Document:

THE COLT DEFERRED BONUS PLAN

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                   Established by a resolution of a Committee
                    of the Board of Directors of the Company
                    dated 4th April, 2000 and approved by an
                    ordinary resolution of the Company passed
                                       on
                                 25th May, 2000
                    ----------------------------------------

                      As amended up to 15th February, 2001

                             SLAUGHTER AND MAY (JZF)
                              35 Basinghall Street,
                                 London EC2V 5DB

                                   PN003683108

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                    THE RULES OF THE COLT DEFERRED BONUS PLAN

                                    CONTENTS

                                                                       Page

1. INTERPRETATION AND CONSTRUCTION                                       1

            1.1         Definitions                                      1

            1.2         Construction                                     2

            1.3         Governing law                                    3

2. ELIGIBILITY                                                           3

3. GRANT OF AWARDS                                                       3

            3.1         Operation of the Plan                            3

            3.2         Grant of Awards                                  4

            3.3         Value of Bonus Share Awards                      4

            3.4         Value of Matching Awards                         5

            3.5         Market value                                     5

            3.6         Shares comprised in an Award                     5

            3.7         Adjustment                                       5

4. VESTING OF AWARDS                                                     6

            4.1         General                                          6

            4.2         Deferred Amount                                  6

            4.3         Vesting of Bonus Share Awards                    6

            4.4         Vesting of Matching Awards                       6

            4.5         Notification to Participant                      7

5. RESTRICTIONS UPON VESTING                                             7
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            5.1         General                                          7

            5.2         Satisfaction of Conditions                       7

            5.3         Meaning of "ceasing to be employed"              7

            5.4         Cessation of employment                          8

6. CHANGE IN CONTROL AND LIQUIDATION                                     9

7. REPLACEMENT AWARDS                                                   10

            7.1         Application                                     10

            7.2         Release of Options                              10

            7.3         The conditions                                  10

            7.4         Period for release                              11

            7.5         Consequences of release                         11

            7.6         Bonus Share Awards and Deferred Amounts         11

8. PROCEDURE ON VESTING                                                 12

            8.1         Exercise of Matching Awards                     12

            8.2         Issue or transfer of Shares                     12

            8.3         Payment of Deferred Amount                      12

            8.4         Withholding obligations                         13

            8.5         Provision of Shares                             13

9. NON-TRANSFERABILITY OF AWARDS                                        14

10. LOSS OF OFFICE                                                      14

11. VARIATION OF CAPITAL                                                14

            11.1        General                                         14

            11.2        Adjustment of Awards                            14

            11.3        Restrictions on adjustment                      15
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            11.4        Notification of adjustment                      15

12. GENERAL                                                             15

            12.1        Administration                                  15

            12.2        Costs and expenses                              15

            12.3        Power of amendment                              15

            12.4        Grant of Options                                16

            12.5        Termination                                     17

13. PLAN LIMITS                                                         17

            13.1        General                                         17

            13.2        Life of Plan                                    18

14. NOTICES                                                             18

            14.1        To Employees and Participants                   18

            14.2        To the Company                                  18

            14.3        To the Trustee                                  18

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1.    INTERPRETATION AND CONSTRUCTION

1.1   Definitions

      (A)   In this Plan, the following definitions apply.

      (B)   The "Auditors" are the auditors for the time being of the Company.

      (C)   An "Award" is a Bonus Share Award or a Matching Award.

      (D)   The "Board" means the board of directors of the Company.

      (E)   A "Bonus Share Award"  means an award of Shares  granted  under Rule
            3.2 and designated as a Bonus Share Award.

      (F)   The  "Committee"  means the  Compensation  Committee of the Board or
            such other  committee  or  committees  of the Board as the Board may
            from time to time  determine  or, if the  Board so  determines,  the
            Board.

      (G)   The "Company" is COLT Telecom Group plc  registered in England under
            No.3232904.

      (H)   "Conditions" has the meaning given in Rule 3.1(C).

      (I)   "Control"  has the meaning  given to it by section 840 of the Income
            and Corporation Taxes Act 1988.

      (J)   The "Date of  Grant" of an Award is the date on which it is  granted
            or  such  earlier  date  as may  be  specified  in the  notification
            referred to in Rule 3.2(D).

      (K)   A "Dealing Day" is a day on which the London Stock  Exchange is open
            for the transaction of business.

      (L)   "Deferred Amount" has the meaning given in Clause 2(B).

      (M)   "Employee"  is any employee or salaried  director of a member of the
            Group.

      (N)   A  "Financial  Year" means a  financial  year of the Company as that
            expression is defined in section 742 of the Companies Act 1985.

      (O)   The  "Grantor"  means  the  Company  where  an  Award is or is to be
            granted by the Company and the Trustee where an Award is or is to be
            granted by the Trustee.

      (P)   The "Group"  means the Company and its  Subsidiaries  and "member of
            the Group" is to be construed accordingly.
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                                       2

      (Q)   "Group  Share Plan"  means the COLT  Telecom  Group  Share Plan,  as
            amended from time to time.

      (R)   The "London Stock Exchange" means the London Stock Exchange Limited.

      (S)   The "Market  Price" in relation to any share means the middle market
            quotation for that share as shown in the Daily  Official List of the
            London Stock Exchange.

