would be invalid or unenforceable.

     Section 3.9  DEPOSIT ACCOUNTS. Schedule 3.9 is a complete list of all
Deposit Accounts maintained by such Grantor on the date hereof and includes the
name and location of the financial institutions with which such Deposit Accounts
are maintained and the account numbers.

     Section 3.10 FORECLOSURE VALUE. The Company believes in good faith that
Schedule 3.10 hereto lists substantially all of the assets of the Company and
its Subsidiaries as of the Issue Date. The foreclosure values of the assets
listed on Schedule 3.10 hereto represent the Company's good faith best estimate
of the actual foreclosure values of such assets. Such foreclosure values have
been reasonably prepared based on assumptions reflecting the best currently
available estimates and good faith judgments by management of the Company. Based
on such Schedule 3.10, the foreclosure value of assets subject to a perfected
Security Interest granted to the Collateral Trustee hereunder is equal to not
less than 85% of the aggregate foreclosure value of the assets listed on
Schedule 3.10. For the purposes hereof, the term "foreclosure values" means the
cash consideration, as of the date hereof, that would be received by the
Trustee, on behalf of the holders of the Company or one of its Subsidiaries, in
the event of a sale of any assets of the Company or its Subsidiaries to a third
party upon the foreclosure of one or more liens on such assets.

                                   ARTICLE IV

                                    COVENANTS

     Each Grantor covenants and agrees with the Collateral Trustee that from and
after the date of this Agreement:

     Section 4.1 FURTHER ASSURANCES. Without limitation of Article 16 of the
Indenture, each Grantor, upon consultation with the Collateral Trustee, will
promptly take the following steps to the extent required pursuant to Article
Sixteen of the Indenture:

          (a)     file any financing statements as necessary to perfect the
     Security Interests granted hereby by such Grantor and take all other steps
     required under Article Sixteen of the Indenture. A photocopy or other
     reproduction of this Agreement shall be sufficient as a financing statement
     and may be filed in lieu of the original to the extent permitted by
     applicable law. Each Grantor will pay or reimburse the Collateral Trustee
     for all filing fees and related expenses;

          (b)     furnish to each of the Banks an executed Control Agreement
     stating that the Collateral Trustee has Control of each of such Grantor's
     Deposit Accounts held by a

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     Bank domiciled in the United States (or take equivalent steps with respect
     to a Deposit Account held by a Bank not domiciled in the United States);

          (c)     if an Event of Default shall occur and be continuing, furnish
     to each of the Banks notice in an authenticated record that the Grantor has
     no further right to Control any of such Grantor's Deposit Accounts held by
     a Bank domiciled in the United States (or take equivalent steps with
     respect to a Deposit Account held by a Bank not domiciled in the United
     States) and the Collateral Trustee has exclusive Control of each such
     Deposit Account with respect to a Deposit Account held by a Bank domiciled
     in the United States (or take equivalent steps with respect to a Deposit
     Account held by a Bank not domiciled in the United States);

          (d)     furnish to the Collateral Trustee from time to time statements
     and schedules further identifying and describing such Grantor's Collateral,
     and such other reports in connection with the Collateral as the Collateral
     Trustee may reasonably request, all in reasonable detail and in a form
     satisfactory to the Collateral Trustee; and

          (e)     if an Event of Default shall occur and be continuing, then,
     notwithstanding the foregoing, the Company shall, and shall cause the
     Guarantors to, promptly upon request by the Collateral Trustee, make all
     recordings, registerings and filings of financing statements, notices of
     lien and other instruments of further assurance with respect to Collateral
     and otherwise take all steps necessary to cause the security interest and
     lien of the Collateral Trustee to constitute a perfected security interest
     and lien, whether or not commercially reasonable.

     Section 4.2  DELIVERY OF SECURITY COLLATERAL.

          (a)     Each Grantor shall at all times and from time to time (i)
cause all Indebtedness owed to it by the Company, any Subsidiary or any other
Person to be evidenced by a Pledged Note, (ii) except in the case of the
Company, cause, to the fullest extent permitted by the law of the jurisdiction
where such Grantor is organized, all Capital Stock of such Grantor to be
evidenced by physical certificates, and (iii) with respect to all Capital Stock
of other Persons (each, an "ISSUER") legally or beneficially owned by such
Grantor, use its commercially reasonable best efforts to cause each such Issuer
to evidence all such Capital Stock by physical certificates (other than with
respect to any Issuer where the law of the jurisdiction where such Issuer is
organized does not permit such physical certificates).

          (b)     All certificates or instruments representing or evidencing
such Grantor's Security Collateral that is required to be subject to a perfected
Security Interest pursuant to Article Sixteen of the Indenture, to the extent
permitted under the laws of the jurisdiction of organization of the issuer of
such Security Collateral, shall be delivered to and held by or on behalf of the
Collateral Trustee pursuant hereto and shall be in suitable form for transfer by
delivery or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Collateral
Trustee. The Collateral Trustee shall have the right, at any time in its
discretion, to transfer to or to register in the name of the Collateral Trustee
any or all of such Grantor's Security Collateral, subject only to the revocable
rights specified in Section 6.1(a).

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     Section 4.3  CHANGE OF JURISDICTION OF INCORPORATION OR ORGANIZATION. None
of the Grantors will change its jurisdiction of incorporation or organization
except to such new jurisdiction as such Grantor may establish in accordance with
the last sentence of this Section 4.3. The originals of all such Grantor's
Receivables Records and Contracts and all Collateral Records will continue to be
kept at such chief executive office or at the locations identified on Schedule
3.4 hereto as such, or at such new locations as such Grantor may establish in
accordance with the last sentence of this Section 4.3. All Receivables,
Receivables Records and Contracts of such Grantor will continue to be maintained
at and controlled and directed (including, without limitation, for general
accounting purposes) from, a location identified as such on Schedule 3.4 hereto
or such new locations as such Grantor may establish in accordance with the last
sentence of this Section 4.3. None of the Grantors shall establish a new
jurisdiction of incorporation or organization (or move any such activities from
the location listed in Schedule 3.4 therefor) or be continued from one
jurisdiction to another or merge or consolidate with a Person organized under
the law of another jurisdiction until (i) it shall have given to the Collateral
Trustee not less than thirty (30) days' prior written notice of its intention to
do so, clearly describing such new jurisdiction and providing such other
information in connection therewith as the Collateral Trustee may reasonably
request and (ii) with respect to such new jurisdiction, it shall have taken all
action necessary to ensure that the Security Interest of the Collateral Trustee
in all Collateral that is required to be subject to a perfected Security
Interest pursuant to Article Sixteen of the Indenture is at all times subject to
a fully perfected Security Interest, with the same or better priority than prior
to such event and in full force and effect. Notwithstanding the foregoing, any
such merger or consolidation shall be subject to the terms, conditions and
limitations set forth in the Indenture.

     Section 4.4  CHANGE OF LOCATION OF INVENTORY AND EQUIPMENT. Each Grantor
agrees that all Inventory and Equipment now held or subsequently acquired by it
shall be kept at (or shall be in transport to) any one of the locations shown on
Schedule 3.5 hereto or such new location as such Grantor may establish in
accordance with the last sentence of this Section 4.4. Each Grantor agrees that
it shall change the location of its Inventory and Equipment only for legitimate
business purposes and not with intent to avoid or impair the Collateral
Trustee's Lien or to cause such Lien to be unperfected or of a lower priority.
Each Grantor agrees to provide the Collateral Trustee notice of any change of
location of any Inventory or Equipment in excess of $500,000 within the
locations shown on Schedule 3.5 hereto within ten (10) days of such change of
location. Each Grantor may establish a new location for Inventory and Equipment
only if (i) it shall have given to the Collateral Trustee not less than thirty
(30) days prior written notice of its intention to do so, clearly describing
such new location and providing such other information in connection therewith
as the Collateral Trustee may reasonably request and (ii) with respect to such
new location, it shall have taken all action necessary to ensure that the
Security Interest of the Collateral Trustee in all Collateral that is required
to be subject to a perfected Security Interest pursuant to Article Sixteen of
the Indenture is at all times subject to a fully perfected Security Interest,
with the same or better priority than prior to such event and in full force and
effect.

     Section 4.5  ADDITIONAL DEPOSIT ACCOUNTS. Subject to the exceptions
contained in Section 16.02 of the Indenture, no Grantor may establish a new
Deposit Account unless (i) it shall have given to the Collateral Trustee not
less than 1 Business Day's prior written notice of its intention to do so,
clearly describing the location and account number of such new Deposit

                                       11
<Page>

Account and providing such other information in connection therewith as the
Collateral Trustee may reasonably request; provided that any such new Deposit
Account shall be established only for legitimate cash management purposes and
(ii) with respect to such new Deposit Account, if established with a Bank
domiciled in the United States, it shall have entered into a Control Agreement,
with such changes as the Bank may reasonably require and the Collateral Trustee
shall approve (or take equivalent steps with respect to a Deposit Account held
by a Bank not domiciled in the United States).

     Section 4.6  CHANGE OF NAME; IDENTITY OR CORPORATE STRUCTURE. None of the
Grantors shall change its name (or conduct any significant portion of its
business under any new tradenames), identity or corporate structure until (i) it
shall have given to the Collateral Trustee not less than thirty (30) days' prior
written notice of its intention to do so, clearly describing such new name,
identity or corporate structure or such new trade name and providing such other
information in connection therewith as the Collateral Trustee may reasonably
request and (ii) with respect to such new name, identity or corporate structure
or such new trade name, it shall have taken all action necessary to maintain the
Security Interest of the Collateral Trustee in all Collateral that is required
to be subject to a perfected Security Interest pursuant to Article Sixteen of
the Indenture and to ensure that such Collateral is at all times subject to a
fully perfected Security Interest, with the same or better priority than prior
to such event and in full force and effect.

     Section 4.7  DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount
payable under or in connection with any of such Grantor's Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Collateral Trustee, duly indorsed to
the Collateral Trustee, to be held as Collateral pursuant to this Agreement.

     Section 4.8  MAINTAIN AND MARK RECORDS AND RECEIVABLES. Each Grantor will
keep and maintain at its own cost and expense in the ordinary course of business
satisfactory and complete records of such Grantor's Collateral, including, but
not limited to, the originals of all documentation with respect to all
Receivables and records of all payments received and all credits granted on the
Receivables and all merchandise returned and all other dealings therewith. Each
Grantor shall legend all Chattel Paper and other evidence of Receivables, as
well as the Receivables Records with an appropriate reference to the fact that
such Chattel Paper, Receivables and Receivable Records have been assigned to the
Collateral Trustee and that the Collateral Trustee has a Security Interest
therein.

     Section 4.9  [Reserved]

     Section 4.10 RIGHT OF INSPECTION. Subject to the prior execution of a
confidentiality agreement in a form reasonably acceptable to the Grantors, the
Collateral Trustee shall at all times have full and free access during normal
business hours to all the books, correspondence and records of the Grantors and
the Collateral Trustee and its representatives may examine the same, take
extracts therefrom and make photocopies thereof, and each Grantor agrees to
render to the Collateral Trustee, at such Grantor's reasonable cost and expense,
such clerical and other assistance as may be reasonably requested with regard
thereto. The Collateral Trustee and its respective representatives shall at all
times have the right to enter and inspect any property of any

                                       12
<Page>

of the Grantors and enter into and upon any premises where any of the Inventory
or Equipment is located for the purpose of inspecting the same, observing its
use or otherwise protecting its interests therein.

     Section 4.11 RECEIVABLES. Each Grantor shall perform in all material
respects all of its obligations with respect to its Receivables.

     Section 4.12 CONTRACTS. Each Grantor shall perform in all material respects
all of its obligations under each of its Contracts.

     Section 4.13 WAREHOUSE RECEIPTS NON-NEGOTIABLE. Each Grantor agrees that if
any warehouse receipt or receipt in the nature of a warehouse receipt or other
Document is issued with respect to any of its Inventory such warehouse receipt
or receipt in the nature thereof or other Document shall not be "negotiable" (as
such term is used in Section 7-104 of the UCC or under other relevant law).

     Section 4.14 NO IMPAIRMENT.

          (a)     None of the Grantors will take or permit to be taken any
action that could impair the Collateral Trustee's rights in such Grantor's
Collateral.

          (b)     Each Grantor shall not file or record any instrument or
document with any entity, officer or office having responsibility for recording
of security interests or liens which purports to terminate, vitiate, modify or
extinguish a Security Interest in the Collateral in which the Trustee holds a
Security Interest or lien (a "DEBTOR TERMINATION STATEMENT").

          (c)     Each Grantor will take any action reasonably necessary to
maintain or preserve any of such Grantor's Collateral.

     Section 4.15 LIMITATIONS ON DISPOSITIONS OF COLLATERAL. None of the
Grantors will sell, transfer, lease, license or otherwise dispose of any of its
Collateral or any rights therein or attempt, offer or contract to do so, except
as permitted in the Indenture or this Security Agreement.

     Section 4.16 NOTICE.

          (a)     Each Grantor will advise the Collateral Trustee promptly, in
reasonable detail and in accordance with the provisions hereof of any Lien
(other than a Permitted Lien) on, or claim asserted against, any of its
Collateral.

          (b)     Each Grantor shall inform the Collateral Trustee in writing
within thirty (30) days of any change, amendment, or modification of its place
of organization, form of organization, or change in Grantor's name (including,
but not by way of limitation, resulting from mergers, acquisitions, tax free
exchanges, or other transactions) (all of which are sometimes referred to as
"CORPORATE CHANGES," regardless of whether the Grantor is organized as a
corporation, partnership, limited partnership, limited liability company,
limited liability partnership, sole proprietorship, or other form of entity
recognized under the law of the state in which the Grantor is organized), and
each Grantor shall cooperate with the Collateral Trustee by

                                       13
<Page>

executing as soon as reasonably practicable after receipt thereof any and all
amendments to UCC financing statements to insure that the security interest and
lien of the Collateral Trustee in all Collateral that is required to be subject
to a perfected security interest pursuant to Article Sixteen of the Indenture is
at all times subject to a fully perfected Security Interest. The Collateral
Trustee may rely on opinions of counsel as to whether any or all UCC financing
statements of the Grantor need to be amended as a result. If the Grantors fail
to provide information to the Collateral Trustee about Corporate Changes on a
timely basis, the Collateral Trustee shall not be liable or responsible to any
party for any failure to maintain a perfected security interest in the Grantors'
collateral, for which the Collateral Trustee needed to have information about
the Corporate Changes. The Collateral Trustee shall have no duty to inquire
about Corporate Changes if the Grantors do not inform the Collateral Trustee of
such Corporate Changes, the parties acknowledging and agreeing that it would not
be feasible or practical for the Collateral Trustee to search for information on
the Corporate Changes if such information is not provided by the Grantors.

          (c)     Each Grantor shall provide the Collateral Trustee with copies
of any Debtor Termination Statement the Grantor files in violation of the
covenant contained in this document at Section 4.14.

     Section 4.17 PERFORMANCE BY COLLATERAL TRUSTEE OF GRANTOR'S OBLIGATIONS;
REIMBURSEMENT. Unless otherwise permitted hereby, if a Grantor fails to perform
or comply with any of its agreements contained herein which would, if not cured,
result in an Event of Default, the Collateral Trustee may, but shall not be
obligated to, without notice to or consent by such Grantor, perform or comply or
cause performance or compliance therewith and the expenses of the Collateral
Trustee incurred in connection with such performance or compliance, together
with interest thereon, shall be payable by such Grantor to the Collateral
Trustee on demand and such reimbursement obligation shall be secured hereby.

     Section 4.18 ADDITIONAL INSURED. The Company shall cause each policy of
property insurance it maintains to name the Collateral Trustee as a loss payee
and each policy of liability insurance it maintains to name the Collateral
Trustee as an additional insured, other than employer's liability insurance.

                                    ARTICLE V

                          SPECIAL PROVISIONS REGARDING
                            RECEIVABLES AND CONTRACTS

     Section 5.1  GRANTOR REMAINS LIABLE UNDER RECEIVABLES AND CONTRACTS.
Anything herein to the contrary notwithstanding (including, without limitation,
the grant of any rights to the Collateral Trustee), each Grantor shall remain
liable under each of its Receivables and Contracts to observe and perform all
the conditions and obligations to be observed and performed by it thereunder,
all in accordance with the terms of any agreement giving rise to each such
Receivable or Contract. The Collateral Trustee shall have no obligation or
liability under any Receivable (or any agreement giving rise thereto) or
Contract by reason of or arising out of this Agreement or the receipt by the
Collateral Trustee of any payment relating to such Receivable or Contract
pursuant hereto, nor shall the Collateral Trustee be obligated in any

                                       14
<Page>

manner to perform any of the obligations of any Grantor under or pursuant to any
Receivable (or any agreement giving rise thereto) or under or pursuant to any
Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Receivable (or any agreement giving rise
thereto) or under any Contract, to present or file any claim, to take any action
to enforce any performance or to collect the payment of any amounts that may
have been assigned to it or to which it may be entitled at any time or times.

