UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
20-F/A




 ̈
            REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934


OR


x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the fiscal year ended December 31,
2009


OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the transition period from ____________ to
  __________


OR


 ̈
            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934


Date
      of event requiring this shell company report
  ____________





Commission
File No.  001-33916





GEROVA
Financial Group, Ltd.


(Exact
name of Registrant as specified in its charter)





GEROVA
Financial Group, Ltd.


(Translation
of Registrant’s name into English)





Cayman
Islands


(Jurisdiction
of incorporation or organization)





Cumberland
House, 5th Floor


1
Victoria Street


Hamilton,
HM 11


Bermuda


(Address
of principal executive offices)





Keith
Laslop


Cumberland
House, 5th Floor


1
Victoria Street


Hamilton,
HM 11


Bermuda


(441)
296-7777


(Name,
Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)





Securities
registered or to be registered pursuant to Section 12(b) of the
Act:





Units,
      each consisting of one Ordinary Share and one Warrant
              NYSE
      AMEX ExchangeOrdinary
      Shares, $.0001 par value
              NYSE
      AMEX ExchangeOrdinary Share Purchase
      Warrants
              NYSE AMEX Exchange(Title
      of Class)
              (Name
      of exchange on which
registered)





Securities
registered or to be registered pursuant to Section 12(g) of the
Act:   None





Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:





None




(Title of
Class)





Number of
outstanding shares of each of the issuer's classes of capital or common stock as
of the close of the period covered by the annual report:





14,000,000
ordinary shares, $.0001 par value





Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.





Yes
 ̈      No
x





If this
report is an annual or transition report, indicate by check mark if the
Registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.





Yes
 ̈      No
x





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.





Yes
x      No
 ̈





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.





Large
accelerated filer  ̈                        Accelerated
filer  ̈                          Non-accelerated
filer x





Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:





U.S.
      GAAP x
            International
      Financial Reporting Standards
            Other
       ̈as
      issued by the International AccountingStandards
      Board  ̈





If
“Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to
follow:





Item
17  ̈    Item
18  ̈





If this
is an annual report indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).





Yes
 ̈      No
x







TABLE
OF CONTENTS




FORM
      20-F/A
              ITABLE
      OF CONTENTS
              2EXPLANATORY
      NOTE
              4PART
      I
              5OVERVIEW:
              5ITEM
      1:
              Identity
      of Directors, Senior Management and Advisors
              7ITEM
      2:
              Offer
      Statistics and Expected Timetable
              7ITEM
      3:
              Key
      Information
              7A.
              Selected
      Financial Data
              7B.
              Capitalization
      and Indebtedness
              8C.
              Reasons
      For The Offer and Use Of Proceeds
              8D.
              Risk
      Factors
              8ITEM
      4:
              Information
      on the Company
              27A.
              History
      and Development of the Company
              27B.
              Business
      Overview
              29C.
              Organizational
      Structure
              46D.
              Property,
      Plants and Equipment
              46ITEM
      5:
              Operating
      and Financial Review and Prospects
              47A.
              Operating
      Results
              47B.
              Liquidity
      and Capital Resources
              49C.
              Research
      and Development, Patents and Licenses, etc.
              50D.
              Trend
      Information
              50E.
              Off-Balance
      Sheet Arrangements
              50F.
              Tabular
      Disclosure of Contractual Obligations
              51G.
              Safe
      Harbor
              51ITEM
      6:
              Directors,
      Senior Management, and Employees
              52A.
              Directors
      and Senior Management
              52B.
              Compensation
              55C.
              Board
      Practices
              60D.
              Employees
              63E.
              Share
      Ownership
              63ITEM
      7:
              Major
      Shareholders and Related Party Transactions
              65A.
              Major
      Shareholders
              65B.
              Related
      Party Transactions
              65C.
              Interests
      of Experts and Counsel
              66ITEM
      8:
              Financial
      Information
              66A.
              Financial
      Statements and Other Financial Information
              66B.
              Significant
      Changes
              67ITEM
      9:
              The
      Offering and Listing
              69A.
              Offer
      and Listing Details
              69B.
              Plan
      of Distribution
              69C.
              Markets
              69D.
              Selling
      Shareholders
              70




2




E.
                    Dilution
                    70F.
                    Expenses
      of the Issue
                    70ITEM
      10:
                    Additional
      Information
                    70A.
                    Share
      Capital
                    70B.
                    Memorandum
      and Articles of Association
                    70C.
                    Material
      Contracts
                    73D.
                    Exchange
      Controls
                    74E.
                    Taxation
                    74F.
                    Dividends
      and Paying Agents
                    80G.
                    Statements
      by Experts
                    81H.
                    Documents
      on Display
                    81I.
                    Subsidiary
      Information
                    81ITEM
      11:
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    81ITEM
      12:
                    Description
      of Securities other than Equity Securities
                    81PART
      II
                    
                    81ITEM
      13:
                    Defaults,
      Dividend Arrearages and Delinquencies
                    81ITEM
      14:
                    Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
                    81ITEM
      15:
                    Controls
      and Procedures
                    82ITEM
      16:
                    Reserved
                    82A.
                    Audit
      Committee Financial Expert
                    82B.
                    Code
      of Ethics
                    83C.
                    Principal
      Accountant Fees and Services
                    83D.
                    Exemptions
      From the Listing Standards for Audit Committees
                    83E.
                    Purchases
      of Equity Services by the Issuer and Affiliated Purchasers
                    83F.
                    Change
      in Registrant’s Certifying Accountant
                    83G.
                    Corporate
      Governance and Exchange Act Reporting
                    84PART
      III
                    
                    85ITEM
      17:
                    Financial
      Statements
                    85ITEM
      18:
                    Financial
      Statements
                    86ITEM
      19:
                    Exhibits
                    86




3


EXPLANATORY
NOTE




GEROVA
Financial Group, Ltd. (generally referred to herein as the “Company”, “we”,
“our” or “us”) is filing this Amendment No. 1 to our Annual Report on Form
20-F for the year ended December 31, 2009 that was filed with the
Securities and Exchange Commission (the “SEC”) on June 2, 2010 (the “Original
Filing”), to update certain Risk Factors related to the Company, to include
information on recently appointed executive officers, to provide additional
disclosure regarding corporate governance, and to highlight certain reporting
and disclosure differences related to foreign private issuers.  In
addition, as required by Rule 12b-15 under the Securities and Exchange Act
of 1934, as amended, new certifications by our principal executive officer and
financial officer are filed as exhibits to this Amendment No. 1 to our Annual
Report on Form 20-F/A under Item 19 of Part III hereof.  For
the convenience of the reader, this Amendment No. 1 presents all information
included in the Original Filing.





Except as
described above, no other changes have been made to the Original Filing. The
Original Filing continues to speak as of the date of the Original Filing, and we
have not updated the disclosures contained therein to reflect any events which
occurred at a date subsequent to the filing of the Original Filing. Accordingly,
this Amendment should be read in conjunction with our filings with the SEC which
are subsequent to the filing of the Original Filing.


4


PART
I




OVERVIEW:




GEROVA
Financial Group, Ltd. is an international reinsurance company focused on the
life and annuity reinsurance markets, in addition to a niche property and
casualty business. Through our insurance subsidiaries, we underwrite annuity and
life insurance risks that we believe will produce favorable long-term returns on
shareholder equity. The investment portfolio derived from our insurance
reserves, or our float, is allocated across traditional fixed income and equity
investments, as well as asset classes where we believe we can achieve yield
enhancement opportunities, including engaging in active investment strategies
such as directly making secured loans to middle market companies in select
industries underserved by banks. We believe the active origination of secured
loans and equity interests as part of our investment strategy is differentiated
from many traditional insurance companies’ portfolio management
approach.




We were
formed on March 22, 2007 as a blank check company with the corporate name Asia
Special Situation Acquisition Corp. We were formed for the purpose of acquiring
control of one or more unidentified operating businesses, through a capital
stock exchange, asset acquisition, stock purchase, or other similar transaction,
including obtaining a majority interest through contractual arrangements. In
January 2008, we consummated an initial public offering of our ordinary shares,
par value $0.0001 per share (the “Ordinary Shares”).




In
January 2010, we acquired an 81.5% interest in Amalphis Group Inc. (“Amalphis”),
the parent company of Allied Provident Insurance Inc., a specialty insurance
company domiciled in Barbados (“Allied Provident”). At the same time, we also
acquired various investment assets (subject to assumed liabilities as well as
valuation and audit adjustments) which are managed by Stillwater Capital
Partners, Inc. (“Stillwater”) and Weston Capital Asset Management, LLC
(“Weston”).   We have contributed some of, and intend to
contribute the remainder of, these assets to our existing insurance companies
and other specialty insurance or reinsurance companies we form or acquire in the
future.  Also in January 2010, we changed our corporate name to GEROVA
Financial Group, Ltd.




As part
of our acquisition of certain of the assets managed by Stillwater, we acquired a
38% economic interest (representing approximately a 40% voting interest) in
Northstar Group Holdings Ltd., a Bermuda insurance holding company
(“Northstar”).




On June
7, 2010, we received approval from the Bermuda Monetary Authority to register a
newly-formed Bermuda company, GEROVA Reinsurance, Ltd., as a long-term insurer,
which will authorize it to underwrite life and annuity reinsurance
business.




We
believe that there is significant growth available in our life and annuity
reinsurance segment and we will seek to benefit from macro trends influencing
balance sheet management decisions of life insurance and annuity providers,
including increased risk aversion and regulatory considerations, which are
resolved with risk transfer through reinsurance. We believe life and annuity
companies are highly leveraged in the United States and, therefore, there is a
demand for reinsurance to serve as a capital replenishment mechanism, which is
referred to as surplus relief. According to Standard and Poor’s research and
based on data from A.M. Best Co. Inc., a global insurance rating and information
agency, the life and health insurance industry’s assets totaled $4.6 trillion at
December 31, 2008, while the industry’s capital and surplus reached $261
billion, representing a capital ratio of 5.67% or a leverage ratio of 17.6
times. Our addressable market is large and, we believe, is underserved by
reinsurers. This market continues to grow with total premiums and annuity
considerations for the life and health insurance industry totaling $637 billion
in 2008, or roughly 4.8% of U.S. real gross domestic product. Life insurance in
force in the United States at year-end 2008 reached a level of $38.1 trillion,
up 31.0% over the previous five years.




We
believe that the financial services industry has been severely dislocated with
the financial markets experiencing nearly unprecedented volatility and
de-leveraging over the past two years beginning with the sub-prime mortgage
crisis but spreading throughout the financial markets to include other fixed
income markets, equities, bank debt, and private placements. Over the last two
years, there has been a substantial decline in global asset
valuations.  The reduction in liquidity and deleveraging has also
resulted in sources of long term financing and capital becoming extremely
limited.




We believe the insurance industry is in
transition. The financial services market dislocation has caused insurers and
reinsurers to face several challenges requiring them to change their strategic
focus creating opportunities for newly formed reinsurers. These challenges have
included the following.




5


·
            Regulatory
      bodies around the world are mandating that commercial insurance
      companies and, in particular, large insurance companies, increase
      their capital adequacy ratio.  Since many large insurance
      companies are integral to their national economies, we believe that
      they will be subjected to more stringent regulations on their
      capital.




·
            Additional
      regulatory and capital adequacy pressure with the anticipated
      implementation in 2012 of Solvency II, the updated set of regulatory
      requirements for insurance firms that operate in the European
      Union.  It is anticipated that Bermuda, a key global insurance
      market, will have similar disruptions as the Bermuda Monetary Authority
      implements new solvency rules in late
2012.




·
            The
      continuing deterioration in the U.S. residential housing market in general
      and the market for sub-prime and Alt-A residential mortgage-backed
      securities specifically. We believe these conditions have had, and will
      likely continue to have, a material adverse effect on insurers and
      reinsurers, specifically on the value of their investment portfolios, and
      capital and liquidity positions.




·
            We
      believe that many life insurers have sizable exposure to commercial real
      estate in the form of commercial real estate loans and commercial
      mortgage-backed securities.  Historically, commercial real
      estate realizes the adverse impact of a recession after other asset
      classes, which many analysts believe may lead to sizable losses for
      insurers in the future.




·
            The
      negative outlooks placed on the financial strength ratings, actions taken
      by ratings agencies on insurers and reinsurers can have a material
      negative impact on their abilities to grow their reinsurance businesses
      and maintain core competitive
capabilities.




We
believe that several insurers and reinsurers have begun addressing the new
industry realities implementing plans to achieve other business and financial
objectives such as:




·
              disposing
      assets to raise needed
capital;


·
              exploring
      strategic alliances or other means of maximizing value, including
      mortality assessment and existing treaty
  administration;


·
              decreasing
      the volatility of their
earnings;


·
              improving
      their capital position by reducing the financial strain associated with
      new business production or by increasing their risk-based capital
      ratio;


·
              entering
      new lines of business and offering new products;
  and


·
              exiting
      discontinued lines of
business.





Our goal
is to take advantage of opportunities arising from financial market
dislocations, including by aggregating permanent regulatory capital by
exchanging our shares for performing assets at discounts to their intrinsic
value.  We believe that our business model of acquiring new equity
capital by exchanging our shares for unquoted financial assets and utilizing
these financial assets as regulatory capital, where permitted, differentiates us
from other insurance carriers. We also believe that this capital structure has
the advantage of potentially achieving a superior return on equity given the
relatively large amount of assets that insurance carriers are permitted to take
on balance sheet relative to their equity capital.  We believe that
Gerova has an opportunity to benefit from the change in strategic focus of its
insurance company clients and its competitors.




Our
growth strategy includes fully deploying our insurance regulatory capital by
providing insurance and writing reinsurance at a multiple of our book value as
provided for by applicable insurance statutes. By accepting select liabilities
through reinsurance contracts together with assets ceded to us, we believe that
we will be are able to gather substantial assets under management in a
relatively small number of transactions. We believe this is an efficient
business model that will require less staff and marketing efforts than currently
exists in traditional asset management businesses and primary life and annuity
carriers. We also believe that by focusing primarily on life and annuity
reinsurance that the duration of time required to manage the assets is
relatively long and we believe the payment of claims is more predictable based
on actuarial science.




In
connection with the foregoing acquisitions, we entered into management
agreements with Stillwater and Weston.  Pursuant to such management
agreements, Stillwater and Weston agreed to manage such assets in consideration
for the payment of certain management and incentive fees.




Our
Ordinary Shares, units and warrants trade on the NYSE Amex Exchange (NYSE:Amex
US: GFC, GFC.U and GFC. WS).




6




References
in this Form 20-F to “Gerova,” “the Company,” “we”, “us”, and “our” refer to
GEROVA Financial Group, Ltd. and our subsidiaries from and after the
consummation of our business combinations (the “Business Combinations”) which
occurred on January 20, 2010, unless otherwise specified.  References
in this Form 20-F to “Insurance Companies” refers to Allied Provident, Northstar
and its subsidiaries and any other insurance businesses we form or acquire in
the future.




The
Company’s principal executive offices are located at:




Cumberland
House, 5th Floor


1
Victoria Street


Hamilton,
HM 11


Bermuda





ITEM
      1:
            Identity
      of Directors, Senior Management and
Advisors




Not
Applicable.




ITEM
      2:
            Offer
      Statistics and Expected Timetable




Not
Applicable.




ITEM
      3:
            Key
      Information




A.                 Selected
Financial Data




The
following selected financial data should be read in conjunction with our
financial statements and related notes and the discussion below under “Operating
and Financial Review and Prospects” below.  The data as of December
31, 2009 and for the period January 1, 2009 to December 31, 2009 are derived
from our audited financial statements which are included elsewhere in this
annual report. This selected financial data should be read in conjunction with
such financial statements and the related reports of our auditors Rothstein,
Kass & Company, P.C. The historical results are not necessarily
indicative of results to be expected for future periods.




Selected
Financial Data




Balance Sheet Data
                        
                        Year Ended
                          December 31, 2009
                          (audited)
                        
                        
                        Year Ended
                          December 31, 2008
                          (audited)
                        
                        
                        From inception
                          (March 22, 2007)
                          to
                          Year Ended December 31,
                          2007 (audited)Working
      capital (deficiency)
                        
                        $
                        198,000
                        
                        
                        $
                        (809,000
                        )
                        
                        $
                        (571,000
                        )Investment
      in Trust  Account
                        
                        $
                        115,000,000
                        
                        
                        $
                        115,000,000
                        
                        
                        
                        —Total
      assets
                        
                        $
                        116,088,000
                        
                        
                        $
                        115,888,000
                        
                        
                        $
                        1,035,000Deferred
      underwriters’ fee
                        
                        $
                        3,450,000
                        
                        
                        $
                        3,450,000
                        
                        
                        
                        —Total
      liabilities
                        
                        $
                        4,340,000
                        
                        
                        $
                        4,475,000
                        
                        
                        $
                        1,013,000Value
      of ordinary shares which may be converted to cash ($10.00 per
      share)
                        
                        $
                        40,250,000
                        
                        
                        $
                        40,250,000
                        
                        
                        
                        —Shareholders’
      equity
                        
                        $
                        71,498,000
                        
                        
                        $
                        71,163,000
                        
                        
                        $
                        22,000Statement
      of
                          Operations
      DataFormation
      and operating costs
                        
                        $
                        2,438,000
                        
                        
                        $
                        1,902,000
                        
                        
                        $
                        6,000Net
      income (loss)
                        
                        $
                        335,000
                        
                        
                        $
                        129,000
                        
                        
                        $
                        (3,000
                        )Net
      income (loss) per ordinary share, basic and diluted
                        
                        $
                        0.02
                        
                        
                        $
                        0.01
                        
                        
                        $
                        0.00




7




B.                 Capitalization
and Indebtedness




Not
Applicable.




C.                 Reasons
For The Offer and Use Of Proceeds




Not
Applicable.




D.                 Risk
Factors




You
should carefully consider the following risk factors and the other information
included herein as well as the information included in other reports and filings
made with the Securities and Exchange Commission (the “SEC”) before investing in
our securities. If any of the following risks actually occurs, our business,
financial condition or results of operations could be harmed. The trading price
of our units, Ordinary Shares and warrants could decline due to any of these
risks, and you may lose part or all of your investment.




Risks
Related to Our Company




We
may be required to access additional working capital.




As
disclosed in our Form 6-K dated January 22, 2010, in connection with our
business combination transactions consummated in January 2010, we repurchased
for approximately $112.4 million an aggregate of approximately 11.2 million
ordinary shares from our public shareholders resulting in our retaining
approximately $2.6 million in cash before transaction costs from the funds
originally received in our January 2008 initial public offering.  As
such, we need additional working capital in order to maintain the value of
certain collateral securing our assets and to expand our business
operations.  In the last few months we have sold or redeemed some of
our acquired assets in order to generate additional working capital for
operations.  We believe that we have sufficient sources of liquidity
to finance our existing operations for the coming twelve months. However, we may
be required to raise additional debt and/or equity capital to finance our
planned activities or potential acquisitions.   There can be no
assurance that we will be successful in raising additional capital if we elect
to do so or, if such capital is available, that it will be on acceptable terms
that will not otherwise dilute the equity interests of our existing
shareholders.




We
have no operating history and our future performance cannot be predicted based
on our historical financial information.




We
did not commence meaningful operations until January 20, 2010. Therefore, there
is no historical information upon which to evaluate our performance. In general,
companies in the initial stages of development present substantial business and
financial risks and may suffer significant losses. There can be no assurance
that we will be able to generate sufficient revenue from operations to pay our
operating expenses. We also will be subject to risks generally associated with
the formation of any new business. We must successfully develop business
relationships, establish operating procedures, acquire property, obtain
regulatory approvals, hire management and other staff and complete other tasks
appropriate for the conduct of our business activities. In particular, our
success depends on, among other things, our ability to:




·
            attract
      and retain personnel with underwriting, actuarial and hedging
      expertise;


·
            model
      and accurately price our
reinsurance;


·
            capitalize
      on new business
opportunities; and


·
              evaluate
      effectively the risks that we assume under the reinsurance policies that
      we write and manage such risks in volatile or down
  markets.




Failure
to achieve any of these business objectives would have a materially adverse
effect on us.




We
may be required to make material adjustments in the value of certain of our
assets which could lower our total capital base.




As part
of our January 2010 acquisition of the assets and liabilities of various pooled
investment vehicles (the “Stillwater Funds”) then managed by Stillwater, the
purchase price for those assets was based upon approximately $541.25 million of
estimated net asset values as of December 31, 2009 (the “Estimated Asset
Values”) which estimates were provided to us by Stillwater.  Such Estimated
Asset Values are subject to a post-acquisition adjustment based upon an
independent audit of approximately 90% of those assets.  Although the
independent audit has not yet been completed, such audit may conclude that the
final net asset values of the Stillwater Funds are materially lower than the
Estimated Asset Values.  Although the share adjustment provisions contained
in our acquisition agreements entitle us to issue a correspondingly lower number
of our Ordinary Shares to the former investors and beneficial owners of the
Stillwater Funds and our net shareholder equity per share would not be affected,
any reduction to the Estimated Net Asset Values of the Stillwater Funds
would result in our company having lower total net assets and a
lower total capital base.




8




We
may not be able to collect on certain of our assets and our lack of liquidity
has resulted in the loss in value of certain collateral.





Certain
of the Stillwater Funds have historically invested primarily in loans secured by
real estate, loans made to law firms in connection with tort litigation claims,
and loans made to borrowers who, in turn, have invested in life insurance
policies and made certain premium finance loans in connection therewith.
Although all the loans were originated as secured loans with what was deemed to
be adequate collateral, as at December 31, 2009, a substantial majority of the
real estate loans were experiencing interest payment delinquencies of 90 days or
more, a small percentage of our law firm loans have ceased to accrue interest,
and a substantial majority of all of these loans had been extended beyond their
original maturity dates by more than six months. Additionally, certain of these
loans were already declared in default resulting in legal action by Stillwater,
including the foreclosure of certain real estate collateral. Although we have
been advised that most of the principal amount of and accrued interest on the
loans made by the Stillwater Funds will eventually be fully repaid by the
borrowers, their guarantors or through foreclosure and disposition of
collateral, there is a risk that a substantial portion of such loans may
ultimately be non-performing or uncollectible.





In order
to preserve the value of certain collateral, a portion of the Stillwater Funds
asset backed loans may benefit by our investing additional funds to service the
assets representing the collateral for such loans.  Specifically, our
premium finance business and related life insurance assets require significant
ongoing funding by the borrower to pay the periodic premiums due on the life
insurance policies in order to preserve their value and keep such policies from
lapsing.  In order to preserve the value of these life insurance
assets, which are collateral for our loans to the borrower, we may be forced to
make payments through the extension of additional loan advances to our borrower
or through other direct payments.  However, we have not made a substantial
number of these payments primarily due to our lack of liquidity, as well as
other factors including rate of return considerations, collateral adequacy and
life expectancy estimates.  Since December 2009, over 50% of the
original face amount of these life insurance policies has
lapsed.  Although, we are taking steps to take control of our
collateral in this asset class, if we do not service the portfolio by making
such payments, the collateral represented by these policies will continue to
lose further value.





Similarly,
our law firm loan portfolio may benefit from us making additional advances to
law firm borrowers from time to time in order to allow the borrowers to pursue
contingent litigation matters on which these borrowers may earn fees which are
intended to serve as the principal source of repayment of our loans. If we are
unable or otherwise elect not to continue to fund the litigation activities of
these borrowers, it may have a negative impact on our ability to collect the
full amount of the existing or future loans. In addition, our real estate loans
and real estate investments may require additional funding in order to realize
revenue or preserve economic value. Overall, if we do not have sufficient
liquidity to meet the various funding requirements to preserve this collateral,
a substantial portion of these assets may suffer a material loss in value, which
would adversely affect our ability to collect on the loans.





Certain
of our subsidiaries are obligated to pay significant redemption claims to former
investors.





Partly as
a result of the recent economic recession, many investors in hedge funds and
other investment funds have sought to withdraw or redeem their investments, in
many cases resulting in investment managers suspending redemption
requests.  The Stillwater Funds currently owe approximately $30.0
million in unsatisfied investor redemption claims.  Many, if not all,
of these debts and claims will be required to be repaid by our subsidiaries from
the sale of fund assets or collection of accounts receivable before available
funds can be redeployed or reinvested.  As a result, amounts available
to be utilized as regulatory capital for our existing and proposed insurance
businesses may be materially and adversely affected.  In addition,
former investors to whom such redemption claims are owed may take legal action
to collect these debts which could adversely affect the operations of our
subsidiaries.





Our
failure to obtain the audits of certain of our assets may adversely affect our
business and operations.





Under the
terms of our acquisition agreements, we were to have obtained by not later than
March 31, 2010 audits of certain of such Stillwater Funds as at December 31,
2009.  Although we have been advised that such audits will be
completed in the near future, to date, such audits have not been
completed.   Further delays in receiving such audit reports may
materially and adversely affect our ability to raise additional capital and
could result in our breach of certain agreements to register under the
Securities Act of 1933, as amended (the “Securities Act”), the shares we issued
in connection with our January 2010 acquisitions.  Although we believe
that such audits will be completed in the near future, there is no assurance
that they will be made available on a timely basis, if at all.


9





As
a non-U.S. company, we have elected to comply with the less stringent reporting
requirements of the Exchange Act, as a foreign private issuer.




We are a
Cayman Islands company, and our corporate affairs are governed by our Memorandum
and Articles of Association and the Companies Law and common law of the Cayman
Islands. A majority of our executive officers and a majority of the
members of our board of directors are not United States citizens or
residents, and substantially all of our assets are located
outside of the United States. Based upon these and other relevant
factors, management and the board of directors believe that we are a
“foreign private issuer” as such term is defined in Rule 3b-4 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).  On
May 15, 2008, we furnished a Form 6-K to the SEC stating that we would
discontinue filing period reports on Form 10-K and 10-Q and interim reports on
Form 8-K and that, going forward, we would file annual and periodic
reports under the Exchange Act as a “foreign private issuer.” This
means generally that in lieu of reports on Forms 10-K, 10-Q or 8-K, we file
annual reports on Form 20-F and periodic information on Form 6-K. We provide
quarterly and other interim material information under cover of Form 6-K in
accordance with applicable rules and regulations (including the listed company
rules of the NYSE Amex Exchange) in a manner which we believe provides material
and timely information. It is important to note that disclosure under Forms 20-F
and 6-K may differ in certain material respects from disclosure on Forms 10-K,
10-Q and 8-K.




The
principal differences between the reporting obligations of a foreign private
issuer and those of a U.S. domestic company are as follows: Foreign private
issuers are not required to file their annual report on Form 20-F until six
months after the end of each fiscal year while U.S domestic issuers that are
accelerated filers are required to file their annual report of Form 10-K within
75 days after the end of each fiscal year. Foreign private issuers are not
required to file regular quarterly reports on Form 10-Q that contain unaudited
financial and other specified information.




However,
if a foreign private issuer makes interim reports available to shareholders, the
foreign private issuer will be required to furnish copies of such reports to the
SEC on a Form 6-K. Foreign private issuers are also not required to file current
reports on Form 8-K upon the occurrence of specified significant events.
However, foreign private issuers are required to file reports on Form 6-K
disclosing whatever information the foreign private issuer has made or is
required to make public pursuant to its home country’s laws or distributes to
its shareholders and that is material to the issuer and its subsidiaries.
Foreign private issuers are also exempt from the requirements under the U.S.
proxy rules prescribing content of proxy statements and annual reports to
shareholders. Although the NYSE Amex Exchange does require that we prepare and
deliver to shareholders annual reports and proxy statements in connection with
all meeting of shareholders, these documents are not required to comply with the
detailed content requirements of the SEC’s proxy regulations applicable to U.S.
domestic companies. Foreign private issuers generally disclose less detailed
information regarding executive compensation and related
matters.  Officers, directors and 10% beneficial owners of foreign
private issuers are exempt from requirements to file Forms 3, 4 and 5 to report
their beneficial ownership of the issuer’s common stock under Section 16(a) of
the Exchange Act and are also exempt from the related short-swing profit
recapture rules under Section 16(b) of the Exchange Act.




In
addition, as a foreign private issuer, we are exempt from, and you are not
provided with the benefits of, most of the NYSE Amex Exchange corporate
governance requirements, other than the requirement to maintain an audit
committee consisting solely of independent directors under SEC Rule
10A-3.  As a result, our independent directors will not have as much
influence over our corporate policy as they would if we were not a foreign
private issuer.




As a
result of all of the above, our public shareholders may have more difficulty in
protecting their interests in the face of actions taken by management, members
of the board of directors or controlling shareholders than they would as public
shareholders of a U.S. company.




Fulfilling
our obligations incident to being a public company is expensive and time
consuming.




We have
maintained relatively small finance and accounting staffs.  We do not
currently have an internal audit function. Although we have maintained
disclosure controls and procedures and internal control over financial reporting
as required under the U.S. federal securities laws with respect to our very
limited activities, we have not been required to maintain and establish these
disclosure controls and procedures and internal control as will be required with
respect to businesses such as the Insurance Companies with substantial
operations. Under the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC, we will need to implement additional corporate
governance practices and adhere to a variety of reporting requirements and
complex accounting rules. Compliance with these obligations will require
significant management time, place significant additional demands on our finance
and accounting staff and on our financial, accounting and information systems,
and increase our insurance, legal and financial compliance costs. We may also
need to hire additional accounting and financial staff with appropriate public
company experience and technical accounting knowledge.




10




Risks
Applicable to the Insurance Companies




If
the Insurance Companies fail to obtain sufficient reinsurance business, their
ability to transact reinsurance operations would be significantly and adversely
affected.




We
believe that demand for reinsurance is now increasing due to favorable market
conditions, among other factors. However, we cannot predict how long these
conditions will persist and inability to obtain sufficient reinsurance of blocks
of insurance could adversely affect earnings results.




The
Insurance Companies’ results of operations will fluctuate from period to period
and may not be indicative of its long-term prospects.




The
performance of the Insurance Companies’ insurance and reinsurance operations and
their investment portfolio will fluctuate from period to period. Fluctuations
will result from a variety of factors, including but not limited
to:




·
            insurance
      and reinsurance contract pricing;


·
              their
      assessment of the quality of available insurance and reinsurance
      opportunities;


·
            the
      volume and mix of insurance and reinsurance products they
      underwrite;


·
            loss
      experience on their insurance and reinsurance
  liabilities;


·
            their
      ability to assess and integrate their risk management strategy properly;
      and


·
            the
      performance of their investment
portfolio.




With
reference to the long-term nature of life and annuity liabilities, short-term
results of operations may not be indicative of its long-term
prospects.




Established
competitors with greater resources may make it difficult for the Insurance
Companies to effectively market their products or offer their products at a
profit.




The
insurance industry is highly competitive. The Insurance Companies compete with
major insurers and reinsurers, many of which have substantially greater
financial, marketing and management resources than they do. Competition in the
types of business that they underwrite is based on many factors,
including:




·
            premium
      charges;


·
            the
      general reputation and perceived financial strength of the
      reinsurer;


·
            relationships
      with reinsurance brokers;


·
            terms
      and conditions of products offered;


·
            ratings
      assigned by independent rating
agencies;


·
            speed
      of claims payment and reputation;
and


·
              the
      experience and reputation of the members of their underwriting and
      management team in the particular lines of reinsurance they seeks to
      underwrite.