      (T)   A "Matching  Award" means an award of Shares,  taking the form of an
            option,  granted in  accordance  with Rule 3.2 and  designated  as a
            Matching Award.

      (U)   A  "Participant"  is the  holder of an Award or,  where the  context
            admits or requires, the holder's personal representatives.

      (V)   The "Plan"  means this scheme (and  including  the  Schedules to the
            Rules) as from time to time amended.

      (W)   The "Rules" means the rules of this Plan.

      (X)   "Shares"  means  fully-paid  ordinary  shares in the  capital of the
            Company.

      (Y)   "Subsidiary"  has the  meaning  given  to it by  section  736 of the
            Companies Act 1985.

      (Z)   The  "Trust"  means  any  trust  for the  benefit  of,  inter  alia,
            employees  of  the  Group,  from  time  to  time  designated  by the
            Committee.

      (AA)  The  "Trustee"  means the trustee or trustees  for the time being of
            the Trust or, if there is more than one,  the trustee or trustees of
            the Trust nominated by the Committee.

1.2   Construction

      (A)   Where  the  context  so  admits,  any  reference  in the Plan to the
            singular includes the plural and vice versa.

      (B)   Any reference in the Plan to an enactment  includes the enactment as
            for the time being amended or re-enacted.

      (C)   The headings to the Rules are for reference  purposes only and shall
            not affect the meaning or construction of the Rules.
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                                       3

1.3   Governing law

      This Plan and any Award  granted  under it is  governed  by,  and is to be
      construed in accordance with, English law.

2.    ELIGIBILITY

      (A)   The persons who are eligible to receive Awards are such Employees as
            have been invited by the  Committee to  participate  in the Plan and
            who have agreed in writing to do so.

      (B)   Where an individual is to be offered  participation in the Plan such
            invitation   will  specify  the   percentage  of  the   individual's
            anticipated  annual cash bonus and any other  applicable  cash bonus
            which that individual may choose to defer and the proposed period of
            such deferral.  The amount which an individual so defers is referred
            to in these Rules as the "Deferred Amount".

      (C)   To the extent that an individual  chooses to defer a cash bonus, the
            individual  will not become  entitled  to receive  that bonus on the
            date on which the individual would otherwise have become entitled to
            it. Instead the individual will only become entitled to receive that
            cash bonus on the date referred to in Rule 4.2 (or such earlier date
            as is provided in the Rules).

      (D)   In  circumstances  considered  by the  Committee  to be  appropriate
            including,  without limitation,  where an individual is not entitled
            to  receive  a cash  bonus,  Awards  may be made on the  basis  of a
            notional bonus determined by the Committee.

3.    GRANT OF AWARDS

3.1   Operation of the Plan

      (A)   The  Committee  shall  decide  whether or not to operate the Plan in
            relation to any period,  whether  Bonus  Share  Awards and  Matching
            Awards  should be granted and whether such Awards  should be granted
            by the Company or the Trustee.

      (B)   All Awards must, save in  circumstances  determined by the Committee
            to be exceptional,  be granted as soon as is reasonably  practicable
            after the  announcement of the Group's results for any period to the
            London Stock Exchange.

      (C)   The Committee may determine  that Matching  Awards should be granted
            on terms that they are subject to performance  conditions,  relating
            to the  underlying  financial or other  performance  of the Company,
            which must be  satisfied  before
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                                       4

            such  Awards  vest  and/or  such other  terms or  conditions  as the
            Committee may determine (together "Conditions").

      (D)   The  Committee  shall  ensure  that the Plan is not  operated at any
            time, or in any  circumstances,  when to do so would  contravene the
            provisions of the Criminal  Justice Act 1993,  the  Company's  share
            dealing code,  the Listing Rules of the London Stock Exchange or any
            other applicable laws or regulations.

3.2   Grant of Awards

      (A)   If Awards are to be  granted  by the  Trustee,  the  Committee  must
            notify the Trustee of:

            (i)   the Employees eligible to participate in the Plan;

            (ii)  the Bonus Share Awards and Matching Awards which the Committee
                  recommends be granted to the Employee;

            (iii) any  Conditions  which  the  Committee  recommends  should  be
                  attached to Matching Awards

                  and,  if the  Trustee  agrees to the Plan  being  operated  in
                  relation  to that  period and those  individuals,  the Trustee
                  will grant  Bonus  Share  Awards and  Matching  Awards to each
                  relevant  Employee,  in the case of a  Matching  Award on such
                  Conditions.

      (B)   If Awards are to be granted by the  Company,  the Company will grant
            Bonus Share Awards and Matching Awards to each relevant Employee, in
            the case of the Matching Award on those Conditions.

      (C)   If the Committee so  determines,  Matching  Awards may be granted in
            the form of options granted under the Rules of the Group Share Plan.
            In those circumstances, that Matching Award may only be exercised in
            accordance with and subject to the Rules of the Group Share Plan and
            will lapse in the circumstances set out in the Group Share Plan. The
            remaining provisions of these Rules, to the extent inconsistent with
            the  Rules of the  Group  Share  Plan,  will  not  apply to any such
            Matching Award.

      (D)   Each Employee who receives an Award will be given written  notice of
            the Award and of any Conditions applying to the Matching Award.