     Section 5.2  NOTICE TO ACCOUNT DEBTORS AND CONTRACTING PARTIES. At any time
after an Event of Default has occurred and is continuing, (i) the Collateral
Trustee may, upon the direction of the Trustee, and upon request of the
Collateral Trustee, each Grantor that has granted a Security Interest in
Accounts and Contracts pursuant to Section 2.1 shall notify Account Debtors and
parties to such Contracts that the Accounts and the Contracts have been assigned
to the Collateral Trustee and that payments in respect thereof shall be made
directly to the Collateral Trustee, and (ii) the Collateral Trustee may in its
own name or in the name of others, communicate with Account Debtors and parties
to the Contracts to verify with them to the Collateral Trustee's satisfaction
the existence, amount and terms of any such Receivables or Contracts.

     Section 5.3  COLLECTIONS ON RECEIVABLES AND CONTRACTS. The Collateral
Trustee hereby authorizes each Grantor that has granted a Security Interest in
Receivables and Contracts pursuant to Section 2.1 to collect such Receivables
and Contracts and, at any time after an Event of Default has occurred and is
continuing, the Collateral Trustee may curtail or terminate said authority and
by itself or by its agents, collect all Receivables and amounts owing under the
Contracts. After an Event of Default has occurred and is continuing, if required
by the Collateral Trustee, any payments of such Receivables and Contracts, when
collected by a Grantor, shall be forthwith (and, in any event, within two (2)
Business Days) delivered by such Grantor to the Collateral Trustee in the exact
form received, duly indorsed to the Collateral Trustee if required, for deposit
into the Collateral Account, and until so turned over, shall be held by such
Grantor in trust for the Collateral Trustee, segregated from other funds of such
Grantor. All Proceeds, while held by the Collateral Trustee (or by a Grantor in
trust for the Collateral Trustee) shall continue to be Collateral securing all
of the Secured Obligations and shall not constitute payment thereof until
applied as hereinafter provided.

                                   ARTICLE VI

                          SPECIAL PROVISIONS REGARDING
                               SECURITY COLLATERAL

     Section 6.1  VOTING RIGHTS; DIVIDENDS; ETC.

          (a)     Subject to Section 6.1(b) below:

                  (i)    Each Grantor shall be entitled to exercise or refrain
     from exercising any and all voting and other consensual rights pertaining
     to the Security Collateral or any part thereof, for any purpose not
     inconsistent with the terms of this Agreement or the Indenture;

                                       15
<Page>

                  (ii)   Each Grantor shall be entitled to receive and retain
     any and all dividends and interest paid in respect of its Security
     Collateral, PROVIDED, HOWEVER, that any and all

                         (A)  dividends and interest paid or payable other than
          in cash in respect of, and instruments and other property received,
          receivable or otherwise distributed in respect of, or in exchange for,
          any Security Collateral,

                         (B)  dividends and other distributions paid or payable
          in cash in respect of any Security Collateral in connection with a
          partial or total liquidation or dissolution or in connection with a
          reduction of capital surplus or paid-in-surplus, and

                         (C)  cash paid, payable or otherwise distributed in
          respect of principal of, or in redemption of, or in exchange for, any
          Security Collateral,

     shall be forthwith delivered to the Collateral Trustee to hold as Security
     Collateral and shall, if received by such Grantor, be received in trust for
     the benefit of the Collateral Trustee, be segregated from the other
     property or funds of such Grantor and be forthwith delivered to the
     Collateral Trustee as Security Collateral in the same form as so received
     (with any necessary endorsement or assignment; provided, however, in the
     event that such a dividend, distribution or payment is payable in cash,
     such cash shall be deposited with the Collateral Trustee to redeem the
     Securities in accordance with the terms of the Indenture; and

                  (iii)  The Collateral Trustee shall execute and deliver (or
     cause to be executed and delivered) to each Grantor all such proxies and
     other instruments as such Grantor may reasonably request for the purpose of
     enabling such Grantor to exercise the voting and other rights that it is
     entitled to exercise pursuant to paragraph (i) above and to receive the
     dividends or interest payments that it is authorized to receive and retain
     pursuant to paragraph (ii) above.

          (b)     Upon the occurrence and during the continuance of an Event of
Default or an event that, with the giving of notice or the lapse of time or
both, would become an Event of Default:

                  (i)    All rights of each Grantor (x) to exercise or refrain
     from exercising the voting and other consensual rights that it would
     otherwise be entitled to exercise pursuant to Section 6.1(a)(i) shall
     automatically cease and (y) to receive the dividends and interest payments
     that it would otherwise be authorized to receive and retain pursuant to
     Section 6.1(a)(ii) shall automatically cease and all such rights shall
     thereupon become vested in the Collateral Trustee who shall thereupon have
     the sole right to exercise or refrain from exercising such voting and other
     consensual rights and to receive and hold as Security Collateral such
     dividends and interest payments; and

                  (ii)   All dividends and interest payments that are received
     by a Grantor contrary to the provisions of this Section 6.1(b), shall be
     received in trust for the benefit of the Collateral Trustee, shall be
     segregated from other funds of such Grantor and shall

                                       16
<Page>

     be forthwith paid over to the Collateral Trustee as Security Collateral in
     the same form as so received (with any necessary endorsement).

     Section 6.2  ADDITIONAL SHARES. Each Grantor agrees that it will (i) cause
each issuer of the Pledged Stock (if controlled by a Grantor) not to issue any
stock or other securities in addition to or in substitution for the Pledged
Stock issued by such issuer, except to such Grantor and (ii) immediately upon
its acquisition (directly or indirectly) thereof, deliver to the Collateral
Trustee as additional security hereunder any and all additional shares of stock
or other securities of each issuer of the Pledged Stock.

                                   ARTICLE VII

                               COLLATERAL ACCOUNT

     Section 7.1  COLLATERAL ACCOUNT. There is hereby established with The Bank
of New York the Collateral Account. The Collateral Account shall be under the
sole and exclusive dominion and control of the Collateral Trustee and none of
the Grantors shall have any rights with respect to the Collateral Account.
Without limiting the generality of the foregoing, none of the Grantors shall
have a right of withdrawal or transfer from the Collateral Account.

     Section 7.2  DEPOSIT OF PROCEEDS. There shall be deposited in the
Collateral Account from time to time the cash proceeds (as defined in Section
9-102(a)(9) of the UCC) of any of the Collateral (including insurance proceeds
thereon) required to be delivered to the Collateral Trustee pursuant to the
terms of the Indenture or this Agreement. All amounts and investments and other
items credited to the Collateral Account from time to time shall constitute
Collateral hereunder and shall not constitute payment of the Secured Obligations
until applied as hereinafter provided. At any time following the occurrence and
during the continuance of an Event of Default, the Collateral Trustee may in its
discretion with written notice to Grantors apply or cause to be applied (subject
to collection) the balance from time to time outstanding to the credit of the
Collateral Account to the payment of the Secured Obligations in the manner
specified in Section 9.9 hereof and as provided in the Indenture.

     Section 7.3  INVESTMENT AND CURRENCY EXCHANGE. The Collateral Trustee shall
invest or reinvest cash deposited in any Collateral Account, without distinction
between principal and income, in The Bank of New York's Cash Reserves Fund or
other similar investment. The Collateral Trustee shall have no liability for any
loss arising from or related to any such investment. The Collateral Trustee may
hold cash in any currency, provided, however, that whenever legally possible,
such cash will be held in Dollars, and may deposit such cash with one or more of
its subsidiaries or affiliates or one or more co-trustees. In each country in
which cash is held, it will be held in currencies which may be legally held in
such country and (except as otherwise provided above) may be held in
non-interest bearing, commingled bank accounts. None of the Collateral Trustee,
any of its subsidiaries or affiliates or any co-trustee shall be liable for any
fluctuations or changes in foreign exchange rates, which shall be the sole risk
and liability of the Company and the Grantors, or shall be required to
substitute one currency for any other currency in any Collateral Account. In no
event shall the Collateral Trustee, any of its subsidiaries or affiliates or any
co-trustee be liable (i) for holding Collateral or other property in any
particular country, including, but not limited to, losses resulting from
nationalization,

                                       17
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expropriation or other governmental actions; regulation of the banking or
securities industry; exchange or currency controls or restrictions, devaluations
or fluctuations; availability of cash or securities or market conditions which
prevent the transfer of property or the execution of securities transactions or
affect the value of property, or (ii) for any losses due to forces beyond its
control, including, without limitation, strikes, work stoppages, natural
catastrophes or acts of God, and interruptions, loss or malfunctions of
utilities, communications or computer (software and hardware) services. In no
event shall the Collateral Trustee, any of its subsidiaries or affiliates or any
co-trustee be obligated to substitute another currency for a currency whose
transferability, convertibility or availability has been affected, limited,
prohibited or prevented by law, regulation or other event. The Collateral
Trustee, any of its subsidiaries or affiliates or any co-trustee is hereby
authorized to convert cash on deposit in any Collateral Account or otherwise
held by it in a currency other than Dollars to Dollars at its own rate of
exchange then prevailing.

                                  ARTICLE VIII

                                POWER OF ATTORNEY

     Section 8.1  COLLATERAL TRUSTEE'S APPOINTMENT AS ATTORNEY-IN-FACT.

          (a)     Each Grantor hereby irrevocably constitutes and appoints the
Collateral Trustee and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time in the Collateral Trustee's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, each
Grantor hereby gives the Collateral Trustee the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do the following:

                  (i)    at any time when any Event of Default shall have
     occurred and be continuing, in the name of such Grantor or its own name or
     otherwise, (A) to take possession of and indorse and collect any checks,
     drafts, notes, acceptances or other instruments for the payment of moneys
     due under or with respect to, any Collateral; (B) to direct any party
     liable for any payment under any of the Collateral to make payment of any
     and all moneys due or to become due thereunder directly to the Collateral
     Trustee or as the Collateral Trustee shall direct; and (C) to ask or demand
     for, collect and receive payment of and receipt for, any and all moneys,
     claims and other amounts due or to become due at any time in respect of or
     arising out of any Collateral;

                  (ii)   to prepare, sign and file any UCC financing statements
     in the name of such Grantor as debtor;

                  (iii)  to prepare, sign and deliver to the Banks appropriate
     evidence of the Security Interest granted herein in the Deposit Accounts in
     the name of such Grantor as such Grantor;

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                  (iv)   to take or cause to be taken all actions necessary to
     perform or comply or cause performance or compliance with the terms of this
     Agreement, including, without limitation, actions to pay or discharge taxes
     and Liens levied or placed on or threatened against the Collateral, to
     effect any repairs or obtain any insurance called for by the terms of this
     Agreement and to pay all or any part of the premiums therefor and the costs
     thereof;

                  (v)    upon the occurrence and during the continuance of any
     Event of Default (A) to sign and indorse any invoices, freight or express
     bills, bills of lading, storage or warehouse receipts, drafts against
     debtors, assignments, verifications, notices and other documents in
     connection with any of the Collateral; (B) to commence and prosecute any
     suits, actions or proceedings at law or in equity in any court of competent
     jurisdiction to collect the Collateral or any Proceeds thereof and to
     enforce any other right in respect of any Collateral; (C) to defend any
     suit, action or proceeding brought against such Grantor with respect to any
     Collateral; (D) to settle, compromise or adjust any suit, action or
     proceeding described in the preceding clause and, in connection therewith,
     to give such discharges or releases as the Collateral Trustee may deem
     appropriate; (E) and generally, to sell or transfer and make any agreement
     with respect to, or otherwise deal with, any of the Collateral as fully and
     completely as though the Collateral Trustee were the absolute owner thereof
     for all purposes, and to do, at the Collateral Trustee's option and such
     Grantor's expense, at any time or from time to time, all acts and things
     that the Collateral Trustee deems necessary or advisable to protect,
     preserve or realize upon the Security Interest over Collateral and to
     effect the intent of this Agreement, all as fully and effectively as such
     Grantor might do;

                  (vi)   at any time and from time to time, to execute, in
     connection with any foreclosure, any endorsements, assignments or other
     instruments of conveyance or transfer with respect to the Collateral.

          Each Grantor hereby ratifies all that said attorney shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.

          Each Grantor hereby acknowledges and agrees that in acting pursuant to
this power-of-attorney, the Collateral Trustee shall be acting in its own
interest and such Grantor acknowledges and agrees that the Collateral Trustee
shall have no fiduciary duties to such Grantor and such Grantor hereby waives
any claims to the rights of a beneficiary of a fiduciary relationship hereunder.

          (b)     NO DUTY ON THE PART OF COLLATERAL TRUSTEE. The powers
conferred on the Collateral Trustee hereunder are solely to protect the
interests of the Collateral Trustee in the Collateral and shall not impose any
duty upon the Collateral Trustee to exercise any such powers. The Collateral
Trustee shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither it nor any of its officers,
directors, employees or agents shall be responsible to such Grantor for any act
or failure to act hereunder, except for their own negligence or willful
misconduct.

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                                   ARTICLE IX

                          REMEDIES; RIGHTS UPON DEFAULT

     Section 9.1  RIGHTS AND REMEDIES GENERALLY.

          (a)     If an Event of Default shall occur and be continuing, then and
in every such case, the Collateral Trustee shall have all the rights of a
secured party under Article 9 of the UCC, shall have all rights now or hereafter
existing under all other applicable laws or in equity and, subject to any
mandatory requirements of applicable law then in effect, shall have all the
rights set forth in this Agreement and all the rights set forth with respect to
the Collateral or this Agreement or in any other agreement between the parties.
No enumeration of rights in this Article IX or elsewhere in this Agreement or in
any related document or other agreement, shall be deemed to in any way limit the
rights of the Collateral Trustee as described in this Article.

          (b)     If an Event of Default occurs and is continuing, the
Collateral Trustee, shall, upon notice of such Event of Default from the
Trustee, act upon the direction of the Trustee to effect any one or more rights
or remedies available to the Collateral Trustee under any of the Collateral
Documents.

     Section 9.2  COLLECTION OF RECEIVABLES AND OTHER PROCEEDS. If an Event of
Default shall occur and be continuing, in addition to the rights of the
Collateral Trustee specified in Section 5.3 with respect to the collection of
Receivables and Contracts, all Proceeds received by a Grantor consisting of
cash, checks and other near-cash items shall be held by such Grantor in trust
for the Collateral Trustee, segregated from other funds of such Grantor and
shall forthwith upon receipt by such Grantor, be turned over to the Collateral
Trustee, in the same form received by such Grantor (appropriately indorsed or
assigned by such Grantor to the order of the Collateral Trustee or in such other
manner as shall be satisfactory to the Collateral Trustee) for deposit into the
Collateral Account.

     Section 9.3  DIRECT GRANTOR TO DISPOSE OF COLLATERAL. If an Event of
Default shall occur and be continuing, upon the direction of the Trustee, the
Collateral Trustee may direct a Grantor to sell, assign or otherwise liquidate
or dispose of all, or from time to time any portion of its Collateral and such
Grantor shall do so, and the Collateral Trustee may, at its option, take
possession of the Proceeds of such Collateral. The Collateral Trustee may direct
a Grantor to direct that all Proceeds of such Collateral be paid directly to the
Collateral Trustee or may permit the Proceeds of such Collateral to be paid to
such Grantor and, if directed by the Collateral Trustee, all such Proceeds
consisting of cash, checks or near-cash items shall be held by such Grantor in
trust for the Collateral Trustee, segregated from other funds of such Grantor
and shall forthwith upon receipt by such Grantor, be turned over to the
Collateral Trustee, in the same form received by such Grantor (appropriately
indorsed or assigned by such Grantor to the order of the Collateral Trustee or
in such other manner as shall be satisfactory to the Collateral Trustee) for
deposit into the Collateral Account.

     Section 9.4  COLLATERAL ACCOUNT. If an Event of Default shall occur and be
continuing, upon direction from the Trustee, the Collateral Trustee, with
written notice to Grantor, may liquidate any securities credited to the
Collateral Account and pay over the proceeds thereof and

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any other amounts credited to the Collateral Account to the Trustee for
application in accordance with the Indenture. Any balance of such Proceeds
remaining after the Secured Obligations have been paid and performed in full
shall be paid over to each Grantor or to whomsoever may lawfully be entitled to
receive the same or as a court of competent jurisdiction may direct.

     Section 9.5  POSSESSION OF COLLATERAL.