The
competitors of the Insurance Companies include ACE Limited, General Re
Corporation, Hannover Re Group, Munich Reinsurance Company, PartnerRe Ltd.,
Reinsurance Group of America, Inc., Swiss Reinsurance Company, Transatlantic
Reinsurance Company and XL Capital Ltd., which are the dominant companies in the
industry. Although they seek to provide coverage where capacity and alternatives
are limited, the Insurance Companies directly compete with these larger
companies due to the breadth of their coverage across our various insurance
markets in substantially all lines of business. The Insurance Companies also
compete with smaller companies and other niche reinsurers.  There can
be no assurance that the Insurance Companies will be able to compete
successfully in the reinsurance market. Their failure to compete effectively
would significantly and negatively affect their financial condition and results
of operations.




Claims
may exceed the reserves of the Insurance Companies, which could adversely affect
their business.




The
success of the Insurance Companies will be dependent upon their ability to
assess, model and price accurately the risks associated with the business that
they reinsure. If the Insurance Companies fail to assess the risks they assume
accurately or if events or circumstances cause their estimates to be incorrect,
the Insurance Companies may not establish appropriate premium rates and their
reserves may be inadequate to cover claims, which could harm their business or
reduce their net income. There can be no assurance that the Insurance Companies
will be able to properly assess such risks.




11




Estimating
claim reserves involves actuarial and capital markets projections at a given
point in time of what the insurer ultimately expects to pay out based on facts
and circumstances then known, predictions of future events, estimates of future
trends in market fluctuations, policy utilization of benefits, mortality,
policyholder terminations and other variable factors such as inflation. The
Insurance Companies are required to rely on information received from the ceding
insurer for many of these assumptions. If such information turns out to be
inaccurate, their business could be adversely affected.




Failure
to obtain an A.M. Best rating, or a downgrade or withdrawal of an A.M. Best
rating, would significantly and negatively affect an Insurance Company’s ability
to implement its business strategy successfully.




Companies,
insurers and reinsurance brokers use ratings from independent ratings agencies
as an important means of assessing the financial strength and quality of
reinsurers.  None of the Insurance Company have applied for an A.M.
Best rating, and if an Insurance Company does apply for one it is uncertain
whether or when it would receive a rating or what rating it would
receive.  In addition, if an Insurance Company receives a rating, A.M.
Best will periodically review its rating, and may revise it downward or revoke
it at its sole discretion based primarily on its analysis of the balance sheet
strength, operating performance and business profile of such Insurance Company.
Factors which may affect its rating include:




·
              any
      changes in the Insurance Company’s business practices that, in its
      opinion, no longer supports A.M. Best’s initial
  rating;


·
            unfavorable
      financial or market trends that impact the Insurance
    Company;


·
            losses
      exceeding loss reserves;


·
            its
      inability to retain its senior management or other key personnel;
      or


·
            significant
      losses in its investment portfolio.




Even if
an Insurance Company is able to obtain a favorable rating, if A.M. Best or
another rating agency downgrades or withdraws its rating, it could be severely
limited or prevented from writing any new reinsurance contracts which would
significantly and negatively affect its ability to implement its business
strategy.




If
an Insurance Company loses or is unable to retain its senior management or other
key personnel and is unable to attract qualified personnel, its ability to
implement its business strategy could be delayed or hindered, which, in turn,
could significantly and negatively affect its business.




An
Insurance Company’s future success depends to a significant extent on the
efforts of its senior management and other key personnel to implement its
business strategy.  We believe there are only a limited number of
available, qualified executives with substantial experience in its industry. In
addition, such Insurance Company will need to add personnel, including
underwriters, to implement its business strategy.  Accordingly, the
loss of the services of one or more of the members of its senior management or
other key personnel, or its inability to hire and retain other key personnel,
could delay or prevent it from fully implementing its business strategy and,
consequently, significantly and negatively affect its business.




None of
the Insurance Companies currently maintain key man life insurance with respect
to any of its senior management, including its Chief Executive Officer or Chief
Financial Officer.




An
Insurance Company’s failure to obtain or maintain sufficient collateral on
commercially acceptable terms may significantly and negatively affect its
ability to maintain or grow its business.




None of
the Insurance Companies are licensed or admitted as an insurer or reinsurer in
any jurisdiction other than Barbados, Bermuda and Ireland. Certain
jurisdictions, including states of the United States, do not permit insurance
companies to take credit on their statutory financial statements for reinsurance
obtained from reinsurers that are unlicensed or non-admitted in such
jurisdictions unless appropriate collateral is provided or other security
measures are implemented. As a result, all of its U.S. clients and a portion of
its non-U.S. clients require it to provide collateral for the contracts it binds
with them. This collateral usually takes the form of funds withheld or trust
arrangements.  Certain insurance company clients may in the future
request collateral in the form of letters of credit, in which case the failure
to obtain, maintain, replace or increase its letter of credit facilities on
commercially acceptable terms may significantly and negatively affect Allied
Provident’s ability to implement its business strategy.




12




The
Insurance Companies sometimes depends on their clients’ evaluations of the risks
associated with their insurance underwriting, which may subject them to
reinsurance losses.




In some
of their reinsurance business, the Insurance Companies assume an agreed upon
percentage (less than 100%) of the underlying insurance contract being
reinsured, which are called quota share reinsurance contracts.  In
such situations, the Insurance Company does not typically separately evaluate
each of the original individual insurance risks assumed and is largely dependent
on the original underwriting decisions made by insurance companies issuing the
policy.  The Insurance Companies are therefore subject to the risk
that the insurer client may not have adequately evaluated the insured risks, or
that the amount of the premiums assigned to it may not adequately compensate it
for the risks it assumes. Therefore, the Insurance Companies will be dependent
on the original claims decisions made by its insurance company
clients.  As the Insurance Companies also do not expect to separately
evaluate each of the individual claims made on these quota-share reinsurance
contracts, they are subject to the risk that the client may pay invalid claims,
which could result in reinsurance losses for them.




Interest
rate fluctuations could negatively affect the income derived from the difference
between the interest rates the Insurance Companies may earn on their investments
and the interest they may pay under their reinsurance contracts.




Significant
changes in interest rates expose reinsurance companies, such as the Insurance
Companies, to the risk of not earning income on investments, or experiencing
losses based on the difference between the interest rates earned on investments
and the credited interest rates paid out under outstanding reinsurance
contracts. Both rising and declining interest rates could negatively affect the
income the Insurance Companies may derive from these interest rate spreads.
During periods of falling interest rates, investment earnings will be lower
because interest earnings on some of the variable interest rate investments will
likely have declined in parallel with market interest rates. Additionally, new
investments in fixed or variable interest rate investments will likely bear
lower interest rates. The Insurance Companies may not be able to fully offset
the decline in investment earnings with lower crediting rates on their
reinsurance contracts that have cash values. During periods of rising interest
rates, the Insurance Companies may be contractually obligated to increase the
crediting rates on their reinsurance contracts that have cash values. However,
they may not have the ability to immediately acquire investments with interest
rates sufficient to offset the increased crediting rates on their reinsurance
contracts. While they develop and maintain asset/liability management programs
and procedures designed to reduce the volatility of its income when interest
rates are rising or falling, there can be no assurance that changes in interest
rates will not affect their interest rate spreads.




Changes
in interest rates may also affect their business in other ways. Lower interest
rates may result in lower sales of certain insurance and investment products of
their other customers, which would reduce the demand for the reinsurance of
these products.




The
invested assets supporting the business of the Insurance Companies may decrease
in value if the assets default or decrease in earning power.




The
invested assets of the Insurance Companies that will support their reserve
liabilities are subject to general credit, liquidity, market and interest rate
risks, and they will be exposed to such risks on their portfolio. Beginning in
the latter half of 2007 and continuing into 2008 and 2009, the capital and
credit markets experienced an unusually high degree of volatility. As a result,
the invested assets of the Insurance Companies have experienced illiquidity,
increased price volatility, credit downgrade events and increased expected
probability of default. Securities that are less liquid are more difficult to
value and may be hard to sell, if desired. Due to the current reduced liquidity
in capital markets, the Insurance Companies may be unable to sell or buy
significant volumes of assets at quoted prices. Some issuers have defaulted on
their financial obligations for various reasons, including bankruptcy, lack of
liquidity, downturns in the economy, downturns in real estate values,
operational failure and fraud. These market disruptions in the current weak
economic environment have led to increased impairments of and lower earnings on,
securities which will support the reserve liabilities of the Insurance
Companies. Lower earnings on the invested assets of the Insurance Companies
constrain the growth of their capital, in turn constraining the payment of
dividends and advances or repayment of funds to us. Further excessive defaults
or other reductions in the value of securities could have a materially adverse
effect on the business, results of operations and financial condition of the
Insurance Companies, which in turn may affect us. In particular, if there is an
unexpected increase in the volume or severity of claims that may force the
Insurance Companies to liquidate securities, or if they do not structure the
duration of investments to match their reinsurance liabilities, they may be
forced to liquidate investments prior to maturity at a time of such market
volatility and disruptions, when the sale of such assets will incur a
significant loss. Investment losses could significantly decrease their asset
base and statutory surplus, thereby affecting their ability to conduct
business.




13




Hedging
activities could result in unexpected losses and could otherwise adversely
affect the Insurance Companies.




The
Insurance Companies may seek to limit their exposure to adverse effects
resulting from claims on reinsured  annuities, property and casualty
exposure, and related financial risks by using derivative financial instruments
and other hedging mechanisms. Even though monitored by management, their hedging
activities could result in losses. Such losses could occur under various
circumstances, including in the event a counterparty to a derivative instrument
does not perform its obligations under the instrument, the hedge is imperfect
(for instance, if the correlation between the two hedging instruments differ in
nature, timing or quantity), stock prices and interest rates move unfavorably
related to the Insurance Companies’ financial positions, hedging policies and
procedures are not followed, or if the steps that they take to monitor the
derivative financial instruments do not detect and prevent violations of their
risk management policies and procedures. As a result of these factors, such
hedging activities may not be as effective as intended in reducing the
volatility and risks of its operational and financial positions and the
Insurance Companies may experience significant financial losses and be adversely
affected.




If
the Insurance Companies do not appropriately structure their hedges in relation
to their anticipated liabilities, their ability to conduct business could be
adversely affected.




The
ability of the Insurance Companies to measure and manage risk and to implement
their investment strategy and hedging arrangements are crucial to their success.
There can be no assurance that the Insurance Companies will successfully
structure their hedges in relation to their anticipated liabilities under their
reinsurance policies. If calculations with respect to these liabilities are
incorrect, or if its hedges are not properly structured to meet such
liabilities, the Insurance Companies could be forced to liquidate
investments.




The
success of the Insurance Companies’ investment strategy and hedging arrangements
are also affected by general economic conditions. These conditions may cause
volatile interest rates and equity markets, which in turn could increase the
cost of hedging and lead to poor investment results. Volatility or illiquidity
in the markets could significantly and negatively affect the ability of the
Insurance Companies to conduct business and could generate unexpected losses on
existing reinsurance written. The Insurance Companies cannot guarantee that
their investment strategy or hedging arrangements will be successful or that
their investment or hedging objectives will be met.




Hedging
instruments often are not traded on regulated exchanges, guaranteed by an
exchange or clearing house, or regulated by any U.S. or foreign governmental
authorities and involve risks and costs.




Hedging
instruments are associated with certain additional risks when they are not
traded on regulated exchanges, guaranteed by an exchange or clearing house, or
regulated by any U.S. or foreign governmental authorities. Under such
circumstances, there are no requirements with respect to record keeping,
financial responsibility or segregation of customer funds and positions.
Furthermore, the enforceability of agreements underlying derivative transactions
may depend on compliance with applicable statutory and commodity and other
regulatory requirements and, depending on the identity of the counterparty,
applicable international requirements. The business failure of a hedging
counterparty with whom the Insurance Companies have entered or may enter into a
hedging transaction would most likely result in a default. Default by a party
with whom the Insurance Companies enter into a hedging transaction may result in
the loss of unrealized profits and force them to cover their resale commitments,
if any, at the then current market price. It may not always be possible to
dispose of or close out a hedging position without the consent of the hedging
counterparty and it may not be able to enter into an offsetting contract to
cover such risk. There can be no assurance that a liquid secondary market will
exist for hedging instruments purchased or sold and they may be required to
maintain a position until exercise or expiration, which could result in
losses.




Even
if such hedging program and models are adequately designed, errors in data
collection, dissemination and input as applied to the program and models could
generate erroneous results and adversely affect the business of the Insurance
Companies.




Any
hedging program and models may necessarily involve collection and dissemination
of large amounts of data. Examples of data collected and analyzed include market
indices, performances of reinsured contracts, risk statistics, contract
information, rates, expenses and mortality or claims experience. To the extent
that errors in data collection, dissemination and input or other data handling
errors occur and are not identified and corrected by the internal controls of
the Insurance Companies, the information generated by such program and models
and supplied to their employees, affiliates, business partners and others, may
be incorrect and may produce a deficient basis on which underwriting decisions,
pricing, hedging arrangements, financial reporting and other material business
decisions are made.




14




If
the investment strategy of the Insurance Companies is not successful, they could
suffer unexpected losses.




The
Insurance Companies expect to derive a portion of their income from assets
invested pursuant to their investment strategy. The operating results of the
Insurance Companies will therefore depend in part on the performance of their
invested assets and the individuals who will manage their portfolio and
implement their investment strategy. The success of their investment strategy is
crucial to the success of the business of the Insurance Companies. In
particular, the investments are expected to be structured to match the
anticipated liabilities under reinsurance treaties to the extent it is believed
to be necessary. If the calculations with respect to these reinsurance
liabilities are incorrect, or if the investments are improperly structured to
match such liabilities, the Insurance Companies could be forced to liquidate
investments prior to maturity at a significant loss.




The
Insurance Companies could incur substantial losses if financial institutions in
which they maintain their cash, securities or other investment assets
fail.




The
recent deterioration of the global credit and financial markets has created
challenging conditions for financial institutions, including depositories,
trustees and custodial institutions. As the fallout from the credit crisis
persists, the financial strength of these institutions may continue to decline.
The Insurance Companies may maintain cash balances at various United States
depository institutions that are significantly in excess of the United States
Federal Deposit Insurance Corporation insurance limits. The Insurance Companies
may also maintain cash balances in foreign financial institutions. They may also
maintain securities and other investment assets accounts and facilities at
varied financial institutions. If one or more of the institutions in which the
Insurance Companies maintain significant cash balances, securities or other
investment assets were to fail, their ability to access these funds or other
assets might be temporarily or permanently limited, or delayed for an
indeterminate period of time, and they may incur expense in obtaining access to
such funds or assets. As a result, they could face a material liquidity problem
and potentially material financial losses from any such limitation or
delay.




The
Insurance Companies may be dependent on a small number of large transactions,
which, if any of them has an unfavorable outcome or fails to materialize as
expected, could adversely affect them.




The
Insurance Companies may rely on a small number of transactions and ceding
companies. Thus, they would be more sensitive to the underwriting and actuarial
errors made in connection with a particular transaction and to an adverse change
in the financial condition of a particular transaction or cedant, the occurrence
of which could have a material adverse effect on the Insurance
Companies.




The
Insurance Companies depend on the performance of others and their failure to
perform in a satisfactory manner could negatively affect them.




The
Insurance Companies rely upon their insurance clients to provide timely and
accurate information. They may experience volatility in their earnings as a
result of erroneous or untimely reporting from their clients. The Insurance
Companies expect to work closely with their clients and monitor their reporting
to minimize this risk. They also rely on original underwriting decisions made by
their clients. There can be no assurance that these processes or those of their
clients will adequately control business quality or establish appropriate
pricing.




Counterparties’
failure to perform their obligations could adversely affect the Insurance
Companies.




The risk
management and loss limitation strategy of the Insurance Companies may include
hedging risks that they will assume from the ceding companies writing insurance
products. This strategy will include entering into derivative arrangements such
as options, swaps and future agreements. Some of these agreements may be entered
into on the over-the-counter (OTC) market, where the Insurance Companies
interact directly with one or more investment banks. The Insurance Companies are
dependent on the investment banks paying them in a timely manner and according
to the terms of the derivative transactions in order to effectively manage their
risks and losses. The Insurance Companies may cede some of the business that
they reinsure to other reinsurance companies, known as retrocessionaires. In
such arrangements, the Insurance Companies would assume the risk that the
retrocessionaire will be unable to pay amounts due to them because of such
retrocessionaire’s own financial difficulties. The failure of such
retrocessionaires to pay amounts due to them will not absolve them of its
responsibility to pay ceding companies for risks that they reinsure. Failure of
retrocessionaires to pay the Insurance Companies could materially harm their
business, results of operations and financial condition.




15




Interruption
or loss of the information processing systems of the Insurance Companies or the
failure to maintain secure information systems could have a material adverse
effect on their business.




The
business of the Insurance Companies depends on readily available systems, secure
information and the ability of their employees to process transactions. The
capacity of the Insurance Companies to service their clients will rely on
storing, retrieving, processing and managing information. Interruption or loss
of their information processing capabilities through loss of stored data, the
failure of computer equipment or software systems, telecommunications failure or
other disruption could have a material adverse effect on their business,
financial condition and results of operations. Despite any business contingency
plans the Insurance Companies may adopt, their ability to conduct business may
be adversely affected by a disruption in the infrastructure that supports their
business and their physical locations. This may include a disruption involving
physical site access, terrorist activities, disease pandemics, electrical,
communications or other services used by the Insurance Companies, their
employees or third parties with whom they may conduct business. Although the
Insurance Companies have certain disaster recovery procedures in place and
insurance to protect against such contingencies, such procedures may not be
effective and any insurance or recovery procedures may not continue to be
available at reasonable prices and may not address all such losses or compensate
them for the possible loss of clients occurring during any period that they are
unable to provide services.




Furthermore,
the Insurance Companies may depend on computer systems to store information
about their clients and parties associated with the underlying policies, some of
which is private. Database privacy, identity theft, and related computer and
internet issues are matters of growing public concern and are subject to
frequently changing rules and regulations. A growing body of United States and
foreign laws designed to protect the privacy of personally-identifiable
information, as well as to protect against its misuse, and the judicial
interpretations of such laws, may adversely affect the business of the Insurance
Companies. The evolving nature of all of these laws and regulations, as well as
the evolving nature of various governmental bodies’ enforcement efforts, and the
possibility of new laws in this area, may adversely affect the ability of the
Insurance Companies to collect and disseminate or share certain information and
may negatively affect their ability to make use of that information. The failure
to adhere to or successfully implement processes in response to changing
regulatory requirements in this area could result in legal liability or harm to
their reputation. The Insurance Companies will take reasonable and appropriate
security measures to prevent unauthorized access to information in their
databases. However, their technology and systems may fail to adequately secure
the private information they maintain in their databases and protect them from
theft or inadvertent loss. In such circumstances, they may incur liability to
their clients or underlying policyholders, which could result in litigation or
adverse publicity that could have a material adverse effect on their
business.




The
business, results of operations, financial condition or liquidity of the
Insurance Companies may be materially adversely affected by errors and omissions
and the outcome of claims, lawsuits and proceedings.




In the
ordinary course of the business of the Insurance Companies they may become
subject to actual or potential claims, lawsuits and other proceedings relating
to alleged errors and omissions in connection with the management of reinsured
risks. Because the handling of claims may involve substantial amounts of money,
errors and omissions claims against them may arise which allege their potential
liability for all or part of the amounts in question. Claimants may seek large
damage awards and these claims may involve potentially significant defense
costs. Such claims, lawsuits and other proceedings could, for example, include
allegations of damages for their employees’ or agents’ improperly failing to
appropriately apply funds that they hold for their clients on a fiduciary basis.
Errors and omissions claims, lawsuits and other proceedings arising in the
ordinary course of business will be covered in part by professional indemnity or
other appropriate insurance. The terms of this insurance will vary by policy
year. In respect of self-insured risks, the Insurance Companies may establish
provisions against these items which they believe to be adequate in the light of
current information and legal advice, and they will adjust such provisions from
time to time according to developments. The business, results of operations,
financial condition and liquidity of the Insurance Companies may be adversely
affected if in the future their insurance coverage proves to be inadequate or
unavailable or there is an increase in liabilities for which they self-insure.
The ability of the Insurance Companies to obtain professional indemnity
insurance in the amounts and with the deductibles they desire in the future may
be adversely impacted by general developments in the market for such insurance
or their own claims experience. In addition, claims, lawsuits and other
proceedings may harm their reputation or divert management resources away from
operating their business.




Current
legal and regulatory activities relating to certain insurance products could
affect the business, results of operations and financial condition of the
Insurance Companies.




In order
to be accounted for as reinsurance, or loss mitigation, products, insurance
products must meet the requirements of SFAS 113, which requires that the
products meet certain risk transfer requirements. Certain insurance contracts
have become the focus of investigations by the SEC and numerous states with
respect to the SFAS 113 risk transfer requirements. Because some of the
Insurance Companies’ contracts may contain features designed to manage the
overall risks they assume, such as a cap on potential losses or a refund of some
portion of the premium if they incur smaller losses than anticipated at the time
the contract is entered into, it is possible that they may become subject to the
ongoing inquiries into loss mitigation products conducted by the SEC or certain
states.




16




In
addition, the Insurance Companies cannot predict at this time what effect
current investigations, litigation and regulatory activities affecting other
companies in the insurance industry will have on the reinsurance industry or
their business or what, if any, changes may be made to laws and regulations
regarding the industry and financial reporting.  It is possible that
these investigations or related regulatory developments will mandate changes in
industry practices that will negatively impact their ability to use certain loss
mitigation features in their products and, accordingly, their ability to operate
their business pursuant to their existing strategy. Moreover, any
reclassification of their reinsurance contracts as deposit liabilities rather
than reinsurance contacts could jeopardize their exemption from the Investment
Company Act of 1940, as amended.




Currency
fluctuations could result in exchange rate losses and negatively impact our
business.




The
functional currency of the Insurance Companies is the U.S. dollar. Although they
have not done so extensively to date, they may in the future write a portion of
their business and receive premiums in currencies other than the U.S. dollar. In
addition they may invest a portion of their portfolio in assets denominated in
currencies other than the U.S. dollar. Consequently, they may experience
exchange rate losses to the extent their foreign currency exposure is not hedged
or is not sufficiently hedged, which could significantly and negatively affect
their business and results of operations. If they do seek to hedge their foreign
currency exposure through the use of forward foreign currency exchange contracts
or currency swaps, they will be subject to the risk that their counterparties to
the arrangements fail to perform.




Allied
Provident is subject to all of the risks of a start-up business.




Allied
Provident has a limited operating history. Allied Provident was formed and
commenced its insurance business in November 2007.  In general,
reinsurance and insurance companies in their initial stages of development
present substantial business and financial risks and may suffer significant
losses. They must develop business relationships, establish operating
procedures, hire staff, install information technology systems, implement
management processes and complete other tasks appropriate for the conduct of
their business activities. In particular, their ability to implement their
strategy to penetrate the reinsurance market depends on, among other
things:




·
              their
      ability to attract clients;


·
              their
      ability to attract and retain personnel with underwriting, actuarial and
      accounting and finance
expertise;


·
              their
      ability to obtain and maintain at least an A- (Excellent) rating from A.M.
      Best or a similar financial strength rating from one or more other ratings
      agencies;


·
              their
      ability to effectively evaluate the risks they assume under reinsurance
      contracts that they write;


·
              the
      results of the reinsurance business written to date is still to be
      determined they we may be subject to greater losses than anticipated;
      and


·
              the
      members of their underwriting team may not have the requisite experience
      or expertise to compete for all transactions that fall within their
      strategy of offering frequency and severity contracts at times and in
      markets where capacity and alternatives may be
  limited.




As of the
date of this Annual Report, Allied Provident has issued a limited number of
insurance policies, and it offers reinsurance to one insurer. In addition, it is
not licensed or admitted as an insurer or reinsurer in any jurisdiction other
than Barbados.  There can be no assurance that there will be
sufficient demand for the insurance products Allied Provident plans to write to
support its planned level of operations, or that it will accomplish the tasks
necessary to implement its business strategy.




Allied
Provident currently issues reinsurance to only one insurer.




Allied
Provident’s reinsurance strategy is to build a portfolio of “frequency” and
“severity” reinsurance agreements with select insurance companies that are
designed to meet the needs of the insurer that are not being met in the
traditional reinsurance marketplace. However, Allied Provident currently issues
reinsurance to only one insurer, a United States licensed insurance carrier that
offers non-standard personal automotive insurance coverage to high risk or
“rated” drivers who are unable to obtain insurance from standard
carriers.




Allied
Provident’s current quota share treaty reinsurance agreement with the insurance
carrier commenced on January 1, 2008 for a one year term, and was renewed on
January 1, 2009 and January 1, 2010 for additional one year terms. However, the
agreement may be terminated by either party on 90 days’ prior written
notice.  Upon termination of the agreement, Allied Provident remains
liable for all losses that occur under insurance risks ceded to it at the time
of termination for a period of one year following termination of such agreement,
and for all claims made under such policies for a period of 18 months from
termination of the reinsurance agreement.




17




Allied
Provident’s underwriter is responsible for contracts from origination until
final disposition, including underwriting, pricing, servicing, monitoring and
claims processing. If Allied Provident is unable to expand its underwriting
infrastructure, it will be unable to fulfill its growth strategy or expand its
business.




Allied
Provident’s underwriter is responsible for contracts from origination until
final disposition, including underwriting, pricing, servicing, monitoring and
claims processing. Because it currently only has one underwriter, Allied
Provident is limited in how much business it can handle.  As its
business begins to grow, of which we can give no assurance, Allied Provident
anticipates that it will have to hire additional underwriters and/or engage a
third party underwriting service provider to manage the underwriting process and
other contract maintenance activities.  If Allied Provident is unable
to expand its underwriting infrastructure, it will be unable to fulfill its
growth strategy or expand its business.




Reinsurance
brokers may subject Allied Provident to additional financial risks.




In
accordance with industry practice, Allied Provident may pay amounts owed on
claims under its policies to reinsurance brokers, and these brokers, in turn,
remit these amounts to the insurance companies that have reinsured a portion of
their liabilities with Allied Provident. In some jurisdictions, if a broker
fails to make such a payment, Allied Provident would remain liable to the
insurance company client for the deficiency notwithstanding the broker’s
obligation to make such payment. Conversely, in certain jurisdictions, when the
client pays premiums for policies to reinsurance brokers for payment to Allied
Provident, these premiums are considered to have been paid and the client will
no longer be liable to it for these premiums, whether or not it has actually
received them. Consequently, Allied Provident may assume a degree of credit risk
associated with reinsurance brokers around the world. Allied Provident does not
currently work with reinsurance brokers but may do so in the future on a limited
and/or case-by-case basis.




Allied
Provident’s inability to purchase or collect upon certain indemnity coverage it
seeks to obtain in order to limit its reinsurance risks could adversely affect
its business, financial condition and results of operations.




Typically
reinsurance companies seek to mitigate their risks under reinsurance contracts
they issue by purchasing indemnity insurance against losses from other
reinsurance companies.  This is called retrocessional
coverage.  As of December 31, 2009, Allied Provident has not purchased
retrocessional coverage. The insolvency or inability or refusal of a provider of
retrocessional reinsurance coverage to make payments under the terms of its
agreement with Allied Provident could have an adverse effect on it as it still
remains liable to its insurance client under its original reinsurance contract.
From time to time, market conditions have limited, and in some cases have
prevented, reinsurers from obtaining the types and amounts of retrocessional
coverage that they consider adequate for their business needs. Accordingly,
Allied Provident may not be able to obtain its desired amounts of retrocessional
coverage or negotiate terms that it deems appropriate or acceptable or obtain
retrocession from entities with satisfactory creditworthiness. Its failure to
establish adequate retrocessional arrangements or the failure of its
retrocessional arrangements to protect it from overly concentrated risk exposure
could significantly and negatively affect its business, financial condition and
results of operations.




The
property and casualty insurance and reinsurance markets may be affected by
cyclical trends.




Allied
Provident writes insurance and reinsurance in the property and casualty markets.
The property and casualty insurance industry is cyclical. Primary insurers’
underwriting results, prevailing general economic and market conditions,
liability retention decisions of companies and primary insurers and reinsurance
premium rates influence the demand for property and casualty reinsurance.
Prevailing prices and available surplus to support assumed business influence
reinsurance supply. Supply may fluctuate in response to changes in rates of
return on investments realized in the reinsurance industry, the frequency and
severity of losses and prevailing general economic and market
conditions.




Continued
increases in the supply of reinsurance may have adverse consequences for the
reinsurance industry generally and for Allied Provident, including lower premium
rates, increased expenses for customer acquisition and retention and less
favorable policy terms and conditions.




Unpredictable
developments, including courts granting increasingly larger awards for certain
damages, natural disasters (such as catastrophic hurricanes, windstorms,
tornados, earthquakes and floods), fluctuations in interest rates, changes in
the investment environment that affect market prices of investments and
inflationary pressures, affect the industry’s profitability. The effects of
cyclicality could significantly and negatively affect Allied Provident’s
financial condition and results of operations.




18




Risks
Related to Being an Offshore Company




The
current business operations of the Insurance Companies are located outside the
United States which exposes us to certain risks that may negatively impact our
operations.




Our
current business operations are located outside the United States, which subject
us to risks associated therewith, including any of the following:




·
            rules
      and regulations or currency conversion or corporate withholding taxes on
      individuals;


·
            tariffs
      and trade barriers;


·
            regulations
      related to customs and import/export
matters;


·
            longer
      payment cycles;


·
            tax
      issues, such as tax law changes and variations in tax laws as compared to
      the United States;


·
            currency
      fluctuations and exchange controls;


·
            challenges
      in collecting accounts receivable;


·
            cultural
      and language differences;


·
            employment
      regulations;


·
            crime,
      strikes, riots, civil disturbances, terrorist attacks and
      wars; and


·
            deterioration
      of political relations with the United
States.




We cannot
assure you that we would be able to adequately address these additional risks.
If we were unable to do so, our operations might suffer.




The
Insurance Companies are incorporated outside the Unites States and a majority of
their directors and substantially all of their and the Company’s assets are
located outside the United States. As a result, it may not be possible for
security holders to enforce civil liability provisions of the U.S. federal or
state securities laws.




The
Insurance Companies are incorporated outside the United States and substantially
all of our assets are located outside the United States. In addition, a majority
of the directors are not (and some future directors may not be) citizens or
residents of the United States and a significant portion of the assets of
non-U.S. directors are (and for new directors may be) located outside the
United States. Consequently, it may be difficult to serve legal process within
the United States upon any of the non-U.S. directors. In addition, it may
not be possible to enforce court judgments obtained in the United States against
the Insurance Companies outside the United States or against their
non-U.S. directors in their home countries, or in countries other than the
United States where the Insurance Companies or they have assets, particularly if
the judgments are based on the civil liability provisions of the federal or
state securities laws of the United States. There is some doubt as to whether
the courts of other countries would recognize or enforce judgments of
U.S. courts obtained against the Insurance Companies or their directors or
officers based on the civil liabilities provisions of the federal or state
securities laws of the United States or would hear actions against those persons
based on those laws. In certain cases, there may not be a treaty providing for
the reciprocal recognition and enforcement of judgments in civil and commercial
matters. Therefore, a final judgment for the payment of money rendered by any
federal or state court in the United States based on civil liability, whether or
not based solely on U.S. federal or state securities laws, would not
automatically be enforceable in such countries.




Insurance
regulators in the United States or elsewhere may review the activities of the
Insurance Companies and claim that they are subject to that jurisdiction’s
licensing requirements.