3.3   Value of Bonus Share Awards

      (A)   Each Bonus  Share Award  shall have a cash value  determined  by the
            Committee as a  proportion  of the cash bonus earned by the relevant
            individual (or the
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                                       5

            notional cash bonus  determined  by the  Committee) in relation to a
            specified period.

      (B)   The maximum  number of Shares which a  Participant  may,  subject to
            Rule  4,  acquire  on  vesting  of a  Bonus  Share  Award  shall  be
            calculated  by  dividing  the cash value of the Bonus Share Award by
            the market value of a Share,  as determined in accordance  with Rule
            3.5.

3.4   Value of Matching Awards

      The number of Shares which are subject to the option  represented  by each
      Matching Award shall be the number of Shares which is obtained by dividing
      twice the Deferred Amount by the market value of a Share, as determined in
      accordance with Rule 3.5, rounded down to the nearest whole number.

3.5   Market value

      The "market  value" of a Share for the purpose of Rules 3.3 and 3.4 is the
      arithmetic  average  of the  Market  Prices,  for the three  Dealing  Days
      immediately  before the Date of Grant or over such other period or periods
      as the Committee may determine either generally or in any particular case.

3.6   Shares comprised in an Award

      Participants  will  have no  entitlement  to or in  respect  of any  Share
      comprised  in  an  Award  until  that  Award  vests  or is  exercised.  In
      particular, but without limitation,  Participants will have no entitlement
      to receive  dividends  in respect of such Shares or to exercise  any other
      rights in respect of them until the  relevant  Bonus  Share Award vests or
      the relevant Matching Award is exercised.

3.7   Adjustment

      (A)   In the  circumstances  mentioned  in Rule  3.7(D),  the  Grantor may
            change the Conditions imposed under Rule 3.1(C).

      (B)   The power to change  includes  both the power to adjust and also the
            power to impose replacement Conditions.

      (C)   The Grantor's power is, however, restricted as follows -

            (i)   the change  must not have the effect of making the  Conditions
                  more   onerous   than  they  were   immediately   before   the
                  circumstance in question, and

            (ii)  the change  must not be made  unless the  Auditors  (acting as
                  experts and not as  arbitrators)  have confirmed in writing to
                  the Committee  (and to
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                                       6

                  the Trustee where the Award was made by the Trustee)  that, in
                  their opinion, it is fair and reasonable, and

            (iii) where the Award was made by the  Trustee,  the  Committee  has
                  approved the change.

      (D)   The circumstances are -

            (i)   any variation of the Company's capital,

            (ii)  such  circumstances  as were  specified  when  the  Award  was
                  granted, and

            (iii) any  event or  events  as a  result  of  which  the  Committee
                  considers it fair and reasonable to change the Conditions.

4.    VESTING OF AWARDS

4.1   General

      The extent to which an Award vests is to be  determined  by the  Committee
      (with the  consent  of the  Trustee,  if the  Trustee is the  Grantor)  in
      accordance with the following provisions of this Rule 4.

4.2   Deferred Amount

      The  Deferred  Amount will become due at the end of the period of deferral
      referred  to in Rule 2(B)  unless  the  Deferred  Amount  has ceased to be
      payable in accordance with Rule 5.

4.3   Vesting of Bonus Share Awards

      Bonus Share Awards will vest on such date or dates as may be determined by
      the Grantor on or before the Date of Grant,  unless  they have  previously
      lapsed in accordance with the Rules.

4.4   Vesting of Matching Awards

      Matching Awards will vest and become exercisable on the later of:

            (i)   the date or dates  specified  by the  Grantor on or before the
                  Date of Grant; and

            (ii)  the date on which the Committee determines that any Conditions
                  imposed in accordance with Rule 3.1(C) have been satisfied,

      unless they have previously lapsed in accordance with the Rules.
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                                       7

4.5   Notification to Participant

      The Committee shall notify Participants as soon as reasonably  practicable
      that their Awards have vested.

5.    RESTRICTIONS UPON VESTING

5.1   General

      (A)   This Rule 5 overrides the other Rules.

      (B)   If an Award  lapses  under any Rule,  it will lapse for all purposes
            and will not vest.

      5.2   Satisfaction of Conditions

      (A)   If Conditions are imposed on Matching  Options under Rule 3.1(C) the
            Participant   may  not  exercise  that  Matching  Option  except  in
            accordance with those Conditions.

      (B)   Rule 5.2(A) does not apply, however, if -

            (i)   the  Committee   considers   that  it  is  unlikely  that  the
                  Conditions  will be  satisfied in the  reasonably  foreseeable
                  future because of some unforeseen event or events, and

            (ii)  the  Committee  does not consider  that it is  appropriate  to
                  change the Conditions in accordance with Rule 3.7, and

            (iii) the  Committee  considers  that it is fair and  reasonable  to
                  allow the Participant to exercise that Matching Option,

            in each case following  consultation with the Trustee, if the Option
            was granted by the Trustee.

5.3   Meaning of "ceasing to be employed"

      (A)   Unless the Committee decides otherwise,  a Participant shall for the
            purposes of these  Rules be treated as having  ceased to be employed
            within the Group on whichever is the earliest of the following -

            (i)   the date on which the  Participant  gives  notice  ending  the
                  Participant's employment with the Group,

            (ii)  the date on which the  Participant  is given notice ending the
                  Participant's employment with the Group, and
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                                       8

            (iii) the date on which the Participant's  employment with the Group
                  otherwise ends without notice.