          (a)     If an Event of Default shall occur and be continuing and upon
direction from the Trustee:

                  (i)    the Collateral Trustee may personally or by agents or
     attorneys, immediately take possession of the Collateral (including taking
     possession of the originals of all or any Receivables or Receivables
     Records and exercising exclusive Control of the Deposit Accounts) or any
     part thereof, from a Grantor or any other Person who then has possession of
     any part thereof, with or without notice or judicial process and for that
     purpose may enter upon such Grantor's premises where any of the Collateral
     is located and remove the same and, the Collateral Trustee may use in
     connection with such removal, any and all services, supplies, aids and
     other facilities of such Grantor; and

                  (ii)   upon five (5) Business Days notice to each Grantor,
     such Grantor shall, at its own expense, assemble the Collateral, including,
     without limitation, the originals of all Receivables Records (or from time
     to time any portion thereof) and make it available to the Collateral
     Trustee at any place or places designated by the Collateral Trustee which
     is reasonably convenient to both parties, whether at such Grantor's or the
     Collateral Trustee's premises or elsewhere. Each Grantor shall, at its sole
     expense, store and keep any Collateral so assembled at such place or places
     pending further action by the Collateral Trustee and while the Collateral
     shall be so stored and kept, provide such guards and maintenance services
     as shall be necessary to protect the same and to preserve and maintain the
     Collateral in good condition. Such Grantor's obligation so to assemble and
     deliver the Collateral is of the essence of this Agreement and,
     accordingly, upon application to a court of equity having jurisdiction, the
     Collateral Trustee shall be entitled to a decree requiring specific
     performance by such Grantor of said obligation.

          (b)     When Collateral is in the Collateral Trustee's possession the
risk of accidental loss or damage shall be on the Grantors to the extent of any
deficiency in any effective insurance coverage maintained by the Grantors.

     Section 9.6  DISPOSITION OF THE COLLATERAL. If an Event of Default shall
occur and be continuing and upon direction from the Trustee, the Collateral
Trustee may sell, assign, lease, license (on an exclusive or non-exclusive
basis) give an option or options to purchase or otherwise dispose of the
Collateral (or contract to do any of the foregoing) under one or more contracts
or as an entirety and without the necessity of gathering at the place of sale
the property to be sold, at public or private sale or sales, conducted by any
officer, nominee or agent of, or auctioneer or attorney for, the Collateral
Trustee at any location of any third party conducting or otherwise involved in
such sale or any office of the Collateral Trustee or elsewhere and in general,
in such manner, at such time or times and upon such terms and conditions and at
such prices as it may consider commercially reasonable in its sole discretion,
for cash or on credit or

                                       21
<Page>

for future delivery without assumption of any credit risk. Any of the Collateral
may be sold, leased, assigned or options or contracts entered to do so or
otherwise disposed of, in the condition in which the same existed when taken by
the Collateral Trustee or after any overhaul or repair which the Collateral
Trustee shall determine to be commercially reasonable in its sole discretion. To
the extent permitted by applicable law, the Collateral Trustee or the Trustee
may bid for and become the purchaser of the Collateral or any item thereof,
offered for sale in accordance with this Section 9.6 without accountability to a
Grantor (except to the extent of surplus money received) as provided below. In
the payment of the purchase price of the Collateral, the purchaser shall be
entitled to have credit on account of the purchase price thereof of amounts
owing to such purchaser on account of any of the Secured Obligations and any
such purchaser may deliver securities, notes, claims for interest or claims for
other payment with respect to such Secured Obligations in lieu of cash up to the
amount which would, upon distribution of the net proceeds of such sale, be
payable thereon. Such securities or notes, if the amount payable hereunder shall
be less than the amount due thereon, shall be returned to the holder thereof
after being appropriately stamped to show partial payment.

     Section 9.7  RECOURSE. Each Grantor shall remain liable for any deficiency
if the Proceeds of any sale or other disposition of the Collateral are
insufficient to satisfy the Secured Obligations. Each Grantor shall also be
liable for all expenses of the Collateral Trustee incurred in connection with
collecting such deficiency including, without limitation, the fees and
disbursements of any attorneys employed by the Collateral Trustee to collect
such deficiency.

     Section 9.8  EXPENSES; ATTORNEYS' FEES. Each Grantor shall reimburse the
Collateral Trustee for all its reasonable third party expenses in connection
with the exercise of its rights hereunder, including, without limitation, all
reasonable attorneys' fees and disbursements incurred by the Collateral Trustee
and all other reasonable third party expenses and fees in connection with
obtaining, taking possession of, removing, holding, insuring, repairing,
preparing for sale or lease, storing and disposing of Collateral. The Proceeds
of any disposition of Collateral shall be applied in accordance with Section
9.04 of the Indenture.

     Section 9.9  LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL.

          (a)     The Collateral Trustee's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the UCC or otherwise, shall be to deal with
it in the same manner as the Collateral Trustee deals with similar property for
its own account. Neither the Collateral Trustee, any Holder nor any of their
respective officers, directors, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of any Grantor or any other person or to take any
other action whatsoever with regard to the Collateral or any part thereof. The
powers conferred on the Collateral Trustee and the Holders hereunder are solely
to protect the Collateral Trustee's and the Holders' interests in the Collateral
and shall not impose any duty upon the Collateral Trustee or any Holder to
exercise any such powers. The Collateral Trustee and any Holder shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for its own negligence or willful misconduct. Except
for the safe custody of any Collateral in its possession and the

                                       22
<Page>

accounting for monies actually received by it hereunder, the Collateral Trustee
shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not the Collateral Trustee has or
is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Collateral Trustee accords its own
property. Except as provided in this Section 9.9(a), the Collateral Trustee
shall not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this Agreement shall be
construed as requiring or obligating the Collateral Trustee or the Holders, and
neither the Collateral Trustee nor the Holders shall be required or obligated,
to (i) present or file any claim or notice or take any action with respect to
any Collateral or in connection therewith or (ii) notify any Grantor of any
decline in the value of any Collateral. The Collateral Trustee shall have no
duty as to the collection of any Collateral in its possession or control or in
the possession or control of any agent or nominee of the Collateral Trustee, or
any income thereon or any other rights pertaining thereto.

          (b)     The Collateral Trustee shall have no obligation to take any
steps to preserve rights against prior parties to any Collateral.

          (c)     Neither the Collateral Trustee nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of a Grantor or otherwise.

          (d)     The Collateral Trustee shall not be responsible for perfecting
or maintaining the perfection of any security interest granted to it under this
Agreement or for filing, refiling, recording or re-recording any document,
financing statement, notice or instrument in any public office at any time or
times and shall not be responsible for seeing to the provision of insurance on
or the payment of any taxes with respect to any property subject to this
Agreement.

          (e)     No provision of this Agreement shall be deemed to impose any
duty or obligation on the Collateral Trustee to perform any act or acts, receive
or obtain any interest in property or exercise any interest in property, or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Collateral Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, to receive or obtain any such interest in property
or to exercise any such right, power, duty or obligation; and no permissive or
discretionary power or authority available to the Collateral Trustee shall be
construed to be a duty.

     Section 9.10 WAIVER OF CLAIMS. Except as otherwise provided in this
Agreement, EACH GRANTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL TRUSTEE'S
TAKING POSSESSION OR THE COLLATERAL TRUSTEE'S DISPOSITION OF ANY OF THE
COLLATERAL, and such Grantor hereby further waives, to the extent permitted by
law:

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<Page>

          (a)     all damages occasioned by such taking of possession except any
     damages which are the direct result of the Collateral Trustee's negligence
     or willful misconduct;

          (b)     all other requirements as to the time, place and terms of sale
     or other requirements with respect to the enforcement of the Collateral
     Trustee's rights hereunder;

          (c)     demand of performance or other demand, notice of intent to
     demand or accelerate, notice of presentment, notice of acceleration, notice
     of intent to accelerate, protest, advertisement or notice of any kind
     (other than a notice of a Default) to or upon such Grantor or any other
     Person; and

          (d)     all rights of redemption, appraisement, valuation, diligence,
     stay, extension or moratorium now or hereafter in force under any
     applicable law in order to prevent or delay the enforcement of this
     Agreement or the absolute sale of the Collateral or any portion thereof and
     such Grantor, for itself and all who may claim under it, insofar as it or
     they now or hereafter lawfully may, hereby waives the benefit of all such
     laws.

     Section 9.11 DISCONTINUANCE OF PROCEEDINGS. In case the Collateral Trustee
shall have instituted any proceeding to enforce any right, power or remedy under
this Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason or shall have been
determined adversely to the Collateral Trustee, then and in every such case each
Grantor and the Collateral Trustee shall be returned to their former positions
and rights hereunder with respect to the Collateral subject to the Security
Interest created under this Agreement, and all rights, remedies and powers of
the Collateral Trustee shall continue as if no such proceeding had been
instituted.

     Section 9.12 RESTORATION OF POSITIONS. If the Collateral Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Agreement by foreclosure, entry or otherwise and such proceeding has been
discontinued or abandoned for any reason or has been determined adversely to the
Collateral Trustee or to such Holder, then and in every such case the Grantors,
the Collateral Trustee and the Holders shall, subject to any determination in
such proceeding, be restored to their former positions hereunder, and thereafter
all rights and remedies of the Collateral Trustee and the Holders shall continue
as though no such proceeding had been instituted.

     Section 9.13 INSTRUCTION FROM TRUSTEE. Whenever in the administration of
this Agreement, the Collateral Trustee shall deem it desirable to receive
instructions with respect to exercising or enforcing any right or remedy
hereunder or taking any other action hereunder, the Collateral Trustee (a) may
request instructions from the Trustee, (b) may refrain from exercising or
enforcing any such right or remedy or taking any such other action until such
instructions are received, and (c) shall be fully protected in acting in
accordance with such instructions.

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                                    ARTICLE X

                                    INDEMNITY

     Section 10.1 INDEMNITY AND EXPENSES.

          (a)     Each Grantor agrees jointly and severally to indemnify,
reimburse and hold the Holders, beneficial holders, Collateral Trustee and their
respective officers, directors, managers, members, employees, representatives
and agents (hereinafter in this Section 10.1 referred to individually as
"INDEMNITEE" and collectively as "INDEMNITEES") harmless from any and all
liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements (including reasonable
attorneys' fees and expenses) (for the purposes of this Section 10.1 the
foregoing are collectively called "EXPENSES") for whatsoever kind or nature
which may be imposed on, asserted against or incurred by any of the Indemnitees
in any way relating to or arising out of this Agreement or the documents
executed in connection herewith or in any other way connected with the
administration of the transactions contemplated hereby or the enforcement of any
of the terms of or the preservation of any rights hereunder or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the applicable laws of any country, state or
other governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or for
property damage) or any contract claim; provided that no Indemnitee shall be
indemnified pursuant to this Section 10.1 for expenses to the extent caused by
or attributable to the negligence or willful misconduct of such Indemnitee. Each
Grantor agrees that upon written notice by any Indemnitee of any assertion that
could give rise to an expense, such Grantor shall assume full responsibility for
the defense thereof. Each Indemnitee agrees to use commercially reasonable
efforts to promptly notify such Grantor of any such assertion of which such
Indemnitee has knowledge.

          (b)     Without limiting the application of Section 10.1(a) hereof,
each Grantor agrees to pay, or reimburse the Collateral Trustee for, any and all
reasonable third party fees, costs and expenses of whatever kind or nature
incurred in connection with the creation, preservation or protection of the
Collateral Trustee's Security Interest in the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or Lien upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other fees, costs and expenses in connection
with protecting, maintaining or preserving the Collateral and the Collateral
Trustee's interest therein, whether through judicial proceedings or otherwise,
or in defending or prosecuting any actions, suits or proceedings arising out of
or relating to the Collateral.

          (c)     Without limiting the application of Section 10.1(a) or (b)
hereof, each Grantor agrees to pay, indemnify and hold each Indemnitee harmless
from and against any expenses which such Indemnitee may suffer, expend or incur
in consequence of or growing out

                                       25
<Page>

of any material misrepresentation by such Grantor in this Agreement or in any
statement or writing contemplated by or made or delivered pursuant to or in
connection with this Agreement.

          (d)     If and to the extent that the obligations of a Grantor under
this Section 10.1 are unenforceable for any reason, such Grantor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.

     Section 10.2 INDEMNITY OBLIGATIONS SECURED BY COLLATERAL; SURVIVAL. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Secured Obligations secured by the Collateral.
The indemnity obligations of each Grantor contained in this Article X shall
continue in full force and effect notwithstanding the full payment and
performance of the Secured Obligations and notwithstanding the discharge
thereof.

                                   ARTICLE XI

                                  MISCELLANEOUS

     Section 11.1 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL, SUBSTANTIVE LAWS OF THE STATE OF NEW YORK.

     Section 11.2 SUBMISSION TO JURISDICTION. Any legal action or proceeding
with respect to this Agreement and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York and, by execution
and delivery of this Agreement, each Grantor hereby accepts for itself and in
respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof. Each
Grantor irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid or nationally
recognized overnight carrier service, to such Grantor at its address set forth
under its signature below. Each Grantor hereby irrevocably waives any objection
that it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out of or in connection with this Agreement
brought in the courts referred to above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of the Collateral Trustee to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against a Grantor in any other jurisdiction.

     Section 11.3 WAIVER OF TRIAL BY JURY. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH GRANTOR AND THE COLLATERAL TRUSTEE HEREBY IRREVOCABLY WAIVE ALL RIGHT
OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING HEREUNDER.

                                       26
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     Section 11.4 LIMITATION OF LIABILITY. No claim may be made by a Grantor or
any other Person against the Collateral Trustee, holders of Securities or the
affiliates, directors, officers, employees, attorneys or agents of any of them
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or any act, omission
or event occurring in connection therewith; and each Grantor hereby waives,
releases and agrees not to sue upon any claim for any such damages, whether or
not accrued and whether or not known or suspected to exist in its favor.

     Section 11.5 NOTICES. Any notice or demand authorized by this Agreement to
be given to a Grantor shall be sufficiently given for all purposes, if it shall
be given or made in writing, by hand, telecopier (with confirmation of receipt)
or certified or registered mail (confirmation of receipt requested and obtained)
to the Company (or to such other Grantor care of the Company) addressed to it
at: Cedar House, 41 Cedar Avenue, P.O. Box HM12, Hamilton HM EX, Bermuda
(telephone: 441-295-2244; telecopier: 441-292-8666 to the attention of General
Counsel with a copy to 9 South Street, London W1K2XA United Kingdom (telephone:
44 20 7317 0800; telecopier: 44 20 7317 0808) to the attention of General
Counsel or at such other address as may have been furnished in writing to the
Collateral Trustee by the Company. Any notice, direction, request or demand to
or upon the Collateral Trustee shall be sufficiently given, for all purposes, if
it shall be given or made in writing, by hand, telecopier (with confirmation of
receipt) or certified or registered mail (confirmation of receipt requested and
obtained) to The Bank of New York, 101 Barclay Street--21W, New York, New York
10286, (telephone: (212) 815-8387; telecopier: (212) 815-5802 or 815-5803) to
the attention of Vice President, Global Finance Unit (GFU), or at such other
address as may have been furnished in writing to the Company by the Collateral
Trustee.

     Section 11.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of each Grantor, the Collateral Trustee, all
Indemnitees hereunder, all future Holders and their respective successors and
assigns, except that no Grantor may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of the
Collateral Trustee.

     Section 11.7 WAIVERS AND AMENDMENTS. None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified unless
such waiver, amendment, supplement or modification is (i) evidenced by a written
instrument executed by each Grantor and the Collateral Trustee, provided that
any provision of this Agreement may be waived by the Collateral Trustee in a
written letter or agreement executed by the Collateral Trustee or by telex or
facsimile transmission from the Collateral Trustee and (ii) approved by the
Holders, if and to the extent required under Article Fifteen of the Indenture.
Any such amendment, supplement, modification or waiver shall be binding upon
each Grantor and the Collateral Trustee and all future Holders of the
Securities. In the case of any waiver, each Grantor and the Collateral Trustee
shall be restored to their former position and rights hereunder and under the
outstanding Secured Obligations, and any Default or Event of Default waived
shall be deemed to be cured and not continuing, but no such waiver shall extend
to any subsequent or other Default or Event of Default, or impair any right
consequent thereon.

                                       27
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     Section 11.8 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Collateral Trustee in exercising any right, power or privilege
hereunder and no course of dealing between any of the Grantors and the
Collateral Trustee shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Collateral Trustee of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy which
the Collateral Trustee would otherwise have on any future occasion. The rights
and remedies herein expressly provided are cumulative and may be exercised
singly or concurrently and as often and in such order as the Collateral Trustee
deems expedient and are not exclusive of any rights or remedies which the
Collateral Trustee would otherwise have whether by agreement or now or hereafter
existing under applicable law. No notice to or demand on a Grantor in any case
shall entitle such Grantor to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Collateral
Trustee to any other or further action in any circumstances without notice or
demand.