The
Insurance Companies are currently admitted to do business in Bermuda, Ireland
and Barbados. In general, the insurance statutes and regulations of these
countries are less restrictive than United States state insurance statutes and
regulations. There can be no assurance given that insurance regulators in the
United States or elsewhere will not review their activities and claim that they
are subject to such jurisdiction’s licensing requirements. In addition, they are
subject to indirect regulatory requirements imposed by jurisdictions that may
limit their ability to provide reinsurance. For example, their ability to write
reinsurance may be subject, in certain cases, to arrangements satisfactory to
applicable regulatory bodies and proposed legislation and regulations may have
the effect of imposing additional requirements upon, or restricting the market
for, non-U.S. reinsurers such as the Insurance Companies with whom domestic
companies may place business.




If, in
the future, the Insurance Companies were to become subject to the laws or
regulations of any state in the United States or to the laws of the United
States or of any other country, they would have to either cease doing business
in such jurisdictions or become licensed in such jurisdictions. If they attempt
to become licensed in another jurisdiction, they may not be able to do so or, if
they do obtain a license, required modifications of the conduct of their
business or their subsequent non-compliance with their insurance statutes and
regulations could materially and adversely affect their business and operating
results.




19




Furthermore,
the applicable insurance laws and regulations are subject to change. Two bills,
the Nonadmitted and Reinsurance Reform Act of 2009 and the Reinsurance
Regulatory Modernization Act of 2009, purporting to regulate insurance and
reinsurance, are currently pending in the U.S. Congress which may adversely
affect the cost, manner or feasibility of doing business if
enacted.




Risks
Related to Being a Barbados Company




Insurance
Regulations




Allied
Provident holds an Exempt Insurance License issued in accordance with the terms
of the Exempt Insurance Act, 1983 (Act 1983-9) (as revised) of Barbados, or the
“Law”, and is subject to regulation by the Barbados Insurance Supervisor, in
terms of the implementation and interpretation of the Law.  It is the
duty of the Insurance Supervisor to examine the affairs or business of any
licensee or other person carrying on, or who has carried on, insurance business
in order to ensure that the Law has been complied with and that and the licensee
is in a sound financial position and is carrying on its business in a
satisfactory manner.




As the
holder of an Exempt Insurance License, Allied Provident is permitted to
undertake insurance business from Barbados, but, other than with the prior
written approval of the Insurance Supervisor, may not engage in any Barbados
domestic insurance business except to the extent that such business forms a
minor part of the international risk of a policyholder whose main activities are
in territories outside Barbados.




Allied
Provident is required to comply with the following principal requirements under
the Law:




·
            the
      maintenance of a net worth (defined in the Law as the excess of assets,
      including any contingent or reserve fund secured to the satisfaction of
      the Insurance Supervisor, over liabilities other than liabilities to
      partners or shareholders) of at least 250,000 Barbados dollars (which is
      equal to approximately US $125,000), subject to increase by the Insurance
      Supervisor depending on the type of business
  undertaken;


·
            to
      carry on its insurance business in accordance with the terms of the
      license application submitted to the Insurance Supervisor, to seek the
      prior approval of the Insurance Supervisor to any proposed change thereto,
      and annually to file a certificate of compliance with this requirement, in
      the prescribed form, signed by an independent auditor, or other party
      approved by the Insurance
Supervisor;


·
            to
      prepare annual accounts in accordance with generally accepted accounting
      principles, audited by an independent auditor approved by the Insurance
      Supervisor;


·
            to
      seek the prior approval of the Insurance Supervisor in respect of the
      appointment of directors and officers and to provide the Insurance
      Supervisor with information in connection therewith and notification of
      any changes thereto;


·
            to
      notify the Insurance Supervisor as soon as reasonably practicable of any
      change of control of Allied Provident, the acquisition by any person or
      group of persons of shares representing more than 10% of the issued shares
      of Allied Provident or total voting rights and to provide such information
      as the Insurance Supervisor may require for the purpose of enabling an
      assessment as to whether the persons acquiring control or ownership are
      fit and proper persons to acquire such control or
    ownership;


·
            to
      maintain appropriate business records in Barbados;
  and


·
            to
      pay an annual license fee.




The Law
requires that the holder of an Exempt Insurance License engage a licensed
insurance manager operating in the Barbados to provide insurance expertise and
oversight, unless exempted by the Insurance Supervisor.  Allied
Provident has engaged Amphora Captive Administrators Limited to perform these
functions and has a written management agreement with them.




Where the
Insurance Supervisor believes that a licensee is committing, or is about to
commit or pursue, an act that is deemed to be unsafe or an unsound business
practice, the Insurance Supervisor may request that the licensee cease or
refrain from committing the act or pursuing the offending course of conduct.
Failures to comply with Insurance Supervisor regulation may be punishable by a
fine of up to one hundred thousand Barbados dollars (US$121,951 based on
Barbados’ pegged exchange rate of CI$0.82 per US$1.00), and an additional ten
thousand Barbados dollars (US $12,195) for every day after conviction that the
breach continues.




20




Whenever
the Insurance Supervisor believes that a licensee is or may become unable to
meet its obligations as they fall due, is carrying on business in a manner
likely to be detrimental to the public interest or to the interest of its
creditors or policyholders, has contravened the terms of the Law, or has
otherwise behaved in such a manner so as to call into question the licensee’s
fitness, the Insurance Supervisor may take one of a number of steps, including
requiring the licensee to take steps to rectify the matter, suspending the
license of the licensee, revoking the license, imposing conditions upon the
license and amending or revoking any such condition, requiring the substitution
of any director, manager or officer of the licensee, at the expense of the
licensee, appointing a person at the licensee’s expense to advise the licensee
on the proper conduct of its affairs and to report to the Insurance Supervisor
thereon, appointing a person to assume control of the licensee’s affairs or
otherwise requiring such action to be taken by the licensee as Insurance
Supervisor considers necessary, any of which would have a material adverse
effect on the business of Allied Provident.




Any
suspension or revocation of its insurance license would materially impact its
ability to do business and implement Allied Provident’s business
strategy.




Allied
Provident is licensed as both an insurance company and a reinsurer only in
Barbados and does not plan to be licensed in any other jurisdiction. The
suspension or revocation of its license to do business as a insurance and
reinsurance company in Barbados for any reason would mean that it would not be
able to enter into any new insurance or reinsurance contracts until the
suspension ended or it became licensed in another jurisdiction. Any such
suspension or revocation of its license would negatively impact its reputation
in the insurance and reinsurance marketplace and could have a material adverse
effect on Allied Provident’s results of operations.




Allied
Provident’s ability to pay dividends is subject to certain
restrictions.




The
bylaws of Allied Provident provide that the board of directors may not declare
dividends if the company is unable (or would be unable following payment of the
dividend) to pay its liabilities as they become due, or if the value of the
company’s assets would be less than the aggregate of its liabilities and stated
capital. In addition, any dividends declared by the board of Allied Provident
are subject to approval by Barbados regulators.




Risks
Related to Being a British Virgin Islands Company




Amalphis’
ability to pay dividends is subject to certain restrictions.




Amalphis
has not, and currently does not intend, to declare and pay dividends on its
shares. In addition, its ability to pay dividends is limited by the laws of the
British Virgin Islands and by its status as a holding company.




For
example, its Articles of Association contain certain limitations regarding the
payment of dividends in accordance with the laws of the British Virgin Islands.
Pursuant to its Articles of Association, Amalphis may only pay dividends if its
board of directors determines that, immediately after the dividend, the value of
Amalphis’ assets will exceed its liabilities and that it will be able to pay its
debts as they become due.




As a
holding company, Amalphis transacts business through Allied Provident, and its
primary asset is the capital stock of Allied Provident. Accordingly, its ability
to pay dividends depends upon the surplus and earnings of Allied Provident and
any limitations on its ability to pay dividends to Amalphis.




Amalphis
may become subject to taxation in 2028 which would negatively affect its
results.




Under
current British Virgin Islands law, Amalphis is not obligated to pay any taxes
in the British Virgin Islands on either income or capital gains. The
Governor-in-Cabinet of the British Virgin Islands has granted Amalphis an
exemption from the imposition of any such tax on it for a period of twenty years
from 2008. There can be no assurance given that after such date it would not be
subject to any such tax. If it were to become subject to taxation in the British
Virgin Islands, its financial condition and results of operations could be
significantly and negatively affected.




Risks
Related to Cayman Islands Taxation




The
government of the Cayman Islands will not, under existing legislation, impose
any income, corporate or capital gains tax, estate duty, inheritance tax, gift
tax or withholding tax upon us or our shareholders. The Cayman Islands are not
party to a double tax treaty with any country that is applicable to any payments
made to or by us.




21




We
have applied for and received an undertaking dated April 3, 2007 from the
Governor-in-Cabinet of the Cayman Islands that, in accordance with
section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands,
for a period of 20 years from the date of the undertaking, no law which is
enacted in the Cayman Islands imposing any tax to be levied on profits, income,
gains or appreciations shall apply to us or our operations and, in addition,
that no tax to be levied on profits, income, gains or appreciations or which is
in the nature of estate duty or inheritance tax shall be payable (i) on or
in respect of our shares, debentures or other obligations or (ii) by way of
the withholding in whole or in part of a payment of dividend or other
distribution of income or capital by us to our members or a payment of principal
or interest or other sums due under a debenture or other
obligation.




Risks
Related to U.S. Taxation




We
and the Insurance Companies could be treated as engaged in a trade or business
in the United States for federal income tax purposes and subject to U.S. federal
corporate income tax, a 30% branch profits tax, and possibly state and local
taxes.  We and the Insurance Companies could also be subject to a 30%
U.S. federal withholding tax if certain U.S. source income is earned by these
entities.




Because
the determination of whether we and the Insurance Companies are engaged in a
trade or business is essentially factual, there can be no assurance that we will
not be treated as engaged in a trade or business in the United States for
federal income tax purposes and subject to U.S. federal income tax (and
possibly a 30% branch profits) on income that is effectively connected to its
trade or business in the United States. Any such taxes could have a material
adverse effect on us and the Insurance Companies.




Potential
Application of the Federal Insurance Excise Tax




The IRS
has held that the U.S. federal insurance excise tax (“FET”) is applicable
at a 1% rate on reinsurance cessions or retrocessions of “U.S. risk” by
U.S. insurers or reinsurers to non-U.S. reinsurers, as well as to all
reinsurance cessions or retrocessions of U.S. risks by
non-U.S. insurers or reinsurers to non-U.S. reinsurers, even if the
FET has been paid on prior cessions of the same risks. The liability for the FET
may be imposed on either the ceding party or the cedant. Also, in certain
instances a 4% excise tax can apply.  We make no representations or
opinion with respect to the potential application of the FET.




Changes
in U.S. federal income tax law could materially adversely affect us or our
investors.




It is
possible that legislation could be introduced and enacted by the U.S. Congress,
or U.S. Treasury regulations could be issued that could have an adverse
effect on us or our investors. In particular, a bill was introduced in the U.S.
Congress on October 27, 2009 that would require certain foreign
corporations (such as us and the Insurance Companies) to enter into an agreement
with the IRS to disclose to the IRS the name, address, and tax identification
number of any U.S. person who owns an interest in us or an Insurance
Company, and impose a 30% withholding tax on certain payments of income or
capital gains to us or an Insurance Company if they fail to enter into the
agreement or satisfy its obligations under the agreement. A version of this
legislation was included in a bill that passed the U.S. House of Representatives
on December 9, 2009.  If we or an Insurance Company fails to enter
into the agreement or satisfy its obligations under the agreement, payments to
them may be subject to a withholding tax, which could reduce the cash available
for investors.




Risks
Related to the Investments of the Insurance Companies




Limited
Liquidity




A
substantial portion of the investments held by the Insurance Companies will lack
liquidity.  In certain situations, the Insurance Companies may invest
in illiquid investments which could result in significant loss in value should
they be forced to sell the illiquid investments as a result of rapidly changing
market conditions or as a result of margin calls or other factors.  In
addition, U.S. futures exchanges typically establish daily price limits for most
futures contracts. If the future’s price moves up or down in a single day by an
amount equal to the daily price limit, it might not be able to enter or exit a
position as desired. This may prevent an exit from an unprofitable position and
lead to losses.  In addition, the exchange or the CFTC may halt
trading in a particular market or otherwise impose restrictions that affect
trade execution.




Risk
of hedging transactions




Hedging
strategies in general are usually intended to limit or reduce investment risk,
but can also be expected to limit or reduce the potential for
profit.  No assurance can be given that any particular hedging
strategy will be successful.




22




Risk
of derivative instruments




The
Insurance Companies may make use of various derivative instruments, such as
options.  The use of derivative instruments involves a variety of
risks, including the risks inherent in the extremely high degree of leverage
often embedded in such instruments.  In addition, derivative
instruments often have limited liquidity, which can make it difficult as well as
costly to close out open positions in order either to realize gains or to limit
losses.  Derivatives may be traded using a principal-to-principal or
“over-the-counter” contract between the Insurance Companies and third
parties.  The risk of counterparty nonperformance, financial soundness
and creditworthiness can be significant in the case of over-the-counter
instruments, and “bid-ask” spreads may be unusually wide in these substantially
unregulated markets.  In addition, there is no guarantee that
non-exchange markets will remain liquid enough for the Insurance Companies to
close out positions.




Risks
involving options




Investing
in options can provide a greater potential for profit or loss than an equivalent
investment in the underlying asset.  The value of an option may
decline because of a decline in the value of the underlying asset relative to
the strike price, the passage of time, changes in the market’s perception as to
the future price behavior of the underlying asset, or any combination
thereof.  In the case of the purchase of an option, the risk of loss
of an investor’s entire investment in the option (i.e., the premium paid plus
transaction charges) reflects the nature of an option as a wasting asset that
may become worthless when the option expires.  Where an option is
written or granted (sold) uncovered, the seller may be liable to pay substantial
additional margin and the risk of loss is unlimited, as the seller will be
obligated to deliver, or take delivery of, an asset at a predetermined price
which may, upon exercise of the option, be significantly different from the then
market value.




Over-the-counter
options generally are not assignable except by agreement between the parties
concerned, and no party or purchaser has any obligation to permit such
assignments.  The over-the-counter market for options is relatively
illiquid, particularly for relatively small transactions which may be used in
the investment strategies of the Insurance Companies.




Transaction counterparty
risk.  The receipt of monies owed under the terms of each
option structure is subject to and dependent on the counterparty’s ability to
pay such monies.  As a result, the Insurance Companies may be
susceptible to risks relating to the creditworthiness of the
counterparty.  In addition, the counterparty acts as principal and
does not act in the capacity of a fiduciary to the Insurance Companies with
respect to the option structures.




Lack of centralized
clearing.  Because there is no central clearing agency for
options, if the counterparty fails to make the cash payments required to settle
an option, the Insurance Companies may lose any premium paid for the option as
well as any anticipated benefit of the option.  In such a situation,
the Insurance Companies would look to the counterparty for recovery of any loss
sustained by them that was caused by the failure of the counterparty to perform
under the option.




Volatility of transactions;
Leverage.  The value of the option depends on the performance
of the underlying security.  In addition, options will be leveraged
and most, if not all, of the underlying securities to which an option is
referenced use leverage and may also utilize over-the-counter derivative
instruments.  As a result, relatively small movements in the market
prices of the instruments traded by the underlying securities can result in
immediate and substantial losses.  Such losses ultimately can
adversely affect the economic return of the options.




No direct ownership of the
underlying funds.  The options are intended to provide an
economic return based on the performance of the underlying
securities.  The Insurance Companies may not have any rights of
ownership or other rights to such securities, either directly or
indirectly.  Even if the Insurance Companies generate a profit, a
default on the part of the counterparty could result in losses.




Delay in
payment.  Under the anticipated terms of an option, the
Insurance Companies may not receive payments until after the counterparty
receives the redemption proceeds from the liquidation of the assets comprising
its hedging position, if any.  In the event that valuation
difficulties arise, payment could be delayed and such delay potentially could be
for a significant period of time.




Valuation
risks.  The value of an option is not subject to verification
through price transparency which typically results from secondary market
trading.  The value of an option is based upon the economic
performance of the underlying securities, which may be illiquid and generally
difficult to value.




Dependency on issuer for leverage
strategy.  The ability of the Insurance Companies to use
leverage through options, and to maintain the desired leverage ratio, is
dependent on the counterparty’s willingness and ability to execute the
options.




23




Market
volatility




The
profitability of the Insurance Companies substantially depends upon correctly
assessing the future price movements of stocks, bonds, options and other
securities or commodities, and the movements of interest rates.  We
cannot guarantee that the Insurance Companies will be successful in accurately
predicting price and interest rate movements.




Investment
activities




The
Insurance Companies’ investment activities involve a significant degree of
risk.  The performance of any investment is subject to numerous
factors which are neither within the control of nor predictable by
us.  Such factors include a wide range of economic, political,
competitive and other conditions (including acts of war or terrorism) which may
affect investments in general or specific industries or companies.  In
recent years, the securities markets have become increasingly volatile, which
may adversely affect the ability of the Insurance Companies to realize
profits.  As a result of the nature of the Insurance Companies’
investing activities, it is possible that our financial performance may
fluctuate substantially from period to period.




Risks
related to use of leverage




The
Insurance Companies may use leverage in their investment program, including the
use of borrowed funds and investments in option structures, and may use certain
types of options, such as puts, calls and warrants, which may be purchased for a
fraction of the price of the underlying securities while giving the purchaser
the full benefit of movement in the market of those underlying
securities.  While such strategies and techniques increase the
opportunity to achieve higher returns on the amounts invested, they also
increase the risk of loss. To the extent the Insurance Companies purchase
securities with borrowed funds, their net assets will tend to increase or
decrease at a greater rate than if borrowed funds are not used. The level of
interest rates generally, and the rates at which such funds may be borrowed in
particular, could affect the operating results of the Insurance
Companies.   If the interest expense on borrowings were to exceed
the net return on the portfolio securities purchased with borrowed funds, the
Insurance Companies’ use of leverage would result in a lower rate of return than
if there was no leverage.




Risks
related to short sales




The
Insurance Companies may sell securities short.  Short selling involves
the sale of a security that the Insurance Companies do not own and must borrow
in order to make delivery in the hope of purchasing the same security at a later
date at a lower price.  Theoretically, securities sold short are
subject to unlimited risk of loss because there is no limit on the price that a
security may appreciate before the short position is closed.  In
addition, the supply of securities that can be borrowed fluctuates from time to
time.  The Insurance Companies may be subject to losses if a security
lender demands return of the lent securities and an alternative lending source
cannot be found.




Risks
associated with counterparties




The
Insurance Companies may engage in transactions in securities and financial
instruments that involve counterparties, including the counterparties to
options.  Under certain conditions, a counterparty to a transaction or
an option could default or file for bankruptcy, or the market for certain
securities and/or financial instruments may become illiquid. In such event, the
Insurance Companies could suffer losses and/or experience liquidity
problems.  In addition, the Insurance Companies’ rights against
counterparties to options constitute general unsecured (i.e., not
collateralized) obligations of the counterparty and are subject to the credit
risk of the counterparty.




Risks
of trading futures




Trading
futures is a highly risky strategy. Whenever an Insurance Company purchases a
particular future, there is a substantial possibility that it may sustain a
total loss of its purchase price. The prices of futures are, in general, much
more volatile than prices of securities such as stocks and bonds. As a result,
the risk of loss in trading futures is substantially greater than in trading
those securities. Prices of futures react strongly to the prices of the
underlying commodities. The prices of these underlying products, in turn, rise
and fall based on changes in interest rates, international balances of trade,
changes in governments, wars, weather and a host of other factors that are
entirely beyond the control of the Insurance Companies and that are very
difficult (and perhaps impossible) to predict.




24




Risks
of investments in non-U.S. securities




The
Insurance Companies may invest a portion of their assets in foreign securities,
which may give rise to risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are
subject.  These risks may include political or social instability,
acts of war or terrorism, the seizure by foreign governments of assets,
withholding taxes on dividends and interest, high or confiscatory tax levels,
and limitations on the use or transfer of portfolio assets.  Enforcing
legal rights in some foreign countries is difficult, costly and slow, and there
are sometimes special problems enforcing claims against foreign governments.
Non-U.S. securities markets may be less liquid, more volatile and less closely
supervised by the government than in the United States.  Foreign
countries often lack uniform accounting, auditing and financial reporting
standards, and there may be less public information about their
operations.




Foreign
securities often trade in currencies other than the U.S. dollar, and the
Insurance Companies may directly hold foreign currencies and purchase and sell
foreign currencies through forward exchange contracts. Changes in currency
exchange rates will affect an Insurance Company’s net asset value, the value of
dividends and interest earned, and gains and losses realized on the sale of
securities. An increase in the strength of the U.S. dollar relative to these
other currencies may cause the value of an Insurance Company’s investments to
decline. Some foreign currencies are particularly volatile. Foreign governments
may intervene in the currency markets, causing a decline in value or liquidity
in an Insurance Company’s foreign currency holdings. If an Insurance Company
enters into forward foreign currency exchange contracts for hedging purposes, it
may lose the benefits of advantageous changes in exchange rates. On the other
hand, if it enters forward contracts for the purpose of increasing return, it
may sustain losses.




The
Insurance Companies may make commodity investments in non-U.S.
markets.  In addition to the general risks of commodity trading
discussed above, such investments face special risks particular to non-U.S.
markets.  Non-U.S. commodity markets may have greater risk potential
than United States markets.  Unlike trading on U.S. commodity
exchanges, trading on non-U.S. commodity exchanges is not regulated by a
regulatory body comparable to the CFTC.  For example, some non-U.S.
exchanges are principal markets so that no common clearing facility exists and a
trader may look only to the broker for performance of the
contract.  In addition, any profits that an Insurance Company might
realize in trading could be eliminated by adverse changes in the relevant
currency exchange rate, or the Insurance Company could incur losses as a result
of those changes.  Transactions on non-U.S. exchanges may include both
commodities that are traded on U.S. exchanges and those that are
not.




Risks
related to real estate




Certain
of the assets of the Insurance Companies may consist of real estate and real
estate-related assets. Accordingly, such assets are subject to risks associated
with the direct and indirect ownership of real estate and with the real estate
industry in general. These risks include, among others: possible declines in the
value of real estate; risks related to general and local economic conditions;
possible lack of availability of mortgage funds; overbuilding; extended
vacancies of properties and fluctuations in occupancy rates; increases in
competition, property taxes and operating expenses; changes in zoning laws;
costs resulting from the clean-up of, and liability to third parties for damages
resulting from, environmental problems; casualty or condemnation losses;
uninsured damages from floods, earthquakes or other natural disasters;
limitations on and variations in rents and fluctuations in interest rates. To
the extent that real estate assets are concentrated geographically, by property
type or in certain other respects, the Insurance Companies may be subject to
certain of the foregoing risks to a greater extent.




Risks
associated with trading limitations




For all
securities listed on a securities exchange, including options listed on a public
exchange, the exchange generally has the right to suspend or limit trading under
certain circumstances.  Such suspensions or limits could render
certain strategies difficult to complete or continue and subject the Insurance
Companies to losses. Also, such a suspension could render it impossible for the
Insurance Companies to liquidate positions and thereby expose them to potential
losses.




25




Risks
Relating to Our Securities




A
market for our securities has existed only since January 16, 2008 and from that
time until January 20, 2010, the market for our securities reflected our status
as a blank check company.  A market for our securities reflecting our
being engaged in the insurance business from and after January 20, 2010 may not
develop, which could adversely affect the liquidity and price of our
securities.




A market
for our securities has existed only since January 16, 2008. From that date
through January 20, 2010, we were a blank check company, and were not engaged in
any business that could be evaluated using customary stock valuation metrics and
methodologies.  Therefore, shareholders should be aware that they
should not rely on information about prior market history in connection with
their investment decisions relating to the Ordinary Shares.




The
distribution of a significant number of our Ordinary Shares to the former
investors and beneficial owners of the Stillwater Funds and the Wimbledon Funds
could materially affect the market for and price of our publicly traded
shares.




Subject
to completion of the audits of certain of our assets and the effectiveness of
our resale registration statement with respect to the Ordinary Shares issuable
to the former investors and beneficial owners of the Stillwater Funds and the
Wimbledon Funds, we expect to distribute such shares in February
2011.  It may be anticipated that in order to achieve liquidity, many
of these former investors and beneficial owners will seek to sell a substantial
amount of their shares in the public markets, which, absent an adequate demand
for such shares at that time, could reasonably be expected to have a material
adverse affect on the market price of our Ordinary Shares.




We
do not expect to pay dividends on our Ordinary Shares in the foreseeable
future.




We do not
currently pay cash dividends on our Ordinary Shares.  Any future
dividend payments are within the discretion of our board of directors and will
depend on, among other things, our results of operations, working capital
requirements, capital expenditure requirements, financial condition, contractual
restrictions, business opportunities, anticipated cash needs, provisions of
applicable law and other factors that our board of directors may deem
relevant.  We may not generate sufficient cash from operations in the
future to pay dividends on our Ordinary Shares.




We
will issue preferred shares or debt securities with greater rights than our
Ordinary Shares and may issue additional series of Ordinary Shares with greater
rights than our presently outstanding Ordinary Shares.




Our Third
Amended and Restated Memorandum and Articles of Association authorizes our board
of directors to issue one or more series of Ordinary Shares and set the terms of
the Ordinary Shares without seeking any further approval from holders of our
Ordinary Shares.  We may also issue preferred shares in the future
without seeking any approval from holders of our Ordinary Shares.  In
addition, we may issue debt securities that accrue interest and have priority
over our Ordinary Shares with respect to liquidations




The
trading price of our Ordinary Shares may decline.




The
trading price of our Ordinary Shares may decline for many reasons, some of which
are beyond our control, including, among others:




·
            our
      results of operations;


·
            changes
      in expectations as to our future results of operations, including
      financial estimates and projections by securities analysts and
      investors;


·
            dilution
      caused by the issuance of additional
securities;


·
            results
      of operations that vary from those expected by securities analysts and
      investors;


·
            developments
      in the healthcare or insurance
industries;


·
            changes
      in laws and regulations;


·
            announcements
      of claims against us by third
parties;


·
            future
      sales of our Ordinary Shares;


·
            lack
      of liquidity available to our
shareholders;


·
            fluctuations
      in interest rates, inflationary pressures and other changes in the
      investment environment that affect returns on invested
    assets;


·
            changes
      in the frequency or severity of
claims;


26





·
            the
      financial stability of our reinsurers and changes in the level of
      reinsurance capacity and our capital and
  surplus;


·
            new
      types of claims and new or changing judicial interpretations relating to
      the scope of liabilities of insurance
companies;


·
            volatile
      and unpredictable developments, including man-made, weather-related and
      other natural catastrophes or terrorist attacks;
  and


·
            price
      competition.




In
addition, the stock market in general has experienced significant volatility
that often has been unrelated to the operating performance of companies whose
shares are traded. These market fluctuations could adversely affect the trading
price of our Ordinary Shares, regardless of our actual operating
performance.




ITEM
      4:
            Information
      on the Company




A.                 History
and Development of the Company




Overview




GEROVA
Financial Group, Ltd. is an international reinsurance company focused on the
life and annuity reinsurance markets, in addition to a niche property and
casualty business. Through our insurance subsidiaries, we underwrite annuity and
life insurance risks that we believe will produce favorable long-term returns on
shareholder equity. The investment portfolio derived from our insurance
reserves, or our float, is allocated across traditional fixed income and equity
investments, as well as asset classes where we believe we can achieve yield
enhancement opportunities, including engaging in active investment strategies
such as directly making secured loans to middle market companies in select
industries underserved by banks. We believe the active origination of secured
loans and equity interests as part of our investment strategy is differentiated
from many traditional insurance companies’ portfolio management
approach.




We were
formed as a blank check company with the corporate name Asia Special Situation
Acquisition Corp. on March 22, 2007. We were formed for the purpose of acquiring
control of one or more unidentified operating businesses, through a capital
stock exchange, asset acquisition, stock purchase, or other similar transaction,
including obtaining a majority interest through contractual arrangements. In
January 2008, we consummated an initial public offering of our Ordinary
Shares.




In
January 2010, in connection with the Business Combinations, we acquired an 81.5%
interest in Amalphis, the parent company of Allied Provident. At the same time,
we also acquired various investment assets (subject to assumed liabilities as
well as valuation and audit adjustments) which are managed by Stillwater and
Weston.   We have contributed some of, and intend to contribute
the remainder of, these assets to our existing insurance companies and other
specialty insurance or reinsurance companies we form or acquire in the
future.  Also in January 2010, in connection with the Business
Combinations, we changed our corporate name to GEROVA Financial Group,
Ltd.




As part
of our acquisition of certain of the assets managed by Stillwater, we acquired a
38% economic interest (representing approximately a 40% voting interest) in
Northstar.




On June
7, 2010, we received approval from the Bermuda Monetary Authority to register a
newly-formed Bermuda company, GEROVA Reinsurance, Ltd., as a long-term insurer,
which will authorize it to underwrite life and annuity reinsurance
business.




In
connection with the foregoing acquisitions, we entered into management
agreements with Stillwater and Weston.  Pursuant to such management
agreements, Stillwater and Weston agreed to manage such assets in consideration
for the payment of certain management and incentive fees.




Our
Ordinary Shares, units and warrants trade on the NYSE Amex Exchange (NYSE:Amex
US: GFC, GFC.U and GFC. WS).




The
Company’s principal executive offices are located at:




Cumberland
House, 5th Floor


1
Victoria Street


Hamilton,
HM 11, Bermuda


27




The
Company’s registered and records office is located at:




Ugland
House


PO Box
309


George
Town, Grand Cayman KY1-1104


Cayman
Islands





The
Company has financed its operations through the financings listed in the table
shown below.




Date of
                              Offering/Financing
                            
                            Nature of Issuance
                            
                            Number of Securities
                            
                            Capital RaisedJanuary
      14, 2008
                            
                            Private
      Placement(1)
                            
                            5,725,000
      warrants(1)
                            
                            $
                            5,725,000January
      23, 2008
                            
                            Initial
      Public Offering(2)
                            
                            10,000,000
      units(2)
                            
                            $
                            100,000,000January
      30, 2008
                            
                            Initial
      Public Offering(3)
                            
                            1,500,000
      units(3)
                            
                            $
                            15,000,000February
      28, 2008
                            
                            Line
      of Credit(4)
                            
                            Up
      to $500,000 promissory note(4)
                            
                            Up
      to $500,000December
      16, 2008
                            
                            Funding
      Agreement(5)
                            
                            Up
      to $1,250,000 promissory note(5)
                            
                            Up
      to $1,250,000




(1)  On
January 14, 2008, the Company completed a private placement of 5,725,000
warrants to the Company’s sponsor in connection with the initial public
offering, Ho Capital Management LLC, an entity co-managed and jointly owned by
Angela Ho, the Company’s former chief executive officer and former chairman, and
Noble Investment Fund Limited, generating gross proceeds of
$5,725,000.




(2)  On
January 23, 2008, the initial public offering of 10,000,000 units (the “Units”)
of the Company was consummated. Each Unit consists of one Ordinary Share and one
warrant, each warrant to purchase one Ordinary Share at an exercise price of
$7.50 per Ordinary Share. The Units were sold at an offering price of $10.00 per
Unit, generating gross proceeds of $100,000,000.