      (B)   A  Participant's  employment  with the Group will, if the Grantor so
            determines  on or before  the grant of an Award,  be deemed  for the
            purpose of this Rule 5.3 not to end if on  cessation  of  employment
            with a member of the Group the  Participant  becomes or is to become
            an employee or director of (i) a Holding Company of the Company;  or
            (ii) a company  holding  not less than 25 per  cent.  of the  issued
            ordinary share capital of the Company; or (iii) a Holding Company or
            Subsidiary  of any Company  referred to in (ii) or any other company
            that is a  Subsidiary  of the  Holding  Company of any such  Holding
            Company.  If the Grantor so determines,  that fact shall be set out,
            or referred to, in the Option Certificate.

5.4   Cessation of employment

      (A)   If a  Participant  ceases  to  be  employed  within  the  Group  the
            Participant's  Deferred Amount will, subject to Rule 5.4(D),  become
            due on the date on which employment ceases.

      (B)   If a  Participant  ceases  to be  employed  within  the Group in any
            circumstance where the Committee so agrees, the Participant's  Award
            or Awards will vest and become exercisable if and to the extent that
            the Committee so determines  and subject to such  conditions  and on
            such date(s) or for such period as the Committee may determine.

      (C)   Where  a   Participant   ceases   to  be   employed   in  any  other
            circumstances,  any Award held by the Participant which has not then
            vested will lapse  immediately.  Any Matching Award which has vested
            but has not been exercised  will be exercisable  for a period of six
            months (or such longer  period as the  Committee may allow) from the
            date of cessation of employment and if not so exercised  during that
            period will lapse.

      (D)   Notwithstanding  any provision of the Plan to the  contrary,  if the
            Committee   determines,   after  full  consideration  of  the  facts
            presented  on  behalf of the  Company  and a  Participant,  that the
            Participant has:

            (i)   been engaged in fraud,  embezzlement or theft or has committed
                  a criminal  offence or other  dishonesty  in the course of the
                  Participant's  employment by or  involvement  with a member of
                  the Group, which has damaged any member of the Group; or

            (ii)  made  unauthorised   disclosure  of  trade  secrets  or  other
                  proprietary  information  of any  member  of the Group or of a
                  third party who has entrusted  such  information to any member
                  of the Group; or
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                                       9

            (iii) materially  breached  any  non-competition   covenant  of  the
                  Participant in favour of any member of the Group; or

            (iv)  violated  the Code of Ethics  adopted by the Company from time
                  to time,

                        any Award held by the Participant  shall lapse,  whether
                        or not that Award has already vested and the Participant
                        shall have no  further  rights in  relation  to any such
                        Award under the Plan. Any Deferred  Amount which has not
                        already been paid (even if it has become due) will cease
                        to be due and will not be paid.

6.    CHANGE IN CONTROL AND LIQUIDATION

6.1   If a person:

      (A)   obtains Control of the Company -

            (i)   as a result of making a general  offer to acquire the whole of
                  the issued share capital of the Company (or such part of it as
                  is not  already  owned by it  and/or  by its  holding  company
                  and/or by its  Subsidiaries  or those of its holding  company)
                  made on a condition such that if it is satisfied the acquiring
                  company will have Control of the Company, or

            (ii)  as a result  of  making a  general  offer to  acquire  all the
                  Shares (or such of the Shares as are not  already  owned by it
                  and/or by its holding  company and/or by its  Subsidiaries  or
                  those of its Holding Company).

      (B)   obtains  Control  of the  Company  as a result  of a  compromise  or
            arrangement  sanctioned  by  the  court  under  section  425  of the
            Companies Act 1985.

      (C)   becomes  entitled to give notice to Shareholders  under sections 428
            to 430F of the Companies Act 1985

      then, subject to Rule 7, in each such case:

            -     all Deferred Amounts will become due on the date on which that
                  person  obtains  Control or becomes so entitled (the "Relevant
                  Date"); and

            -     all Bonus  Share  Awards  which have not then vested or lapsed
                  will, on the Relevant  Date,  vest in proportion to the period
                  which has  elapsed  between  the Date of Grant and the vesting
                  date(s) specified in accordance with Rule 4.3; and

            -     all other Awards will lapse on the Relevant Date.

6.2   When an  effective  resolution  is  passed  or an  order  is made  for the
      winding-up of the Company:
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                                       10

            -     all Deferred Amounts will become due on the date on which that
                  resolution is passed or order made;

            -     all Bonus  Share  Awards  which have not then vested or lapsed
                  will vest on that date in  proportion  to the period which has
                  elapsed  between  the Date of Grant  and the  vesting  date(s)
                  specified in accordance with Rule 4.3; and

            -     all other Awards will lapse on that date.

7.    REPLACEMENT AWARDS

7.1   Application

      (A)   This  Rule 7  applies  where a  company  (the  "acquiring  company")
            obtains Control of the Company -

            (i)   as a result of making a general  offer to acquire the whole of
                  the issued share capital of the Company (or such part of it as
                  is not  already  owned by it  and/or  by its  holding  company
                  and/or by its  Subsidiaries  or those of its holding  company)
                  made on a condition such that if it is satisfied the acquiring
                  company will have Control of the Company, or

            (ii)  as a result  of  making a  general  offer to  acquire  all the
                  Shares (or such of the Shares as are not  already  owned by it
                  and/or by its holding  company and/or by its  Subsidiaries  or
                  those of its holding company).