     Section 11.9 TERMINATION; RELEASE. When all of the Secured Obligations
have been indefeasibly paid in full this Agreement shall terminate and the
Collateral Trustee will execute and deliver to the respective Grantors, upon the
direction of the Trustee and at the expense of the Grantors, the proper
instruments (including UCC termination statements) acknowledging the termination
of this Agreement, and will duly assign, transfer and deliver to the Grantors,
at the expense of the Grantors and without recourse, representation or warranty
of any kind whatsoever (except with respect to the absence of any liens created
by or arising under the Collateral Trustee), such of the Collateral of the
respective Grantors as may be in possession of the Collateral Trustee and has
not theretofore been disposed of, applied or released PROVIDED, HOWEVER, if no
default or Event of Default exists, the Company and each Grantor's Accounts will
be automatically released from the Lien at such time as the Company has paid
five million dollars ($5,000,000) of the principal amount of the Series A Notes
in accordance with Section 3.05(c) or 3.06(b) of the Indenture and, upon the
direction of the Trustee and at the expense of the Grantors, the Collateral
Trustee will execute and deliver to the respective Grantors the proper
instruments acknowledging the termination of such Lien. Upon the release of any
Collateral pursuant to the terms of the Indenture, the Collateral Trustee will
promptly return (and in any event within 10 Business Days) to the Grantors any
Collateral so released that is held by or on behalf of the Collateral Trustee,
including, without limitation, any Pledged Stock and any and all instruments of
transfer or assignments in blank with respect thereto.

     Section 11.10 ADDITIONAL GRANTORS. If the Company or any Grantor
transfers or causes to be transferred, in one transaction or a series of related
transactions, any property to any Subsidiary that is not a Guarantor, or if the
Company or any of its Subsidiaries organizes, acquires or otherwise invests in
another Subsidiary, then such transferee or acquired or other Subsidiary shall
agree to be bound by this Security Agreement, provided that it shall not be
necessary to amend this Security Agreement to effectuate the addition of such
additional Guarantor.

     Section 11.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.

                                       28
<Page>

     Section 11.12 EFFECTIVENESS. This Agreement shall become effective on the
date on which a Grantor shall have signed a counterpart hereof and shall have
delivered the same to the Collateral Trustee.

     Section 11.13 HEADINGS DESCRIPTIVE. The headings of the several Sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.

     Section 11.4  SEVERABILITY. In case any provision in or obligation under
this Agreement or the Secured Obligations shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

     Section 11.15 SURVIVAL. All indemnities set forth herein shall survive the
execution and delivery of this Agreement and the making and repayment of the
Secured Obligations.

     Section 11.16 POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.

     Section 11.17 ACKNOWLEDGEMENT. The obligations of the Grantors
under this document are in addition to and are not in substitution of the
obligations of the Grantors under the Indenture, the Securities and the
Collateral Documents.

     Section 11.18 CONSENT TO SERVICE OF PROCESS.

          (a)      The Company irrevocably (i) agrees that any legal suit,
action or proceeding arising out of or based upon this Agreement may be
instituted in any federal or state court located in the City of New York, (ii)
waives, to the fullest extent permitted by law, any objection that it may now or
hereafter have to the laying of venue of any such proceeding, and any claim that
any suit, action or proceeding in such a court has been brought in an
inconvenient forum, and (iii) irrevocably submits to the nonexclusive
jurisdiction of such courts in any such suit, action or proceeding. Each of the
Company and the Grantors has appointed CT Corporation, as its authorized agent
(the "AUTHORIZED AGENT") upon whom process may be served in any suit, action or
proceeding arising out of or based on this Agreement which may be instituted in
any federal or state court located in the City of New York, expressly consents
to the jurisdiction of any such court in respect of any suit, action or
proceeding, and waives any other requirements of or objections to personal
jurisdiction with respect thereto. Such appointment shall be irrevocable. The
Company agrees to take any and all action, including the filing of any and all
documents and instruments, that may be necessary to continue such appointment in
full force and effect as aforesaid. Service of process upon the Authorized Agent
and written notice of such service to the Company or a Grantor shall be deemed,
in every respect, effective service of process upon the Company or such Grantor,
as applicable.

          (b)      To the extent that any of the Company and the Grantors have
or hereafter may acquire any immunity (sovereign or otherwise) from any legal
action, suit or proceeding, from jurisdiction of any court or from set-off or
any legal process (whether service or notice, attachment in aid or otherwise)
with respect to itself or any of its property, the Company and the

                                       29
<Page>

Grantors hereby irrevocably waive and agree not to plead or claim such immunity
in respect of their respective obligations under this Agreement.

     Section 11.19 INCORPORATION BY REFERENCE. All terms, covenants,
conditions, provisions and requirements of the Indenture are incorporated by
reference in this Agreement. In the event of any conflict between the provisions
of this Agreement and the provisions of the Indenture, the provisions of the
Indenture shall govern and control. The actions of the Collateral Trustee
hereunder are subject to the provisions of the Indenture. The Collateral Trustee
shall have the right hereunder to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking action
(including without limitation, the release or substitution of Collateral), in
each case in accordance with this Agreement and the Indenture. The Collateral
Trustee may resign and a successor Collateral Trustee may be appointed in the
manner provided in the Indenture. Upon the acceptance of any appointment as the
Collateral Trustee by a successor Collateral Trustee, such successor Collateral
Trustee shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Collateral Trustee under this
Agreement, and the retiring Collateral Trustee shall thereupon be discharged
from its duties and obligations under this Agreement. After any retiring
Collateral Trustee's resignation, the provisions of this Agreement shall inure
to its benefit as to any actions taken or omitted to be taken by it under this
Agreement while it was the Collateral Trustee.

                                       30
<Page>

     IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.

                              FLAG TELECOM GROUP LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Chairman

                              FLAG PACIFIC HOLDINGS LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                              FLAG PACIFIC LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                              FLAG PACIFIC CANADA LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG PACIFIC JAPAN LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Hiroshi Shibata
                                  Title:  Director

                                       31
<Page>

                              FLAG TELECOM SINGAPORE PTE. LIMITED

                              By:
                                  -------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM DEVELOPMENT LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                              FLAG TELECOM DEVELOPMENT SERVICES COMPANY LLC

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

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG ACCESS INDIA PRIVATE LTD.

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAGWEB LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                                       32
<Page>

                              FLAG TELECOM NETWORK SERVICES LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG TELECOM IRELAND LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG TELECOM JAPAN LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Hiroshi Shibata
                                  Title:  Director

                              FLAG TELECOM ESPANA SA

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM SERVIZI ITALIA SPA

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM IRELAND SERVICES LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                                       33
<Page>

                              FLAG TELECOM SERVICIOS S.A. DE C.V.

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM ARGENTINA SA

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM BRASIL HOLDINGS LTDA

                              By:
                                  ----------------------------------------------
                                  Name:    Clovis Rodrigues de Abreu
                                  Title:  Manager

                              FLAG TELECOM BRASIL LTDA

                              By:
                                  ----------------------------------------------
                                  Name:    Clovis Rodrigues de Abreu
                                  Title:  Manager

                              FLAG TELECOM IRELAND NETWORK LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG TELECOM NETWORK USA LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                                       34
<Page>

                              FLAG TELECOM DEUTSCHLAND NETWORK GMBH

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM NEDERLAND NETWORK BV

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM BELGIUM NETWORK SA

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM AUSTRIA NETWORK GMBH

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM NORWAY NETWORK AS

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM FRANCE NETWORK SAS

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                                       35
<Page>

                              FLAG TELECOM ESPANA NETWORK SAU

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM GLOBAL NETWORK LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                              FLAG TELECOM ASIA LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Owen Best
                                  Title:  Director

                              FLAG TELECOM FRANCE SERVICES EURL

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM DEUTSCHLAND GMBH

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG TELECOM NEDERLAND BV

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                                       36
<Page>

                              FLAG TELECOM HELLAS AE

                              By:
                                  ----------------------------------------------
                                  Name:   Edward McCormack
                                  Title:   Director

                              FLAG TELECOM AUSTRIA GMBH

                              By:
                                  ----------------------------------------------
                                  Name:   Edward McCormack
                                  Title:   Director

                              FLAG ASIA HOLDINGS LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:   Kees van Ophem
                                  Title:   Assistant Secretary

                              FLAG TELECOM TAIWAN SERVICES LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:   Owen Best
                                  Title:   Director

                              FLAG HOLDINGS (TAIWAN) LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Eric Yih
                                  Title:  Director

                              FLAG TELECOM TAIWAN LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Eric Yih
                                  Title:  Director

                                       37
<Page>

                              FLAG ATLANTIC UK LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG ATLANTIC FRANCE SARL

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              FLAG LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                              FLAG PACIFIC USA LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG TELECOM GROUP SERVICES LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

                                       38
<Page>

                              FLAG TELECOM LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Edward McCormack
                                  Title:  Director

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG TELECOM USA LTD.

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Secretary

                              FLAG ASIA LIMITED

                              By:
                                  ----------------------------------------------
                                  Name:    Kees van Ophem
                                  Title:  Assistant Secretary

Acknowledged and Agreed:
THE BANK OF NEW YORK,
as Collateral Trustee and Trustee

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

                                       39
<Page>

                                                                         ANNEX I

<Table>
<Caption>
                                   Jurisdiction of
             Grantor                Incorporation                               Collateral
--------------------------------------------------------------------------------------------------------------------
<S>                                 <C>               <C>
FLAG Telecom Group Limited             Bermuda        1.  Common stock of FLAG Telecom Singapore Pte. Limited, FLAG
                                                      Telecom Development Limited, FLAG Limited, FLAG Telecom Group
                                                      Services Limited, FLAG Telecom Global Network Limited and
                                                      FLAG Asia Holdings Limited
                                                      2.  Deposit Accounts
                                                      3.  Intercompany notes and receivables
                                                      4.  Proceeds from the claims in the Teleglobe bankruptcy

FLAG Pacific Holdings Limited          Bermuda        None

FLAG Pacific Limited                   Bermuda        None

FLAG Pacific Canada Limited         New Brunswick     None

FLAG Pacific Japan Limited              Japan         None

FLAG Telecom Singapore Pte.           Singapore       None
Limited

FLAG Telecom Development               Bermuda        1.  Common stock of FLAGWEB Limited and FLAG Telecom Network
Limited                                               Services Limited

FLAG Telecom Development                Egypt         None
Services Company LLC

FLAG Access India Private Ltd.          India         None

FLAGWEB Limited                        Bermuda        None

FLAG Telecom Network Services          Ireland        1.  Common stock of FLAG Telecom Ireland Limited
Limited
</Table>

                                       I-1
<Page>

<Table>
<Caption>
                                   Jurisdiction of
             Grantor                Incorporation                               Collateral
--------------------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>
FLAG Telecom Ireland Limited           Ireland        1.  Common stock of FLAG Telecom Japan Limited, FLAG Telecom
                                                      Espana SA, FLAG Telecom Servizi Italia SpA, FLAG Telecom
                                                      Ireland Network Limited.
                                                      2.  Intercompany notes and receivables
                                                      3.  Receivables

FLAG Telecom Espana SA                  Spain         None

FLAG Telecom Servizi Italia SpA         Italy         None

FLAG Telecom Ireland Services          Ireland        None
Limited

FLAG Telecom Servicios S.A. de         Mexico         None
C.V.

FLAG Telecom Argentina SA             Argentina       None

FLAG Telecom Brasil Holdings           Brazil         None
Ltda

FLAG Telecom Brasil Ltda               Brazil         None

FLAG Telecom Ireland Network           Ireland        1.  Common stock of FLAG Telecom Network USA Limited, FLAG
Limited                                               Telecom Switzerland Network AG, FLAG Telecom Norway Network
                                                      AS, FLAG Telecom France Network SAS and FLAG Telecom Espana
                                                      Network SAS
                                                      2.  Terrestrial switching equipment located in Europe
                                                      3.  Backhaul contracts related to terrestrial switching
                                                      equipment located in Europe
                                                      4.  Bank accounts
</Table>

                                       I-2
<Page>

<Table>
<Caption>
                                   Jurisdiction of
             Grantor                Incorporation                               Collateral
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>
FLAG Telecom Network USA               Delaware       1.  Landing stations in New York
Limited                                               2.  Backhaul agreements related to equipment located in the
                                                      United States
                                                      3.  Terrestrial assets located in the United States that were
                                                      part of Atlantic Group
                                                      4.  Bank accounts

FLAG Telecom Deutschland               Germany        None
Network GmbH

FLAG Telecom Nederland Network     The Netherlands    None

BV

FLAG Telecom Belgium Network SA        Belgium        None

FLAG Telecom Switzerland             Switzerland      None
Network AG

FLAG Telecom Austria Network           Austria        None
GmbH

FLAG Telecom Norway Network AS         Norway         None

FLAG Telecom France Network SAS        France         None

FLAG Telecom Espana Network SAU         Spain         None

FLAG Telecom Global Network            Bermuda        1.  Common stock of FLAG Atlantic UK Limited and FLAG
Limited                                               Atlantic France SARL
                                                      2.  Transpacific IRUs
                                                      3.  Intercompany notes and receivables
                                                      4.  Receivables
                                                      5.  Bank accounts
                                                      6.  FA-1 cable

FLAG Telecom Asia Limited             Hong Kong       None
</Table>

                                       I-3
<Page>

<Table>
<Caption>
                                   Jurisdiction of
             Grantor                Incorporation                               Collateral
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>
FLAG Telecom France Services           France         None
Eurl

FLAG Telecom Deutschland GmbH          Germany        None

FLAG Telecom Nederland BV          The Netherlands    None

FLAG Telecom Hellas AE                 Greece         None

FLAG Telecom Austria GmbH              Austria        None

FLAG Asia Holdings Limited             Bermuda        1.  Common stock of FLAG Asia Limited

FLAG Telecom Taiwan Services           Taiwan         None
Limited

FLAG Holdings (Taiwan) Limited         Taiwan         None

FLAG Telecom Taiwan Limited            Taiwan         None

FLAG Atlantic UK Limited           United Kingdom     1.  Terrestrial equipment in located United Kingdom
                                                      2.  Backhaul contracts related to terrestrial equipment
                                                      located in United Kingdom

FLAG Atlantic France SARL              France         None

FLAG Limited                           Bermuda        1.  Common stock of FLAG Pacific USA Limited
                                                      2.  FEA cable
                                                      3.  Transpacific IRUs
                                                      4.  Intercompany notes and receivables
                                                      5.  Receivables
                                                      6.  Bank accounts

FLAG Pacific USA Limited              Delaware        None
</Table>

                                       I-4
<Page>

<Table>
<Caption>
                                   Jurisdiction of
             Grantor                Incorporation                               Collateral
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>
FLAG Telecom Group Services           Bermuda         1.  Common stock of FLAG Telecom Limited and FLAG Telecom USA
Limited                                               Ltd.
                                                      2.  Bank accounts

FLAG Telecom Limited               United Kingdom     1.  Cash deposits with landlords
                                                      2.  Offices in London and Heathrow
                                                      3.  Equipment in offices in London and Heathrow
                                                      4.  Bank accounts

FLAG Telecom USA Ltd.                 Delaware        None

FLAG Asia Limited                     Bermuda         1.  The portion of FLAG Asia Limited's interest in the FNAL
                                                      cable that is not pledged pursuant to the Security Agreement
                                                      dated as of October __, 2002 among FLAG Asia Limited, Seoul
                                                      Telenet Inc., FLAG Telecom Asia Limited and FLAG Telecom
                                                      Japan Limited, and Wilmington Trust Company as Collateral
                                                      Agent on behalf of and as collateral agent for itself and
                                                      Alcatel Submarine Networks, S.A
                                                      2.  Terrestrial equipment for FNAL, including Taiwan and Korea
                                                      3.  Backhaul contracts related to terrestrial equipment for
                                                      FNAL, including in Taiwan and Korea
                                                      4.  Intercompany notes and receivables
                                                      5.  Receivables
                                                      6.  Bank accounts
                                                      7.  Common stock of Seoul Telenet Inc.
</Table>

                                       I-5
<Page>

                                                                        ANNEX II

                            ACCOUNT CONTROL AGREEMENT

     AGREEMENT dated as of _________, 2002, among _____________ (the "COMPANY"),
and Bank of New York, as collateral trustee (the "COLLATERAL TRUSTEE"), and
[name of bank holding the account] (the "INTERMEDIARY").

     Intermediary represents and warrants to the Collateral Trustee that
Intermediary maintains Account No. ________ in the name of the Company (the
"ACCOUNT"). The parties hereto refer to the Account and hereby agree as follows:

     1.   The Company and the Collateral Trustee notify Intermediary that by
separate security agreement between the Company and the Collateral Trustee dated
as of _______,__ 2002 (the "SECURITY AGREEMENT") the Company has granted the
Collateral Trustee a security interest in the Account and any and all money,
instruments and other property from time to time deposited therein or credited
thereto, including all interest accruing thereon (collectively, "ITEMS").
Intermediary acknowledges that, as of the date hereof, it has not received
notice of any restraint, security interest, lien or other adverse claim in or to
the Account or any item therein.

     2.   The respective rights and duties of the Collateral Trustee, the
Company and the Intermediary regarding control of the Account shall be as
follows:

          (a)     The Intermediary shall comply with any instructions originated
by the Collateral Trustee directing disposition of the items in the Account
without further consent by the Company.