(3)  On
January 30, 2008, the underwriters for the initial public offering of the
Company exercised their over-allotment option in full, to the extent of
1,500,000 Units. The initial public offering, including the exercise of the
over-allotment option, generated total gross proceeds of $115,000,000 to the
Company (excluding proceeds of $5,725,000 from the sale of private placement
warrants to Ho Capital Management LLC).




(4)  On
February 28, 2008, the Company consummated a Loan and Security Agreement with a
bank pursuant to which it issued a $500,000 promissory note to the bank in
exchange for a line of credit to be used for working capital and general
corporate purposes. On March 28, 2008, the Company drew down $190,000. On June
8, 2008, the Company repaid $50,000 under the note payable and on July 3, 2008,
the remaining $140,000 principal amount, plus interest, was repaid. Borrowings
under the promissory note bore interest at the bank’s prime rate (the “Interest
Rate”) or, upon the occurrence of a default by the Company, at a default rate
equal to the Interest Rate plus 2%, and were secured by certain of our
assets.




(5)  On
December 16, 2008, the Company consummated a Funding Agreement (the “Funding
Agreement”) with a placement agent calling for loans of up to $1,250,000 in 12%
promissory notes (the “Notes”) that mature on the earlier of (a) January 16,
2010, or (b) the consummation of a business combination satisfactory to the
lender.  The Notes were non-recourse to the amounts held in the Trust
Account (defined in Item 5A below) and were secured by the assignment of 100,000
Ordinary Shares that are owned by certain initial shareholders. In addition, the
Notes were secured by the interest earned in the Trust Account up to $2,000,000.
Under the agreement, $500,000 was borrowed on December 26, 2008, and the
remaining $750,000 was borrowed during the year ended December 31,
2009.  On December 1, 2009 the Notes were repaid in
full.  In connection with the financing, as an inducement, certain of
the Ordinary Shares held by certain initial investors were assigned to the
lenders and will be conveyed upon release from escrow.




28


Capital
Expenditures




The table
below shows historical capital expenditures




Fiscal Year
                  
                  ExpendituresFiscal
      2007
                  
                  $
                  0Fiscal
      2008
                  
                  $
                  0Fiscal
      2009
                  
                  $
                  0





B.                 Business
Overview




Overview




We are an
international reinsurance company focused on the life and annuity reinsurance
markets, in addition to a niche property and casualty business. Through our
insurance subsidiaries, we underwrite annuity and life insurance risks that we
believe will produce favorable long-term returns on shareholder equity. The
investment portfolio derived from our insurance reserves, or our float, is
allocated across traditional fixed income and equity investments, as well as
asset classes where we believe we can achieve yield enhancement opportunities,
including engaging in active investment strategies such as directly making
secured loans to middle market companies in select industries underserved by
banks. We believe the active origination of secured loans and equity interests
as part of our investment strategy is differentiated from many traditional
insurance companies’ portfolio management approach.




We
currently own a controlling interest in Allied Provident, a specialty insurance
company domiciled in Barbados, and a significant minority interest in Northstar,
a Bermuda insurance holding company with insurance subsidiaries licensed in
Bermuda and Ireland.




Our
Strategic Plan




We
believe that there is significant growth available in our life and annuity
reinsurance segment and we will seek to benefit from macro trends influencing
balance sheet management decisions of life insurance and annuity providers,
including increased risk aversion and regulatory considerations, which are
resolved with risk transfer through reinsurance. We believe life and annuity
companies are highly leveraged in the United States and, therefore, there is a
demand for reinsurance to serve as a capital replenishment mechanism, which is
referred to as surplus relief. According to Standard and Poor’s research and
based on data from A.M. Best Co. Inc., a global insurance rating and information
agency, the life and health insurance industry’s assets totaled $4.6 trillion at
December 31, 2008, while the industry’s capital and surplus reached $261
billion, representing a capital ratio of 5.67% or a leverage ratio of 17.6
times. Our addressable market is large and, we believe, is underserved by
reinsurers. This market continues to grow with total premiums and annuity
considerations for the life and health insurance industry totaling $637 billion
in 2008, or roughly 4.8% of U.S. real gross domestic product. Life insurance in
force in the United States at year-end 2008 reached a level of $38.1 trillion,
up 31.0% over the previous five years.




We
believe that the financial services industry has been severely dislocated with
the financial markets experiencing nearly unprecedented volatility and
de-leveraging over the past two years beginning with the sub-prime mortgage
crisis but spreading throughout the financial markets to include other fixed
income markets, equities, bank debt, and private placements. Over the last two
years, there has been a substantial decline in global asset
valuations.  The reduction in liquidity and deleveraging has also
resulted in sources of long term financing and capital becoming extremely
limited.




We believe the insurance industry is in
transition. The financial services market dislocation has caused insurers and
reinsurers to face several challenges requiring them to change their strategic
focus creating opportunities for newly formed reinsurers. These challenges have
included the following.




·
            Regulatory
      bodies around the world are mandating that commercial insurance
      companies and, in particular, large insurance companies, increase
      their capital adequacy ratio.  Since many large insurance
      companies are integral to their national economies, we believe that
      they will be subjected to more stringent regulations on their
      capital.




·
            Additional
      regulatory and capital adequacy pressure with the anticipated
      implementation in 2012 of Solvency II, the updated set of regulatory
      requirements for insurance firms that operate in the European
      Union.  It is anticipated that Bermuda, a key global insurance
      market, will have similar disruptions as the Bermuda Monetary Authority
      implements new solvency rules in late
2012.




29


·
            The
      continuing deterioration in the U.S. residential housing market in general
      and the market for sub-prime and Alt-A residential mortgage-backed
      securities specifically. We believe these conditions have had, and will
      likely continue to have, a material adverse effect on insurers and
      reinsurers, specifically on the value of their investment portfolios, and
      capital and liquidity positions.




·
            We
      believe that many life insurers have sizable exposure to commercial real
      estate in the form of commercial real estate loans and commercial
      mortgage-backed securities.  Historically, commercial real
      estate realizes the adverse impact of a recession after other asset
      classes, which many analysts believe may lead to sizable losses for
      insurers in the future.




·
            The
      negative outlooks placed on the financial strength ratings, actions taken
      by ratings agencies on insurers and reinsurers can have a material
      negative impact on their abilities to grow their reinsurance businesses
      and maintain core competitive
capabilities.




We
believe that several insurers and reinsurers have begun addressing the new
industry realities implementing plans to achieve other business and financial
objectives such as:




·
              disposing
      assets to raise needed
capital;


·
              exploring
      strategic alliances or other means of maximizing value, including
      mortality assessment and existing treaty
  administration;


·
              decreasing
      the volatility of their
earnings;


·
              improving
      their capital position by reducing the financial strain associated with
      new business production or by increasing their risk-based capital
      ratio;


·
              entering
      new lines of business and offering new products;
  and


·
              exiting
      discontinued lines of
business.





Our goal
is to take advantage of opportunities arising from financial market
dislocations, including by aggregating permanent regulatory capital by
exchanging our shares for performing assets at discounts to their intrinsic
value.  We believe that our business model of acquiring new equity
capital by exchanging our shares for unquoted financial assets and utilizing
these financial assets as regulatory capital, where permitted, differentiates us
from other insurance carriers. We also believe that this capital structure has
the advantage of potentially achieving a superior return on equity given the
relatively large amount of assets that insurance carriers are permitted to take
on balance sheet relative to their equity capital.  We believe that
Gerova has an opportunity to benefit from the change in strategic focus of its
insurance company clients and its competitors.




Our
growth strategy includes fully deploying our insurance regulatory capital by
providing insurance and writing reinsurance at a multiple of our book value as
provided for by applicable insurance statutes. By accepting select liabilities
through reinsurance contracts together with assets ceded to us, we believe that
we will be are able to gather substantial assets under management in a
relatively small number of transactions. We believe this is an efficient
business model that will require less staff and marketing efforts than currently
exists in traditional asset management businesses and primary life and annuity
carriers. We also believe that by focusing primarily on life and annuity
reinsurance that the duration of time required to manage the assets is
relatively long and we believe the payment of claims is more predictable based
on actuarial science.




Management
believes that its has identified a significant structural arbitrage opportunity
to acquire performing unquoted financial assets and to redeploy the acquired
performing assets into a more suitable longer-term capital structure through the
use of insurance company subsidiaries.  In addition, by contributing
these assets to our insurance companies, we expect to increase their regulatory
capital and significantly expand their ability to write more premium
business.





We
believe that our business model of acquiring new equity capital by exchanging
our stock for unquoted financial assets and utilizing these financial assets as
regulatory capital, where permitted, differentiates us from other insurance
carriers. We also believe that this capital structure has the advantage of
potentially achieving a superior return on equity arising from the relatively
large amount of assets that insurance carriers are permitted to take on balance
sheet relative to their equity capital.





Our
operating plan is to expand the regulatory capital base of our existing and
additional insurance companies we form or acquire and to thereafter use this
expanded regulatory capital to grow the size and scope of their in-force
insurance policies.  As a result, it is anticipated that we will have
legal regulatory capacity to expand assets substantially in excess of the
present capital base.


30


As we
grow the base of our investable assets, we intend to selectively leverage the
expertise of our investment managers and advisors.  Our initial
business plan is to expand the alternative fixed income operations by increasing
our exposure to directly originated credit facilities. We believe alternative
fixed income investments are prudent for our insurance company targets. Based on
the dislocation in the credit markets, the near term expectation is that demand
for credit will outstrip supply and, therefore, pricing may continue to be
favorable to non-bank credit providers like us.




Our
Competitive Advantages




·           Experienced management
team.  Lou Hensley and Gary T. Hirst have had long and
successful careers as senior executives of financial companies, and together
have extensive experience in insurance and asset management.




·           Strong initial capital
base.  We have a significant net capital base which will we
believe will enable us to materially increase our insurance, investment and
lending activities.




·           Focused acquisition
strategy.  Our strategic focus is to significantly enhance our
insurance premium business focusing on the life and fixed annuity
markets.  In addition to our insurance company acquisition strategy,
we intend to seek to acquire additional investment managers or registered
investment advisors and, where appropriate, the investment funds they manage at
prices which we believe will be at discounts from their current carrying values,
for the purpose of growing our legal insurance regulatory
capacity.  We believe that such acquisitions can be made at attractive
prices in exchange for a combination of cash, deferred payments tied to future
performance and equity in our company.




Allied
Provident




Allied
Provident is one of our indirect operating subsidiaries engaged in
insurance.  Allied Provident is a specialty insurance company that
offers reinsurance products in markets where traditional reinsurance
alternatives are limited.  Allied Provident also directly sells a
variety of property and casualty insurance products to businesses.




Allied
Provident holds an insurance license in Barbados and is authorized to conduct a
general insurance business, including the sale of property, general liability,
business interruption and political risk insurance, as well as compensation
bonds, directors and officers insurance, errors and omissions insurance,
structured transactions insurance wraps, and reinsurance.  Allied
Provident commenced its insurance business in Barbados in November
2007.  It has primarily issued quota share policies that reinsure
automobile insurance policies in the United States.  It has also
directly written a number of directors’ and officers’ liability policies and a
financial guaranty policy.




Allied
Provident currently issues reinsurance to a United States licensed insurance
carrier (the “Carrier”) that offers non-standard personal automotive insurance
coverage to high risk or “rated” drivers who are unable to obtain insurance from
standard carriers.  Non-standard insurance is insurance sold to those
drivers whose underwriting experience makes it difficult or impossible to obtain
insurance at standard or preferred rates.  Such drivers generally have
a poor driving history, which may include, but is not limited to, multiple
points violations, multiple accidents reported, single or multiple severe
accidents reported, and/or repeated non-payment of premiums. Allied Provident
plans to significantly expand its reinsurance product offerings with other
insurers that provide a variety of property and casualty insurance
products.




Allied
Provident’s direct insurance business currently offers a suite of business
property and casualty insurance products, such as directors and officers
liability insurance, financial guarantee insurance, excess and umbrella
liability insurance, business income insurance, and inland marine and product
liability insurance.




Reinsurance
is an arrangement whereby the reinsurer agrees to indemnify its client insurance
company against all or a portion of the insurance risks underwritten by the
client under one or more insurance policies. As a reinsurer, Allied Provident
assumes a portion of the insurer’s risk in exchange for a portion of the premium
payable by the insured to the primary insurer.  Reinsurance provides
an insurer with several benefits, including a reduction in net liability on
individual risks and catastrophe protection from large or multiple losses.
Reinsurance also provides the insurance company with additional underwriting
capacity by permitting it to accept larger risks and write more business than
would be possible without a related increase in capital and surplus. Although
reinsurance provides security and indemnities to the insurance company, it does
not legally discharge the insurer from its liability with respect to its
obligations to the insured.


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Allied
Provident’s current quota share treaty reinsurance agreement with the Carrier
commenced on January 1, 2008 for a one year term, and was renewed on January 1,
2009 and January 1, 2010 for additional one year terms.  The agreement
may be terminated by either party on 90 days’ prior written
notice.  Under the terms of the agreement, the Carrier “ceded” (which
is a term used in the insurance industry similar to the term transferred or
assigned) Allied Provident 50% of its premium as well as the net liability risk
under all non-standard automobile liability insurance policies written by the
Carrier during the term of the agreement.  However, the Carrier is
permitted to receive or retain 29% of all gross earned premiums ceded to Allied
Provident by the Carrier.  Upon termination of the agreement, Allied
Provident remains liable for all losses that occur under insurance risks ceded
to it at the time of termination for a period of one year following termination
of such agreement, and for all claims made under such policies for a period of
18 months from termination of the reinsurance agreement.  The Carrier
must obtain the approval of Allied Provident for the settlement of any claims
for which Allied Provident may be liable that are in excess of
$5,000.  The Carrier is obligated to notify Allied Provident within 60
days after the close of each calendar quarter of any claims or losses incurred
and premiums received from insureds and the amounts owed by either party to the
other.  If the Carrier paid any claim in excess of $50,000, subject to
receipt of satisfactory proof of loss and payment, Allied Provident will
reimburse the Carrier within 15 business days.




Allied
Provident’s reinsurance strategy is to build a portfolio of “frequency” and
“severity” reinsurance agreements with select insurance companies that are
designed to meet the needs of the insurer that are not being met in the
traditional reinsurance marketplace. Allied Provident currently has one senior
generalist underwriter and it has contracted with third-party actuaries to
operate its reinsurance business.  “Frequency” reinsurance contracts
typically contain a potentially large number of small losses from multiple
events, whereas “severity” contracts have the potential for significant losses
from one event.  As an example of a frequency reinsurance contract,
Allied Provident’s reinsurance business currently consists of reinsuring
non-standard personal automobile insurance policies for a United States
insurance carrier.  The automobile insurance policies are designed to
provide coverage to drivers who ordinarily cannot obtain insurance from standard
carriers due to a variety of factors.  For example, a motorist may be
considered as a high-risk driver because he or she has a serious violation, such
as a DUI, on their driving record. It also may be difficult for a driver to find
standard auto insurance if they have been recently involved in a serious
accident or who may have had a number of claims, accidents or motor vehicle
violations in their recent past.  Because of such factors, the
motorist may not meet the underwriting standards established by a standard
policy issuer.  Non-standard policies generally are issued for the
minimum limits of coverage required under applicable state laws and have
relatively small individual premiums.  However, they have a relatively
high “frequency” of losses.




Allied
Provident intends to expand its reinsurance business to provide reinsurance
contracts to other business, property and casualty insurance companies providing
frequency and severity policy coverage.  It underwrites reinsurance
contracts only where it believes it can model, analyze and monitor risks
effectively.  Allied Provident’s underwriter is responsible for both
its reinsurance and its direct property and casualty insurance contracts from
origination to final disposition, including underwriting, pricing, servicing,
monitoring and claims proceeds.  It is believed that this integrated
approach will translate to superior contract management, better client service
and superior economic returns over the long term.




Allied
Provident’s investment strategy, like its reinsurance strategy, is designed to
maximize returns over the long term while minimizing the risk of capital loss.
Unlike the investment strategy of many of its competitors, which invest
primarily in fixed-income securities either directly or through fixed-fee
arrangements with one or more investment managers, its investment strategy is to
invest in long and short positions primarily in publicly-traded equity and
corporate debt securities.  It seeks to buy the shares of companies
that can be purchased at a significant discount to its estimate of
their intrinsic value.  It defines the intrinsic value of a company to
be the sum of the estimated future income generated by the company,
discounted to present value.   It estimates intrinsic value by
analysis of a company's financial statements, business plan, management
qualifications, competitive advantages, intellectual property assets,
competitors and markets.  The Allied Provident board of directors has
responsibility for making investment decisions.




Business
Strategy




Allied
Provident’s goal is to become a leading provider of insurance and reinsurance
products and provide significant returns on our equity.  The key
elements of its business strategy are to:




·
            Distinguish its operations
      from those of its competitors.   As opposed to
      engaging in traditional insurance and reinsurance underwriting, Allied
      Provident focuses on offering specialty insurance and reinsurance products
      and solutions, such as reinsuring frequency contracts on automobile
      insurance issued to high risk
drivers;




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·
            Achieve attractive economic
      returns.  On each insurance and reinsurance contract
      underwritten the focus is on  expected return on equity over the
      life of the contract, which may span many years, rather than on yearly
      combined ratios or short-term considerations such as premium volume in any
      given period. Accordingly, unlike many of its competitors, Allied
      Provident does not measure economic success with respect to a contract in
      any given accounting period but rather after the final loss payments on
      the contract are made, which it is anticipated will occur on average
      between 2.5 and 3.5 years from the writing of the contract.  The
      decision to underwrite a contract depends on the determination that the
      expected ultimate net gain from that contract would exceed the current
      target return on equity on the capital needed to underwrite the contract.
      The target return on equity varies with the degree of risk assumed and
      generally is at least equal to the risk-free rate (the interest rate on a
      riskless, or safe, asset, usually short-term U.S. government security
      rate) plus 5.0%. In pricing contracts during 2008 and 2009, and setting
      target return on equity, Allied Provident assumed a risk-free rate of 2.3%
      rather than using historical investment returns as a
      benchmark.




·
            Operate as a lead underwriter
      on the majority of the premiums that are
      underwritten.    Due to the nature of its
      business strategy, Allied Provident anticipates that the majority of its
      insurance and reinsurance contracts will be sizeable and require
      significant interaction among clients, brokers and
      ourselves.  Allied Provident has a strong preference to be the
      lead underwriter of a majority of the premiums that are underwritten,
      which it believes allows it to influence the pricing, terms and conditions
      of the business written and, accordingly, better enables it to meet or
      exceed its targeted return on equity. Allied Provident was the lead
      underwriter for all of its contracts bound from inception to December 31,
      2009. Although Allied Provident seeks to be the lead underwriter for the
      majority of the aggregate premiums that are underwritten, it may
      participate in non-lead positions when it believes the opportunity offers
      compelling returns on equity.




·
            Manage capital
      prudently.    Allied Provident seeks to manage
      its capital prudently with respect to its underwriting and capital
      financing activities. It models, analyzes and monitors underwriting
      activities, which are subject to written underwriting guidelines and
      regularly reviewed by the Underwriting Committee of its board of
      directors. Each reinsurance contract that is underwritten must satisfy
      minimum expected returns on equity. Allied Provident utilizes a capital
      allocation model that requires it to allocate substantially more capital
      for contracts with larger potential for loss in an effort to not
      overexpose its capital. The underwriting decision-making is centralized
      and the Chief Executive Officer of Allied Provident must approve each
      contract that is executed. Additionally, Allied Provident occasionally may
      purchase reinsurance of the liabilities it reinsures, or retrocessional
      coverage, in an effort to protect its invested capital in a transaction.
      Retrocessional coverage is typically acquired to mitigate the effect of a
      potential concentration of losses. Allied Provident’s investment strategy
      attempts to maximize returns while limiting the risk of capital loss; the
      investment portfolio is comprised of both long and short securities in an
      attempt to partially hedge overall market exposure. Further, its
      investment guidelines provide for minimal use of leverage. Finally, Allied
      Provident currently employs no debt in its capital
    structure.




·
            Use only generalist
      underwriters.  Allied Provident employs an experienced
      underwriter possessing industry knowledge, experience and relationships
      with many brokers in the United States, Europe, Asia and
      Barbados.  This generalist underwriter handles both the
      underwriting and administering of each insurance and reinsurance contract,
      as opposed to underwriters who focus only on specific lines of
      business.




·
            Maintain a highly experienced
      management team.  The Chief Executive Officer of Allied
      Provident has more than 20 years of industry experience. The Allied
      Provident management team has knowledge, experience and relationships with
      brokers in the United States, Bermuda and
  Barbados.




·
            Provide management incentives
      to align management and employee’s interests with those of its
      shareholders.  Allied Provident structures its management
      incentive compensation plans to align management and employee interests
      with those of its shareholders over the long term. As such, the majority
      of payments under its cash bonus plan are based on the ultimate
      underwriting returns, not on underwriting profitability in any single year
      or the returns generated by our investment portfolio. As a result, Allied
      Provident expects most of the cash bonus plan payments each year will be
      deferred for a multi-year period to reflect actual underwriting results as
      they develop.




Because
Allied Provident’s underwriting and investment strategies differ from other
participants in the property and casualty reinsurance market, it may not be
possible to directly compare its business or prospects with those of other
property and casualty reinsurers. Allied Provident’s results from financial
accounting period to period may vary significantly and may not be as predictable
as many of its competitors. However, Allied Provident believes that its
operational differences, particularly its focus on writing select contracts,
which it believes will allow it to better manage its underwriting risks, and its
value-oriented investment strategy, which has the potential to generate higher
rates of return than traditional fixed-income strategies, will enable it to
generate, over the long term, returns on equity superior to those of traditional
reinsurers.


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Market
Trends and Opportunities




Extended
periods of competitive pricing, increases in reserves, rating downgrades, higher
than expected losses and rating agency changes in capital requirements for
certain lines of business historically have caused capacity shortages in certain
product lines in the property and casualty industry. These capacity shortages
have created considerable cyclical increases in pricing and changes in terms and
conditions that are significantly more favorable for reinsurers as clients may
not be able to identify or locate reinsurers that are willing or able to
reinsure their underwriting risks.




Allied
Provident anticipates that over the next five years, it will see attractive
opportunities to write directly and to write as a reinsurer in non-standard
auto, directors’ and officers’, homeowners’, medical malpractice, workers’
compensation, property catastrophe and marine lines. Allied Provident believes
that these lines of business will present it with opportunities for the
following reasons:




·
            non-standard
      auto insurance provides coverage to drivers who, due to their driving
      record, age, vehicle type, or some other factor, represent higher than
      normal risks and do not qualify for coverage in standard auto insurance
      markets. These perceived higher risk drivers pay substantially higher
      premiums than standard drivers. The non-standard line of business has been
      growing recently as the larger standard auto insurers further restrict
      their underwriting guidelines and as some states abandon government
      sponsored assigned risk facilities in favor of free market solutions. A
      number of states have also passed, or improved implementation of,
      mandatory auto insurance laws that further add to the pool of higher-risk
      drivers seeking insurance;




·
            the
      current financial crisis has driven up the frequency and severity of
      securities fraud claims, moving some directors’ and officers’ insurance
      rates sharply higher;




·
            in
      certain states, including Florida, a number of insurers are reducing their
      homeowners’ writings, creating opportunity for the remaining insurers
      that, in turn, will require more reinsurance to mitigate their overall
      exposure; and




·
            there
      continues to be significant demand for property catastrophe and marine
      reinsurance.




Allied
Provident continues to monitor market conditions so as to be positioned to
participate in future underserved or capacity-constrained markets as they arise
and to offer products that it believes will generate favorable returns on equity
over the long term. Accordingly, its underwriting results and product line
concentrations in any given period may not be indicative of its future results
of operations.




Reinsurance
Risks to Be Written




Allied
Provident underwrites reinsurance contracts with favorable long-term returns on
equity as opportunities arise. It attempts to select the most economically
attractive opportunities across a variety of all property and casualty lines of
business.




Reinsurance
is an arrangement under which an insurance company or reinsurer agrees to
indemnify or assume the obligations of another insurance company, or client, for
all or a portion of the insurance risks underwritten by the client. It is
standard industry practice for primary insurers to reinsure portions of their
insurance risks with other insurance companies under reinsurance agreements or
contracts. This permits primary insurers to underwrite policies in amounts
larger than the risks they are willing to retain. Reinsurance is generally
designed to:




·
            reduce
      the client’s net liability on individual risks, thereby assisting it in
      increasing its capacity to underwrite business as well as increasing the
      limit to which it can underwrite on a single
  risk;


·
            assist
      the client in meeting applicable regulatory and rating agency capital
      requirements;


·
            assist
      the client in reducing the short-term financial impact of sales and other
      acquisition costs; and


·
            enhance
      the client’s financial strength and statutory
  capital.




Allied
Provident characterizes the reinsurance risks it assumes as frequency or
severity and aim to balance the risks and opportunities of its underwriting
activities by creating a diversified portfolio of both types of
businesses.


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Frequency
business is characterized by contracts containing a potentially large number of
smaller losses emanating from multiple events. Clients generally buy this
protection to increase their own underwriting capacity and typically select a
reinsurer based upon the reinsurer’s financial strength and expertise. Allied
Provident expects the results of frequency business to be less volatile than
those of severity business from period to period due to its greater
predictability. It also expects that over time the profit margins and return on
equity for its frequency business will be lower than those of its severity
business.




Severity
business is typically characterized by contracts with the potential for
significant losses emanating from one event. Clients generally buy this
protection to remove volatility from their balance sheets and, accordingly,
Allied Provident expects the results of severity business to be volatile from
period to period. However, over the long term, it also expects that its severity
business will generate higher profit margins and return on equity than its
frequency business.




Allied
Provident expects to act as lead underwriter for the majority of total premiums
that it underwrites. Depending on the mix of its frequency and severity
business, it expects that, over time, its annual premiums written will be equal
to 0.5 to 1.0 times its capital.




In
addition, some of the risks Allied Provident underwrites reflect traditional
opportunities in reinsurance where it will participate in a larger underwriting
syndicate where it believes the return on equity over the long term will exceed
its internal targeted return on equity.




Allied
Provident’s targeted return on equity varies with the degree of risk assumed on
the contract underwritten, but is equal to at least the sum of an assumed
risk-free rate plus 5.0%. In pricing its contracts in 2008 and 2009, and setting
its targeted return on equity, it assumed investment returns would equal a
risk-free rate of 2.3%, rather than using its historical investment returns as a
benchmark.




Products




Allied
Provident’s experienced, generalist underwriting team allows it to offer a range
of property and casualty insurance and reinsurance products, including, but not
limited to, casualty and liability risks, damage, health, homeowners, medical
malpractice, professional liability, property catastrophe, automotive surety and
fidelity and workers’ compensation, and marine insurance.  At present,
it only reinsures automotive frequency-type insurance issued to high risk or
“rated” drivers, but intends to expand its reinsurance business to cover all of
the other business, property and casualty insurance it currently writes as a
direct insurer and propose to write in the future.




While
Allied Provident expects to establish a diversified portfolio, its allocation of
risk will vary based on its perception of the opportunities available in each
line of business. Moreover, its focus on certain lines will fluctuate based upon
market conditions and it may only offer or underwrite a limited number of lines
in any given period. Allied Provident:




·
            targets
      markets where capacity and alternatives are underserved or capacity
      constrained;


·
            employs
      strict underwriting discipline;


·
            selects
      reinsurance opportunities with favorable returns on equity over the life
      of the contract; and


·
            potentially
      offers lines such as political risk, completion bonds, business
      interruption, structured transactions, insurance wraps and
      annuities.




Marketing
and Distribution




Currently,
Allied Provident’s products are marketed primarily by leveraging the personal
and business contacts of its management and directors.  Allied
Provident does not have any employees who are dedicated solely to marketing its
products.  Allied Provident expects that some of its business will be
sourced through insurance brokers. Brokerage distribution channels provide it
with access to an efficient, variable cost, and global distribution system
without the significant time and expense that would be incurred in creating a
wholly-owned distribution network. Allied Provident believes that its financial
strength, unencumbered balance sheet and superior client service are essential
for creating long-term relationships with clients and brokers.




Allied
Provident works to build long-term relationships with global reinsurance
brokers. Allied Provident’s management team has significant relationships with
many of the primary and specialty broker intermediaries in the reinsurance
marketplace. Allied Provident believes that by maintaining close relationships
with brokers it will be able to continue to obtain access to a broad range of
reinsurance clients and opportunities.


35


Allied
Provident focuses on the quality and financial strength of any brokerage firm
with which it does business. Brokers do not have the authority to bind it to any
reinsurance contract. Allied Provident reviews and approves all contract
submissions in its corporate offices located in Barbados. From time to time, it
may also enter into relationships with managing general agents who could bind it
to reinsurance contracts based on narrowly defined underwriting
guidelines.




Insurance
brokers receive a brokerage commission that is usually a percentage of gross
premiums written. Allied Provident seeks to become a preferred choice of brokers
and their clients by providing:




·
            solutions that address the specific business needs
      of its clients;


·
            rapid
      and substantive responses to proposal and pricing quote
      requests;


·
            timely
      payment of claims;


·
            financial
      security; and


·
            clear
      indication of risks it will and will not
  underwrite.




One of
the key objectives of Allied Provident is to build long-term relationships with
key reinsurance brokers, such as Access Reinsurance, Inc., Aon Re Worldwide,
Inc., Benfield Group Limited, Guy Carpenter & Company, Inc., and Willis
Group Holdings, Ltd., and with their clients.




Allied
Provident believes that by maintaining close relationships with brokers, it is
able to obtain access to a broad range of potential clients. Allied Provident
meets frequently in Barbados and elsewhere with brokers and senior
representatives of clients and prospective clients. All contract submissions are
approved in its corporate offices in Barbados.




In
addition, Allied Provident expects the large number of captive insurance
companies located in Barbados to be a source of business for it in the future.
Allied Provident expects to develop relationships with potential clients when it
believes they have a need for reinsurance, based on its industry knowledge and
market trends. Allied Provident believes that diversity in its sources of
business will help reduce any potential adverse effects arising out of the
termination of any one of its business relationships.




Underwriting
and Risk Management




Allied
Provident believes that its approach to underwriting will allow it to deploy its
capital in a variety of lines of business and to capitalize on opportunities
that it believes offer favorable returns on equity over the long term. Its
underwriter has expertise in a number of lines of business and it will also look
to outside consultants on a fee-for-service basis, to help it with niche areas
of expertise when it deems appropriate. Allied Provident generally applies the
following underwriting and risk management principles:




Economics
of Results




Allied
Provident’s primary goal is to build a reinsurance portfolio that has attractive
economic results. Allied Provident may underwrite a reinsurance contract that
may not demonstrate immediate short-term benefits if it believes it will provide
favorable return on equity over the life of the contract. In pricing its
products, Allied Provident assumes investment returns equal to the risk-free
rate, which it reviews and adjusts, if necessary, on an annual basis. Allied
Provident assumes a risk-free rate of 2.3%.




Actuarially
Based Pricing




Allied
Provident uses public domain or commercially available actuarial models to price
most of its business.  Allied Provident may also develop its own
actuarial models where appropriate models are not available to
it.  Its models not only consider conventional underwriting metrics,
but also incorporate a component for risk aversion that places greater weight on
scenarios that result in greater losses. The actuary working on the transaction
must agree that the transaction meets or exceeds its return on equity
requirements before Allied Provident will commit capital. Allied Provident
prices each transaction based on the risk profile and structure of the
transaction.