      (B)   It also  applies if the  acquiring  company  obtains  Control of the
            Company as a result of a compromise or arrangement sanctioned by the
            court under section 425 of the Companies Act 1985.

      (C)   It also applies if the acquiring  company  becomes bound or entitled
            to acquire  shares in the Company under  sections 428 to 430F of the
            Companies Act 1985.

7.2   Release of Options

      With the agreement of the acquiring  company and subject to the conditions
      in Rule 7.3, a Participant  may release any  outstanding  Matching  Option
      (the "old option") in  consideration of the grant to him of another option
      (the "new option").

7.3   The conditions

      (A)   The  release and grant must happen  within the period  mentioned  in
            Rule 7.4.

      (B)   The total  market  value of the  Shares  subject  to the old  option
            immediately  before the release must be equal to the total market of
            the shares subject to the
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                                       11

            new option immediately after the release.  For this purpose,  market
            value shall be determined by the Committee.

      (C)   The aggregate  exercise price of the new option must be equal to the
            aggregate exercise price of the old option.

7.4   Period for release

      (A)   In a case  falling  within  Rule  7.1(A),  the  period is six months
            starting with the time when the acquiring company obtains Control of
            the Company and any condition  subject to which the offer is made is
            satisfied or waived.

      (B)   In a case  falling  within  Rule  7.1(B),  the  period is six months
            starting with the time when the court  sanctions  the  compromise or
            arrangement.

      (C)   In a case falling within Rule 7.1(C),  it is the period during which
            the acquiring company remains bound or entitled to acquire shares in
            the Company.

7.5   Consequences of release

      (A)   This Rule 7.5 applies where a Participant is granted a new option in
            accordance with this Rule 7.

      (B)   The new option is  exercisable  in the same manner as the old option
            and the new option is subject to the provisions of the Rules as they
            had  effect in  relation  to the old option  immediately  before its
            release.

      (C)   The Rules are to be  construed  in  relation to the new option as if
            references  to Shares  were  references  to the shares in respect of
            which the new option is granted.

      (D)   The Rules are to be  construed  in  relation to the new option as if
            references to the Company were  references to the company in respect
            of whose shares the new option is granted.

7.6   Bonus Share Awards and Deferred Amounts

      Where a Participant  holds a Bonus Share Award or has a right to receive a
      Deferred Amount, the Participant may agree to release any right to a Bonus
      Share  Award or right to receive a  Deferred  Amount in  exchange  for the
      grant to the  Participant  of  another  share  award or rights to  another
      deferred amount.  In such case the provision of this Rule 7 shall apply to
      such release and regrant with any necessary consequential amendments.
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                                       12

8.    PROCEDURE ON VESTING

8.1   Exercise of Matching Awards

      (A)   To exercise a Matching Award, a Participant must give written notice
            to the  Company  (where the Option was granted by the  Trustees,  as
            agent for the Grantor) in such form, and with such other  documents,
            as the Committee may decide.

      (B)   Subject to Rule 8.1(C) and unless a later date is  specified  in the
            notice  of  exercise,  the date on which  the  notice  of  exercise,
            complete in all respects, together with the payment due on exercise,
            is received at such office as the Grantor may specify is the date of
            exercise.

      (C)   Where the notice is sent by pre-paid  post,  the Grantor  (following
            consultation  with the Committee where the Option was granted by the
            Trustees)  may accept that the date of posting,  as evidenced by the
            postmark on the  envelope or in such other manner as the Grantor may
            decide,  or any later  date prior to the date on which the notice of
            exercise is received at such office, is the date of exercise.

8.2   Issue or transfer of Shares

      (A)   Within 30 days of the date on which a Bonus  Share  Award vests or a
            Matching  Award is exercised  the Company will issue (or procure the
            transfer)  or (where  the  Award was  granted  by the  Trustee)  the
            Trustee will transfer,  to the  Participant or at the  Participant's
            direction the number of Shares which have vested.

      (B)   This obligation is, however, subject to Rules 8.4 and 8.5.

      (C)   It is also subject to obtaining such consents or approvals as may be
            required by any competent  authority under regulations or enactments
            for  the  time  being  in  force.  It is the  responsibility  of the
            Participant to obtain such consents and approvals.

      (D)   Any stamp duty  payable  on the  transfer  of Shares  under an Award
            shall be paid by the Company.

8.3   Payment of Deferred Amount

      Within  30 days of the date on which a  Deferred  Amount  becomes  due the
      Company  will,  subject  to Rule 8.4,  pay or procure  the  payment of the
      Deferred Amount to the Participant or at the Participant's direction.
<PAGE>
                                       13

8.4   Withholding obligations

      (A)   This Rule 8.4 applies if a Participant  is liable to tax,  duties or
            other  amounts on the vesting of an Award or the  delivery of Shares
            under it or the payment of the Deferred Amount and the Participant's
            employer  or former  employer  is  liable  to make a payment  to the
            appropriate authorities on account of that liability.