          (b)     The Intermediary may rely on a written notice from the
Collateral Trustee (an "ACCELERATION CERTIFICATION") that an Event of Default as
defined in the Security Agreement has occurred and is continuing. The
Acceleration Certification shall state an effective date (which shall be no
earlier than the date it is delivered to the Intermediary) and may include a
demand that the Intermediary thereafter recognize the exclusive control by the
Collateral Trustee over the Account (including all items then held in the
Account), plus any and all items or amounts subsequently deposited or
transferred into the Account. The Collateral Trustee shall simultaneously
provide a copy of the Acceleration Certification to the Company by notice in
accordance with Section 6 hereof.

          (c)     Upon receipt of the Acceleration Certification, the
Intermediary shall follow all instructions of the Collateral Trustee regarding
the Account, and shall not allow withdrawals from or transfers out of the
Account by or at the direction of the Company, whether by check, draft, written
or other instruction, or other device or instrument.

          (d)     The Intermediary is authorized and shall be directed to accept
the Acceleration Certification from Collateral Trustee without obligation to
independently verify the correctness thereof.

                                      II-1
<Page>

          (e)     Until such time as the Intermediary has received an
Acceleration Certification from the Collateral Trustee, the Collateral Trustee
hereby agrees and consents that the Company shall be entitled to withdraw or
receive items from the Account as it may elect, and that the Intermediary shall
have no liability to Collateral Trustee for having released such items to, or
upon the direction of, the Company prior to the receipt by the Intermediary of
an Acceleration Certification in accordance with this Section 2.

          (f)     Except as expressly provided in this Agreement, the
Intermediary shall have no responsibility or liability to any party for
determining or verifying the occurrence of any event or circumstance or the
satisfaction of any condition giving rise to any order or other direction of or
by the Collateral Trustee. The parties hereto acknowledge that, notwithstanding
any other provision of this Agreement, the Intermediary shall have no
responsibility or liability for monitoring or determining compliance by any
party with the provisions of the Security Agreement or any other agreement
between the Company and the Collateral Trustee and to which the Intermediary is
not a party.

          (g)     Intermediary shall send copies of all statements and
confirmations for the Account to the Collateral Trustee and the Company.
Intermediary will use reasonable efforts promptly to notify the Collateral
Trustee and the Company if any other person claims that it has a property
interest in property in the Account and that it is a violation of that person's
rights for anyone else to hold, transfer or deal with the property.

     3.   Intermediary (a) waives, releases and agrees not to assert, exercise
or claim any lien, encumbrance, right (including setoff rights) or other claim
against the Account or any cash balance, funds or other item therein, and (b)
shall neither advance margin or other credit against the Account, nor
hypothecate any items carried in the Account, without the prior written consent
of the Collateral Trustee. Intermediary shall not agree with any other person or
entity that it will comply with any withdrawal, delivery, transfer, payment and
redemption instructions, or any other entitlement or other orders, from such
person or entity concerning the Account or any items therein without the prior
written consent of the Collateral Trustee and any such agreement entered into
without such consent shall be null and void.

     4.   Anything to the contrary in this Agreement notwithstanding, (i)
Intermediary shall have only the duties and responsibilities expressly set forth
in writing herein, (ii) Intermediary shall be fully protected in acting or
refraining from acting in good faith on any written notice, instruction or
request purportedly furnished to it by the Collateral Trustee in accordance with
the terms hereof, in which case the parties hereto agree that Intermediary has
no duty to make any further inquiry whatsoever, (iii) Intermediary shall not be
liable to any party hereto or any other person for any action or failure to act
under or in connection with this Agreement except for its own willful misconduct
or gross negligence (and, to the maximum extent permitted by law, shall under no
circumstances be liable for indirect, special, punitive or consequential
damages) and (iv) the Company hereby indemnifies Intermediary for, and holds
Intermediary harmless against, any loss, cost, liability or expense (including
reasonable inside or outside counsel fees and disbursements) incurred or
suffered by Intermediary arising out of or in connection with this Agreement or
the Account, except as may result from its willful misconduct or gross
negligence.

                                      II-2
<Page>

     5.   Intermediary may terminate this Agreement upon the sending of at least
thirty (30) days' advance written notice to the other parties hereto. Any other
termination or any amendment or waiver of this Agreement shall be effected
solely by an instrument in writing executed by all the parties hereto.

     6.   All notices shall be in writing and sent (including via facsimile
transmission) to the parties hereto at their respective addresses or fax number
(or to such other address or fax number as any such party shall designate in
writing to the other parties from time to time):

          the Collateral Trustee:

               [To be added]
               Attention:
               Facsimile No.:

          Company:

               [Company]
               ___________________________
               ___________________________
               Attention:  _______________
               Facsimile No.:  ___________

          With a copy to:

               Gibson, Dunn & Crutcher LLP
               Attention:  Conor Reilly
               200 Park Avenue
               New York, New York  10166-0193
               Facsimile No.:  (212) 351-4035

          Intermediary:

               [To be added]
               Attention:
               Facsimile No.:

     7.   This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument and shall become effective when
counterparts hereof have been signed by the parties hereto. This Agreement and
the Account and all agreements relating thereto shall be governed by and
construed in accordance with the internal laws of the State of New York without
giving effect to conflict of laws provisions that would require the application
of any other law and New York shall be the Intermediary's jurisdiction for
purposes of Section 9-304(b) of the Uniform Commercial Code. It is expressly
agreed that this Agreement supersedes the provisions of any other agreement
relating to the Account or any item therein to the extent inconsistent herewith.

                                      II-3
<Page>

     8.   With respect to any actions, claims, or proceedings ("PROCEEDINGS")
relating to this Agreement, each party irrevocably (i) submits to the
non-exclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in New York City and
(ii) waives any objection which it may have at any time to the laying of venue
of any Proceedings brought in any such court, waives any claim that such
Proceedings have been brought in an inconvenient forum and further waives the
right to object, with respect to such Proceedings that such court does not have
jurisdiction over such party. Nothing in this Agreement precludes a party from
bringing Proceedings in any other jurisdiction nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction. Each party hereby irrevocably waives any
and all right to trial by jury in any Proceedings.

     9.   To the extent a provision of this Agreement is unenforceable, this
Agreement will be construed as if the unenforceable provision were omitted.

     10.  Intermediary and the Collateral Trustee agree that the individuals
whose names and specimen signatures are from time to time furnished to
Intermediary by the Collateral Trustee are authorized to give notices or orders
under the terms of this Agreement ("AUTHORIZED PERSONS"), until such authority
is revoked in writing by the Collateral Trustee. The names and specimen
signatures of Authorized Persons on the date hereof are set forth on Exhibit A
hereto.

     11.  A successor to or assignee of the Collateral Trustee's rights and
obligations under the Security Agreement between the Collateral Trustee and the
Company will succeed to the Collateral Trustee's rights and obligations under
this Agreement.

                                      II-4
<Page>

     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.

                                      [COMPANY]

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

                                      THE BANK OF NEW YORK

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

                                      BANK

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

                                      II-5
<Page>

                                                                       EXHIBIT A

                               AUTHORIZED PERSONS

               Name                                       Signature

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

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

                                       A-1
<Page>

                                                                    SCHEDULE 3.2

                   FILING OFFICES FOR UCC FINANCING STATEMENTS

     DISTRICT OF COLUMBIA for: FLAG Telecom Group Limited, FLAG Telecom
Development Limited, FLAG Telecom Network Services Limited, FLAG Telecom Ireland
Limited, FLAG Telecom Ireland Network Limited, FLAG Telecom Global Network
Limited, FLAG Asia Holdings Limited, FLAG Atlantic UK Limited, FLAG Limited,
FLAG Telecom Group Services Limited, FLAG Telecom Limited, FLAG Asia Limited

     DELAWARE for: FLAG Telecom Network USA Limited

                                      3.2-1
<Page>

                                                                    SCHEDULE 3.3

                               SECURITY COLLATERAL

                                     PART I

<Table>
<S>                                                                                  <C>
Common stock of FLAG Telecom Singapore Pte. Limited                                    100%

Common stock of FLAG Telecom Development Limited                                       100%

Common stock of FLAG Limited                                                           100%

Common stock of FLAG Telecom Group Services Limited                                    100%

Common stock of FLAG Telecom Global Network Limited                                    100%

Common stock of FLAG Asia Holdings Limited                                             100%

Common stock of FLAG Telecom Development Services Company LLC (Egypt)                  100%

Common stock of FLAGWEB Limited                                                        100%

Common stock of FLAG Telecom Network Services Limited                                  100%

Common stock of FLAG Telecom Japan Limited                                             100%

Common stock of FLAG Telecom Espana SA                                                 100%

Common stock of FLAG Telecom Servizi Italia SpA                                        100%

Common stock of FLAG Telecom Ireland Network Limited                                   100%

Common stock of FLAG Telecom Network USA Limited                                       100%

Common stock of FLAG Telecom Deutschland Network GmbH                                  100%

Common stock of FLAG Telecom Nederland Network BV                                      100%

Common stock of FLAG Telecom Belgium Network SA                                        100%

Common stock of FLAG Telecom Switzerland Network AG                                  99.98%

Common stock of FLAG Telecom Norway Network AS                                         100%

Common stock of FLAG Telecom France Network SAS                                        100%

Common stock of FLAG Telecom Espana Network SAS                                        100%
</Table>

                                      3.3-1
<Page>

<Table>
<S>                                                                                    <C>
Common stock of FLAG Atlantic UK Limited                                               100%

Common stock of FLAG Atlantic France SARL                                              100%

Common stock of FLAG Asia Limited                                                      100%

Common stock of FLAG Telecom Taiwan Limited                                             80%

Common stock of FLAG Pacific USA Limited                                               100%

Common stock of FLAG Telecom Limited                                                   100%

Common stock of FLAG Telecom USA Ltd.                                                  100%

Common stock of FLAG Telecom Asia Limited                                              100%

Common stock of FLAG Telecom Deutschland GmbH                                          100%

Common stock of FLAG Telecom Nederland BV                                              100%

Common stock of FLAG Telecom Hellas AE                                                 100%

Common stock of FLAG Telecom Austria GmbH                                              100%

Common stock of Seoul Telenet Inc.                                                      49%

Common stock of FLAG Holdings (Taiwan) Limited                                          50%

Common stock of FLAG Pacific Holdings Limited                                          100%

Common stock of FLAG Pacific Limited                                                   100%

Common stock of FLAG Pacific Canada Limited                                            100%

Common stock of FLAG Pacific Japan Limited                                             100%

Common stock of FLAG Access India Private Limited                                      100%

Common stock of FLAG Telecom Ireland Limited                                           100%

Common stock of FLAG Telecom Ireland Services Limited                                  100%

Common stock of FLAG Telecom Servicios Sa De CV                                        100%

Common stock of FLAG Telecom Argentina SA                                              100%

Common stock of FLAG Telecom Brasil Holdings Ltda                                      100%

Common stock of FLAG Telecom Brasil Ltda                                               100%
</Table>

                                      3.3-2
<Page>

<Table>
<S>                                                                                    <C>
Common stock of FLAG Telecom Austria Network GmbH                                      100%

Common stock of FLAG Telecom France Services Eurl                                      100%

Common stock of FLAG Telecom Korea Limited                                             100%

Common stock of FLAG Telecom Taiwan Services Limited                                   100%
</Table>

                                     PART II

Pledged Notes

     None.

                                      3.3-3
<Page>

                                                                    SCHEDULE 3.4

                         JURISDICTIONS OF INCORPORATION
                                       AND
                      LOCATIONS OF CHIEF EXECUTIVE OFFICES

<Table>
<Caption>
                                                              Jurisdiction of       Location of Chief
Grantor                                                        Incorporation         Executive Office
-------                                                       ---------------       -----------------
<S>                                                            <C>                      <C>
FLAG Pacific Holdings Limited                                    Bermuda                Hamilton

FLAG Pacific Limited                                             Bermuda                Hamilton

FLAG Pacific Canada Limited                                    New Brunswick             London

FLAG Pacific Japan Limited                                        Japan                   Tokyo

FLAG Telecom Singapore Pte. Limited                             Singapore               Singapore

FLAG Telecom Development Limited                                 Bermuda                Hamilton

FLAG Telecom Development Services Company LLC                     Egypt                   Cairo

FLAG Access India Private Ltd.                                    India                  London

FLAGWEB Limited                                                  Bermuda                Hamilton

FLAG Telecom Network Services Limited                            Ireland                 Dublin

FLAG Telecom Ireland Limited                                     Ireland                 Dublin

FLAG Telecom Japan Limited                                        Japan                   Tokyo

FLAG Telecom Espana SA                                            Spain                  Madrid

FLAG Telecom Servizi Italia SpA                                   Italy                   Rome

FLAG Telecom Ireland Services Limited                            Ireland                 Dublin

FLAG Telecom Servicios S.A. de C.V.                              Mexico                  London

FLAG Telecom Argentina SA                                       Argentina                London

FLAG Telecom Brasil Holdings Ltda                                Brazil                  London

FLAG Telecom Brasil Ltda                                         Brazil                  London
</Table>

                                      3.4-1
<Page>

<Table>
<Caption>
                                                              Jurisdiction of       Location of Chief
Grantor                                                        Incorporation         Executive Office
-------                                                       ---------------       -----------------
<S>                                                           <C>                       <C>
FLAG Telecom Ireland Network Limited                             Ireland                 Dublin

FLAG Telecom Network USA Limited                                Delaware                New York

FLAG Telecom Deutschland Network GmbH                            Germany                Frankfurt

FLAG Telecom Nederland Network BV                             The Netherlands            London

FLAG Telecom Belgium Network SA                                  Belgium                 London

FLAG Telecom Switzerland Network AG                            Switzerland               London

FLAG Telecom Austria Network GmbH                                Austria                 London

FLAG Telecom Norway Network AS                                   Norway                  London

FLAG Telecom France Network SAS                                  France                   Paris

FLAG Telecom Espana Network SAU                                   Spain                  Madrid

FLAG Telecom Global Network Limited                              Bermuda                Hamilton

FLAG Telecom Asia Limited                                        Bermuda                Hamilton

FLAG Telecom France Services Eurl                                France                   Paris

FLAG Telecom Deutschland GmbH                                    Germany                Frankfurt

FLAG Telecom Services Italia Srl                                  Italy                   Rome

FLAG Telecom Nederland BV                                     The Netherlands            London

FLAG Telecom Hellas AE                                           Greece                  London

FLAG Telecom Austria GmbH                                        Austria                 London

FLAG Asia Holdings Limited                                       Bermuda                Hamilton

FLAG Telecom Taiwan Services Limited                             Taiwan                  Taipei

FLAG Holdings (Taiwan) Limited                                   Taiwan                  Taipei

FLAG Telecom Taiwan Limited (in incorporation)                   Taiwan                  Taipei

FLAG Atlantic UK Limited                                      United Kingdom             London
</Table>

                                      3.4-2
<Page>

<Table>
<Caption>
                                                              Jurisdiction of       Location of Chief
Grantor                                                        Incorporation         Executive Office
-------                                                       ---------------       -----------------
<S>                                                           <C>                       <C>
FLAG Atlantic France SARL                                        France                   Paris

FLAG Limited                                                     Bermuda                Hamilton

FLAG Pacific USA Limited                                        Delaware                New York

FLAG Telecom Group Services Limited                              Bermuda                Hamilton

FLAG Telecom Limited                                          United Kingdom             London

FLAG Telecom USA Ltd.                                           Delaware                New York

FLAG Asia Limited                                                Bermuda                Hamilton
</Table>

                                      3.4-3
<Page>

                                                                    SCHEDULE 3.5

                      LOCATIONS OF EQUIPMENT AND INVENTORY

<Table>
<Caption>
Locations of Equipment:                  Locations of Inventory:
----------------------                  ----------------------
     <S>                                      <C>
     United States                            United States

     China                                    China

     India                                    India

     Japan                                    Japan

     Korea                                    Korea

     Malaysia                                 Malaysia

     Taiwan                                   Taiwan

     Egypt                                    Egypt

     Iran                                     Iran

     Belgium                                  Belgium

     France                                   France

     Germany                                  Germany

     Italy                                    Italy

     The Netherlands                          The Netherlands

     Spain                                    Spain

     United Kingdom                           United Kingdom

     Thailand                                 Philippines

     Singapore                                United Arab Emirates

     United Arab Emirates                     Singapore

     Turkey                                   Thailand

     Ireland                                  Saudi Arabia

     Pakistan                                 Jordan

     Saudi Arabia

     Jordan
</Table>

                                      3.5-1
<Page>

                                                                   SCHEDULE 3.8a

                              INTELLECTUAL PROPERTY

                                     PATENTS

                                      None

                                   TRADEMARKS

                                      None

                                   COPYRIGHTS

                                      None

                                     3.8a-1
<Page>

                                                                    SCHEDULE 3.9

                                DEPOSIT ACCOUNTS

<Table>
<Caption>
Account Name                                     Bank Name                                    Bank Domiciled
------------                                     ---------                                    --------------
<S>                                              <C>                                          <C>
FLAG Access India Private Limited                Bank of America                              New Delhi, India