Act
as Lead Underwriter




Typically,
one reinsurer acts as the lead in negotiating principal policy terms and pricing
of reinsurance contracts. Allied Provident plans to act as the lead underwriter
for the majority of the aggregate premiums that it underwrites. Allied Provident
believes that lead underwriting is an important factor in achieving long-term
success, as lead underwriters have greater influence in negotiating pricing,
terms and conditions. In addition, it believes that reinsurers that lead
policies are generally solicited for a broader range of business and have
greater access to attractive risks.


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Alignment
of Company and Client’s Interests




Allied
Provident seeks to ensure every contract it underwrites aligns its interests
with those of its clients.  In addition to having the client retain a
portion of the risk, Allied Provident may seek to:




·
            pay
      its clients a commission based upon a predetermined percentage of the
      profit it realizes on the business, which is referred to as a profit
      commission;




·
            allow
      the client to perform all claims adjusting and audits, as well as the
      funding and paying of claims, which is referred to as self insured
      retentions;





·
            provide
      that the client pays a predetermined proportion of all losses above a
      pre-determined amount, which is referred to as co-participation;
      and/or




·
            charge
      the client a premium for reinstatement of the amount of reinsurance
      coverage to the full amount reduced as a result of a reinsurance loss
      payment, which is referred to as a reinstatement
  premium.




Allied
Provident believes that through profit commissions, self-insured retentions,
co-participation, reinstatement premiums or other terms within the contract, its
clients are provided with an incentive to manage its interests. Allied Provident
believes that aligning its interests with those of its clients promotes accurate
reporting of information, timely settling and management of claims and limits
the potential for disputes.




Integrated
Underwriting Operations




Allied
Provident has implemented a ‘‘cradle to grave’’ service philosophy where the
same individual underwrites and administers the reinsurance contracts. Allied
Provident believes this method enables it to best understand the risks and
likelihood of loss for any particular contract and to provide superior client
service.




Detailed
Contract Diligence




Allied
Provident seeks to be highly selective in the contracts it chooses to underwrite
and spends a significant amount of time with its clients and brokers to
understand the risks and appropriately structure its contracts. Allied Provident
usually obtains significant amounts of data from its clients to conduct a
thorough actuarial modeling analysis. As part of its pricing and underwriting
process, it assesses among other factors:




·
            the
      client’s and industry historical loss
data;


·
            the
      expected duration for claims to fully
develop;


·
            the
      client’s pricing and underwriting
strategies;


·
            the
      geographic areas in which the client is doing business and its market
      share;


·
            the
      reputation and financial strength of the
client;


·
            the
      reputation and expertise of the
broker;


·
            the
      likelihood of establishing a long-term relationship with the client and
      the broker; and


·
            reports
      provided by independent industry
specialists.




Underwriting
Authorities




Allied
Provident uses actuarial models that it produces and applies its underwriting
guidelines to analyze each reinsurance opportunity before it commits capital.
The underwriting committee of the board of directors of Allied Provident has set
parameters for zonal and aggregate property catastrophic caps and limits for
maximum loss potential under any individual contract. The underwriting committee
may approve exceptions to the established limits. Allied Provident’s approach to
risk control imposes an absolute loss limit on its natural catastrophic
exposures rather than an estimate of probable maximum losses and it has
established zonal and aggregate limits. Allied Provident manages all
non-catastrophic exposures and other risks by analyzing its maximum loss
potential on a contract-by-contract basis. Maximum authorities will likely
change over time to be consistent with its capital base.


37


Retrocessional
Coverage




Allied
Provident may from time to time purchase retrocessional coverage to manage its
overall exposure and to balance its portfolio. Allied Provident only purchases
uncollateralized retrocessional coverage from a reinsurer with a minimum
financial strength rating of A− (Excellent) from either A.M. Best or an
equivalent rating from Standard & Poor’s Rating Services.




Capital
Allocation




Allied
Provident expects to allocate capital to each contract that it binds. Its
capital allocation methodology uses the probability and magnitude of potential
for economic loss. Allied Provident allocates capital for the period until the
risk is resolved. It has developed a proprietary return on equity capital
allocation model to evaluate and price each reinsurance contract that it
underwrites. Allied Provident uses different return on equity thresholds
depending on the type and risk characteristics of the business it underwrites,
although it uses a standard risk-free interest rate.




Claims
Management




Allied
Provident has not experienced a high volume of claims to date. Its claims
management process initiates upon receipt of reports from its
clients.




Allied
Provident’s underwriter reviews claims submissions for authorization prior to
entry and settlement. It believes this ensures that it pays claims consistently
with the terms and conditions of each contract. Its chief financial officer must
also approve all cash disbursements.




Where
necessary, Allied Provident conducts or contracts for on-site audits,
particularly for large accounts and for those whose performance differs from its
expectations. Through these audits, it evaluates ceding companies’
claims-handling practices, including the organization of their claims
departments, their fact-finding and investigation techniques, their loss
notifications, the adequacy of their reserves, their negotiation and settlement
practices and their adherence to claims-handling guidelines.




Allied
Provident recognizes that fair interpretation of its reinsurance agreements with
its clients and timely payment of covered claims is a valuable service to its
clients.




Reserves




Allied
Provident’s reserving philosophy is to reserve to its best estimates of the
actual results of the risks underwritten. Allied Provident’s underwriter
provides reserving estimates on a quarterly basis calculated to meet its
estimated future obligations. It reserves on a transaction by transaction basis.
Outside actuaries review these estimates at least once a year. Due to the use of
different assumptions, accounting treatment and loss experience, the amount it
establishes as reserves with respect to individual risks, transactions or
classes of business may be greater or less than those established by clients or
ceding companies. Reserves may also include unearned premiums, premium deposits,
profit sharing earned but not yet paid, claims reported but not yet paid, claims
incurred but not reported, and claims in the process of settlement.




Reserves
do not represent an exact calculation of liability. Rather, reserves represent
Allied Provident’s estimate of the expected cost of the ultimate settlement and
administration of the claim. Although the methods for establishing reserves are
well-tested, some of the major assumptions about anticipated loss emergence
patterns are subject to unanticipated fluctuation. Allied Provident bases these
estimates on its assessment of facts and circumstances then known, as well as
estimates of future trends in claim severity and frequency, judicial theories of
liability and other factors, including the actions of third parties, which are
beyond its control.




Collateral
Arrangements/Letter of Credit Facility




Allied
Provident is not licensed or admitted as an insurer in any jurisdiction other
than Barbados. Many jurisdictions including states in the United States do not
permit clients to take credit for reinsurance on their statutory financial
statements if such reinsurance is obtained from insurers that are unlicensed or
non-admitted in such jurisdiction without appropriate collateral. As a result,
all of its U.S. clients and a portion of its non-U.S. clients require it to
provide collateral for the contracts it binds with them. This collateral usually
takes the form of funds withheld or trust arrangements.  A client may
also request collateral in the form of letters of credit, in which case the
failure to obtain, maintain, replace or increase its letter of credit facilities
on commercially acceptable terms may significantly and negatively affect Allied
Provident’s ability to implement its business strategy.


38


Competition




The
insurance and reinsurance industry is highly competitive. Allied Provident
expects to compete with numerous property and casualty insurance companies and
major reinsurers, most of which are well established, have significant operating
histories and strong financial strength ratings and have developed long-standing
client relationships.




Allied
Provident’s principal reinsurance competitors are ACE Limited, General Re
Corporation, Hannover Re Group, Munich Reinsurance Company, PartnerRe Ltd.,
Reinsurance Group of America, Inc., Swiss Reinsurance Company, Transatlantic
Reinsurance Company and XL Capital Ltd., which are dominant companies in its
industry. Although Allied Provident seeks to provide coverage where capacity and
alternatives are limited, it directly competes with these larger companies due
to the breadth of their coverage across the property and casualty market in
substantially all lines of business. Allied Provident also competes with smaller
companies and other niche reinsurers.




Ratings




Allied
Provident does not currently have a financial strength rating from A.M. Best or
any other rating agency.




Investment
Strategy




Allied
Provident implements a value-oriented investment strategy by taking long
positions in perceived undervalued securities. Allied Provident may also take
short positions in perceived overvalued securities. It aims to achieve high
absolute rates of return while minimizing the risk of capital
loss.  Allied Provident determines the risk/return characteristics of
potential investments by analyzing factors such as the risk that expected cash
flows will not be obtained, the volatility of the cash flows, the leverage of
the underlying business and the security’s liquidity, among others.




Allied
Provident’s investment strategy involves buying the shares of companies that can
be purchased at a significant discount to its estimate of their
intrinsic value.  Allied Provident defines the intrinsic value of a company
to be the sum of the estimated future income generated by the company,
discounted to present value.   It estimates intrinsic value by
analysis of a company’s financial statements, business plan, management
qualifications, competitive advantages, intellectual property assets,
competitors and markets.  The board of directors of Allied Provident (as
opposed to the board of directors of Gerova) has undertaken the responsibility
for the investments of Allied Provident and has created an investment committee
to make investment decisions on behalf of the company.




Allied
Provident’s board of directors, through the investment committee of the board,
conducts reviews of its investment portfolio activities and oversees its
investment guidelines to meet its investment objectives. Allied Provident
believes, while less predictable than traditional fixed-income portfolios, its
investment approach complements its reinsurance business and will achieve higher
rates of return over the long term. The investment guidelines are designed to
maintain adequate liquidity to fund reinsurance operations and to protect
against unexpected events.




In
addition, implementation of Allied Provident’s investment strategy further
includes buying public or private corporate equities and current-pay debt
securities, selling securities short, and investing in trade claims, debt
securities of distressed issuers, arbitrages, bank loan participations,
derivatives (including options, warrants and swaps), leases, break-ups,
consolidations, reorganizations, limited partnerships and similar securities of
foreign issuers.




Investment
Guidelines




The
investment guidelines adopted by Allied Provident’s board of directors, which
may be amended, or modified, from time to time, take into account restrictions
imposed on it by regulators, its liability mix, requirements to maintain an
appropriate claims paying rating by ratings agencies and requirements of
lenders. As of the date of this Annual Report, the investment guidelines
currently state:




·
            Quality
      Investments:  At least 80% of the assets in the
      investment portfolio are to be held in debt or equity securities
      (including swaps) of publicly-traded companies or of governments of the
      Organization of Economic Co-operation and Development, or the OECD, high
      income countries and cash, cash equivalent or United States government
      obligations, or in investment
  companies.




·
            Concentration
      of Investments: Other than cash, cash equivalents and United States
      government obligations, no single investment in the investment portfolio
      may constitute more than 20% of the
    portfolio.




39


·
            Liquidity:  Assets
      are invested in such fashion that there is a reasonable expectation that
      Allied Provident can meet any of its liabilities as they become due.
      Allied Provident periodically reviews the liquidity of the
      portfolio.




·
            Monitoring:
      Allied Provident re-evaluates each position in the investment portfolio
      and monitor changes in intrinsic value and trading value
      monthly.




·
            Leverage:
      The investment portfolio may not employ greater than 5% indebtedness for
      borrowed money, including net margin balances, for extended time periods.
      Allied Provident may use, in the normal course of business, an aggregate
      of 20% margin leverage for periods of less than 30
      days.




Legal
Proceedings




Allied
Provident is not currently involved in any litigation or arbitration. Allied
Provident anticipates that, similar to the rest of the insurance and reinsurance
industry, it will be subject to litigation and arbitration in the ordinary
course of business.




Properties




Allied
Provident’s office space in Barbados is currently provided to them by the
company with whom it contracts for management services at no additional
charge.  It is located in the CGI Tower office building, in the city
of St. Michael, Barbados.  Allied Provident believes that for the
foreseeable future this office space will be sufficient for it to conduct its
operations.  Except for computers and miscellaneous office equipment
Allied Provident does not have any other material tangible assets.




Employees




As of
December 31, 2009, Allied Provident has three employees, based in Barbados, two
of whom are executive officers.  Other services which Allied Provident
needs are provided by a third-party management company.  Allied
Provident believes that its employee relations are good. Its employees are not
subject to any collective bargaining agreements, and Allied Provident is not
aware of any current efforts to implement such agreements.




Northstar




Northstar
is a holding company, incorporated under the laws of Bermuda.  It is
the parent company of Northstar Reinsurance, Ltd., a Bermuda company and a
Long-Term and Class 3 licensed reinsurer (“Northstar Bermuda”), and Northstar
Reinsurance Ireland Ltd., an Ireland company and a licensed life and annuity
reinsurer (“Northstar Ireland”).




Northstar
reinsures standard life, deferred and payout annuities.  It also
acquires various fixed-income and other investments, thereby creating long term
cash flows to pay corresponding liabilities.  Currently there is no
business conducted by Northstar Bermuda, though it has a contract to manage a
third party owned Bermuda reinsurer on behalf of its U.K. insurance company.
Northstar accepts no reinsurance risk pursuant to this contract and is paid an
annual service fee of $1.2 million.  Northstar Ireland is actively
involved in the reinsurance business and is a party to two reinsurance
treaties.




Northstar
Ireland employs the services of Allied Risk Management (Ireland) plus two
independent Irish directors to manage its day-to-day operations in Dublin.
Northstar Bermuda is managed by a group of professionals including three
actuaries and one FCA with experience in the life and annuity business for major
US based international insurance and reinsurance companies. Northstar also has a
strong financial partner in Commerzbank AG Bank, who participates as an
investor, supplier and advisor.




As of
December 31, 2009, Northstar has approximately $800 million in assets and $120
million in capital.




Reinsurance
Treaties




Northstar’s
current insurance activities are represented by two reinsurance treaties in
force. The first treaty reinsures equity-indexed annuities (EIA) on a
co-insurance, funds withheld basis. Northstar’s treaty was effective April 1,
2005, and Northstar continued to accept new business under this agreement until
the end of February 2008. The transaction is a retrocession agreement between a
large U.S. reinsurance company that reinsures on a funds withheld basis from a
direct writing company.  During the term of the agreement, this
reinsurer reinsured 60% of the direct writing company’s new business of certain
EIA annuities, and retroceded 27.5% of this 60% to Northstar. A third party
asset manager manages the fixed income assets that back the statutory liability,
and Milliman USA assists with dynamic hedging of the indexed nature of the
product.  As of June 30, 2009, Northstar’s share of the block consists
of:


40


·
            over
      57,500 policies;


·
            deposits
      to date of $550 million; and


·
            fund
      value in force of $572 million.




The
second treaty reinsures in force, fixed premium, fixed cash value, whole life
insurance policies. All policies pay premiums to age 100. The treaty was
effective September 30, 2005. At inception, the insurance company reinsured
(known as the “cedant”) transferred approximately $38 million of cash to
Northstar, and Northstar receives its share of ongoing premium payments that are
made by the policyholders. The cedant’s reserve credits are covered by a
combination of assets in trust and letters of credit. Northstar reinsures on a
coinsurance basis various pieces of in force life insurance policies that were
issued from 1996 through 2004. Prior to the transaction with Northstar, the
cedant had reinsured various portions of its business with three other
reinsurance companies. As of June 30, 2009, Northstar’s share of the block
consists of:




·
            9,500
  policies;


·
            $262
      million of face amount in-force;
and


·
            $12.0
      million of annualized premium
in-force.




The
projected 2010 operating costs of the two treaties (exclusive of letter of
credit fees) are expected to be $1.7 million, offset by the service fee of $1.2
million, for a net cost of $500,000.  The 2010 earnings from the two
treaties are expected to be $2.0 million per annum.  The regulatory
capital needed to support the two treaties is $34 million (125% of factor-driven
requirement).




Strategy




Northstar
specializes in managing a specific set of insurance and capital market risks.
Northstar plans to direct all its resources towards a limited number of
activities and create the focus needed to develop and maintain industry leading
knowledge, best in class risk management and investment practices. Northstar
believes that an attractive business opportunity exists for a new reinsurer to
provide reinsurance to life insurance companies and acquire investments at
attractive prices thereby achieving a substantial return on equity.




Northstar’s
business plan is targeted to the provisioning of reinsurance in specialty
sectors of the insurance industry; including life, long term disability,
deferred annuities and payout annuities. As part of its growth plan, Northstar
continues to strategically deploy its capital along the following
lines:




·
            reinsurance
      transactions, with focus on on-shore and off-shore
  cedants;


·
            acquisitions
      of insurance entities (on-shore and
off-shore);


·
            preferred-share
      investments in certain carriers in return for certain considerations
      (equity warrants, asset management mandates, etc.);
  and


·
            pension
      liabilities (e.g. U.K. annuities in the course of payment, other pensions
      that are not yet converted to a life annuity contract issued by an insurer
      etc).




Annuity
and Life Reinsurance




Reinsurance
is an arrangement under which an insurance company known as the reinsurer agrees
in a contract called a treaty to assume specified risks of another insurance
company known as the ceding company. The reinsurer may assume all or a portion
of the insurance underwritten by the ceding company. In exchange for assuming
the risks of the ceding company, the reinsurer receives some or all of the
premium and, investment income derived from the assets supporting the reserves
of the reinsured policies. Reinsurance permits primary insurers to diversify
their risks over larger pools of risks, and to write insurance policies in
amounts larger than they are willing or able to retain. Also, reinsurers have
the ability to structure treaties that allow the ceding companies to achieve
other business and financial objectives such as:




·
            decreasing
      the volatility of their earnings;


·
            improving
      their capital position by reducing the financial strain associated with
      new business production or by increasing their risk-based capital
      ratio;


·
            entering
      new lines of business and offering new
  products; and


·
            exiting
      discontinued lines of business.




41


In
addition, reinsurers may also purchase reinsurance, or “retrocession” coverage,
to limit their own risk exposure.




Northstar
focuses on several categories of life and annuity reinsurance products
including:




·
            Reinsuring
      the mortality risk on life and annuity insurance policies written by
      primary insurers. This business is often referred to as traditional life
      reinsurance.


·
            Reinsurance
      solutions that improve the financial position of our clients by increasing
      their effective capital base and reducing leverage ratios through the
      assumption of reserves.


·
            Providing
      clients with exit strategies for discontinued lines, closed blocks in
      run-off, or lines not providing a good fit for a company’s growth
      strategies. With Northstar’s ability to manage these contracts, their
      clients will be able to concentrate their efforts and resources on core
      strategies.




Competition




Competition
in the annuity and life reinsurance industry is intense. Reinsurers compete on
the basis of many factors, including financial strength, pricing and other terms
and conditions of reinsurance agreements, reputation, service, and experience in
the types of business underwritten. For annuity issuers, there are a limited
number of players providing reinsurance. Northstar believes that the dynamics of
the reinsurance market has created opportunities for smaller reinsurers who are
actively pursuing smaller annuity carriers. While Northstar believes there is a
demand for reinsurance from primary insurers seeking to free up capital,
especially as the industry has experienced investment losses which have impaired
capital, industry consolidation among reinsurers has effectively limited
capacity. Reinsurers have been facing the same economic challenges as the
broader financial services industry, creating opportunities for firms with
capital. The U.S. annuity and life reinsurance markets are served by
numerous international and domestic reinsurance companies. Northstar focuses on
the smaller policy block market where competition is less intense and it can
leverage its capabilities more fully. Northstar believes that its primary
competitors in the North American annuity and life reinsurance market are
currently the following, or their affiliates: Athene Re, Reinsurance Group of
America, Inc. and Wilton Re. However, within the reinsurance industry, this can
change from year to year.




Life
Reinsurance Advantages to Insurers




Northstar
believes that two converging events — capital losses caused by investments
and capital losses caused by product design — will require life insurers,
both in the U.S. and in Europe, to reduce their now greatly increased
operating leverage. We believe they will accomplish this through either the
raising of new capital or through the purchase of reinsurance. Northstar
believes that a unique opportunity exists for the life reinsurance industry to
provide capacity at favorable pricing to those primary insurers operating in
this sector that need to reduce their operating leverage and similarly unique
opportunity presents itself on the asset side of the balance sheet for
undervalued illiquid investments which can also be acquired at favorable prices.
Northstar believes that a similar opportunity exists for life insurers operating
in Europe. Northstar also believes that Bermuda is ideally positioned both
geographically and as an established reinsurance market with a global view on
the insurance and reinsurance markets.




Operations




Northstar
is headquartered in Bermuda with its top executives, underwriting and actuarial
functions located there. Northstar believes that Bermuda is an attractive
location for conducting its operations due to Bermuda’s strong locally based
insurance and reinsurance infrastructure. Bermuda has a flexible regulatory
system with limited government involvement for those reinsurance companies that
meet certain solvency and liquidity requirements. It is Northstar’s expectation
that it will continue to meet all such requirements. In addition, Bermuda
currently has no corporate income or capital gains tax and Northstar has
received an assurance from the Bermuda Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966 of Bermuda, as amended, that it will not be
subject to any such tax until at least March 28, 2016. Moreover, Bermuda has a
satisfactory availability of cost effective third-party services providers. To
the extent required or desirable, Northstar utilizes such service providers.
Bermuda’s excellent insurance and reinsurance infrastructure, political and
economic stability and easy access from major east coast U.S. cities
compare favorably with alternative offshore reinsurance company domiciles.
Northstar will not be an admitted U.S. insurer. The insurance laws of each
state of the United States and of many other countries regulate or prohibit the
sale of reinsurance within their jurisdictions by non-domestic insurers and
reinsurers that are not admitted to do business within such jurisdictions.
Northstar does not maintain an office or solicit, advertise, settle claims or
conduct other insurance activities in any jurisdiction without a
license.




42


Target
Products




Northstar’s
target products include a wide range of annuity and life reinsurance products,
such as yearly renewable term, coinsurance and modified coinsurance for term,
universal and whole life policies. It may also offer block reinsurance
structures that would enable clients to transfer previously underwritten groups
of policies from their balance sheet to Northstar. This would further enable
companies to better manage their capital requirements and
allocations.




The
strategy for each product will be contingent on the objectives of the clients.
For example, a particular life insurer may be seeking to reduce the ‘statutory
strain’ associated with a new type of term life insurance that it has recently
introduced to its agency force and needs to reduce the impact of high demand for
the product on its capital and surplus. Northstar would work with the client to
create a coinsurance program that would enable them to roll out the new product
without needing to worry about reducing their sales efforts.




Northstar
excludes by way of carve-out any exposure to any guaranty elements of variable
annuity policies and minimum investment return or face value guarantees.
Northstar believes that life insurance companies with such exposures will result
in an increase in demand for reinsurance by third parties, such as Northstar, in
order to provide capital relief to the cedants. This is an important product
demand element, given the recent experiences of certain major U.S. life
insurers in this space that have recently taken large losses due to these
guaranty features. Northstar expects this trend to continue.




Marketing
and Distribution Effort




Northstar
targets life insurers who meet established criteria and standards set by
Northstar, which are based upon:




·
            perceived
      need and objective for reinsurance;


·
            qualitative
      factors such as the ability to submit quality
  data;


·
            overall
      management and corporate
governance;


·
            historical
      financial performance, including volatility of earnings and
      capital; and


·
            distribution
      channels.




Once
sufficient data has been gathered, representatives of Northstar generally
contact the chief actuaries and risk officers of the target life insurers to
discuss the potential for a reinsurance transaction. The following target
clients comprise Northstar’s initial focus:




·
            Mid-Sized
      and Small Insurance Companies - Northstar can partner with mid-sized and
      smaller writers not only to reinsure their business, but also to aid in
      designing, pricing and assessing the risk of new products. These types of
      arrangements will be favorable to both Northstar and the mid-sized and
      smaller writers.




·
            Insurers
      Exiting Specific Business Lines - Northstar can provide reinsurance
      solutions to companies that used to provide certain products but have
      since stopped providing such service and that are looking to effectively
      reduce or eliminate risks associated with a legacy block of
      business.




Product
Underwriting and Pricing




Each
reinsurance agreement is the result of a process lasting several weeks, or
months as the case may be, of analysis and negotiations between the ceding
company and Northstar. In negotiating such agreements, Northstar’s goal is to
strike the proper balance between risk transfer and cost from the perspective of
both the ceding company and Northstar.




Modeling
of Reinsured Products




The
specific insurance block (or subset thereof) to be reinsured is modeled using a
comprehensive software platform. For existing blocks, each risk is modeled on a
seriatim (i.e. contract by contract) basis. Other important inputs include the
specific asset allocation of the ceding company block, as well as the ceding
company’s actual experience with respect to lapses, benefit utilization and
mortality, among other things.




Pricing
and Monitoring Actuarial Risk




To
appropriately price actuarial risk, Northstar models numerous scenarios where
lapse, mortality and contract holder behavior assumptions are varied. Northstar
then analyzes the sensitivity of results to provide an indication of the risk
being assumed.  If uncertainties arise, provisions for adverse
deviations may be reflected in the actuarial assumptions or additional risk
capital will be allocated (impacting the required risk margin) to determine a
final price. Northstar may negotiate certain maximum limits on claims or other
provisions to balance its overall risk exposure and generate a reasonable price
for the cedant.


43


Set
the Final Price




Once
Northstar has determined the risk neutral cost, transaction costs and has
analyzed the actuarial risks, it then sets the overall price. Northstar sets the
margin at a level that will provide it with the appropriate rate of return on
its capital for the type of business and risks being reinsured (including
operational, actuarial and basis risks).




Risk
Management




Northstar
implements and maintains an enterprise risk management (“ERM”) framework to
ensure a comprehensive assessment of its current risks, control effectiveness
and capital position. Risk management is a continuous process applied across the
entire organization.  Northstar’s ERM framework provides a
comprehensive and consistent enterprise view of risk exposures and
opportunities. Additionally, Northstar does not view risk management simply as
how to avoid losses, but also as a key part of how to best take advantage of
market opportunities.




One of
the most critical factors in a successful risk management process is having a
culture in which risk management is both supported and valued from senior
leadership. Risk management is a core element of every employee’s day-to-day job
responsibilities. Northstar maintains a culture that promotes risk management
together with open communication of potential risks so that they are addressed
before becoming significant. Northstar’s senior leadership has extensive
experience in risk management from both a direct writer and reinsurance
perspective. Northstar believes that one advantage it has relative to many
companies is that it has the ability to react quickly to changes in risk
exposure due its relatively small size. Northstar believes this leads to it
being able to make quicker decisions in order to either reduce risk exposure or
to exploit potential opportunities.




Investment
Portfolio Strategy




Northstar’s
primary investment objective is to protect and build its capital base in order
to continue to support the risks to be underwritten. Northstar invests to
achieve a stable return while preserving capital. Northstar’s investment
committee approves all of the below procedures, namely the responsibilities of
the chief investment officer, the role of the investment plan, monitoring
procedures and exceptions protocol. Additionally, Northstar reviews at least
quarterly the performance of the investment portfolio versus the investment
plan.




Northstar
employs a conservative investment strategy for investable funds that support its
reserves and its capital assets. The investment plan sets forth, among other
things, (i) credit limits, (ii) the targeted asset allocation
(including permitted guidelines or boundaries), (iii) duration and
convexity limits, (iv) corporate sector limits and (v) single issuer
limits. Specifically, the plan sets limits for the following asset classes:
treasury and agency bonds, cash and equivalents, investment grade corporate
bonds, below investment grade corporate bonds, asset backed securities,
commercial mortgage backed securities, residential mortgage pass through notes,
collateralized mortgage obligation bonds, non-publically traded securities, bank
loans, undervalued and distressed real estate, and hedge funds with diversified
investment strategies.




Given the
longer-term nature of the anticipated liabilities, Northstar expects that the
duration of its investment portfolio will also be long to match the payments of
those liabilities as they come due. In addition, Northstar plans to have
sufficient short-term cash and cash equivalents on hand to meet all near term
operating expenses and outlays.




Retrocessional
Reinsurance Strategy




The
strategy for purchasing retrocessional reinsurance is principally opportunistic.
To the extent that there exists in the retrocessional market an opportunity for
Northstar to reduce its aggregate risk exposure for an attractive price, then it
seeks to acquire that coverage. Northstar, with every potential retrocessional
transaction, ensures that the counterparty is of sufficient credit quality and
that any reinsurance recoverables payable to Northstar are sufficiently
collateralized. They also ensure that any letters of credit used as collateral
for such recoverables, typically posted by third party financial institutions,
do not represent any additional credit risks.




Northstar
plans to periodically explore the market for aggregate excess-of-loss coverages.
To the extent that Northstar can prudently purchase protection for the aggregate
portfolio, or on a block-by-block basis, it seeks to purchase that coverage from
a financially sound reinsurer.  To date, however, Northstar has not
engaged in any retrocessional reinsurance transactions.




44


Loss
Payment and Reserving Philosophy




Northstar
adheres to a strict policy of conservative reserve balance establishment and
maintenance. This includes protective measures to ensure that Northstar has
adequate cash and liquidity to make timely payments of claims to policyholders.
These reserves are balance sheet liabilities representing estimates of future
obligations to pay benefit claims and claims payment expenses for reinsured
policies, and are determined and confirmed actuarially.  Northstar
establishes and maintains its life and annuity reinsurance reserves at a level
that it estimates will, when taken together with future premium payments and
interest and investment income expected to be earned in respect of reserves, be
sufficient to support all future cash flow benefit and third party servicing
obligations as they become payable. Northstar employs both internal actuaries
and third party actuaries to ensure that both the pricing of the liabilities are
accurate and that the reserve estimates are set conservatively. In all cases,
the reserving actuarial function and the pricing actuarial function are
separate functions. In addition, Northstar conducts most of the reserving
activities and all of the underwriting activities in Bermuda.




Since the
development of reserves is based upon cash flow projection models, Northstar
must make estimates and assumptions regarding mortality, morbidity, lapse,
expense and investment experience. Northstar and its service providers establish
these estimates based upon transaction specific historical experience,
information provided by ceding companies and industry experience studies.
Northstar also periodically works with its auditors as part of its strategy to
ensure that the actuaries’ analyses and assumptions are reasonable. Actual
results could differ materially from these estimates. Northstar monitors actual
experience and, where circumstances warrant, revises its assumptions and the
related life and annuity reinsurance reserve estimates.




The
executive officers of Northstar have decades of experience in the financial
services sector and apply this experience to the operations of Northstar.
Northstar has strict operating and risk management controls that ensure the
reserving methodology employed by it is up-to-date and that it appropriately
reflects the underlying risks in the life insurance or annuity products that
comprise the blocks of business in the portfolio.




Legal
Proceedings




Northstar
is not currently involved in any litigation or arbitration. Northstar
anticipates that, similar to the rest of the insurance and reinsurance industry,
it will be subject to litigation and arbitration in the ordinary course of
business.




Properties




Northstar’s
office space in Hamilton, Bermuda is located at Hurst Holme, 12 Trott Road,
Hamilton, Bermuda.




Employees




As of
December 31, 2009, Northstar has three employees, based in Bermuda and Ireland
and two consultants.  Northstar believes that its employee relations
are good. Its employees are not subject to any collective bargaining agreements,
and Northstar is not aware of any current efforts to implement such
agreements.