      (B)   Where  a Bonus  Share  Award  has  vested  or a  Matching  Award  is
            exercised  either the Company or the Trustee  will sell on behalf of
            the  Participant  sufficient of the Shares which would  otherwise be
            issued or transferred to the Participant on that vesting or exercise
            so that  the net  proceeds  of sale  equal  the  payment  which  the
            employer or former  employer  is required to pay to the  appropriate
            authorities on behalf of the  Participant or will make the necessary
            deduction(s) from the Deferred Amount. Where such Shares are sold by
            the  Trustee,  the Trustee  will  account to the  employer or former
            employer for the net proceeds of sale. The Company will procure that
            an  amount  equal to the net  proceeds  of sale is  remitted  to the
            appropriate authorities on behalf of the Participant.

      (C)   Rule  8.4(B)  shall not apply,  however,  if the  Participant  makes
            alternative  arrangements to the  satisfaction of the  Participant's
            employer or former employer.

      (D)   The Company or Trustee need not sell the Shares  referred to in Rule
            8.4(B) in whole or in part and may either  not issue such  Shares or
            may retain them as assets of the Trust provided that an amount equal
            to the payment required to be made to the appropriate authorities is
            made  by the  Company  or is  accounted  for by the  Trustee  to the
            employer or former  employer,  derived  from the other assets of the
            Company or the Trustee, as the case may be.

8.5   Provision of Shares

      (A)   If and to the extent that a Bonus Share Award granted by the Trustee
            vests or a Matching Award is exercised in accordance  with the Rules
            and

            (i)   the Trustee is unable to transfer  Shares to the  Participant,
                  whether due to it holding  insufficient Shares or other assets
                  to enable it to meet the Bonus Share  Award or Matching  Award
                  or otherwise; or

            (ii)  any such transfer or payment would be unlawful in any relevant
                  jurisdiction; or

            (iii) in making such a transfer  or payment the Trustee  would be in
                  breach of its duties under the Trust,

            the  obligations  of the Trustee  under the Plan and the Award shall
            lapse.
<PAGE>
                                       14

      (B)   If the  obligations  of the  Trustee  so lapse,  the  Company  shall
            procure that any Shares not so  transferred  by the Trustee to which
            the  Participant is entitled under the Rules  (ignoring Rule 8.5(A))
            (or an amount  equal to the  proceeds  of the sale of such number of
            Shares) are issued by the  Company or  transferred  to the  relevant
            Participant,  either by the Trustee or by some other person, as soon
            as reasonably practicable.

9.    NON-TRANSFERABILITY OF AWARDS

      (A)   An  Award  is  personal  to the  Participant  and the  Participant's
            personal representatives.

      (B)   If a Participant transfers, assigns, charges, encumbers or otherwise
            alienates  an Award or  creates  in favour  of any  third  party any
            interest therein or, in any case, attempts so to do, or a bankruptcy
            order is made in respect of the  Participant  (or any similar  event
            occurs under the laws of any other country), the Award shall lapse.

10.   LOSS OF OFFICE

      (A)   The  participation in the Plan by a Participant is a matter entirely
            separate  from,  and shall not  affect,  the  Participant's  pension
            rights and terms of employment.

      (B)   In particular  (but without  limitation),  if a Participant  for any
            reason  whatsoever  ceases to be  employed  by a member of the Group
            (whether or not such cessation  involves breach,  or alleged breach,
            of contract by the  Company) or to be entitled to exercise an Award,
            the  Participant is not entitled to any rights or benefits under the
            Plan save as specifically  provided  elsewhere in these Rules and is
            not entitled to any  compensation by reference to the rights granted
            to, or the benefits  capable of being  received by, the  Participant
            under  this  Plan or for any  loss or  diminution  in  value in such
            rights or benefits.

11.   VARIATION OF CAPITAL

11.1  General

      This Rule 11 applies if there is a variation  in the share  capital of the
      Company or in the event of a demerger or a special dividend by the Company
      or upon the  happening of any other event as a result of which the Grantor
      (with the  consent of the  Committee  where the  Grantor is the  Trustees)
      considers that it is appropriate to do so.

11.2  Adjustment of Awards

      (A)   Subject to the rest of this Rule 11, the Grantor  shall  adjust each
            Bonus Share Award or Matching  Award in such manner as it decides to
            be appropriate,  with the consent of the Committee where the Grantor
            is the Trustee.
<PAGE>
                                       15

      (B)   For the avoidance of doubt, the Grantor may make such adjustments to
            such an Award which has vested or been  exercised  but in respect of
            which Shares have not yet been transferred.

      (C)   The  Grantor's   decision   shall  be  final  and  binding  on  each
            Participant.

11.3  Restrictions on adjustment

      Before  making  the  adjustment,  the  Grantor  must  obtain  the  written
      confirmation  of the Auditors  (acting as experts and not as  arbitrators)
      that the adjustment is, in their opinion, fair and reasonable.

11.4  Notification of adjustment

      The Grantor must notify each  Participant of any adjustment to an Award as
      soon as reasonably practicable after the decision.

12.   GENERAL

12.1  Administration

      (A)   Save  as  otherwise  provided  in the  Rules,  the  Committee  shall
            administer the Plan.

      (B)   The Committee may from time to time make and amend such  regulations
            for the implementation and administration of Plan as it thinks fit.