FLAG Asia Holdings Limited                       Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Asia Limited                                Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Asia Limited                                Barclays Bank plc                            New York

FLAG Asia Limited                                Korea Exchange Bank, Securities              Seoul, Korea
                                                 Service Division

FLAG Asia Ltd                                    Citibank, N.A.                               New York

FLAG Atlantic France SARL                        Barclays Bank plc                            Paris

FLAG Atlantic UK Ltd                             Barclays Bank plc                            London

FLAG Atlantic UK Ltd                             Citibank, N.A.                               New York

FLAG Holdings Taiwan Limited                     Taiwan Business Bank                         Taipei, Taiwan

FLAG Ltd                                         Barclays Bank plc                            London

FLAG Ltd                                         Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Ltd                                         HSBC                                         Bangkok, Thailand

FLAG Ltd                                         Lloyds Bank plc                              Dubai

FLAG Ltd                                         Standard Chartered Bank                      Dubai

FLAG Ltd - Spain branch Sucursal en              Barclays Bank SA                             Madrid, Spain
Espagna
</Table>

                                      3.9-1
<Page>

<Table>
<Caption>
Account Name                                     Bank Name                                    Bank Domiciled
------------                                     ---------                                    --------------
<S>                                              <C>                                          <C>
FLAG Pacific Holdings Limited                    Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Pacific Holdings Limited                    Bank of Bermuda                              Hamilton, Bermuda

FLAG Pacific Limited                             Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Telecom Asia Ltd                            Citibank, N.A.                               New York

FLAG Telecom Asia Ltd - Beijing Rep Office       Bank of China                                Beijing, China

FLAG Telecom Asia Ltd - Liaison Office           Bank of America                              New Delhi, India

FLAG Telecom Asia Ltd.                           Bank of America                              Central, Hong Kong

FLAG Telecom Austria GmbH                        Raiffeisen Zentralbank Osterreich AG         Austria

FLAG Telecom Austria Network GmbH                Raiffeisen Zentralbank Osterreich AG         Austria

FLAG Telecom Belgium Network SA                  Banque Brussels Lambert                      Brussels, Belgium

FLAG Telecom Deutschland GmbH                    Barclays Bank plc                            Frankfurt

FLAG Telecom Deutschland Network GmbH            Barclays Bank plc                            Frankfurt

FLAG Telecom Development Services                Cairo Barclays Bank                          Cairo, Egypt
Company LLC

FLAG Telecom Espana Networks SA                  Barclays Bank SA                             Madrid, Spain

FLAG Telecom Espana SA                           Barclays Bank SA                             Madrid, Spain

FLAG Telecom France Network SAS                  Barclays Bank plc                            Paris
</Table>

                                      3.9-2
<Page>

<Table>
<Caption>
Account Name                                     Bank Name                                    Bank Domiciled
------------                                     ---------                                    --------------
<S>                                              <C>                                          <C>
FLAG Telecom France Services Eurl                Barclays Bank plc                            Paris

FLAG Telecom Global Network Limited              Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Telecom Group Services Ltd                  Barclays Bank plc                            London

FLAG Telecom Group Services Ltd                  Bermuda Commercial Bank Ltd                  Hamilton, Bermuda

FLAG Telecom Group Services Ltd                  Citibank, N.A.                               New York

FLAG Telecom Hellas S.A.                         Piraeus Bank                                 Athens, Greece

FLAG Telecom Ireland Ltd                         Barclays Bank plc                            Dublin, Ireland

FLAG Telecom Ireland Ltd                         Barclays Bank SA                             Madrid, Spain

FLAG Telecom Ireland Network Ltd                 Barclays Bank plc                            Dublin, Ireland

FLAG Telecom Japan Ltd                           Mitsui-Sumitomo Bank                         Tokyo, Japan

FLAG Telecom Japan Ltd                           Citibank, N.A.                               New York

FLAG Telecom Ltd.                                Barclays Bank plc                            London

FLAG Telecom Ltd.                                Citibank, N.A.                               New York

FLAG Telecom Ltd.                                HSBC                                         London

FLAG Telecom Nederland B.V.                      Fortis Bank (Nederland) N.V.                 Rotterdam, Netherlands

FLAG Telecom Nederland Network B.V.              Fortis Bank (Nederland) N.V.                 Rotterdam, Netherlands

FLAG Telecom Network Services Ltd                Barclays Bank plc                            Dublin, Ireland

FLAG Telecom Network USA Ltd (Delaware)          Citibank, N.A.                               New York
</Table>

                                      3.9-3
<Page>

<Table>
<Caption>
Account Name                                     Bank Name                                    Bank Domiciled
------------                                     ---------                                    --------------
<S>                                              <C>                                          <C>
FLAG Telecom Norway Network AS                   Den Norske Bank                              Norway

FLAG Telecom Servizi Italy S.p.a.                Banca Commerciale Italiana                   Italy

FLAG Telecom Singapore Pte Ltd                   Citibank, N.A.                               Singapore

FLAG Telecom Singapore Pte Ltd                   Barclays Bank plc                            Singapore

FLAG Telecom Switzerland Network AG              Credit Suisse                                Zurich, Switzerland

FLAG Telecom Taiwan Limited                      Taiwan Business Bank                         Taipei, Taiwan

FLAG Telecom Taiwan Services Limited             Taiwan Business Bank                         Taipei, Taiwan

FLAG Telecom USA Ltd                             Bank of America                              Charlotte, NC

FLAG Telecom USA Ltd                             Barclays Bank plc                            New York

FLAG Telecom USA Ltd (FTGSL)                     Barclays Bank plc                            New York

Studio di Consulenza Legale e                    Banca Popolare Commercio e                   Milan, Italy
Tributaria                                       Industria
</Table>

                                      3.9-4
<Page>

                                                                   SCHEDULE 3.10

                           FORECLOSURE VALUE OF ASSETS

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                        <C>
1.   FLAG Telecom Group    Stock in subsidiaries (FLAG Acquisition     Subsidiaries                 see each subsidiary
     Limited (Bermuda)     No. 1 Corporation, FLAG Pacific Holdings    incorporated in
                           Limited, FLAG Telecom Singapore Pte.        Delaware, Singapore and
                           Limited, FLAG Telecom Development           Bermuda
                           Limited, FLAG Limited, FLAG Telecom Group
                           Services Limited, FLAG Telecom Global
                           Network Limited and FLAG Asia Holdings
                           Limited)

                           Bank accounts                               New York, UK, Bermuda,      estimated balance at
                                                                       Italy                         Effective Date of
                                                                                                        $72,000,000

                           Intercompany receivables                                                         $0

                           Common law intellectual property rights     various                              $0
                           in trade names, marks, logos and related
                           property

                           Claim in Teleglobe bankruptcy               Delaware cases pending     impossible to ascertain
                                                                                                  (probably close to $0)

2.   FLAG Acquisition      No assets                                   n/a                                  n/a
     No. 1 Corporation
     (Delaware)

3.   FLAG Pacific          Stock in subsidiary (FLAG Pacific Limited)  Subsidiary incorporated        see subsidiary
     Holdings Limited                                                  in Bermuda
     (Bermuda)

                           Bank account                                Bermuda                              $0

4.   FLAG Pacific          Stock in subsidiaries (FLAG Pacific         Subsidiaries                  see subsidiaries
     Limited (Bermuda)     Canada Limited and FLAG Pacific Japan       incorporated in Canada
                           Limited)                                    and Japan

                           Bank account                                Bermuda                              $0

5.   FLAG Pacific Canada   Virtually no assets                         n/a                                  $0
     Limited (New
     Brunswick)

6.   FLAG Pacific Japan    Virtually no assets                         n/a                                  $0
     Limited (Japan)
</Table>

                                     3.10-1
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                           <C>
7.   FLAG Telecom          PoP and related equipment                   Singapore                          $50,000
     Singapore Pte.
     Limited (Singapore)   Contractual backhaul rights                 Singapore                          $50,000

                           FF&E / leasehold improvements for office    Singapore                     de minimis amount

                           License                                     Singapore                            $0

                           Bank account                                Singapore                     de minimis amount

                           Service agreement for lease of office       Singapore                            $0

8.   FLAG Telecom          Stock in subsidiaries (FLAG Telecom         Subsidiaries                  see subsidiaries
     Development Limited   Development Services Company LLC, FLAG      incorporated in Egypt,
     (Bermuda)             Access India Private Ltd., FLAGWEB          India, Bermuda and
                           Limited and FLAG Telecom Network Services   Ireland
                           Limited)

9.   FLAG Telecom          Bank account                                Egypt                         de minimis amount
     Development
     Services Company
     LLC (Egypt)           FF&E / leasehold improvements for office    Egypt                         de minimis amount

10.  FLAG Access India     Bank account                                India                                $0
     Private Ltd (India)

11.  FLAGWEB Limited       Common law intellectual property rights     various                              $0
     (Bermuda)             in trade names, marks, logos and related
                           property

12.  FLAG Telecom          Stock in subsidiary (FLAG Telecom Ireland   Subsidiary incorporated        see subsidiary
     Network Services      Limited)                                    in Ireland
     Limited (Ireland)
                           Bank account                                Ireland                       de minimis amount

13.  FLAG Telecom          Stock in subsidiaries (FLAG Telecom         Subsidiaries                  see subsidiaries
     Ireland Limited       Ireland Network Limited, FLAG Telecom       incorporated in Japan,
     (Ireland)             Japan Limited, FLAG Telecom Espana SA,      Spain, Italy, Ireland,
                           FLAG Telecom Servizi Italia SpA, FLAG       Mexico, Argentina,
                           Telecom Ireland Services Limited, FLAG      Brazil
                           Telecom Servicios SA de CV, FLAG Telecom
                           Argentina SA and FLAG Telecom Brasil
                           Holdings Ltda.)

                           Leases for offices                          Turkey, Ireland, Italy,              $0
                                                                       Spain

                           FF&E / leasehold improvements for offices   Turkey, Ireland, Italy,       de minimis amount
                                                                       Spain
</Table>

                                     3.10-2
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                        <C>
                           Licenses                                    Ireland, Italy, Japan                $0

                           Intercompany receivables                                                         $0

                           Accounts receivable                         Ireland                           $400,000

                           Customer contracts                          various                    de minimis value (value
                                                                                                    is in receivables)

                           Bank accounts                               Ireland, Spain                de minimis amount

14.  FLAG Telecom Japan    PoPs office and related equipment and       Japan                             $300,000
     Limited (Japan)       real estate interests

                           FF&E / leasehold improvements for offices   Japan                         de minimis amount

                           License                                     Japan                                $0

                           Bank account                                Japan, NY                     de minimis amount

15.  FLAG Telecom Espana   Bank account                                Spain                         de minimis amount
     SA (Spain)

16.  FLAG Telecom          Bank account                                Italy                         de minimis amount
     Servizi Italia SpA
     (Italy)
                           Terrestrial equipment                       Italy                              $50,000

                           Contractual backhaul rights                 Italy                              $50,000

                           License                                     Italy                                $0

17.  FLAG Telecom          Virtually no assets                         n/a                                  n/a
     Ireland Services
     Limited (Ireland)

18.  FLAG Telecom          License                                     Mexico                               $0
     Servicios S.A. de
     C.V. (Mexico)

19.  FLAG Telecom          License                                     Argentina                            $0
     Argentina SA
     (Argentina)

20.  FLAG Telecom Brasil   Stock of subsidiary (FLAG Telecom Brasil    subsidiary incorporated        see subsidiary
     Holdings Ltda         Ltda)                                       in Brazil
     (Brazil)

21.  FLAG Telecom Brasil   Virtually no assets                         n/a                                  $0
     Ltda (Brazil)
</Table>

                                     3.10-3
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                           <C>
22.  FLAG Telecom          Stock in subsidiaries (FLAG Telecom         Subsidiaries                  see subsidiaries
     Ireland Network       Network USA Limited, FLAG Telecom           incorporated in
     Limited (Ireland)     Deutschland Network GmbH, FLAG Telecom      Delaware, Germany,
                           Nederland Network BV, FLAG Telecom
                           Netherlands, Belgium, Belgium Network SA,
                           FLAG Telecom Switzerland, Austria,
                           Switzerland Network AG, FLAG Telecom
                           Norway, France and Spain Austria Network
                           GmbH, FLAG Telecom Norway Network AS, FLAG
                           Telecom France Network SAS and FLAG
                           Telecom Espana Network SAU)

                           PoPs and terrestrial equipment              various countries                 $500,000

                           Contractual backhaul rights                 various countries                 $400,000

                           Licenses

                           Bank accounts                               Ireland                       de minimis amount

23.  FLAG Telecom          PoPs and related terrestrial equipment      New York, Miami, Los              $100,000
     Network USA Limited   (FEA and FA-1 related)                      Angeles, San Francisco
     (Delaware)

                           Bank account                                NY                            de minimis amount

                           Contractual backhaul rights                 U.S.                              $100,000

                           Licenses                                    Germany, The                         $0
                                                                       Netherlands, Belgium,
                                                                       Switzerland, Norway,
                                                                       France, Spain

24.  FLAG Telecom          PoP and related terrestrial equipment and   Germany                            $50,000
     Deutschland Network   backhaul rights
     GmbH (Germany)
                           License                                     Germany                              $0

25.  FLAG Telecom          License                                     Netherlands                          $0
     Nederland Network
     BV (Netherlands)
                           Terrestrial equipment and backhaul rights   Netherlands                   de minimis value

                           Bank account                                Netherlands                   de minimis value

                           License                                     The Netherlands                      $0

26.  FLAG Telecom          Bank account                                Belgium                       de minimis value
     Belgium Network SA
     (Belgium)
                           License                                     Belgium                              $0
</Table>

                                     3.10-4
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                        <C>
27.  FLAG Telecom          License                                     Switzerland                          $0
     Switzerland Network
     AG (Switzerland)
                           Bank account                                Switzerland                   de minimis value

28.  FLAG Telecom          License application (on hold)               Austria                              $0
     Austria Network
     GmbH (Austria)
                           Bank account                                Austria                       de minimis value

29.  FLAG Telecom Norway   License                                     Norway                               $0
     Network AS (Norway)
                           Bank account                                Norway                        de minimis value

30.  FLAG Telecom France   License                                     France                               $0
     Network SAS (France)
                           Terristrial equipment and backhaul rights   France                             $50,000

                           Bank account                                France                        de minimis value

31.  FLAG Telecom Espana   PoP and related terrestrial equipment and   Spain                             $100,000
     Network SAU (Spain)   backhaul rights

                           Bank account                                Spain                         de minimis amount

                           License                                     Spain                                $0

32.  FLAG Limited          Stock in subsidiary (FLAG Pacific USA       Subsidiary incorporated        see subsidiary
     (Bermuda)             Limited)                                    in Delaware

                           Service contracts and leases for FEA        China, India,              $0 (mostly expense items)
                           cable landing sites, offices NOC, depots    Thailand, Egypt, UAE
                                                                       (Fujairah, Dubai, Jebel
                                                                       Ali, Abu Dhabi), Italy,
                                                                       Jordan, Saudi Arabia,
                                                                       Spain, Egypt

                           FF&E / leasehold improvements for office    Dubai, Fujairah               de minimis value
                           / NOC

                           Common law intellectual property rights     various                              $0
                           in trade names, marks, logos and related
                           property

                           FEA undersea cable                          termination points in            $40,500,000
                                                                       UK, Hong Kong

                           Transpacific IRU                                                              $600,000
</Table>

                                     3.10-5
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                       <C>
                           Switching equipment and other terrestrial   UK, China, India,              de minimis value
                           equipment related to landing stations and   Malaysia, Thailand,
                           NOC for FEA; software rights related to     Egypt, UAE (Fujairah,
                           same                                        Dubai, Jebel Ali, Abu
                                                                       Dhabi), Italy, Jordan,
                                                                       Saudi Arabia, Spain,
                                                                       Egypt, Hong Kong

                           Certain customer contracts related to FEA                                  $0 (value is in
                           cable                                                                       receivables)

                           Accounts receivable                                                          $3,500,000

                           Common law intellectual property rights     various                              $0
                           in trade names, marks, logos and related
                           property

                           Intercompany receivables                                                         $0

                           Bank accounts                               Bermuda, Thailand, Dubai      de minimis value

33.  FLAG Pacific USA      License                                     USA                                  $0
     Limited (Delaware)

34.  FLAG Telecom Group    Stock in subsidiaries (FLAG Telecom         Subsidiaries                  see subsidiaries
     Services Limited      Limited, FLAG Telecom USA Ltd., FLAG        incorporated in UK,
     (Bermuda)             Telecom Asia Limited, FLAG Telecom France   Delaware, Hong Kong,
                           Services Eurl, FLAG Telecom Deutschland     France, Germany, Italy,
                           GmbH, FLAG Telecom Nederland BV, FLAG       Netherlands, Greece and
                           Telecom Hellas AE and FLAG Telecom          Austria
                           Austria GmbH)