Real
Estate Joint Venture




On May
26, 2010, we entered into a real estate joint venture transaction with Planet
Five Development Group, LLC (“Planet Five”) and Robert V.
Willison.   Planet Five and Mr. Willison (collectively, the
“Operating Members”) formed with us a new Florida limited liability company
called Net Five Holdings, LLC (the “JV Company”).   We intend to
contribute to the JV Company all of the owned real estate properties and real
estate loan assets we acquired in connection with our January 2010 acquisition
of the Stillwater Funds, and Planet Five and its affiliates will contribute to
the JV Company not less than $100.0 million in net asset value of seven income
producing operating properties and four undeveloped commercial and residential
properties located in Florida (collectively, the “Contributed
Assets”).  We will own a 49% Class A equity percentage interest in the
JV Company, Planet Five will own a 38% Class A equity percentage interest, Mr.
Willison and a third party will own in the aggregate a 12% Class B equity
percentage interest in the JV Company.  The Class B equity interests
only share in earning and profits of the JV Company after each of Gerova and
Planet Five recoup in cash the net asset values of the respective properties
contributed by them to the JV Company.  In addition, the holders of
the Class B equity interests have granted to Planet Five a three year
irrevocable proxy to vote all Class B equity interests in the JV
Company.  Neither Planet Five nor the holders of Class B equity
interests in the JV Company are affiliated with us.  The management of
the JV Company will be conducted by the Operating Members through a board of
managers, a majority of which members are and will be persons designated by the
Operating Members of the JV Company.  Messrs. Paul Rohan and Gregory
Laubach, principal owners of Planet Five, and Robert Willison will constitute a
majority of the members of the board of managers of the JV
Company.


45


Our
strategic plan is for the JV Company to both manage the Contributed Assets and
acquire additional real estate assets, primarily consisting of income producing
residential and commercial properties.  We and the Operating Members
believe that by leveraging and refinancing certain of the estimated $200.0
million of Contributed Assets, the JV Company will be able to acquire, at
attractive prices, significant additional income producing real estate
properties and assets.  In such connection we and Planet Five have
agreed to provide joint guarantees to refinance the Contributed Assets under
certain conditions and based on certain loan to value ratios and other valuation
metrics.  Under proper conditions to be mutually agreed upon by both
us and Planet Five, we may cause the JV Company to effect a public offering or
reverse takeover of a public entity.  Consistent with our overall
strategic plan, it is our intention to ultimately contribute our equity
investment in the JV Company or its successor to one or more of our insurance
subsidiaries.




C.                 Organizational
Structure




As of the
date of this Annual Report, the Company is the parent company of the following
entities.  Each company is a direct subsidiary of the Company, except
where otherwise noted.




Name
                      
                      Jurisdiction of
                        Incorporation
                      
                      Proportion of
                        Company’s
                        Ownership InterestGEROVA
      Holdings Ltd.
                      
                      Bermuda
                      
                      
                      100
                      %GEROVA
      Reinsurance, Ltd.
                      
                      Bermuda
                      
                      
                      100
                      %Gerova
      Management Inc.
                      
                      Florida
                      
                      
                      100
                      %Gerova
      Financial Group (UK) Ltd.
                      
                      United
      Kingdom
                      
                      
                      100
                      %Gerova
      Advisors LLC
                      
                      Delaware
                      
                      
                      100
                      %Gerova
      Asset Backed Holdings LP
                      
                      Delaware
                      
                      
                      100
                      %Gerova
      Real Estate Holdings LP
                      
                      Delaware
                      
                      
                      100
                      %Gerova
      WPB Venture Holdings LP
                      
                      Delaware
                      
                      
                      100
                      %Stillwater
      Market Neutral Holdings LP
                      
                      Marshall
      Islands
                      
                      
                      100
                      %Gerova
      AB Holdings Ltd.
                      
                      Cayman
      Islands
                      
                      
                      100
                      %Gerova
      MN Holdings Ltd.
                      
                      Cayman
      Islands
                      
                      
                      100
                      %WFM
      Holdings Ltd.
                      
                      Cayman
      Islands
                      
                      
                      100
                      %Amalphis
      Group, Inc.
                      
                      British
      Virgin Islands
                      
                      
                      81.5
                      %Allied
      Provident Insurance Inc.1
                      
                      Barbados
                      
                      
                      81.5
                      %Net
      Five Holdings, LLC
                      
                      Florida
                      
                      
                      49
                      %Northstar
      Group Holdings, Ltd.2
                      
                      Bermuda
                      
                      
                      38
                      %Northstar
      Reinsurance Ltd.3
                      
                      Bermuda
                      
                      
                      38
                      %Northstar
      Reinsurance Ireland Ltd.3
                      
                      Ireland
                      
                      
                      38
                      %





1.   
         Direct wholly-owned
subsidiary of Amalphis Group, Inc.




2.
            Direct
      partially-owned subsidiary of Stillwater Market Neutral Holdings LP. Such
      ownership interest represents approximately a 38% economic interest and
      approximately a 40% voting
interest.




3.
            Direct
      wholly-owned subsidiaries of Northstar Group Holdings,
      Ltd.  Such ownership interest represents approximately a 38%
      economic interest and approximately a 40% voting
  interest.




D.                 Property,
Plants and Equipment




Gerova




Our
principal executive offices are located at Cumberland House, 5th Floor, 1
Victoria Street, Hamilton, HM 11, Bermuda. We consider our current office space
adequate for our current operations.


46


Allied
Provident




Allied
Provident’s office space in Barbados is currently provided to them by the
company with whom it contracts for management services at no additional
charge.  It is located in the CGI Tower office building, in the city
of St. Michael, Barbados.  Allied Provident believes that for the
foreseeable future this office space will be sufficient for it to conduct its
operations.  Except for computers and miscellaneous office equipment
Allied Provident does not have any other material tangible assets.




Northstar




Northstar’s
office space in Hamilton, Bermuda is located at Hurst Holme, 12 Trott Road,
Hamilton, Bermuda. Northstar believes that for the foreseeable future this
office space will be sufficient for it to conduct its operations.




ITEM
4A: Unresolved Staff Comments




None.




ITEM
5:                 Operating
and Financial Review and Prospects




The
following is a discussion of the results of operations of the Company for the
fiscal years ended December 31, 2009 and 2008 and should be read in conjunction
with the audited financial statements of the Company for such periods, together
with the accompanying notes, included elsewhere in this Annual
Report.




Overview




We
currently own a controlling interest in Allied Provident, a specialty insurance
company domiciled in Barbados, and a significant minority interest in Northstar,
a Bermuda insurance holding company. At the same time, we also own various
investment assets (subject to assumed liabilities as well as valuation and audit
adjustments).   We have contributed some of, and intend to
contribute the remainder of, these assets to our existing insurance companies
and other specialty insurance or reinsurance companies we form or acquire in the
future.




In
January 2010, in connection with the Business Combinations, we acquired an 81.5%
interest in Amalphis, the parent company of Allied Provident. At the same time,
we also acquired the investment assets which are managed by Stillwater and
Weston.  As part of our acquisition of certain of the assets managed
by Stillwater, we acquired a 38% economic interest (representing approximately a
40% voting interest) in Northstar.




A.                 Operating
Results




Critical
Accounting Policies




We have
identified the following as our critical accounting policies:




Basis
of Presentation




Our
financial statements are presented in U.S. dollars and have been prepared in
accordance with accounting principles generally accepted in the United States of
America and pursuant to the rules and regulations of the SEC.




Development
Stage Company




We comply
with the reporting requirements of SFAS No. 7, “Accounting and Reporting by
Development Stage Enterprises.”




Net
Income Per Ordinary Share




We comply
with the accounting and disclosure requirements of SFAS No. 128, “Earnings Per
Share.”  Net income (loss) per ordinary share is computed by dividing
net income (loss) by the weighted average number of ordinary shares outstanding
for the period.  Net income (loss) per ordinary share, assuming
dilution, reflects the maximum potential dilution that could occur if securities
or other contracts to issue ordinary shares were exercised or converted into
ordinary shares and would then share in the earnings of the Company except where
the result would be antidilutive.


47


Our
statement of operations includes a presentation of net income per share for
ordinary shares subject to possible conversion in a manner similar to the
two-class method of net income per share.  Net income per ordinary
share, basic and diluted amount for the maximum number of shares subject to
possible conversion is calculated by dividing the interest income, net of
applicable income taxes, attributable to ordinary shares subject to conversion
by the weighted average number of ordinary shares subject to possible
conversion.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.




Income
Taxes




We follow
the asset and liability method of accounting for income taxes. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that included the
enactment date.




Under the
laws of the Cayman Islands, we are not subject to income taxes. Accordingly, no
provision for income taxes has been made in the accompanying financial
statements.




Foreign
Currency Translation




The
United States dollar is our reporting and functional currency.




In
accordance with SFAS 52, “Foreign Currency Translation”, foreign currency
balance sheets will be translated using the end of period exchange rates and
statements of operations will be translated at the average exchange rates for
each period. The resulting translation adjustments to the balance sheet will be
recorded in accumulated other comprehensive income (loss) within stockholders’
equity.




Foreign
currency transaction gains and losses will be included in the statement of
operations as they occur.




Year
ended December 31, 2009 compared with year ended December 31, 2008




We had
net income of $335,000 for the year ended December 31, 2009 and net income of
$129,000 for the year ended December 31, 2008. During the year ended December
31, 2009, we expensed $2,438,000 of costs associated with the Business
Combinations and other potential transaction which did not close. During the
year ended December 31, 2008, we expensed $978,000 of costs associated with
other attempted acquisitions and business combinations which were partially
offset with interest income resulting from our initial public offering in
January 2008.  During the year ended December 31, 2009, we received
$3,123,000 in connection with the termination and release of our agreement to
acquire White Energy Company Limited.




Our trust
account which held the proceeds of our initial public offering pending the
acquisitions (the “Trust Account”) earned interest of $470,000 for the year
ended December 31, 2009, and our funds outside of the Trust Account did not earn
any material interest. Our Trust Account earned interest of $2,054,000 for the
year ended December 31, 2008, and our funds outside of the Trust Account did not
earn any material interest.




Recently
Adopted Accounting Pronouncements




In
April 2009, the Financial Accounting Standards Board (the “FASB”) issued
guidance in the Financial Instruments and Interim Reporting Topics of the FASB
ASC. This guidance requires disclosures about fair value of financial
instruments in interim financial statements. It requires that disclosures be
included in both interim and annual financial statements of the methods and
significant assumptions used to estimate the fair value of financial
instruments. This guidance is effective for periods ending after June 15,
2009, with comparative disclosures required only for periods ending subsequent
to initial adoption. The Company has disclosed the assumptions used to estimate
the fair value of financial instruments in the notes to financial
statements.


48


In August
2009, the FASB issued guidance in the Fair Value Measurements and Disclosures
Topic of FASB ASC. This guidance updates the fair value measurement of
liabilities that provides clarification for circumstances in which a quoted
price in an active market for the identical liability is not available; a
reporting entity is required to measure fair value using alternative valuation
techniques. This guidance provided in this update is effective for interim and
annual periods beginning after August 27, 2009. Valuation techniques used by the
Company are disclosed in Note 3 to financial statements.




In
January 2010, the FASB issued guidance in the Fair Value Measurements and
Disclosures Topic of FASB ASC. The guidance requires reporting entities to make
new disclosures about recurring and nonrecurring fair value measurements
including significant transfers into and out of Level 1 and Level 2 fair value
measurements and information on purchases, sales, issuances, and settlements on
a gross basis in the reconciliation of Level 3 fair value measurements. The
guidance also clarified existing fair value measurement disclosure guidance
about the level of disaggregation, inputs and valuation techniques. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuance, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The guidance does not have a material impact
on the Company’s financial statements.




Recently
Issued Accounting Pronouncements




In June
2009, FASB issued Statement of Financial Accounting Standards No. 167,
Amendments to FASB Interpretation No. 46(R) (“Statement No. 167”). Statement No.
167 amends FASB Interpretation No. 46R, Consolidation of Variable Interest
Entities an interpretation of ARB No. 51 (“FIN 46R”) to require an analysis to
determine whether a company has a controlling financial interest in a variable
interest entity. This analysis identifies the primary beneficiary of a variable
interest entity as the enterprise that has a) the power to direct the activities
of a variable interest entity that most significantly impact the entity’s
economic performance and b) the obligation to absorb losses of the entity that
could potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the
variable interest entity. The statement requires an ongoing assessment of
whether a company is the primary beneficiary of a variable interest entity when
the holders of the entity, as a group, lose power, through voting or similar
rights, to direct the actions that most significantly affect the entity’s
economic performance. This statement also enhances disclosures about a company’s
involvement in variable interest entities. Statement No. 167 is effective as of
the beginning of the first annual reporting period that begins after November
15, 2009. Although. The Company is in the process of evaluating Statement No.
167 and the impact, if any, it will have on the Business
Combinations.




In
September 2009, the FASB issued guidance in the Revenue Recognition Topic of
FASB ASC. This guidance updates the accounting and expands disclosures for
multiple-deliverable arrangements to enable vendors to account for products or
services separately rather than as a combined unit. The update will be effective
prospectively for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010. Management is currently
evaluating the impact of applying the update to the Company’s future
consolidated financial statements.




Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.




B.                 Liquidity
and Capital Resources




At
December 31, 2009, we had cash of approximately $973,000 and working capital of
approximately $198,000.  As discussed above and in the Notes to
Financial Statements, in January 2010, the Company completed an acquisition of
an operating company and, in addition, purchased significant investment
assets.  The Company believes that it has sufficient liquidity through
the sale or redemption of the various acquired investment assets to conduct its
business for the coming year.  The Company may also attempt to raise
additional debt and/or equity financing in connection with its planned
activities or potential acquisitions.




On
January 16, 2008, we completed a private placement of 5,725,000 warrants to our
sponsor in connection with our offering, Ho Capital Management LLC, an entity
co-managed and jointly owned by Angela Ho, our former chief executive officer
and former chairman, and Noble Investment Fund Limited, an affiliate of Arie Jan
van Roon, our chief financial officer and director, generating gross proceeds of
$5,725,000.




On
January 23, 2008, our initial public offering of 10,000,000 units was
consummated. Each unit issued in our offering consists of one Ordinary Share and
one warrant, each warrant to purchase one Ordinary Share at an exercise price of
$7.50 per Ordinary Share. The units were sold at an offering price of $10.00 per
unit, generating gross proceeds of $100,000,000. On January 30, 2008, the
underwriters for our initial public offering exercised their over-allotment
option in full, and purchased 1,500,000 units. Each unit consists of one
Ordinary Share and one warrant, each warrant to purchase one Ordinary Share at
an exercise price of $7.50 per Ordinary Share. The offering, including the
exercise of the over-allotment option, generated total gross proceeds of
$115,000,000 to us (excluding proceeds of $5,725,000 from the sale of private
placement warrants to our sponsor in connection with the offering, Ho Capital
Management LLC and Noble Investment Fund Limited).


49


On
February 28, 2008, we entered into a Loan and Security Agreement with a bank
pursuant to which we issued a $500,000 promissory note to the bank in exchange
for a line of credit to be used for working capital and general corporate
purposes. On March 28, 2008, we drew down $190,000, and on June 8, 2008 we
repaid $50,000, under the note payable and on July 3, 2008 the remaining
$140,000 principal amount, plus interest, were repaid. Borrowings under the
promissory note bore interest at the bank’s prime rate or, upon the occurrence
of a default, at a default rate equal to the prime rate plus 2%, and were
secured by certain of our assets.




On
December 16, 2008, we consummated the Funding Agreement with a placement agent
where we issued Notes that matured on the earlier of (a) January 16, 2010, or
(b) the consummation of a business combination satisfactory to the lender. The
Notes were non-recourse to the amounts held in the Trust Account and were
secured by the assignment of 100,000 Ordinary Shares that are owned by certain
initial shareholders. In addition, the Notes were secured by the interest earned
in the Trust Account up to $2,000,000. Under the agreement, $500,000 was
borrowed on December 26, 2008, and the remaining $750,000 was borrowed during
the year ended December 31, 2009.  On December 1, 2009 the Notes were
repaid in full.  In connection with the financing, as an inducement,
certain of the Ordinary Shares held by certain initial investors were assigned
to the lenders and will be conveyed upon release from escrow.  The
value of these shares, $665,000 was treated as a capital contribution and the
related financing costs are being amortized over the term of the
loan.  Pursuant to the Agreement, the Company is obliged to pay, and
has paid, approximately $40,000 of costs associated with the agreement,
proportionally with each draw down against the total.  Such costs are
included in deferred financing costs and amortized over the term of the
loan.




In
connection with the Business Combinations, the Company redeemed 3,278,991
ordinary shares subject to redemption for approximately $32,790,000 and
repurchased 7,916,656 ordinary shares for approximately
$79,639,000.  The Company has entered into a settlement and release
agreement with respect to an underwriter concerning the deferred underwriting
fee.  Such agreement calls for the cash payment of $250,000 and a
non-interest bearing note payable for $1,300,000 which is due on December 15,
2011 (subject to a discount if paid by December 15, 2010 or June 15, 2011 of
$130,000 and $65,000, respectively.  If the note is not paid at
maturity, the principal amount, after a notice and cure period, would increase
to 2,250,000.




The
Company estimates that it has incurred approximately $23,500,000 in costs
directly attributable to the Business Combinations relating to attorneys,
accountants and other advisors fees.  Of this amount, approximately
$10,400,000 million was satisfied through the issuance of 1,391,667 Ordinary
Shares and certain private warrants.  In addition, there are
approximately $24,000,000 in unpaid management fees due to the managers of the
Stillwater Funds that are to be paid out of available cash flow as determined by
the Company.




In
connection with the retention of a new chief executive officer (see below), the
Company sold Marseilles Capital LLC 5,333,333 Ordinary Shares in consideration
of a limited recourse note in the amount of $20,000,000 ($3.75 per
share).  The difference between the fair value of the Ordinary Shares
on the date of the sale ($5.09) and the sales price aggregated approximately
$7,150,000 and was charged to operations.




C.                 Research
and Development, Patents and Licenses, etc.




From
March 22, 2007 (inception) through December 31, 2009, the Company has not
engaged in any research and development activities.




D.                 Trend
Information




There are
no major trends which are anticipated to have a material effect on the Company's
financial condition and results of operations in the near future.




E.                 Off-Balance
Sheet Arrangements




We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.


50


F.                 Tabular
Disclosure of Contractual Obligations




The
following table sets forth a summary of the Company’s contractual obligations as
at December 31, 2009:




Less Than 1 Year
                  
                  
                  1-3 Years
                  
                  
                  TotalContractual
      Obligations:
                  
                  $
                  0
                  
                  
                  $
                  275,000
                  
                  
                  $
                  275,000Debt
      maturing within:
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  0Investment
      banking agreements
                  
                  $
                  406,000
                  
                  
                  $
                  213,000
                  
                  
                  $
                  619,000Total
      contractual cash obligations
                  
                  $
                  406,000
                  
                  
                  $
                  488,000
                  
                  
                  $
                  894,000





G.                 Safe
Harbor




This
report contains forward-looking statements and forward looking information,
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, which are based upon our current internal expectations, estimates,
projections, assumptions and beliefs as at the date of those statements or that
information, including, among other things, assumptions with respect to
production, future capital expenditures and cash flows. In some cases, words
such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”,
“estimate”, “may”, “will”, “potential”, “proposed” and other similar words,
or statements that certain events or conditions “may” or “will” occur, are
intended to identify forward-looking statements and forward-looking
information.  Forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from those
anticipated in the forward-looking statements or information.  In
addition, this report and the documents incorporated by reference may contain
forward-looking statements and information attributed to third party industry
sources.  By its nature, forward-looking information involves numerous
assumptions, known and unknown risks and uncertainties, both general and
specific, that contribute to the possibility that the predictions, forecasts,
projections and other forward-looking statements will not occur.  Such
forward-looking statements and information in this report speak only as of the
date of this report or as of the date specified in the documents incorporated by
reference.




These
statements relate to future events or our future financial performance and only
reflect management’s expectations and estimates.  They are based on
current expectations and beliefs concerning future developments and their
potential effects. There can be no assurance that future developments will be
those that they have anticipated. These statements involve a number of risks,
uncertainties (some of which are beyond our control) and other assumptions that
may cause actual results or performance to be materially different from those
expressed or implied by these forward-looking statements. These risks and
uncertainties include those factors described under the heading “Risk Factors.”
Specifically, some factors that could cause actual results to differ
include:




·
            the
      impairment of other financial institutions and its effect on our
      business;


·
            requirements
      to post collateral or make payments due to declines in market value of
      assets subject to our collateral
arrangements;


·
            the
      fact that any adverse change in mortality, morbidity, lapsation or claims
      experience or the determination of allowances and impairments taken on our
      investments is highly subjective;


·
            adverse
      capital and credit market conditions and their impact on our liquidity,
      access to capital and cost of
capital;


·
            changes
      in our financial strength and credit ratings and the effect of such
      changes on our future results of operations and financial
      condition;


·
            inadequate
      risk analysis and underwriting;


·
            general
      economic conditions or a prolonged economic downturn affecting the demand
      for insurance and reinsurance in our current and planned
      markets;


·
            the
      availability and cost of collateral necessary for regulatory reserves and
      capital;


·
            market
      or economic conditions that adversely affect the value of our investment
      securities or result in the impairment of all or a portion of the value of
      certain of our investment
securities;


·
            market
      or economic conditions that adversely affect our ability to make timely
      sales of investment securities;


·
            risks
      inherent in our risk management and investment strategy, including changes
      in investment portfolio yields due to interest rate or credit quality
      changes;


·
            fluctuations
      in U.S. or foreign currency exchange rates, interest rates, or
      securities and real estate
markets;


51


·
            adverse
      litigation or arbitration results;


·
            the
      adequacy of reserves, resources and accurate information relating to
      settlements, awards and terminated and discontinued lines of
      business;


·
            the
      stability of and actions by governments and economies in the markets in
      which we operate;


·
            competitive
      factors and competitors’ responses to our
  initiatives;


·
            the
      success of our clients;


·
            successful
      execution of our entry into new
markets;


·
            successful
      development and introduction of new products and distribution
      opportunities;


·
            regulatory
      action that may be taken by insurance regulatory authorities with respect
      to the Insurance Companies;


·
            our
      dependence on third parties, including those insurance companies and
      reinsurers to which we cede some reinsurance, third-party investment
      managers and others;


·
            the
      threat of natural disasters, catastrophes, terrorist attacks, epidemics or
      pandemics anywhere in the world where we or our clients do
      business;


·
            changes
      in laws, regulations, and accounting standards applicable to the Insurance
      Companies;


·
            the
      effect of our status as an holding company and regulatory restrictions on
      our ability to pay dividends;


·
            other
      risks and uncertainties described in this report;
  and


·
            other
      risks referenced from time to time in the Company’s filings with the
      SEC.




Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in or suggested by such forward-looking statements. We undertake no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Readers should carefully
review the factors described herein and in other documents we file from time to
time with the SEC.




ITEM
6:                      Directors,
Senior Management, and Employees




A.                 Directors
and Senior Management




The
following are the age, position and biographical information of our board of
directors and executive officers. Each of these individuals serves in his
respective position until his successor is duly elected or appointed and
qualified.




Name
              
              Age
              
              PositionGary T. Hirst
              
              57
              
              President and Chairman of the BoardJoseph J. Bianco
              
              59
              
              Chief Executive OfficerKeith Laslop
              
              38
              
              Chief Operating Officer and DirectorMichael Hlavsa
              
              56
              
              Chief Financial Officer and SecretaryChristopher Holmes
              
              50
              
              Vice PresidentAndrew Tse
              
              57
              
              Vice PresidentLou Hensley
              
              46
              
              President & CEO/Gerova Holdings Ltd.Arie Jan van Roon
              
              64
              
              DirectorStuart L.R. Solomons
              
              59
              
              DirectorLeonard de Waal
              
              62
              
              DirectorArie Bos
              
              61
              
              DirectorJack Doueck
              
              46
              
              Director





Dr. Gary T. Hirst, originally
appointed as our Co-Chief Executive Officer on an interim basis, was appointed
as our President in October 2007 and as Chairman of our board of directors in
April 2010. He has been a director of our company since our inception. Dr. Hirst
has been responsible for the development and investment management of both
offshore and domestic hedge funds, including global macro funds, funds-of-funds,
currency funds, and a number of structured investment products (synthetic
investment instruments, typically created by combining securities, such as notes
or common stock, with derivatives such as options, that are specially created to
meet specific needs that cannot be met from the standard financial instruments
available in the markets) including for principal protected notes issued by
Zurich Capital Markets and Rabobank which invested in diversified global
portfolios of hedge funds. From 1991 to 2006, Dr. Hirst was Chairman and Chief
Investment Officer of Hirst Investment Management. In his roles with Hirst
Investment Management, Dr. Hirst managed over $600 million in assets on behalf
of multi-national banks, pension plans, insurance companies, foundations and
endowments, public companies, family offices and high net worth investors. Under
his leadership, the firm established itself as a developer of innovative
financial products and services, with a focus on maximizing the risk-adjusted
return on its clients’ investments. From 1976 to 1991, Dr. Hirst was Investment
Manager for the Hirst Family Office where he managed allocation and trading for
all investment portfolios of the Hirst family and its associates. These
investments included traditional asset portfolios, real estate, and a range of
alternate investment strategies including hedge funds, private equity, futures
trading and physical commodities. From 2003 to 2005, Dr. Hirst was a director of
Alpine Select A.G., a publicly traded (Swiss Exchange) investment company based
in Zug, Switzerland.


52


Joseph J. Biancowas appointed
as our Chief Executive Officer in June 2010.  Mr Biancopurchased Lotus
Performance Cars, Inc. in 1982, which he subsequently sold to General
Motors in 1987. In 1990, Mr. Bianco co-founded and became Chief
Executive Officer of Alliance Entertainment Corporation. In 1996, Mr.
Bianco and his partner sold control of NYSE-Listed Alliance, then the
leading independent distributor of CD music in the world, and
resumed his private investing activities. In 1998, an investor group
led by Mr. Bianco bought the first of several magazine distributors
that were consolidated into the Interlink Companies, of which Mr.
Bianco was Chairman. Interlink, a leading distributor of magazines to
booksellers and other retailers was sold in 2001 to the Source-Interlink
Companies. From 1997 to 2000, Mr. Bianco was also Chairman
of Cognitive Arts, Inc., a leading creator of educational software, which
was purchased from Northwestern University. From 2003 to 2004, he served on the
board of directors of Whitewing Environmental, Inc. Mr. Bianco also serves
on the Board of several other private corporations as well as two non-profit
organizations.  He also currently serves as Chairman and CEO of
Florham Consulting Corp. a publicly traded company.  Mr. Bianco
graduated from Yale Law School in 1975, where he was an
editor of the Yale Law Journal. He became Associate Dean at Cardozo
School of Law at Yeshiva University and is the author of two books and
various articles.




Keith Laslop was appointed as
a director of the Company in May 2008 and was appointed as our Chief Operating
Officer in June 2010.  Mr. Laslop is a chartered accountant and holds
the Chartered Financial Analyst (CFA) accreditation. From 2004 to 2008, Mr.
Laslop served as the President of Prolexic Technologies, Inc., a managed digital
security service provider, where he was responsible for the growth and financial
performance of the company.  From 2001 to 2004, he served as the Chief
Financial Officer and Business Development Director of Elixir Studios Ltd., a
London-based interactive entertainment software developer, where he was
responsible for originating and negotiating new development contracts, as well
as securing three rounds of capital to fund operations. Prior to Elixir, Mr.
Laslop was Director of Business Development EMEA at Inktomi, a public Internet
infrastructure software company.  He has a background in structuring
and negotiating various mergers and acquisitions in London, England and Toronto,
Canada.   Mr. Laslop earned an Honors Business Administration degree
from the University of Western Ontario in 1993 and his Chartered Accountant
designation from the Canadian Institute of Chartered Accountants in 1996. In
addition, he earned his Chartered Financial Analyst designation from the
Institute of Chartered Financial Analysts in 1999.




Michael Hlavsa has been our
Chief Financial Officer since our inception.  He is an experienced
executive that has over 33 years of combined financial and operational
experience. He is both a Certified Public Accountant and a Certified Internal
Auditor. He has spent over 18 years working in the United States casino
industry. From 2004 to the present, he has been the founder and principal owner
of Signature Gaming Management LLC, a consulting firm specializing in advising
emerging companies engaged in gaming operations. In 2005, he served as Chief
Executive Officer for Titan Cruise Lines, a casino business which operated a
2,000 passenger ship and high speed shuttles. From 2001 to 2004, Mr. Hlavsa was
the Chief Executive Officer for SunCruz Casinos, the largest day cruise gaming
company in the United States. From 1997 to 2000, Mr. Hlavsa was Managing Partner
at Casino Princesa in Miami, Florida where he was responsible for the
development and operation of a large mega-yacht gaming vessel. From 1993 to
1997, he served as Chief Financial Officer and Vice President, Midwest region,
for Lady Luck Gaming Corporation, a publicly traded company. While at Lady Luck,
he participated in that company’s initial public offering of equity and a $185
million debt financing. From 1991 to 1993, Mr. Hlavsa was the Vice President of
Finance and Administration for the Sands Hotel and Casino in Las Vegas, Nevada.
His first 12 years of gaming experience was in Atlantic City, New Jersey in
various audit and finance positions with well-established gaming companies such
as Caesars, Tropicana and Trump Plaza. Since March 2007, Mr. Hlavsa has served
as Chief Financial Officer and a director of Gerova.  Since November
2007, he has also served as the Chief Financial Officer and Director for
Fund.com Inc., a publicly trade company.  He received a Bachelor of
Science degree from Canisius College in Buffalo, New York in 1975.




Christopher Homeswas
appointed as our Vice President in June 2010. Mr. Holmes has worked in financial
services for 27 years as a senior executive officer and director of a variety of
private and public companies.  Since 2007 he has served as the Chief
Executive Officer of Bankruptcy Protection Fund Ltd., a niche financial services
business.  From 2005 to 2007, he was the Chief Executive Officer of
One Advice Group, LLC.  From 1983 through 2004, he served in a variety
sales and management positions for HSBC Bank, HFC Bank plc (a member of the HSBC
Group), Commercial Union, Lloyds of London and, from 2004 to 2004, as Strategy
Director for Barclay’s Bank, Premier Banking.


53


Andrew Tsehas served as our
Vice President since our inception. From 1981 to 2006, Mr. Tse was associated
with a number of businesses located in China (Hong Kong and Macau) that are owed
or controlled by Dr. Stanley Ho, the father of our chairman and co-chief
executive officer, Angela Ho, including Shun Tak Holdings Ltd., Heli Express
Ltd. and Hong Kong Express Airways Ltd. which are engaged in the business of sea
transport, helicopter transport and scheduled airline services, respectively.
From 1981 to 2006, Mr. Tse was an executive director, and from 1989 to 1996
served as the chief financial officer and a member of the board of directors of,
Shun Tak Holdings Limited. Shun Tak Holdings Limited is a leading Hong
Kong-based conglomerate established in 1972 and listed on the Hong Kong Stock
Exchange since 1973 with core businesses in transportation, casino investment
and operations and property investments. During his tenure with Shun Tak, Mr.
Tse was instrumental in listing the company on the Hong Kong Stock Exchange and
was instrumental in negotiating and financing many of Shun Tak’s acquisitions
and business expansion initiatives. From 1989 to 2003, Mr. Tse served as
executive director of Air Hong Kong Ltd., a dedicated cargo airline based in
Hong Kong offering scheduled service to Europe and the United States. Mr. Tse
was instrumental in the sale of Air Hong Kong to Cathay Pacific Airways in 2003.
From 1997 to 2006, Mr. Tse also served as chief executive officer of Heli
Express Limited, a helicopter airline operating between Hong Kong and Macau,
with more than 50 daily flights. From 1997 to the present, Mr. Tse has served as
the founder and chief executive officer of Hong Kong Express Airways Limited, a
new regional airline that commenced operation in 2005 and provides scheduled
Boeing 737 and Embraer E170 service between Hong Kong and secondary cities in
Mainland China and Taiwan. A 1977 graduate of McMaster University in Canada, Mr.
Tse also received an MBA from McMaster University in 1978.