      (C)   The Committee's decision on the construction of the Rules and on any
            disputes  arising  under the Plan shall be final and  binding on all
            persons.

12.2  Costs and expenses

      The costs of the  preparation and operation of this Plan shall be borne by
      the Company and the Subsidiaries in such proportions as the Committee from
      time to time determines.

12.3  Power of amendment

      (A)   The  Committee  may at any time and from time to time amend the Plan
            in any respect provided that:

            (i)   subject  to  Rule  12.3(B),  no  amendment  may be made to the
                  advantage of Employees or Participants to any provision of the
                  Rules relating to:

                  (a)   the  persons  to whom or for whom  Shares  are  provided
                        under the Plan;
<PAGE>
                                       16

                  (b)   limitations on the number or amount of Shares subject to
                        the Plan;

                  (c)   the maximum entitlement for any one Participant; or

                  (d)   the basis for  determining a  Participant's  entitlement
                        to,  and the terms  of,  Shares  and for the  adjustment
                        thereof,

                  without the prior approval of the Company in general meeting.

            (ii)  no amendment shall be made which would affect adversely any of
                  the subsisting rights of a Participant  except either with the
                  Participant's  consent  in  writing  or  the  consent  of  the
                  majority  of the  Participants  affected by the  amendment  or
                  addition.

      (B)   Notwithstanding  the  limitation  contained  in  Rule  12.3(A),  the
            Committee  may without the prior  approval of the Company in general
            meeting:

            (i)   amend the Plan in order to take account of any  amendments  to
                  any applicable legislation or to obtain or maintain favourable
                  tax, exchange control or regulatory treatment for Participants
                  or any member of the Group; or

            (ii)  make   minor   amendments   to  the  Plan  to   benefits   its
                  administration.

      (C)   The Committee  must give written notice to all  Participants  of any
            amendment made in accordance with this Rule 12.3 which affects their
            rights in any material respect.

12.4  Grant of Options

      (A)   The Committee may determine in any  particular  case or from time to
            time that the Plan should be operated on the basis that, in place of
            Bonus Share Awards,  Participants are granted options by the Company
            or the Trustee  entitling  them to acquire the number of Shares that
            would  otherwise  have been  comprised in the  relevant  Bonus Share
            Award.

      (B)   Any  such  option  shall  be  exercisable  for  such  period  as the
            Committee may determine  following  satisfaction  of any  conditions
            imposed in accordance with Rule 3.1(C).

      (C)   The provisions of the Rules shall apply mutatis mutandis to any such
            options and the Committee  may make such  amendments to the Rules as
            may be necessary in order to implement the grant and exercise of any
            such options.
<PAGE>
                                       17

12.5  Termination

      The  Committee  may at any time suspend or terminate the operation of this
      Plan and in such event no further  Awards  will be made for the time being
      or,  as the  case  may  be,  permanently  but in all  other  respects  the
      provisions of this Plan shall remain in force.

13.   PLAN LIMITS

13.1  General

      (A)   The Committee  must ensure that the nominal  amount of Shares issued
            (whether  directly to the  Participant  or to the Trustee) under the
            Plan on any date does not exceed 10 per cent. of the nominal  amount
            of the  Company's  issued equity share capital on the day before the
            date of issue, less the total nominal amount of -

            (i)   Shares  issued on the exercise of options  granted  within the
                  previous 10 years under any share option scheme,

            (ii)  Shares remaining issuable in respect of options granted on the
                  same  date or within  the  previous  10 years  under any share
                  option scheme, and

            (iii) Shares issued on the same date or within the previous 10 years
                  under any share  incentive  scheme in respect  of moneys  made
                  available by the Group.

      (B)   For the purposes of this Rule 13 -

            (i)   "equity share  capital" has the meaning given to it by section
                  744 of the Companies Act 1985,

            (ii)  the word "issue" means,  in relation to Shares,  the allotment
                  and  issue  of  Shares  forming  part  of the  authorised  but
                  unissued   share   capital  of  the  Company  and   derivative
                  expressions are to be construed accordingly,

            (iii) a "share  incentive  scheme" is the Plan and any other  scheme
                  (other than a share option  scheme) for employees of the Group
                  which has been approved by the Company in general  meeting and
                  provides for the subscription of Shares, and

            (iv)  a "share option  scheme" is the Group Share Plan and any other
                  share  scheme  (other  than  a  share  incentive  scheme)  for
                  employees of the Group which has been  approved by the Company
                  in general  meeting and  provides  for the grant of options to
                  employees to acquire Shares.
<PAGE>
                                       18

13.2  Life of Plan

      No  Awards  may be  granted  more than 10 years  after the first  grant of
      Awards.

14.   NOTICES

14.1  To Employees and Participants

      (A)   Any notice or  document to be given to any  Employee or  Participant
            may be given through normal internal  communications  or by personal
            delivery or by sending it by ordinary post to the individual's  last
            known address or by e-mail or other electronic transmission.

      (B)   Where a notice  or  document  is sent by post it shall be  deemed to
            have been  received 72 hours after it was put into the post properly
            addressed and stamped.

      (C)   All notices and  documents  sent by post will be sent at the risk of
            the Employee or Participant  concerned.  Neither the Company nor any
            of its  Subsidiaries  nor  the  Trustee  shall  have  any  liability
            whatsoever to any Employee or  Participant  in respect of any notice
            or document sent,  nor shall the Company or any of its  Subsidiaries
            or the Trustee be concerned to see that any Employee or  Participant
            actually receives it.