                           Bank accounts                               Bermuda, NY, UK               de minimis value

35.  FLAG Telecom          Service contracts and leases for offices    UK                        $0 (mostly expense items)
     Limited (UK)          / NOC

                           Cash deposit on leasehold                   UK                               $5,000,000

                           FF&E / leasehold improvements for offices   UK                            de minimis value
                           / NOC

                           Equipment at Heathrow NOC                   UK                            de minimis value

                           Intercompany receivables                                                         $0

                           Bank accounts                               UK, NY                        de minimis value
</Table>

                                     3.10-6
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                       <C>
36.  FLAG Telecom USA      Service contracts and leases for offices    USA                       $0 (mostly expense items)
     Ltd (Delaware)
                           FF&E / leasehold improvements for offices   USA                           de minimis value

                           License                                     USA                                  $0

                           Bank accounts                               USA                           de minimis value

37.  FLAG Telecom Asia     Contracts and leases for PoPs, cable        Hong Kong, China, Taiwan  $0 (mostly expense items)
     Limited (Hong Kong)   landing sites, offices

                           FF&E / leasehold improvements for office    Hong Kong                     de minimis value

                           License                                     Hong Kong                            $0

                           Bank accounts                               China, India, Hong Kong       de minimis value

38.  FLAG Telecom France   Service contracts and lease for office      France                    $0 (mostly expense items)
     Services Eurl
     (France)
                           FF&E / leasehold improvements for office    France                        de minimis value

                           Bank account                                France                        de minimis value

39.  FLAG Telecom          Service agreement for office                Germany                   $0 (mostly expense items)
     Deutschland GmbH
     (Germany)
                           FF&E / leasehold improvements for office    Germany                       de minimis value

                           License                                     Germany                              $0

                           Bank account                                Germany                       de minimis value

40.  FLAG Telecom          Service agreement for office                Netherlands               $0 (mostly expense items)
     Nederland BV
     (Netherlands)
                           FF&E / leasehold improvements for office    Netherlands                   de minimis value

                           Bank account                                Netherlands                   de minimis value

41.  FLAG Telecom Hellas   License                                     Greece                               $0
     AE (Greece)
                           Bank account                                Greece                        de minimis value

42.  FLAG Telecom          Bank account                                Austria                       de minimis value
</Table>

                                     3.10-7
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                       <C>
     Austria GmbH
     (Austria)

43.  FLAG Telecom Global   Customer contracts                                                         $0 (value is in
     Network Limited                                                                                   receivables)
     (Bermuda)
                           stock of subsidiaries (FLAG Atlantic UK     subsidiaries are              see subsidiaries
                           Limited and FLAG Atlantic France SARL)      incorporated in UK and
                                                                       France

                           Accounts receivable                                                           $800,000

                           Intercompany receivables                                                         $0

                           Bank accounts                               Bermuda                       de minimis value

                           Transpacific IRU                                                              $600,000

                           FA-1 cable                                  termination points in            $1,100,000
                                                                       USA, UK and France

44.  FLAG Atlantic UK      Terrestrial assets related to UK PoP and    UK                                $150,000
     Limited (UK)          landing site

                           Contractual backhaul rights                 UK                                $150,000

                           Bank accounts                               UK, NY                        de minimis amount

                           License                                     UK                                   $0

45.  FLAG Atlantic         Terrestrial assets related to French PoPs   France                             $70,000
     France SARL (France)  and landing site

                           Contractual backhaul rights                 France                             $30,000

                           License                                     France                               $0

46.  FLAG Asia Holdings    stock in subsidiary (FLAG Asia Limited)     Subsidiary incorporated        see subsidiary
     Limited (Bermuda)                                                 in Bermuda

                           Bank accounts                               Bermuda, NY, Korea            de minimis value

47.  FLAG Asia Limited     stock in subsidiaries FLAG Telecom Korea    Subsidiaries                  see subsidiaries
     (Bermuda)             Limited, Seoul Telenet Inc (49% only),      incorporated in Korea
                           FLAG Telecom Taiwan Services Limited and    and Taiwan
                           FLAG Holdings (Taiwan) Limited (50% only))

                           Contracts and leases for PoPs and cable     Korea, Taiwan, Japan      $0 (mostly expense items)
                           landing sites
</Table>

                                     3.10-8
<Page>

<Table>
<Caption>
                                                                               Location                  Estimated
FLAG Entity                              Type of Assets                       of Assets              Foreclosure Value
---------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                         <C>                           <C>
                           Common law intellectual property rights     various                              $0
                           in trade names, marks, logos and related
                           property

                           FNAL undersea cable                         termination points in            $10,000,000
                                                                       Hong Kong, Taiwan,
                                                                       Korea, Japan

                           PoP and related terrestrial equipment in    Korea                             $300,000
                           Korea

                           Contractual backhaul rights in Korea        Korea                             $700,000

                           Contractual backhaul rights in Japan        Japan                            $1,000,000

                           Contractual backhaul rights in Hong Kong    Hong Kong                         $600,000

                           Contractual backhaul rights in Taiwan       Taiwan                            $500,000

                           Certain customer contracts related to                                      $0 (value is in
                           FNAL cable                                                                  receivables)

                           Accounts receivable                                                           $600,000

                           Common law intellectual property rights     various                              $0
                           in trade names, marks, logos and related
                           property

                           Intercompany receivables                                                         $0

                           Bank accounts                               Bermuda, New York, Korea      de minimis amount

48.  Seoul Telenet Inc.    License                                     Korea                                $0
     (Korea)

49.  FLAG Telecom Taiwan   Service agreement for office                Taiwan                               $0
     Services Limited
     (Taiwan)

50.  FLAG Holdings         stock in subsidiary (FLAG Telecom Taiwan    Subsidiary incorporated
     (Taiwan) Limited      Limited)                                    in Taiwan
     (Taiwan)
                           Bank account                                Taiwan                        de minimis amount

51.  FLAG Telecom Taiwan   License                                     Taiwan                               $0
     Limited (Taiwan)
                           Bank account                                Taiwan                        de minimis amount

52.  FLAG Telecom Korea    Lease                                       Korea                                $0
     Limited (Korea)
</Table>

                                     3.10-9
<Page>

                                     3.10-10<Page>

                                                                   EXHIBIT 10.1

                           FLAG TELECOM GROUP LIMITED
                            2002 STOCK INCENTIVE PLAN

1.   PURPOSES.

     (a)    ELIGIBLE AWARD RECIPIENTS. The persons eligible to receive Awards
are the Employees, Directors and Consultants of the Company and its Affiliates.

     (b)    AVAILABLE AWARDS. The purpose of the Plan is to provide a means by
which eligible Employees, Directors and Consultants may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

     (c)    GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Awards, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2.   DEFINITIONS.

     (a)    "AFFILIATE" means any holding company or subsidiary of the Company
or any entity selected by the Board to participate in this Plan; PROVIDED, THAT,
with respect to Incentive Stock Options, the term shall only mean "parent
corporation" and "subsidiary corporation" as defined in Sections 424(e) and
424(f) of the Code, respectively.

     (b)    "AWARD" means any award granted under the Plan.

     (c)    "AGREEMENT" means a written agreement between the Company and a
Participant evidencing the terms and conditions of an individual Award. Each
Award Agreement shall be subject to the terms and conditions of the Plan (and in
the event of any inconsistency between the terms of an Agreement and the Plan,
the terms of the Plan will override).

     (d)    "BOARD" means the board of directors of the Company.

     (e)    "CAUSE" means, if the Participant is a party to an employment
agreement or agreement for services with the Company or its Affiliates and such
agreement provides for a definition of Cause, the definition therein contained,
or, if no such agreement or definition exists, it shall mean a Participant's (i)
material breach of any of such Participant's covenants or obligations under any
applicable employment agreement or agreement for services or non-compete
agreement; (ii) continued failure after written notice from the Company or any
applicable Affiliate to satisfactorily perform assigned job responsibilities or
to follow the reasonable instructions of such Participant's superiors,
including, without limitation, the Board; (iii) commission of a crime
constituting a felony (or its equivalent) under the laws of any jurisdiction in
which the Company or any applicable Affiliate conducts its business or other
crime involving moral turpitude; or (iv) material violation of any material law
or regulation (including, without limitation, the Foreign Corrupt Practices Act
or any similar non-U.S. statute) or any policy or code of conduct adopted by the
Company or engaging in any other form of

<Page>

misconduct which, if it were made public, could reasonably be expected to
adversely affect the business reputation or affairs of the Company or of an
Affiliate. The Board or Committee, in good faith, shall determine all matters
and questions relating to whether a Participant has been discharged for Cause.

     (f)    "CHANGE IN CONTROL" means the occurrence of one of the following
events:

            (i)     any "person" or "group" becomes the "beneficial owner" (as
such terms are used in Rule 13d-3 promulgated under the Security Exchange Act of
1934, as amended, except that a person or group shall be deemed to have
"beneficial ownership" of all securities that such person or group has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of 51% or more of the Common Stock;
PROVIDED, HOWEVER, that an event described in this paragraph (i) shall not be
deemed to be a Change in Control if any of following becomes such a beneficial
owner: (A) any tax-qualified, broad-based employee benefit plan sponsored or
maintained by the Company or any majority-owned subsidiary, (B) any underwriter
temporarily holding securities pursuant to an offering of such securities, or
(C) any person or group pursuant to a Non-Qualifying Transaction (as defined in
paragraph (ii)); or

            (ii)    the Company amalgamates or otherwise consolidates or merges
with any other corporation or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets and/or procures
such sale or other disposition of the assets of the Company's direct and
indirect subsidiaries (on a consolidated basis) to any other person or group, in
either one transaction or a series of related transactions which occur within
six months, other than an amalgamation or disposition of assets: (A) of or by
the Company and/or its subsidiaries into or to a 100% owned subsidiary of the
Company, or (B) pursuant to a transaction in which the issued Common Stock are
exchanged for securities or other property with the effect that the beneficial
owners of the issued Common Stock immediately prior to such transaction,
beneficially own, directly or indirectly, at least a majority of the issued
shares or stock (measured by voting power rather than number of shares) of the
amalgamated corporation or the person or group to whom the Company's (and/or its
subsidiaries') assets are transferred immediately following such transaction
(any transaction which satisfies the criteria specified in (A) or (B) above
shall be deemed to be a "Non-Qualifying Transaction").

     (g)    "CODE" means the U.S. Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.

     (h)    "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with the bye-laws of the Company and
Section 3(c) of the Plan.

     (i)    "COMMON STOCK" means the common shares of the Company, $1.00 par
value per share.

     (j)    "COMPANY" means FLAG Telecom Group Limited, a Bermuda exempted
company.

                                        2
<Page>

     (k)    "CONSULTANT" means any person, including an advisor, who is engaged
by the Company or an Affiliate to render consulting or advisory services and who
is not either an Employee or Director.

     (l)    "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, has not
been interrupted or terminated. The Participant's Continuous Service shall not
be deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the Committee, in
their sole discretion, may determine whether Continuous Service shall be
considered interrupted.

     (m)    "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

     (n)    "DIRECTOR" means a member of the Board or any member of the board of
directors of any Affiliate.

     (o)    "DISABILITY" means, if the Participant is a party to an employment
agreement or agreement for services with the Company or its Affiliates and such
agreement provides for a definition of Disability, the definition therein
contained, or, if no such agreement or definition exists, it shall mean the
failure of any Participant to perform his or her duties due to physical or
mental incapacity as determined by the Board or Committee.

     (p)    "EFFECTIVE DATE" shall mean the first business day after the date on
which the closing conditions contained in the Plan of Reorganization shall have
been satisfied or waived.

     (q)    "EMPLOYEE" means any person employed by the Company or an Affiliate.

     (r)    "EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended.

     (s)    "FAIR MARKET VALUE" per share as of a particular date shall mean the
last reported sale price (on the day immediately preceding such date) of the
Common Stock on the Nasdaq National Market (or any other U.S. exchange or
national market system upon which price quotations for the Company's Common
Stock are regularly available); PROVIDED, HOWEVER, that at any time that the
Common Stock of the Company is not traded on a public exchange, Fair Market
Value per share shall mean, as of any date, except as may otherwise be provided
in an Award Agreement, the fair market value on such date as determined in good
faith by the Board.

     (t)    "HOLDING COMPANY" has the meaning set out in section 86 of the
Companies Act 1981 of Bermuda.

                                        3
<Page>

     (u)    "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.

     (v)    "NON-EMPLOYEE DIRECTOR" means a Director who serves on the Board and
who is a "non-employee director" within the meaning of Rule 16b-3 and who is
also an "outside director" within the meaning of Section 162(m) of the Code.

     (w)    "NONSTATUTORY STOCK OPTION" means an Option that is not intended to
qualify as an Incentive Stock Option.

     (x)    "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act.

     (y)    "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option.

     (z)    "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan
and need not be identical (and may include a term to the effect that, in the
event of any inconsistency between the terms of an Option Agreement and the
Plan, the terms of the Plan will prevail);

     (aa)   "OPTIONEE" means a person holding an Option granted pursuant to the
Plan.

     (bb)   "PARTICIPANT" means a person holding an Award granted pursuant to
the Plan.

     (cc)   "PLAN" means the FLAG Telecom Group Limited 2002 Stock Incentive
Plan.

     (dd)   "PLAN OF REORGANIZATION" shall mean that certain Third Amended and
Restated Joint Plan of Reorganization of Flag Telecom Holdings Limited (a
predecessor to the Company) and certain of its subsidiaries, filed with the
United States Bankruptcy Court, Southern District of New York, Case Nos.
02-11732 through 02-11736 and 02-11975 through 02-11979 (ALG) (Jointly
Administered).

     (ee)   "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

     (ff)   "SARBANES-OXLEY ACT OF 2002" means that certain U.S. federal
legislation adopted on July 30, 2002, as amended or supplemented from time to
time, or any U.S. federal statute or regulation adopted by the U.S. Securities
and Exchange Commission in effect that has replaced, amended or supplemented or
will replace, amend or supplement such statute, and any reference in this Plan
to a provision of the Sarbanes-Oxley Act of 2002 or a rule or regulation
promulgated thereunder or in connection therewith means such provision, rule or
regulation as amended or supplemented from time to time or any provision of a
federal law, or any federal rule or regulation, from time to time in effect that
has replaced such provision, rule or regulation.

     (gg)   "SEC" means the U.S. Securities and Exchange Commission.

     (hh)   "SECURITIES ACT" means the U.S. Securities Act of 1933, as amended.

                                        4
<Page>

     (ii)   "SUBSIDIARY" has the meaning set out in section 86 of the Companies
Act 1981 of Bermuda.

     (jj)   "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) shares possessing more than ten
percent (10%) of the total combined voting power of all classes of shares of the
Company or of any of its Affiliates.

3.   ADMINISTRATION.

     (a)    ADMINISTRATION. The Plan shall be administered by the Board and, if
and when appointed, the Committee.

     (b)    POWERS OF COMMITTEE. The Board and the Committee shall each have the
power, subject to, and within the limitations of, the express provisions of the
Plan:

            (i)     To determine from time to time which of the persons eligible
under the Plan shall be granted Awards; when and how each Award shall be
granted; what type or combination of types of Awards shall be granted; the
provisions of each Award granted (which need not be identical), including the
time or times when a person shall be permitted to receive Common Stock pursuant
to an Award; and the number of shares of Common Stock with respect to which an
Award shall be granted to each such person.

            (ii)    To construe and interpret the Plan and Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Committee, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Award Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective. The Committee shall expressly have the authority to adopt any
modifications, procedures and sub-plans as may be necessary or desirable to
comply with provisions of the law of foreign countries in which the Company or
its Affiliates may operate to assure the viability of the benefits from Awards
granted to Participants employed or providing services in such countries and to
meet the objectives of the Plan. If, in connection with the adoption of a
sub-plan of the Plan, approval is required from the U.K. Inland Revenue or any
other applicable agency of any other country or jurisdiction, the Committee
shall have the authority to seek such approval and the adoption of the sub-plan
shall be conditioned on such approval being obtained.

            (iii)   Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

     (c)    DELEGATION TO COMMITTEE. The Board may delegate administration of
the Plan to a Committee consisting of two (2) or more Non-Employee Directors. In
such event, the term "Committee" shall apply to any persons to whom such
authority has been delegated. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, (including, without limitation, those
set out in Section 3(b)), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may terminate the delegation of its powers to the
Committee at any time and assume sole

                                        5
<Page>

responsibility for the administration of the Plan. The Board may also (A)
delegate to a committee of one or more members of the Board who are not "outside
directors" within the meaning of Section 162(m) of the Code the authority to
grant Awards to eligible persons who are either (1) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Award or (2) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code or (B) delegate to a
committee of one or more members of the Board who are not "non-employee
directors" within the meaning of Rule 16b-3 the authority to grant Awards to
eligible persons who are not then subject to Section 16 of the Exchange Act.