Lou Hensley has served as the
President and Chief Executive Officer of Gerova Holdings Ltd., a subsidiary of
the Company, since April 2010.  He also serves as the head of the
Gerova Insurance Group (as defined below).  Prior to joining us, Mr.
Hensley spent ten years as a senior vice president with Wells Fargo & Co.,
the third largest bank in the U.S., and an executive officer of Wells Fargo’s
Bermuda-based reinsurance subsidiary, Union Hamilton Reinsurance,
Ltd.  Mr. Hensley was instrumental in helping Union Hamilton grow from
a start-up company to a multi-billion dollar reinsurance company. Mr. Hensley
joined Wells Fargo and Union Hamilton as a result of Wachovia/Wells Fargo’s
acquisition of Pivot, a leading insurance-focused technology and financial
information services company of which he was co-founder and president. Mr.
Hensley also served as vice president of corporate development for Jackson
National Life, a $87 billion subsidiary of Prudential plc., where he was
principally responsible for the development and execution of the company’s
merger and acquisition business plan in North America. He also held positions at
the Swiss Re affiliate, The Midland Life Insurance Company, and Conseco. Mr.
Hensley has over twenty years experience in the insurance industry and has
played an instrumental part in M&A, product design, capital management, and
corporate strategy.  He holds a BS in Actuarial Science and Accounting
from Ball State University.




Arie Jan van Roon has served
as a director of the Company since our inception.  From January 2000
to the present, he has served as the managing partner of TransTax LLP, a
Swiss-based private wealth management firm. The firm provides financial advisory
services to high net worth investors and family offices principally within the
European Union. In January 2007, he established Pure Glow Finance Limited of
which he is the Managing Director as well as the sole shareholder, with the same
activities as TransTax LLP and also the beneficial owner and investment advisor
of Noble Investment Fund Limited, one of our principal shareholders. Prior to
founding this firm, from 1984 to 2000, Mr. van Roon established van Roon
Partners, Ltd., a private equity and advisory firm with an emphasis on
investment in distressed, turn around and special situations with a geographic
focus on Europe and across a wide range of industries. In addition to investment
management experience, during this period he also developed operational
experience in his capacity as acting interim CEO for investee companies in the
consumer goods, airline and service industries including Girmi spa, an Italian
industrial firm, Intair GMBH, an airline handling company based in Germany, and
Aerolloyd, a German airline. In 1990, Mr. van Roon entered into a joint venture
arrangement with US-based Quantum Development Corporation, a boutique venture
capital firm specializing in early stage high tech and pharmaceutical companies.
In connection with this activity, from January 2000 to May 2000 he acted as
interim CEO of Alyn Corporation, a NASDAQ listed innovative materials firm. Mr.
van Roon has never been employed by any of the above companies and has always
acted as a consultant or owner. Mr. van Roon is a Dutch citizen who lives in
Lugano, Switzerland and in Milan, Italy. He obtained a doctoral degree (Drs)
from Erasmus Rotterdam University in 1971, where his thesis centered on Bayesian
Statistics.




Stuart L R Solomons was
appointed as our interim Managing Director and a member of our board of
directors in April 2010.  He resigned as Managing Director in June
2010, but remains a member of our board of directors.  It is intended
that Mr. Solomons will remain as a member of our board of directors only until
such time as a suitable replacement is appointed.  For the past ten
years Mr. Solomons has engaged in an international tax practice as a partner in
the offices of Transtax Limited, based in Lugano, Switzerland.  In
addition, he founded and for the past six years has served as Chairman of one of
the largest privately owned companies in the United Kingdom specializing in
assisting individuals in the annulment of personal insolvencies.  In
addition, Mr. Solomons was the former chairman of AMEC, the world’s largest
independent recording consol manufacturer in the world.  AMEC earned
the Queens Award for industry for 3 consecutive years for its contribution
to British exports.  Mr. Solomons has held the position of visiting
professor of international law and has lectured extensively and spoken at a
number of conferences.  Mr. Solomons holds a Masters of International
Law.


54


Leonard de Waal has served as
a director of the Company since April 2008.  He has over 32 years
experience in the financial industry and in particular, portfolio management.
From 1984 to July 2002, Mr. de Waal served as a senior relationship manager and
discretionary portfolio manager with Merrill Lynch (Luxembourg).  From
January 2005 to August 2006, he has served as a part-time managing director of
Eduma Marketing & Education S.A.  From November 2004 to January
2006, Mr. de Waal has served as a part-time senior portfolio manager for Fuchs
& Associés Finance Luxembourg S.A. and as a part-time accounting manager of
Shire Holdings Europe S.à.r.l. and Shire Holdings Ireland Ltd., Luxembourg
Branch from September 2005 to the present. From March 2007 to the present, Mr.
de Waal has served as a part-time manager of Triseas Korea Property S.à.r.l.,
Luxembourg. From April 2008 to March 2009, he served as a part-time
accounting supervisor of Severn Trent Luxembourg Finance SA, Severn Trent
Luxembourg Holdings SA, Severn Trent Luxembourg Overseas Holdings SA, Severn
Trent Luxembourg Overseas Finance SA and Severn Trent European Limited,
S.à.r.l.  Since November 2009, Mr. de Waal has served as managing
director of Red Lion International Management S.A. in Luxembourg.  He
is currently a director of FFH Financial Holding S.A. and Fairfax Holdings
Luxembourg S.à.r.l.  Mr. de Waal is a U.S. registered broker-dealer
(FINRA Series 7, 6 and 3) and Discretionary Asset Manager (Merrill Lynch
Corporate Campus).




Arie Bos has served as a
director of the Company since January 2009. From 2002 to 2006, Mr. Bos served as
the Business Development Manager at Fortis Luxembourg, a commercial banking
firm, where he was responsible for mergers and acquisitions for the
firm.  From 1980 to 2002, Mr. Bos served as an options and operations
specialist, administrative director and financial consultant at Merrill Lynch
International in London and Luxembourg.  From 1978 to 1980, he was a
clearing manager at the European Option Exchange.  Mr. Bos is
currently retired. He earned 3 degrees from the School of Graphic Design and
School of Commerce in Accountancy and Modern Business Administration from
Utrecht University in 1969, 1970 and 1972.  Mr. Bos received his
Series 3 and Series 7 certifications from the Financial Industry Regulatory
Authority in 1989 (Series 3) and 1990 (Series 7).




Jack Doueckwas appointed to
the board of directors of the Company in January 2010.  Mr. Doueck is
a principal of Stillwater and Stillwater Capital Partners, LLC, a Delaware
limited liability company and the investment manager of the Stillwater Funds
(the “Stillwater LLC”), since 1997. Commencing in 1999, with Stillwater,
Stillwater LLC has formed and managed the Stillwater Funds. Mr. Doueck was
responsible for the formation of one of the first convertible bond arbitrage
hedge funds in January 1992. Mr. Doueck has been researching and actively
investing, on his own behalf and for others, in alternative strategies since
1985. He is a published author and has been a featured speaker at alternative
investment conferences around the world. Mr. Doueck currently serves on the
Board of Directors of several charitable organizations. Mr. Doueck graduated
Valedictorian, Summa Cum Laude, from Yeshiva University in 1985 and has attended
the Bernard Revel Graduate School.




Family
Relationships




There are
no family relationships among our executive officers and directors.




Involvement
in Certain Legal Proceedings




None of
our officers or directors have, during the last five years: (i) been
convicted in or is currently subject to a pending a criminal proceeding;
(ii) been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to any federal or state securities
or banking laws including, without limitation, in any way limiting involvement
in any business activity, or finding any violation with respect to such law, nor
(iii) has any bankruptcy petition been filed by or against the business of
which such person was an executive officer or a general partner, whether at the
time of the bankruptcy of for the two years prior thereto.




B.                 Compensation




On April
8, 2010, Marshall Manley, our then chief executive officer and chairman of our
board of directors, resigned from all positions held with the
Company.  In connection with the resignation, we entered into a
Separation Agreement and Release with Mr. Manley. We also entered into a
Share Repurchase Agreement with Mr. Manley and Marseilles Capital LLC, an
affiliate of Mr. Manley, pursuant to which Marseilles Capital LLC agreed to sell
5,333,333 Ordinary Shares back to the Company as further described in Item 8B
below.




The
non-executive members of our board of directors (other than Mr. Doueck) are paid
annual director’s fees in the amount of $11,000.  Such fees are paid
on the last day of each calendar quarter in cash.




Employment
Agreements




Effective
April 1, 2010, Mr. Hensley and the Company entered into an employment
agreement, pursuant to which, among other things, Mr. Hensley serves as
President and Chief Executive Officer of Gerova Holdings, Ltd. (“Holdings”) for
an initial term of three years, subject to mutual agreement to extend the term
for such period as may be agreed.  Mr. Hensley shall also provide
services to one or more direct or indirect subsidiary corporations or divisions
of the Company or related affiliates of the Company that are engaged in the
insurance and/or reinsurance businesses (the “Gerova Insurance
Group”).  He also has such additional responsibilities or duties with
respect to the Company as may be determined and assigned to him by our board of
directors.


55


Mr. Hensley
is entitled to a base salary of $400,000, subject to increase at the discretion
of our board of directors, and to a targeted bonus of 100% of his base salary as
may be determined by the board of directors.  Mr. Hensley is also
entitled to receive options to purchase 120,000 Ordinary Shares under our Stock
Incentive Plan.  Such options shall vest at a rate of one-third per
year on the each anniversary of the employment agreement and are exercisable at
a price per share that is the greater of 100% of the closing market price of the
Ordinary Shares, as traded on the NYSE Amex Exchange or other national
securities exchange, or 100% of the per share value of the shareholders’ equity
of the Company. Such options are subject to immediate vesting if Mr. Hensley
terminates the employment agreement for “good reason” or his employment is
terminated for reasons other than “cause”.   Should Mr. Hensley’s
employment be terminated for “cause”, all such options be immediately cancelled
and forfeited.   Mr. Hensley is also entitled to receive standard
insurance, health and medical benefits as are generally made available to other
employees of the Company.




In the
event of Mr. Hensley’s death during the term of the agreement,
Mr. Hensley’s salary and performance bonus will be paid to his designated
beneficiary, estate or other legal representative for twelve months following
his death. In the event of Mr. Hensley’s disability during the term of the
agreement, he will be entitled to receive twelve months’ salary following such
disability plus any accrued but unpaid performance bonus. This disability
payment is in addition to other long-term disability benefits provided to
Mr. Hensley for a period of eighteen months following such disability. For
the purposes of this agreement, “disability” is deemed to have occurred if
Mr. Hensley is unable by reason of sickness, disease or accident to
substantially perform his duties under the agreement for an aggregate of 90 days
in any one year period.




Upon
termination of the agreement for “cause” by the Company, Mr. Hensley will
be entitled to receive his base salary hereunder through the date of
termination.  If the agreement is terminated by Mr. Hensley for “good
reason”, he shall be entitled to receive his base salary owing through the
remaining term of employment plus an amount equal to 50% of such amount (up to a
maximum payment of $800,000), any accrued but unpaid performance bonus, and the
health, medical insurance and other benefits which are normally provided to Mr.
Hensley for a period of six months following such termination.  In
addition, any stock options granted to Mr. Hensley which have not vested or are
not yet exercisable shall automatically vest and become immediately exercisable
for a period of five years following such date of termination.




For
the purposes of this agreement, “cause” is defined as any breach by Mr. Hensley
of any material covenant, condition or term contained in the employment
agreement, which breach has been committed either in bad faith or without
reasonable belief by him that the act or omission giving rise to such breach was
in the best interests of the Company, and his failure to cure such breach within
sixty days of his receipt of written notice with respect thereto, or any
conviction of Mr. Hensley of a crime of moral turpitude or a felony of a nature
that would either result in his incarceration or could reasonably be expected to
materially and adversely affect the Company and its reputation in the business
and investment community.  For the purposes of the agreement, “good
reason” is defined as any of the following events: (i) Mr. Hensley is not
retained as Chief Executive Officer and President of the Gerova Insurance Group;
(ii) the Company materially reduces his duties and responsibilities; (iii) the
Company requires Mr. Hensley to move his principal office out of Charlotte,
North Carolina; or (iv) the Company fails to perform or observe any of its
material obligations under the agreement including, without limitation, by
failing to provide or cause the provision of, any compensation or benefits that
it is obligated to provide thereunder.




Pursuant
to his employment agreement, Mr. Hensley agrees to a covenant not to
compete during the term of the agreement and for a period of twelve months
thereafter, which covers any business which provides reinsurance and other
insurance products. Mr. Hensley also agrees to maintain the confidentiality
of certain information in certain circumstances.




Long-Term
Incentive, Retirement and Pension Plans




The
Company recently adopted a Stock Incentive Plan (the “2010 Plan”) for its
employees, which was approved by the shareholders at an extraordinary general
meeting. The 2010 Plan was filed with the SEC on May 3, 2010 as Exhibit A to the
Company’s Proxy Statement filed as Exhibit 99.2 to the Company’s Interim Report
on Form 6-K.




General. The 2010 Plan
provides for various types of awards denominated in Ordinary Shares to
employees, officers, nonemployee directors and agents of the Company and its
participating subsidiaries. The purposes of the 2010 Plan are to align employee
interests with those of our shareholders, to attract and retain employees by
providing competitive compensation opportunities, and to provide incentives for
those employees who contribute to the long-term performance and growth of the
Company and its subsidiaries.


56


Administration. The 2010 Plan
is administered by the compensation committee of the board of directors. With
respect to participants who are directors, the plan may be administered by the
entire board of directors.




The
committee has the authority to administer and interpret the 2010 Plan, to
determine the employees to whom awards will be made under the 2010 Plan and,
subject to the terms of the 2010 Plan, the type and size of each award, the
terms and conditions for vesting, cancellation and forfeiture of awards and the
other features applicable to each award or type of award. The committee may
accelerate or defer the vesting or payment of awards, cancel or modify
outstanding awards, waive any conditions or restrictions imposed with respect to
awards or the stock issued pursuant to awards and make any and all other
determinations that it deems appropriate with respect to the administration of
the 2010 Plan, subject to the minimum vesting requirements of the 2010 Plan, the
prohibitions in the 2010 Plan against re-pricing, the provisions of Sections
162(m) and 409A of the Internal Revenue Code of 1986, as amended (the “Code”),
the laws of the Cayman Islands and the Amended Articles and any other applicable
laws or exchange rules.




The
committee may delegate some or all of its authority over administration of the
2010 Plan to one or more officers or directors, except with respect to persons
who are Section 16(a) officers or covered employees (as defined in the 2010
Plan).




Eligibility. All “employees”
of the Company - within the broad definition set forth in the instructions to
the SEC’s Form S-8 registration statement - are eligible to receive awards under
the 2010 Plan. This definition includes nonemployee directors of the Company.
Participation is discretionary - awards are subject to approval by the
committee.




Shares Subject to the Plan.
The 2010 Plan provides that up to 20 million shares shall be available for grant
pursuant to the various types of awards that may be granted under the plan, but
that each share subject to an option or SAR shall be counted as one
share.




The
number of shares authorized for grant under the 2010 Plan is subject to
adjustment, as described below, if there is a change in the Ordinary Shares,
such as a share split or other transaction that increases (or decreases) the
number of Ordinary Shares outstanding.




The
maximum number of Ordinary Shares that may be issued under the 2010 Plan will
not be affected by the payment in cash of dividends or dividend equivalents in
connection with outstanding awards, the granting or payment of stock-denominated
awards that by their terms may be settled only in cash, or awards that are
granted in connection with a transaction between the Company or a subsidiary and
another entity or business in substitution or exchange for, or conversion
adjustment, assumption or replacement of, awards previously granted by such
other entity to any individuals who have become employees (as defined in the
2010 Plan) as a result of such transaction.




Ordinary
Shares issued in connection with awards under the 2010 Plan may be shares that
are authorized but unissued, or previously issued shares that have been
reacquired, or both.




If an
award under the 2010 Plan is forfeited, canceled, or terminated or expires prior
to the issuance of shares, the shares subject to the award will be available for
future grants under the 2010 Plan. However, shares subject to outstanding awards
granted under other plans shall not be subject to future issuance pursuant to
awards granted under the 2010 Plan.




Limits on Awards. There are
no limits to the class or classes of employees to which awards may be granted
under the 2010 Plan, or to the number of shares authorized for grant that may be
granted pursuant to the various types of awards permitted under the plan.
However, the aggregate number of Ordinary Shares that may be subject to awards
of options and SARs, and/or stock awards under the 2010 Plan to any one employee
in a calendar year shall not exceed 1,000,000. This limit will be subject to
adjustment, as described below, to reflect certain changes in the outstanding
Ordinary Shares, such as a share split.




Types of Awards. The
following types of awards may be made under the 2010 Plan. All of the awards
described below are subject to the conditions, limitations, restrictions,
vesting and forfeiture provisions determined by the committee, in its sole
discretion, subject to such limitations as are provided in the plan. The number
of shares subject to any award is also determined by the committee, in its
discretion.




Restricted Stock. A
restricted stock award is an award of outstanding Ordinary Shares that does not
vest until after a specified period of time, or satisfaction of other vesting
conditions as determined by the committee, and which may be forfeited if
conditions to vesting are not met. Participants generally receive dividend
payments on the shares subject to their award during the vesting period (unless
the awards are subject to performance-vesting criteria) and are also generally
entitled to indicate a voting preference with respect to the shares underlying
their awards. All shares underlying outstanding restricted stock awards are
voted proportionately to the restricted shares for which voting instructions are
received.


57


Deferred Stock. A deferred
stock award is an unfunded, unsecured promise to deliver Ordinary Shares to the
participant in the future, if the participant satisfies the conditions to
vesting, as determined by the committee.  Participants do not have
voting rights, but generally receive dividend equivalent payments during the
vesting period (unless the awards are subject to performance-vesting
criteria).




Stock Units. A stock unit is
an award denominated in Ordinary Shares that may be settled either in shares
and/or cash, subject to terms and conditions determined by the
committee.




Stock Payment. Subject to
plan limits, the committee may issue unrestricted Ordinary Shares, alone or in
tandem with other awards, in such amounts and subject to such terms and
conditions as the committee shall determine. A stock payment may be granted as,
or in payment of, a bonus (including without limitation any compensation that is
intended to qualify as performance-based compensation for purposes of Section
162(m) of the Code), or to provide incentives or recognize special achievements
or contributions. Because stock payments are not subject to vesting conditions,
they may be made only from the 20% of the shares authorized for awards under the
2010 Plan that are not subject to the minimum vesting requirements described
below.




Non-qualified Stock Options.
An award of a nonqualified stock option under the 2010 Plan grants a participant
the right to purchase a certain number of Ordinary Shares during a specified
term in the future, after a vesting period, at an exercise price equal to at
least 100% of the “fair market value” (see below) of the Ordinary Shares on the
grant date. The term of a non-qualified stock option may not exceed 10 years
from the date of grant. The exercise price may be paid with cash, Ordinary
Shares already owned by the participant or with the proceeds from a sale of the
shares subject to the option. A non-qualified stock option is an option that
does not qualify under Section 422 of the Code.




Incentive Stock Options. An
incentive stock option is a stock option that meets the requirements of Section
422 of the Code, which include an exercise price of not less than 100% of “fair
market value” on the grant date, a term of no more than 10 years, and that the
option be granted from a plan that has been approved by
shareholders.




Stock Appreciation Rights
(SARs). A SAR, upon exercise, entitles the participant to receive an
amount equal to the difference between the fair market value of Ordinary Shares
on the exercise date and the exercise price of the SAR (which may not be less
than 100% of fair market value of an Ordinary Share on the grant date) times the
number of shares subject to the SAR. A SAR may be granted in substitution for a
previously granted option, and if so, the exercise price of any such SAR may not
be less than 100% of the fair market value of Ordinary Shares as determined at
the time the option for which it is being substituted was granted. Payment to a
participant upon the exercise of a SAR may be in cash and/or Ordinary
Shares.




Definition of “Fair Market
Value.” For purposes of any option or SAR granted under the 2010 Plan,
“fair market value” means the NYSE Amex Exchange (or other national securities
exchange) closing price on the trading date immediately preceding the grant
date, or the closing price on the grant date in the case of a grant to a Section
16(a) officer.




Minimum Vesting Requirements.
Under the 2010 Plan, the shares available for awards under the plan may not be
vest in full prior to the third anniversary of the award date (except in certain
circumstances, such as retirement, death, disability, leave of absence,
termination of employment, the sale or other disposition of a participant’s
employer or other similar event). Additionally, this three-year minimum vesting
schedule will not apply to the extent that any award would become vested upon
the achievement of performance objectives over a period of at least one year,
and such objectives are in fact achieved.




Payment of Exercise Price.
Payment of the exercise price of a non-qualified stock option or incentive stock
option may be made by methods permitted by the committee from time to time,
including payment in cash, by tendering (actually or by attestation) Ordinary
Shares owned by the participant for any minimum period of time that the
committee may specify, and that have a fair market value equal to the exercise
price; by a combination of cash and Ordinary Shares; or by authorizing the sale
of the number of shares otherwise issuable upon exercise, with the sale proceeds
applied towards the exercise price. Additionally, the committee may provide that
stock options can be net exercised, that is, to be exercised by issuing shares
having a value approximately equal to the difference between the aggregate value
of the shares as to which the option is being exercised and the aggregate
exercise price for such number of shares.




Prohibition against
Repricing. The 2010 Plan prohibits the issuance of awards in substitution
for outstanding awards or any other adjustment that would constitute a repricing
(within the meaning of U.S. generally accepted accounting principles or any
applicable stock exchange rule) of awards.


58




Additional Forfeiture
Provisions. Awards granted under the 2010 Plan are subject to forfeiture
if, after a termination of employment, the participant engages in certain
activities that are materially injurious to or in competition with the
Company.




Non-U.S. Participants. To
accommodate differences in local law, tax policy or custom, awards granted to
employees who are not U.S. nationals or who are employed outside the U.S. may be
subject to special terms, conditions and documentation as provided by the
committee.




Deferrals. The committee may
postpone the exercise of awards, or the issuance or delivery of shares or cash
pursuant to any award for such periods and upon such terms and conditions as the
committee determines, but not in contravention of Section 409A of the Code. In
addition, the committee may, but not in contravention of Section 409A of the
Code, determine that all or a portion of a payment to a participant, whether in
cash and/or shares, will be deferred in order to prevent the Company or any
subsidiary from being denied a federal income tax deduction with respect to an
award granted under the 2010 Plan.




Non-Transferability. During
the vesting period, and prior to the lapse of any sale restriction on shares
delivered in an option exercise, awards and sale restricted shares are not
transferable other than by will or the laws of descent and distribution.
However, the committee may permit participants to transfer certain nonqualified
stock options or shares issued as a result of an option exercise but that are
subject to a restriction on transferability, one time to an immediate family
member or a trust for the benefit of immediate family members.




Adjustments. The 2010 Plan
provides that the committee shall make appropriate equitable adjustments to the
maximum number of shares available for issuance under the 2010 Plan and other
limits stated in the plan, the number of shares covered by outstanding awards,
and the exercise prices and performance measures applicable to outstanding
awards. Such changes will be made to reflect changes in the capital structure of
the Company (including a change in the number of Ordinary Shares outstanding) on
account of any share dividend, share split, reverse share split, share
consolidation or any similar equity restructuring, or any combination or
exchange of equity securities, merger, consolidation, recapitalization,
reorganization or similar event, and/or to the extent necessary to prevent the
enlargement or diminution of participants’ rights by reason of any such
transaction or event or any extraordinary dividend, divestiture or other
distribution (other than ordinary cash dividends) of assets to shareholders.
Such adjustments will be made only to the extent they conform to the
requirements of applicable provisions of the Code and other applicable laws and
regulations. The committee, in its discretion, may decline to adjust an award if
it determines that the adjustment would violate applicable law or result in
adverse tax consequences to the participant or to the Company.




Change of Control. The 2010
Plan provides that at any time prior to, at or after the time of a “change of
control” (as defined in the plan) that, with respect to a participant whose
employment has been terminated as a result of the change of control, the
committee, may, in its discretion, provide for the acceleration of any time
periods or the waiver of any other conditions to vesting, exercise, payment or
distribution of an award, or provide for the purchase of any award. For these
purposes, a termination as a result of the change of control shall mean
involuntary termination of employment other than for “gross misconduct” or by
the participant for “good reason” (each as defined in the applicable award
agreement) upon, or on or prior to the first anniversary of the change of
control. In addition, the committee may also provide for the termination or
adjustment of awards as it deems necessary to reflect a transaction or change,
or for the assumption or substitution of awards by a surviving corporation, upon
a change of control. The 2010 Plan defines a “change of control” to mean (i) a
person acquiring direct or indirect beneficial ownership of 50 percent (50%) or
more of the combined voting power of the Company’s then outstanding securities
(30 percent (30%) if such “person” acquires such securities within a twelve
month period); (ii) adoption by shareholders of a plan or proposal for the
dissolution or liquidation of the Company; (iii) certain changes in the majority
of the board of directors of the Company (not including the election of
directors whose election or nomination was approved by a majority of the then
incumbent board); (iv) a sale, transfer or distribution of all or substantially
all of the Company’s assets; or (v) a reorganization, merger, consolidation or
other corporate transaction that results in shareholders not owning more than
50% of the combined voting power of the Company or other corporation resulting
from the transaction. Notwithstanding the foregoing, for any awards subject to
Section 409A of the Code, the effect of a change of control and what constitutes
a change of control shall be set forth in the terms governing the actual
award.




Amendment and Termination.
The 2010 Plan may be further amended or terminated by the committee at any time,
provided that no amendment shall be made without shareholder approval if it
would materially increase the number of shares available under the plan,
materially expand the types of awards available under the plan or the class of
persons eligible to participate in the plan, materially extend the term of the
plan, materially change the method of determining the exercise price of an
option or SAR granted under the plan, delete or limit the prohibition against
repricing, or otherwise require approval by shareholders in order
to  comply with applicable law or the rules of the NYSE Amex Exchange
(or principal national securities exchange upon which the Ordinary Shares are
traded). Notwithstanding the foregoing, with respect to awards subject to
Section 409A of the Code, any termination, suspension or amendment of the plan
shall conform to the requirements of Section 409A of the Code. Except as may be
required to comply with applicable tax law, no termination, suspension or
amendment of the plan shall adversely affect the right of any participant with
respect to a previously granted award without the participant’s written
consent.


59




Duration. The 2010 Plan will
terminate on April 9, 2015, unless terminated earlier by our board of
directors.




Plan Benefits. Future
benefits under the 2010 Plan are not currently determinable. Whether future
awards are made depends on committee actions, and even in cases where the terms
of employee contracts call for guaranteed bonuses to be paid as stock awards, or
otherwise provide for any type of equity awards, all equity awards are subject
to vesting conditions, so the monetary benefits to be gained from any equity
award will ultimately depend on the future price of Ordinary Shares, among other
factors.




C.
            Board
      Practices




Director
Independence




We are
subject to the Sarbanes-Oxley Act of 2002, as amended, and the rules of the NYSE
Amex Exchange in determining whether a director is independent. The board of
directors also will consult the Company’s counsel to ensure that the board’s
determinations are consistent with those rules and all relevant securities and
other laws and regulations regarding the independence of directors. The NYSE
Amex Exchange listing standards define an “independent director” generally as a
person, other than an officer of the company, who does not have a relationship
with the company that would interfere with the director’s exercise of
independent judgment. Those rules also identify specific relationships and
transactions, generally existing or occurring during the three years prior to
the independence determination, which preclude a director from being an
independent director, including employment by the company, receipt by the
director or certain family members of compensation in excess of $120,000 per
year, service by a family member as an executive officer, certain business
relationships with the company and certain compensation committee interlocks and
being a partner in or employee of the company’s auditors.  Consistent
with these considerations, the board of directors includes four independent
directors and three non-independent directors. The four independent directors
are Messrs. van Roon, de Waal, Bos and Solomons.  The three
non-independent directors are Messrs. Hirst, Laslop and Doueck.




Composition
of the Board of Directors




Our
business and affairs are managed under the direction of our board of
directors.  Our board of directors consists of seven members, five of
whom we believe are independent directors under currently applicable listing
standards of the NYSE Amex Exchange. None of the Company’s directors have any
service contracts for serving as directors.




Our board
of directors is divided into three classes of directors who serve in staggered
three-year terms, as follows:




·
            Class I
      directors are Messrs. Bos and Doueck, and their terms will expire at
      the annual general meeting of shareholders to be held in
    2011;


·
            Class II
      directors are Messrs. De Waal, Laslop and van Roon, and their terms
      will expire at the annual general meeting of shareholders to be held in
      2012; and


·
            Class III
      directors are Messrs. Hirst and Solomons, and their terms will expire
      at the annual general meeting of shareholders to be held in
      2013.




At each
annual general meeting of our shareholders, the successors to the directors
whose terms expire at each such meeting will be elected to serve until the third
annual meeting after their election or until their successor has been elected.
As a result, only one class of directors will be elected at each annual general
meeting of our shareholders, with the other classes serving for the remainder of
their respective three year terms.




There is
no cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares eligible to vote for the
election of directors can elect all of the directors.




Board
Committees




Our board
of directors has established the following committees: (i) Audit Committee, (ii)
Corporate Governance Committee, (iii) Compensation Committee, (iv) Business
Combination Committee and (v) Executive Committee. The board of directors has
adopted charters for these committees.


60




Audit
Committee




Our Audit
Committee consists of Messrs. Bos, de Waal and van Roon, with Mr. Bos serving as
chairman. Each member of our Audit Committee is financially literate under the
current listing standards of the NYSE Amex Exchange, and our board of directors
has determined that at least one the members of the Audit Committee qualifies as
an “audit committee financial expert,” as such term is defined by SEC and the
NYSE Amex Exchange rules.




The Audit
Committee reviews the professional services and independence of our independent
registered public accounting firm and our accounts, procedures and internal
control. The Audit Committee selects our independent registered public
accounting firm, review and approve the scope of the annual audit, review with
the independent public accounting firm our annual audit and annual financial
statements, review with management the status of internal accounting control,
evaluate problem areas having a potential financial impact on us that may be
brought to the committee’s attention by management, the independent registered
public accounting firm or the board of directors, and evaluates all of our
public financial reporting documents.




Corporate
Governance Committee




Our
Corporate Governance Committee consists of Messrs. Bos, de Waal and Hirst, with
Dr. Hirst serving as chairman. The Corporate Governance Committee insures that
we have the best management processes in place to run the Company legally,
ethically and successfully in order to increase shareholder value. The principal
functions of the Corporate Governance Committee are:




·
            advising
      the board of directors with respect to it composition, procedures and
      committees;


·
            assisting
      the board of directors in identifying, evaluating, and nominating
      candidates to serve as members of the board of directors and its various
      committees;


·
            recommending
      to the board of directors any director nominees for the next annual
      general meeting of shareholders;


·
            reviewing
      and making recommendations to the board of directors regarding the
      composition of the board of directors, the operations of the board of
      directors, and the continuing qualifications of incumbent directors,
      including any changes to a director’s primary
  activity;


·
            reviewing
      annually and making recommendations to the board of directors as to
      whether each non-management director is independent and otherwise
      qualified in accordance with applicable law or
  regulation;


·
            developing,
      reviewing and making recommendations to the board of directors regarding
      corporate governance policies, procedures and ethical
    conduct;


·
            monitoring
      our corporate governance policies and
  procedures;


·
            reviewing
      and assessing our management succession plan;
  and


·
            recommending
      and monitoring public affairs giving and
  involvement.