14.2  To the Company

      Any  notice or  document  given by an  Employee  or a  Participant  to the
      Company or the Committee  shall be delivered or sent to the Company at its
      registered  office,  marked for the attention of the Company Secretary (or
      at such  other  place or  places  as the  Committee  may from time to time
      determine and notify to Employees and  Participants) and be effective upon
      receipt. Notices may be sent by e-mail or other electronic transmission to
      such address as the Company may from time to time specify.

14.3  To the Trustee

      Any  notice or  document  given by an  Employee  or a  Participant  to the
      Trustee shall be delivered or sent to the Trustee,  care of the Company at
      its registered office (or at such other place or places as the Trustee may
      from time to time determine and notify to Employees and Participants), and
      be effective upon receipt.EXHIBIT 4.12

                                JP MORGAN CHASE

CHRIS WILLIAMS
Netia Holdings S.A.

On behalf of the Company Group

ul Poleczki 13

02-813 Warszawa, Poland

Attention: Kjell-Ove Blom and Ewa Don-Siemion

Ad Hoc Committee of Noteholders (the "COMMITTEE")

C/o Cadwalader, Wickersham & Taft

265 Strand

London WC2R 1BH

                                                                 27th June, 2002

Dear Sirs,

AMENDMENT TO EXCHANGE AGREEMENT DATED AS OF JUNE 14TH, 2002 AND MADE BETWEEN,
AMONGST OTHERS, NETIA HOLDINGS S.A., NETIA TELEKOM S.A., NETIA SOUTH, SP.
Z.O.O., NETIA HOLDINGS B.V., NETIA HOLDINGS II B.V., NETIA HOLDINGS III B.V., JP
MORGAN CHASE BANK IN ITS CAPACITY AS SWAP CREDITOR ("JPMC") AND THE CONSENTING
NOTEHOLDERS (AS DEFINED THEREIN) (THE "AGREEMENT")

We refer to the terms of clause 10.2 of the Agreement which provides, inter
alia, that the Company and the Consenting Creditors agree that the Committee may
execute such further agreements or documents (including amendments to the
Agreement) which in the opinion of the Committee are required to give effect to
the terms of both the Restructuring Agreement and the Agreement as the case may
be.

As you are aware from previous discussions between our legal counsel, Allen &
Overy, and both Weil, Gotshal & Manges, as legal counsel to the Company Group,
and Cadwalader, Wickersham & Taft, as legal counsel for the Committee, the
calculation of the number of shares to be delivered to the Consenting Creditors
(other than JPMC) set out in schedule 1 of the Agreement is incorrect. In
addition, the capacity in which JPMC has entered into the Agreement requires
clarification to ensure consistency with the terms of the Restructuring
Agreement. Accordingly, the following amendments are required to the Agreement
to ensure that the Agreement properly implements the terms of the Restructuring
Agreement:

LINE 6, FIRST PARAGRAPH, PAGE 1: insert the words "in its capacity as Swap
Creditor" after ("JPMC").

PARAGRAPH 1.1 OF SCHEDULE 1, PAGE 15: the formula in accordance with which the
number of Restructuring Shares to be delivered by the Company to Consenting
Creditors (other than JPMC) is deleted and replaced with the following: "P =
(285,565,364 X Y)/H".

<PAGE>
PARAGRAPH 1.2 OF SCHEDULE 1, PAGE 15: delete the figure 29,226,812 and replace
with "32,117,376".

Other than those changes referred to in (a)-(c) above, all provisions of the
Agreement shall remain unchanged and in full force and effect.

Unless expressly defined herein, all capitalised terms used in this letter shall
bear the same meaning as provided for in the Agreement or the Restructuring
Agreement as the case may be.

The terms of this amendment letter shall be governed by and construed in
accordance with New York law and the terms of clause 11 of the Agreement shall
be deemed to be set out in full in this letter as they appear therein.

This amendment letter may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which shall constitute one
and the same document. In addition, this amendment letter may be executed by
facsimile signatures.

We should be grateful if you would confirm your agreement to the amendment of
the provisions of the Agreement provided for above by signing and returning a
fax copy of this letter to our legal counsel Allen & Overy, One New Change,
London EC4M 9QQ, attention Robert Westwater (fax number: +44 (0)207 330 9999) as
soon as possible and in any event before 18:00 London time on 27th June, 2002.

Yours faithfully,

/S/ CHRIS WILLIAMS
-------------------------

Chris Williams

Authorised signatory of

JP Morgan Chase Bank

We hereby confirm our agreement to the above terms.

NETIA HOLDINGS S.A.

FOR AND ON BEHALF OF THE COMPANY GROUP

By:    /S/ KJELL-OVE BLOM
       ------------------
Name:  Kjell-Ove Blom
Title: Acting President and CEO

                                        2
<PAGE>
By:    /S/ EWA DON-SIEMION
       -------------------
Name:  Ewa Don-Siemion
Title: Vice-President, Legal

CADWALADER, WICKERSHAM & TAFT, FOR AND ON BEHALF OF THE COMMITTEE

/S/ CADWALADER, WICKERSHAM & TAFT
---------------------------------

                                        3

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