     (d)    EFFECT OF BOARD/COMMITTEE'S DECISION. All determinations,
interpretations and constructions made by the Board or the Committee in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons. Members of the Committee and any officer or
employee of the Company or any Affiliate acting at the direction of the
Committee shall (as far as permitted by applicable law) not be personally liable
for any action or determination taken or made in good faith with respect to the
Plan, and shall, to the extent permitted by law, be fully indemnified by the
Company with respect to any such action or determination.

     (e)    REFERENCES TO COMMITTEE. All references to the "Committee" in the
following provisions of this Plan are deemed (unless the context otherwise
requires) also to include reference to the Board. For the avoidance of doubt,
references to the Board shall not be deemed to include reference to the
Committee.

4.   SHARES SUBJECT TO THE PLAN.

     Subject to the provisions of Section 11, the Common Stock that may be
issued pursuant to Awards shall not exceed in the aggregate 222,222 shares of
Common Stock; PROVIDED, THAT, no more than 222,222 shares shall be subject to
Incentive Stock Options. If any Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised or realized in
full, the shares of Common Stock not acquired under such Award shall again
become available to be made subject to Awards under the Plan. The shares of
Common Stock subject to the Plan shall be authorized but unissued shares. Common
Stock reacquired by the Company on the market or otherwise may not be reissued
under the Plan.

5.   ELIGIBILITY.

     (a)    ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock Options may only
be granted to Employees and Nonstatutory Stock Options and other Awards may be
granted to Employees, Directors and Consultants.

     (b)    TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

                                        6
<Page>

     (c)    SECTION 162(m) LIMITATION. Subject to the provisions of Section 11,
no Employee shall be eligible to be granted Options to acquire more than 222,222
shares of Common Stock during any calendar year.

     (d)    CONSULTANTS.

            (i)     At any time that the Common Stock is not publicly traded on
a recognized stock exchange, a Consultant shall not be eligible for the grant of
an Award if, at the time of grant, either the offer or the sale of the Company's
securities to such Consultant is not exempt under Rule 701 of the Securities Act
("RULE 701") because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by Rule 701, unless the Board or Committee determines that
such grant need not comply with the requirements of Rule 701 and will satisfy
another exemption under the Securities Act as well as comply with the securities
laws of all other relevant jurisdictions.

            (ii)    At any time that Common Stock is publicly traded on a
recognized stock exchange, a Consultant shall not be eligible for the grant of
an Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("FORM S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (A) that such
grant either (1) shall be registered in another manner under the Securities Act
(e.g., on a Form S-3 Registration Statement) or (2) does not require
registration under the Securities Act in order to comply with the requirements
of the Securities Act, if applicable, and (B) that such grant complies with the
securities laws of all other relevant jurisdictions.

            (iii)   Rule 701 and Form S-8 generally are available to Consultants
and advisors only if (a) they are natural persons; (b) they provide bona fide
services to the issuer, its holding company, its majority-owned subsidiaries or
majority-owned subsidiaries of the issuer's holding company; and (c) the
services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.

6.   OPTION PROVISIONS.

     Each Option shall be in such form and shall contain such terms and
conditions as the Committee shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and, if certificates are issued, a separate certificate or
certificates will be issued for shares of Common Stock purchased on exercise of
each type of Option. Notwithstanding the foregoing, the Company shall have no
liability to any Participant or any other person if an Option designated as an
Incentive Stock Option fails to qualify as such at any time. The provisions of
separate Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

                                        7
<Page>

     (a)    TERM. Subject to the provisions of Section 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

     (b)    EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted (and not less than the par value of the Common
Stock).

     (c)    EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be established by the Committee but shall
be not less than one hundred percent (100%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted (and not
less than the par value of the Common Stock).

     (d)    CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash or check at the time the Option is exercised or
(ii) at the discretion of the Committee at the time of the grant of the Option
(or subsequently in the case of a Nonstatutory Stock Option) (A) by delivery to
the Company of other Common Stock having an aggregate Fair Market Value equal to
the exercise price to be satisfied by their delivery (provided that such
delivery is duly effected as a purchase of own shares in accordance with the
Companies Act 1981 of Bermuda) or (B) in any other form of legal consideration
that may be acceptable to the Committee, including, without limitation, a
"cashless" exercise program established with a broker that does not violate the
Sarbanes-Oxley Act of 2002 (and provided always that the value received by the
Company is sufficient to pay up in full the exercise price for each share of
Common Stock issued under the relevant Award). Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, may be paid only by Common
Stock that have been held by the Optionee for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).

     (e)    TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionee only
by the Optionee. Notwithstanding the foregoing, the Optionee may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionee, shall thereafter
be entitled to exercise the Option.

     (f)    TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionee only by the Optionee. Notwithstanding the foregoing, the Optionee
may, by delivering written notice to the Company, in a form satisfactory to the

                                        8
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Company, designate a third party who, in the event of the death or incapacity of
the Optionee, shall thereafter be entitled to exercise the Option.

     (g)    VESTING. The total number of shares of Common Stock subject to an
Option may, but need not, vest and become exercisable in periodic installments
that may, but need not, be equal. The Option may be subject to such other terms
and conditions on the time or times when it may be exercised (which may be based
on performance or other criteria) as the Board or Committee may deem
appropriate. The vesting provisions of individual Options may vary. The
provisions of this Section 6(g) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised. No Option may be exercised for a fraction of a share of Common Stock.

     (h)    TERMINATION OF CONTINUOUS SERVICE. Unless otherwise provided in an
Option Agreement, in the event an Optionee's Continuous Service terminates
(other than upon the Optionee's death or Disability), all unvested Options shall
terminate and the Optionee may exercise his or her vested Options, but only
within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionee's Continuous Service, or (ii)
the expiration of the term of the Option as set forth in the Option Agreement;
PROVIDED, THAT, if the termination of Continuous Service is by the Company for
Cause, all outstanding Options (whether or not vested) shall immediately
terminate and cease to be exercisable. If, after termination, the Optionee does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate.

     (i)    DISABILITY OF OPTIONEE. Unless otherwise provided in an Option
Agreement, in the event that an Optionee's Continuous Service terminates as a
result of the Optionee's Disability, all unvested Options shall terminate and
the Optionee (or a person designated to exercise the Option upon the Optionee's
Disability pursuant to Section 6(f)) may exercise his or her vested Options, but
only within such period of time ending on the earlier of (i) the date twelve
(12) months following such termination or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the Optionee
does not exercise his or her Option within the time specified herein, the Option
shall terminate.

     (j)    DEATH OF OPTIONEE. Unless otherwise provided in an Option Agreement,
in the event an Optionee's Continuous Service terminates as a result of the
Optionee's death, then all unvested Options shall terminate and the vested
Options may be exercised by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the Option upon the Optionee's death pursuant to Section 6(e) or
6(f), but only within the period ending on the earlier of (i) the date twelve
(12) months following the date of death or (ii) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.

     (k)    CHANGE IN CONTROL. Unless otherwise provided in an Option Agreement
and except as otherwise provided in the Plan, a Change in Control shall not
effect any Options granted under the Plan.

                                        9
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7.   PROVISIONS OF AWARDS OTHER THAN OPTIONS.

     (a)    STOCK BONUS AWARDS. Each Agreement evidencing a stock bonus shall be
in such form and shall contain such terms and conditions as the Committee shall
deem appropriate. The terms and conditions of such Agreements may change from
time to time, and the terms and conditions of separate Agreements need not be
identical, but each such Agreement shall include (through incorporation of
provisions hereof by reference in the Agreement or otherwise) the substance of
each of the following provisions:

            (i)     CONSIDERATION. To the extent permitted by applicable law
such that shares will be treated as fully paid, a stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.

            (ii)    VESTING. Shares of Common Stock awarded under the stock
bonus Agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Committee.

            (iii)   TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire,
for par value, any or all of the shares of Common Stock held by the Participant
that were delivered to the Participant under the stock bonus Award and which
have not vested as of the date of termination under the terms of the applicable
Agreement.

            (iv)    TRANSFERABILITY. Rights to acquire shares of Common Stock
under the applicable Agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the Agreement, as the
Committee shall determine in its discretion, so long as the Common Stock awarded
under the Agreement remains subject to the terms of the Agreement.

     (b)    RESTRICTED STOCK AWARDS. Each such Agreement evidencing a grant of
restricted Common Stock shall be in such form and shall contain such terms and
conditions as the Committee shall deem appropriate. The terms and conditions of
such Agreements may change from time to time, and the terms and conditions of
separate Agreements need not be identical, but each such Agreement shall include
(through incorporation of provisions hereof by reference in the Agreement or
otherwise) the substance of each of the following provisions:

            (i)     PURCHASE PRICE. The purchase price of Awards of restricted
Common Stock shall be determined by the Committee, which shall in no event be
less than the par value per share.

            (ii)    CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the applicable Agreement shall be paid either: (i) in cash at the
time of purchase; (ii) at the discretion of the Committee, according to a
deferred payment or other similar arrangement with the Participant to the extent
it does not violate the Sarbanes-Oxley Act of 2002 or any other applicable law;
or (iii) subject to applicable law, in any other form of legal consideration
that may be acceptable to the Committee in its discretion (and provided always
that, in the case of newly-issued Common Stock, the value received by the
Company is sufficient to pay up in full the purchase price for each share issued
under the relevant Award).

                                       10
<Page>

            (iii)   VESTING. Shares of Common Stock acquired under the
applicable Agreement may, but need not, be subject to a share repurchase option
in favor of the Company in accordance with a vesting schedule to be determined
by the Committee.

            (iv)    TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire, for par value, any or all of the shares of Common Stock
held by the Participant which were delivered to the Participant under the
restricted stock Award and which have not vested as of the date of termination
under the terms of the applicable Agreement.

            (v)     TRANSFERABILITY. Rights to acquire shares of Common Stock
under the Agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the Agreement, as the Committee shall
determine in its discretion, so long as Common Stock awarded under the Agreement
remains subject to the terms of the Agreement.

8.   COVENANTS OF THE COMPANY

     (a)    AVAILABILITY OF SHARES. During the terms of the Awards, the Company
shall keep available (or shall insure that its subsidiaries keep available) at
all times the number of shares of Common Stock required to satisfy such Awards.

     (b)    SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Awards and to issue and sell shares of
Common Stock upon exercise of the Awards; PROVIDED, HOWEVER, that this
undertaking shall not require the Company to register under the Securities Act
or any other applicable law of the United States or otherwise the Plan, any
Awards or any Common Stock issued or issuable pursuant to any such Awards. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of Common Stock under the Plan,
the Company shall be relieved from any liability for failure to issue and sell
Common Stock upon grant or exercise of such Awards unless and until such
authority is obtained.

9.   USE OF PROCEEDS FROM STOCK.

     Proceeds from the sale of Common Stock pursuant to the grant or exercise of
Awards shall constitute general funds of the Company.

10.  MISCELLANEOUS.

     (a)    ACCELERATION OF EXERCISABILITY AND VESTING. The Committee shall have
the power to accelerate the time at which an Award may first be exercised or the
time during which an Award or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Award stating the time at which it
may first be exercised or the time during which it will vest.

     (b)    SHAREHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any Common Stock
subject to such Award

                                       11
<Page>

unless and until such Participant has satisfied all requirements for exercise of
the Award pursuant to its terms and has become the registered holder of such
shares.

     (c)    NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Award granted pursuant thereto shall confer upon any
Participant any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Award was granted or shall affect the right
of the Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without Cause, (ii) the service of a
Consultant with or without notice and with or without Cause or (iii) the service
of a Director pursuant to the bye-laws (or equivalent constitutional document)
of the Company or an Affiliate, and any applicable provisions of the corporate
law of the state or jurisdiction in which the Company or the Affiliate is
incorporated, as the case may be.

     (d)    INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionee during any calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.

     (e)    INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and to be satisfied that he or she
is capable of evaluating, alone or together with the purchaser representative,
the merits and risks of exercising the Award; and (ii) to give written
assurances satisfactory to the Company stating that the Participant is acquiring
Common Stock subject to the Award for the Participant's own account and not with
any present intention of selling or otherwise distributing the Common Stock. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (1) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Award has been registered
under a then currently effective registration statement under the Securities Act
or (2) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on share certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the Common Stock.

     (f)    WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Award Agreement, the Participant may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of Common Stock
under an Award by any of the following means (in addition to the Company's right
to withhold or to direct the withholding from any compensation paid to the
Participant by the Company or by an Affiliate) or by a combination of such
means: (i) tendering a cash payment; (ii) authorizing the Company to withhold
shares of Common Stock from the shares of Common Stock otherwise issuable to the
Participant as a

                                       12
<Page>

result of the exercise or acquisition of Common Stock under the Award; PROVIDED,
HOWEVER, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law; or (iii) delivering to the
Company (by way of a purchase of own shares duly effected in accordance with the
Companies Act 1981 of Bermuda) or to a subsidiary of the Company, owned and
unencumbered shares of Common Stock not acquired from the Company with a Fair
Market Value equal to the amount of tax liability to be satisfied by their
delivery.

11.  ADJUSTMENTS UPON CHANGES IN STOCK.

     (a)    CAPITALIZATION ADJUSTMENTS. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, amalgamation, split-up, spin-off, share repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets or shares of the Company, or exchange of Common
Stock or other securities of the Company, issuance of warrants or other rights
to purchase Common Stock or other securities of the Company, or other similar
corporate transaction or event (an "Event"), and in the Committee's opinion,
such event affects the Common Stock such that an adjustment is determined by the
Committee to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to an Award, then the Committee shall, in such manner as it may
deem equitable, without limitation, adjust any or all of the following: (i) the
number and kind of shares (or other securities or property) with respect to
which Awards may be granted or awarded; (ii) the number and kind of shares (or
other securities or property) subject to all or any outstanding Awards; and
(iii) the grant or exercise price with respect to all or any outstanding Awards.
The Committee's determination under this Section 11(a) shall be final, binding
and conclusive.

     (b)    TERMINATION OF AWARDS. Unless otherwise provided in an Award
Agreement, upon the occurrence of an Event, or other similar corporate event or
transaction in which outstanding Awards are not to be assumed by the surviving
entity or otherwise continued following such an Event or other similar corporate
event or transaction, the Committee may, in its discretion, terminate any
outstanding Award without a Participant's consent and (i) provide for the
purchase of any such Award for an amount of cash equal to the amount that could
have been attained upon the exercise of such Award or realization of the
Participant's rights had such Award been currently exercisable or payable or
fully vested (based on the Fair Market Value of the shares on the date of such
termination) or the replacement of such Award with other rights or property
selected by the Committee in its sole discretion and/or (ii) provide that such
Award shall be exercisable (whether or not vested) as to all shares covered
thereby for at least thirty (30) days prior to such Event but will terminate at
the end of that period.

     (c)    FUTURE TRANSACTIONS. The existence of the Plan, the Award Agreements
and the Award granted hereunder shall not affect or restrict in any way the
right or power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change in
the Company's capital structure or its business, any amalgamation of the
Company, any issue of shares or of options, warrants or rights to purchase
shares or of bonds, debentures, preferred or prior preference shares whose
rights are superior to or affect the Common Stock or the rights thereof or which
are convertible into or

                                       13
<Page>

exchangeable for Common Stock, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.

12.  AMENDMENT OF THE PLAN AND AWARDS.

     (a)    AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon an Event, no amendment shall be effective unless approved by
the shareholders of the Company to the extent shareholder approval is necessary
to satisfy any applicable law or any Nasdaq National Market or other national
securities exchange listing requirements.

     (b)    SHAREHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

     (c)    CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

     (d)    NO IMPAIRMENT OF RIGHTS. Subject to Section 11, rights under any
Award granted before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (i) the Company requests the consent of the
Participant and (ii) the Participant consents in writing.

     (e)    AMENDMENT OF AWARDS. Subject to Section 11, the Board at any time,
and from time to time, may amend the terms of any one or more Awards; PROVIDED,
HOWEVER, that the rights under any Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13.  TERMINATION OR SUSPENSION OF THE PLAN.

     (a)    PLAN TERM. The Committee may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No Awards may
be granted under the Plan while the Plan is suspended or after it is terminated.

     (b)    NO IMPAIRMENT OF RIGHTS. Subject to Section 11, suspension or
termination of the Plan shall not impair rights and obligations under any Award
granted while the Plan is in effect except with the written consent of the
Participant.

                                       14
<Page>

14.  EFFECTIVE DATE OF PLAN.

     The Plan shall become effective as of the Effective Date. Confirmation of
the Plan of Reorganization shall constitute all necessary approval by the
shareholders of the Company of the Plan.

15.  CHOICE OF LAW.

     The laws of Bermuda shall govern all questions concerning the construction,
validity and interpretation of this Plan, without regard to such country's
conflict of law rules.

                                       15

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