The
Corporate Governance Committee identifies potential director nominees based upon
recommendations by directors, management, or shareholders, and then evaluates
the candidates based upon various factors, including, but not limited
to:




·
            a
      reputation for honesty and integrity and a willingness and ability to
      spend the necessary time to function effectively as a
      director;


·
            an
      understanding of business and financial affairs and the complexities of
      business organizations;


·
            a
      general understanding of our specific business and
    industry;


·
            strategic
      thinking and willingness to share ideas, network of contacts, and
      experience; and


·
            a
      proven record of competence and accomplishments through leadership in
      industry, education, the professions or
  government.




The
Corporate Governance Committee considers these and other criteria to evaluate
potential nominees and does not evaluate proposed nominees differently depending
upon who has made the proposal. To date, we have not paid any third-party fees
to assist in this process.




The
Corporate Governance Committee will consider and make recommendations to the
board of directors regarding any shareholder recommendations for candidates to
serve on the board of directors. However, it has not adopted a formal process
for that consideration because it believes that the informal consideration
process has been adequate given the historical development of the
Company.


61




Compensation
Committee




Our
Compensation Committee consists of Messrs. Doueck, Hirst and van Roon, with Mr.
van Roon serving as chairman. The principal functions of the Compensation
Committee include:




·
            reviewing
      and making recommendations to the board of directors regarding all forms
      of salary, bonus and stock compensation provided to executive
      officers;


·
            the
      long-term strategy for employee compensation, including the types of stock
      and other compensation plans to be used by the Company;
  and


·
            overseeing
      the overall administration of the Company’s equity-based compensation and
      stock option plans, including the 2010
Plan.




There are
no Compensation Committee interlocks between the Company and other entities
involving the Company’s executive officers and directors who serve as executive
officers of such entities. None of the Company’s executive officers have served
as members of a compensation committee or as a director of any other entity that
has an executive officer serving on the Compensation Committee or as a member of
our board of directors.




Business
Combination Committee




Our
Business Combination Committee consists of Messrs. de Waal, Laslop and van Roon,
with Mr. Laslop serving as chairman. The Business Combination Committee assists
the board of directors in the identification of companies that the Company could
acquire (“Targets”), the negotiation and execution of letters of intent
(“LOI(s)”) with the Targets, the completion of due diligence on Targets, and the
negotiation and preparation of definitive transaction documents to acquire
Targets.




The
Business Combination Committee has authority with respect to the following
matters:




·
            the
      identification of potential Targets, including the hiring and instruction
      of agents, finders, investment bankers, and other third parties that the
      Business Combination Committee deems advisable to assist with such
      identification;


·
            the
      determination of with which Targets the Company should sign LOIs, on which
      Targets the Company should perform due diligence and with which Targets
      the Company should negotiate definitive acquisition
    documents;


·
            the
      negotiation, preparation and execution of LOIs with Targets, including the
      authority to hire and instruct outside counsel to assist with such
      negotiation, preparation and
execution;


·
            the
      completion of due diligence on Targets, including the authority to hire
      and instruct outside counsel, agents, consultants, investment bankers, and
      any other third parties that the Business Combination Committee deems
      advisable to assist with such due diligence;
and


·
            the
      negotiation and preparation of definitive transaction documents to acquire
      Targets, including the authority to instruct outside counsel to assist
      with such negotiation and
preparation.




Executive
Committee




Our
Executive Committee consists of Messrs. Laslop, van Roon and Hirst, with Dr.
Hirst serving as chairman. The Executive Committee acts on behalf of the full
board of directors between regularly scheduled meetings, especially when timing
is critical.  The Executive Committee has and may exercise all of the
powers and authority of the board of directors, subject to such limitations as
the board of directors and/or applicable law may from time to time
impose.   The Executive Committee also has authority to appoint
and remove executive officers of the Company and its subsidiaries.




Code
of Ethics




We have
adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of
the Exchange Act, which is filed as Exhibit 99.1 to our Registration Statement
on Form S-1 (File No. 333-145163), as filed with the SEC on August 6, 2007. Our
Code of Ethics applies to our chief executive officer and our senior financial
officers.


62




D.
            Employees




Our
Company




As of
April 30, 2010, we have four executive officers, two of whom are also
members of our board of directors. We believe that our employee relations are
good. Our employees are not subject to any collective bargaining agreements, and
we are not aware of any current efforts to implement such
agreements.




Allied
Provident




As of
December 31, 2009, Allied Provident has three employees, based in Barbados, two
of whom are executive officers.  Other services which Allied Provident
needs are provided by a third-party management company.  Allied
Provident believes that its employee relations are good. Its employees are not
subject to any collective bargaining agreements, and Allied Provident is not
aware of any current efforts to implement such agreements.




Northstar




As of
December 31, 2009, Northstar has three employees, based in Bermuda and Ireland
and two consultants.  Northstar believes that its employee relations
are good. Its employees are not subject to any collective bargaining agreements,
and Northstar is not aware of any current efforts to implement such
agreements.




E.
            Share
      Ownership




The
following table sets forth information known to the Company regarding the
beneficial ownership of the Ordinary Shares as of May 24, 2010 by:




·
            each
      person known by the Company to be the beneficial owner of more than 5% of
      the Ordinary Shares;


·
            each
      of the Company’s executive officers and directors;
  and


·
              all
      executive officers and directors of the Company as a
  group.




As of
April 23, 2010, the holders of over two-thirds of the Company’s outstanding
voting shares, including the record holders of 742,250 of the Preferred Shares,
consented to a modification of the conversion terms of the Preferred Shares, by
providing that the Preferred Shares may be converted at any time into Ordinary
Shares at a conversion price of $6.00.  Previously the Preferred
Shares were convertible at a rate of one-sixth of the Preferred Shares per
month, commencing on July 31, 2010, at a conversion price of $7.50. On May 12,
2010, after the Company’s extraordinary general meeting, all of the Preferred
Shares were converted into Ordinary Shares. Upon conversion, the holders of the
Preferred Shares received up to a maximum of 123,708,333 Ordinary Shares,
subject to reduction based on appraisals and audits of the net asset values of
the assets acquired from the Stillwater Funds and from the Wimbledon
Funds.  As of the date of filing of this Annual Report, no Preferred
Shares are issued or outstanding.




Unless
otherwise indicated, the Company believes that all persons named in the table
below have sole voting and investment power with respect to all Ordinary Shares
beneficially owned by them.




Name of Beneficial Owner (1)
                        
                        Number of
                          Ordinary
                          Shares
                          Beneficially
                          Owned
                        
                        
                        Percentage of
                          Ordinary
                          Shares
                          Beneficially
                          Owned (2)(3)(5)Rineon Group, Inc. (4)
                        
                        
                        9,025,000
                        
                        
                        
                        6.8
                        %Jack Doueck (5)
                        
                        
                        2,281,667
                        
                        
                        
                        1.7
                        %Arie
      Jan van Roon (6)(7)
                        
                        
                        1,937,500
                        
                        
                        
                        1.5
                        %Gary
      Hirst (7)
                        
                        
                        683,600
                        
                        
                        
                        *Joseph
      J. Bianco (8)
                        
                        
                        660,700
                        
                        
                        
                        *Andrew
      Tse
                        
                        
                        125,000
                        
                        
                        
                        *Michael
      Hlavsa
                        
                        
                        62,500
                        
                        
                        
                        *Leonard
      de Waal
                        
                        
                        0
                        
                        
                        
                        -Arie
      Bos
                        
                        
                        0
                        
                        
                        
                        -Keith
      Laslop
                        
                        
                        0
                        
                        
                        
                        -Stuart
      Solomons
                        
                        
                        0
                        
                        
                        
                        -Lou
      Hensley
                        
                        
                        0
                        
                        
                        
                        -Christopher
      Holmes
                        
                        
                        0
                        
                        
                        
                        -All
      directors and executive officers as a group (twelve persons)
      (1)(5)(6)(7)(8)
                        
                        
                        5,192,367
                        
                        
                        
                        4.0
                        %




63




*
              Less
      than 1%





(1)
            Unless
      otherwise indicated, the business address of each holder is Cumberland
      House, 5th Floor, 1 Victoria Street, Hamilton, HM 11,
    Bermuda.





(2)
            Based
      on approximately 133,400,000 Ordinary Shares currently
      outstanding.





(3)
            An
      aggregate of 19,000,000 Ordinary Shares (subject to adjustment based upon
      audits of the Wimbledon Funds) are held of record by Wimbledon Financing
      Master Fund Ltd. (“WFMF”) and Wimbledon Real Estate Financing Master Fund
      Ltd. (“WREF”) on behalf of the various investors thereof. WFMF and
      WREF are required to vote in accordance with the recommendations of a
      majority of the members of the board of directors of the Company, subject
      to limited exceptions.   Weston Capital Asset Management
      LLC (“Weston”), a wholly-owned subsidiary of Weston Capital Management LLC
      (“WCM”), is the investment manager for WFMF and WREF, and Weston and
      WCM  may be deemed to beneficially own any shares beneficially
      owned by WFMF or WREF.     The business address of
      Weston, WCM, WFMF and WREF is 264 Riverside Avenue, Westport, Connecticut
      06880.  Each of Weston, WCM, WREF, WFMF and their respective
      principals have disclaimed beneficial ownership of any Ordinary
      Shares.





(4)
            The
      address for Rineon Group, Inc. is 4140 East Baseline Road, Suite 201, Mesa
      AZ  85206.





(5)
            Includes
      266,667 Ordinary Shares issued to Stillwater Capital Partners,
      Inc.  Also includes 2,015,000 Ordinary Shares owned by
      Stillwater Capital Partners, Inc. or its affiliates (the “Stillwater
      Parties”). Such estimated numbers are subject to adjustment based on
      audits currently being performed with respect to the Stillwater Funds.
      Does not include an aggregate of 88,193,333 (subject to adjustments based
      upon the results of such audits) Ordinary Shares held of record by
      Stillwater Capital Partners, Inc. or its affiliates, including certain of
      the Stillwater Funds, on behalf of the various investors thereof. The
      Stillwater Parties are required to vote in accordance with the
      recommendations of a majority of the members of the board of directors of
      the Company, subject to limited exceptions and, accordingly, the
      Stillwater Parties disclaim any voting or dispositive power over such
      shares. Stillwater Capital Partners, Inc. is managed and controlled by
      Jack Doueck and Richard Rudy. Messrs. Doueck and Rudy disclaim beneficial
      ownership of any shares held by the Stillwater Parties in which they do
      not have a pecuniary interest. The business address of Stillwater Capital
      Partners, Inc. is 41 Madison Avenue, New York, New York
    10010.





(6)
            Noble
      Investment Fund Limited is a Gibraltar-based company that invests and
      manages portfolio investments of other investment funds. Mr. van Roon is
      the natural person with sole voting, investment and dispositive power over
      all assets of Noble Investment Fund Limited (including Ordinary Shares and
      insider warrants), and shares listed in the table as beneficially owned by
      him include those owned by Noble Investment Fund Limited. Mr. van Roon is
      also the sole shareholder, officer and director of Pure Glow Finance
      Limited, the sole investment advisor of Noble Investment Fund Limited.
      Noble Investment Fund Limited owns 33.3% of the membership interests in Ho
      Capital Management LLC. Under the terms of the operating agreement of Ho
      Capital Management LLC, Noble Investment Fund Limited has a beneficial
      interest in 437,500 Ordinary Shares or 33.3% of the 1,312,500 Ordinary
      Shares owned by Ho Capital Management LLC, and has the right to withdraw
      as a member of Ho Capital Management LLC and receive a distribution of
      437,500 Ordinary Shares as well as 50% of the 5,725,000 insider warrants
      owned by Ho Capital Management LLC. However, the amount of shares listed
      for each of Mr. van Roon and for Noble Investment Fund Limited includes
      all of the 1,312,500 Ordinary Shares beneficially owned by Ho Capital
      Management LLC because Noble Investment Fund Limited jointly controls Ho
      Capital Management LLC with Angela Ho, and, as such, share voting and
      dispositive control over its shares. The amount of shares listed for each
      of Mr. van Roon and for Noble Investment Fund Limited includes 500,000
      Ordinary Shares beneficially owned by them through Allius Ltd. This does
      not include a 50% beneficial interest in the 5,725,000 insider warrants
      and the 5,725,000 Ordinary Shares issuable upon exercise of the insider
      warrants.





(7)
            Allius
      Ltd. is a British Virgin Islands company formed by Dr. Gary T. Hirst, the
      Company’s president and a director, and Noble Investment Fund Limited, for
      the purpose of owing Ordinary Shares. Dr. Hirst and Noble Investment Fund
      Limited each own 50% of the outstanding interests in Allius Ltd. and are
      co-managers of Allius Ltd. Accordingly, shares listed for each of Dr.
      Hirst and Noble Investment Fund Limited include all shares owned by Allius
      Ltd. and the shares listed for Dr. Hirst also include 125,000 Ordinary
      Shares owned directly by Dr. Hirst.  Dr. Hirst is also a
      director of ICA, which owns 58,600 Ordinary Shares, although he disclaims
      beneficial ownership of such
shares.




64


(8)
            Consists
      of 544,500 shares owned of record by Black Bear Trading Corp., 100,000
      shares owned of record by JP Comp, Inc., and 14,000 shares owned of record
      by Whyte Lyon & Co., Inc., all entities affiliated with Joseph J.
      Bianco and in which he holds a beneficial interest.  Also
      includes 2,200 shares owned by members of the family of Joseph J. Bianco
      and a trust for the benefit of one of his children.  Mr. Bianco
      disclaims beneficial interest in such
shares.




ITEM
      7:
            Major
      Shareholders and Related Party
Transactions




A.
            Major
      Shareholders




As of May
14, 2010, the Company has approximately 133,400,000 Ordinary Shares outstanding.
At such date, based upon Schedule 13Gs filed with the Securities and Exchange
Commission, the Company believes that there are no major shareholders owning 5%
or more of the Company’s voting securities, except as set forth in Item 6E
above.  Prior to the consummation of the Business Combinations,
several major shareholders asked to have their shares redeemed in the manner set
forth in our proxy statement dated January 5, 2010.




B.
            Related
      Party Transactions




On March
23, 2007, we issued an aggregate of 1,312,500 Ordinary Shares to our sponsor, Ho
Capital Management LLC (“Ho Capital”) and an aggregate of 1,187,500 Ordinary
Shares to certain of our officers and directors and their affiliates, for a
total of $25,000 in cash, or a purchase price of $0.01 per share. Ho Capital is
co-managed and jointly owned by Angela Ho, our former chief executive officer
and former chairman of our board of directors.




The
Ordinary Shares owned by our sponsor and the 1,187,500 Ordinary Shares owned by
our officers and directors and their affiliates were placed in escrow and may
not be sold, transferred or assigned for a period of three years from the date
of completion of our initial public offering, or January 16, 2011, except for
estate planning purposes.




The
holders of these shares will be entitled to make up to two demands that we
register these shares pursuant to an agreement signed on January 16, 2008. The
holders of the majority of these shares may elect to exercise these registration
rights at any time after the date on which these shares are released from
escrow, which, except in limited circumstances, is not before January 16, 2011.
In addition, these shareholders have certain “piggy-back” registration rights on
registration statements filed subsequent to the date on which these shares are
released from escrow. We will bear the expenses incurred in connection with the
filing of any such registration statements.




On
January 16, 2008, Ho Capital and Noble Investment Fund Limited (“Noble”)
purchased an aggregate of 5,725,000 warrants from us at a price of $1.00 per
warrant in a private placement made in accordance with Regulation D under the
Securities Act (the “Insiders Warrants”). All of the proceeds received from the
Insiders Warrants (an aggregate of $5,725,000) were placed in a trust account
together with the net proceeds of our initial public offering. Ho Capital and
Noble each have a 50% beneficial ownership interest in the Insiders Warrants. So
long as the Insiders Warrants are owned by Ho Capital, Noble or Angela Ho (a
co-manager of Ho Capital), the Insiders Warrants may be exercised on a cashless
basis and will not be subject to redemption.




On
January 16, 2008, Noble loaned $5,725,000 to Ho Capital to enable it to purchase
the Insiders Warrants. The loan bears interest at the rate of 4.5% per annum and
is payable, together with accrued interest, five years from the date of issuance
(but subject to mandatory prepayment to the extent of any net proceeds received
by Ho Capital from the sale of any Insiders Warrants or shares issuable upon
exercise of such warrants). Ho Capital used the proceeds of such loan to
purchase the Insiders Warrants. The Insiders Warrants were pledged to Noble to
secure repayment of such loan.  As of January 20, 2010, the record and
beneficial ownership of 2,862,500 Insiders Warrants, or 50% of such Insiders
Warrants was transferred by Ho Capital to Noble and such transfer represents
repayment of 50% of the $5,725,000 loan. The remaining $2,862,500 principal
amount of the loan, together with accrued interest thereon at the rate of 4.5%
per annum, will be repaid by Ho Capital and Angela Ho solely out of the proceeds
of any one or more sales of the Insiders Warrants or underlying shares.
Accordingly, except for the remaining 2,862,500 pledged Insiders Warrants and
proceeds from periodic sales of such warrants or underlying shares, the loan
from Noble to Ho Capital is non-recourse to both Ho Capital and Angela Ho, and
none of the other assets of Ho Capital or Ms. Ho (including their legal and
beneficial interest in our Ordinary Shares) are subject to attachment or any
liability for repayment of the loan. The loan from Noble to Ho Capital was made
based upon a pre-existing business arrangement between Noble and Angela Ho
whereby Ms. Ho agreed to organize the sponsor and management of our Company,
Noble agreed to provide the financing for the purchase of the Insiders Warrants,
and the parties agreed to share equally in such Insiders
Warrants.


65


Noble
owns 33.3% of the equity interests of Ho Capital. Under the terms of the
operating agreement of Ho Capital, Noble has a beneficial interest in 437,500
shares or 33.3% of the 1,312,500 shares owned by Ho Capital, and as of January
20, 2010, has the right to withdraw as a member of Ho Capital and receive a
distribution of 437,500 Ordinary Shares (33.3% of the 1,312,500 Ordinary Shares
owned by Ho Capital) as well as 50% of the 5,725,000 Insiders Warrants owned by
Ho Capital. In the event Noble withdraws as a member of Ho Capital, the 437,500
Ordinary Shares transferable to Noble by Ho Capital will be placed in a three
year escrow account together with the remaining 875,000 Ordinary Shares owned of
record and beneficially by Ho Capital. Including its interest in 250,000
Ordinary Shares, or 50% of the Ordinary Shares owned by Allius Ltd., Noble has
the right to receive an aggregate of 687,500 Ordinary Shares (250,000 shares
transferable from Allius and 437,500 shares transferable from Ho Capital), as
well as 2,862,500 Insiders Warrants (transferable from Ho Capital).




At
December 31, 2009, we were obligated to Angela Ho, our former chief executive
officer, for approximately $276,000 consisting of amounts advanced to pay
certain costs on behalf of the Company in February 2008, together with
approximately $24,000 of accrued interest at 5% per year.




In
connection with the acquisitions of the net assets of the Stillwater Funds, we
entered into a management agreement with Stillwater. Pursuant to such management
agreement, Stillwater agreed to manage such assets in consideration for the
payment of certain management and incentive fees.  Jack Doueck, a
director of the Company, is a principal of Stillwater.  For important
disclosures and regulatory matters regarding Stillwater, including with respect
to its management, advisory business and its marketing materials and practices,
please see Item 11 (Disclosure Reporting Page) of Stillwater’s Form ADV to be
found online at www.adviserinfo.sec.gov.





Transactions
with Directors and Executive Officers




Effective
April 1, 2010, Mr. Hensley and the Company entered into the employment
agreement described in Item 6B above.




On April
8, 2010, Marshall Manley, our then chief executive officer and chairman of the
board of directors, resigned from all positions held with the
Company.  In connection with the resignation, we entered into a
Separation Agreement and Release with Mr. Manley. We also entered into a
Share Repurchase Agreement with Mr. Manley and Marseilles Capital LLC, an
affiliate of Mr. Manley, pursuant to which Marseilles Capital LLC agreed to sell
5,333,333 Ordinary Shares back to the Company as further described in Item 8B
below.




The
non-executive members of our board of directors (other than Mr. Doueck) are paid
annual director’s fees in the amount of $11,000.  Such fees are paid
on the last day of each calendar quarter in cash.




In
connection with the acquisitions of the net assets of the Stillwater Funds, we
entered into a management agreement with Stillwater. Pursuant to such management
agreement, Stillwater agreed to manage such assets in consideration for the
payment of certain management and incentive fees.  Jack Doueck, a
director of the Company, is a principal of Stillwater.




All
ongoing and future transactions between us and any of our officers and directors
or their respective affiliates, including loans by our officers and directors,
will be on terms believed by us to be no less favorable than are available from
unaffiliated third parties and such transactions or loans, including any
forgiveness of loans, will require prior approval in each instance by a majority
of our uninterested “independent” directors or the members of our board who do
not have an interest in the transaction, in either case who had access, at our
expense, to our attorneys or independent legal counsel.




C.
            Interests
      of Experts and Counsel




Not
Applicable.




ITEM
      8:
            Financial
      Information




A.
            Financial
      Statements and Other Financial
Information




Reference
is made to Item 17. Financial
Statements for the audited financial statements included in this Annual
Report.




There are
no legal proceedings of a material nature pending against the Company. The
Company is unaware of any legal proceedings known to be contemplated by any
governmental authorities.




The
Company has not paid dividends in the past and does not expect to pay dividends
in the near future.


66




B.
            Significant
      Changes




On
January 20, 2010, the Company consummated the Business Combinations pursuant to
which it acquired (a) an 81.5% interest in Amalphis, the parent company of
Allied Provident, and (b) what was estimated to be approximately $655 million of
the net assets of the Stillwater Funds and the Wimbledon Funds (subject to
assumed liabilities as well as valuation and audit adjustments), in exchange for
the issuance of 742,250 Preferred Shares.  The Company contributed
some of, and intends to contribute the remainder of, the investment fund assets
to its existing insurance companies and other specialty insurance or reinsurance
companies it form or acquire in the future.  As part of our
acquisition of certain of the assets managed by Stillwater, the Company acquired
a 38% economic interest (representing approximately a 40% voting interest) in
Northstar.




(a)
Allied Provident is a specialty insurance company domiciled, and holding an
insurance license, in Barbados and is authorized to conduct a general insurance
business, including the sale of property, general liability, business
interruption and political risk insurance, as well as compensation bonds,
directors and officers insurance, errors and omissions insurance, structured
transactions insurance wraps, and reinsurance.  Allied
Provident commenced its insurance business in Barbados in November
2007.  It has primarily issued quota share policies that reinsure
automobile insurance policies in the United States.  It has also
directly written a number of directors’ and officers’ liability policies and a
financial guaranty policy.




(b) The
Stillwater Funds were a collection of Delaware limited partnerships and Cayman
Islands exempt companies, all of which were pooled investment
vehicles.  The Stillwater Funds were managed by Stillwater or its
affiliates.  The portfolios consisted of mostly illiquid short and
medium term loans and other asset backed obligations for various types of
borrowers (consisting of lines of credit to attorneys, real estate investments
and life insurance settlement and premium finance loans) and also included
participations in loans and loan portfolios of other lenders, undervalued real
estate, distressed real estate and real estate sold at foreclosure sales, and a
portfolio of hedge funds with diversified investment strategies.




(c) The
Wimbledon Funds were master funds in a master-feeder structure which invested in
investment pools managed by investment managers, such as secured and unsecured
loans and convertible and non-convertible notes and other debt instruments,
including investments coupled with warrants or other equity securities issued by
small capitalization and private companies.




(d)
Northstar is a Bermuda-based insurance holding company with a 100% interest in
two licensed reinsurance companies in Ireland and Bermuda. The insurance
operating subsidiaries are life and annuity specialist reinsurers that commenced
operations on July 1, 2004.  They were organized by Stillwater and
Argus Insurance, together with management.  In Bermuda, Northstar
holds a Class 3 license as a reinsurer and is a licensed life and annuity
reinsurer in Ireland.  As of December 31, 2009, Northstar and its
subsidiaries have approximately $800 million in assets and $120 million in
capital.  Northstar’s current insurance activities are represented by
two reinsurance treaties in force. The first treaty reinsures equity-indexed
annuities (EIA) on a co-insurance, funds withheld basis. This treaty was
effective April 1, 2005, and Northstar continued to accept new business under
this agreement until the end of February, 2008.  The second treaty
reinsures in force, fixed premium, fixed cash value, whole life insurance
policies. Northstar reinsures on a coinsurance basis various pieces of in force
life insurance policies that were issued from 1996 through 2004




The
Company estimates that it has incurred approximately $23,500,000 in costs
directly attributable to the Business Combinations relating to attorneys,
accountants and other advisors fees.  Of this amount, approximately
$10,400,000 million was satisfied through the issuance of 1,391,667 Ordinary
Shares and certain private warrants.  In addition, there are
approximately $24,000,000 in unpaid management fees due to the managers of the
Stillwater Funds that are to be paid out of available cash flow as determined by
the Company.




The
Business Combinations were accounted for under the purchase method of accounting
in accordance with IFRS 3R. Under the purchase method of accounting, the total
estimated purchase price is allocated to the net tangible and intangible assets
acquired and liabilities assumed in connection with the transaction, based on
their estimated fair values as of the completion of the
transaction.  Any excess of the purchase price over the estimated fair
value of the net assets acquired (including both tangible and identifiable
intangible assets) is allocated to goodwill.   The acquisition of
the Stillwater Funds and Wimbledon Funds were accounted for at their estimated
total net asset value (“NAV”), initially estimated to be approximately
$685,000,000, but are subject to adjustment through audits and
appraisals.  The term “NAV” is defined to mean (a) the aggregate fair
market values of the assets of the applicable funds (including loan
participations), calculated (i) as to the lending funds and the real estate
funds at the lower of original investment cost or market value, and (ii) as to
the Stillwater fund of funds (both Delaware and Cayman) at the market value of
the portfolios of the investee-funds, as at December 31 2009, less (b) any
liabilities or obligations of such fund as at December 31,
2009.


67


In
connection with the Business combinations, the Company redeemed 3,278,991
Ordinary Shares subject to redemption for approximately $32,790,000 and
repurchased 7,916,656 Ordinary Shares for approximately
$79,639,000.  The Company has entered into a settlement and release
agreement with respect to an underwriter concerning the deferred underwriting
fee.  Such agreement calls for the cash payment of $250,000 and a
non-interest bearing note payable for $1,300,000 which is due on December 15,
2011 (subject to a discount if paid by December 15, 2010 or June 15, 2011 of
$130,000 and $65,000, respectively.  If the note is not paid at
maturity, the principal amount, after a notice and cure period, would increase
to 2,250,000.




On
January 20, 2010, the shareholders of the Company approved the change of the
Company’s name to GEROVA Financial Group, Ltd.




In
connection with the retention of Marshall Manley as chief executive officer, the
Company agreed to issue 5,333,333 Ordinary Shares in consideration of a limited
recourse note in the amount of $20,000,000 ($3.75 per share).  The
difference between the fair value of the Company’s Ordinary Shares on the date
of the sale ($5.09) and the sales price aggregated approximately $7,150,000 was
charged to operations.  On April 8, 2010, Marshall Manley resigned
from all positions held with the Company.  In connection with the
resignation, the Company entered into a Share Repurchase Agreement with Mr.
Manley and Marseilles Capital LLC, an affiliate of Mr. Manley, pursuant to which
Marseilles Capital LLC agreed to sell 5,333,333 Ordinary Shares back to the
Company in consideration for the termination of the above-referenced note and
certain deferred payments aggregating $4.95 million.




As of
April 23, 2010, the holders of over two-thirds of the Company’s outstanding
voting shares, including the record holders of 742,250 of the Preferred Shares,
consented to a modification of the conversion terms of the Preferred Shares, by
providing that the Preferred Shares may be converted at any time into Ordinary
Shares at a conversion price of $6.00.  Previously the Preferred
Shares were convertible at a rate of one-sixth of the Preferred Shares per
month, commencing on July 31, 2010, at a conversion price of $7.50. On May 12,
2010, after the Company’s extraordinary general meeting, all of the Preferred
Shares were converted into Ordinary Shares. Upon conversion, the holders of the
Preferred Shares received up to a maximum of 123,708,333 Ordinary Shares,
subject to reduction based on appraisals and audits of the net asset values of
the assets acquired from the Stillwater Funds and from the Wimbledon
Funds.  As of the date of this Annual Report, no Preferred Shares are
issued or outstanding.




On May
12, 2010, the shareholders of the Company at an extraordinary general meeting
approved the following: (i) an increase in the authorized Ordinary Shares from
350,000,000 to 500,000,000; (ii) an increase in the authorized preferred shares
from 10,000,000 to 500,000,000; (iii) the automatic conversion of all 742,250
outstanding Preferred Shares into 123,708,333 Ordinary Shares, resulting from a
reduction in the conversion price of such Preferred Shares from $7.50 per share
to $6.00 per share; and (iv) the 2010 Plan.  As a result, there are
approximately 133,400,000 Ordinary Shares issued and outstanding and no
preferred shares issued and outstanding as of the date of this Annual
Report.




On May
21, 2010, our board of directors approved amendments to the January 16, 2008
warrant agreement to:




(a)
effect an exchange of the 17.7 million outstanding warrants covered by the
agreement, as a result of which the holders of such warrants on the June 8, 2010
effective date of the exchange received an additional warrant and now own an
aggregate of 35.4 million warrants, entitling such holders to purchase an
aggregate of 35.4 million of our Ordinary Shares;




(b)
reduce the exercise price of the warrants from $7.50 to $7.00; and




(c)
extend the exercise period of the warrants for two years, or until January 16,
2014.




Under the
terms of the warrant agreement, since such amendments inure to the benefit of
the holders of the warrants, they may be unilaterally taken by us.




On May
26, 2010, we entered into a real estate joint venture transaction with the
Operating Members wherein we formed the JV Company.   We intend
to contribute to the JV Company all of the owned real estate properties and real
estate loan assets we acquired in connection with our January 2010 acquisition
of the Stillwater Funds, and Planet Five and its affiliates will contribute to
the JV Company the Contributed Assets.  We will own a 49% Class A
equity percentage interest in the JV Company, Planet Five will own a 38% Class A
equity percentage interest, Mr. Willison and a third party will own in the
aggregate a 12% Class B equity percentage interest in the JV
Company.  The Class B equity interests only share in earning and
profits of the JV Company after each of Gerova and Planet Five recoup in cash
the net asset values of the respective properties contributed by them to the JV
Company.  In addition, the holders of the Class B equity interests
have granted to Planet Five a three year irrevocable proxy to vote all Class B
equity interests in the JV Company.  Neither Planet Five nor the
holders of Class B equity interests in the JV Company are affiliated with
us.  The management of the JV Company will be conducted by the
Operating Members through a board of managers, a majority of which members are
and will be persons designated by the Operating Members of the JV
Company.  Messrs. Paul Rohan and Gregory Laubach, principal owners of
Planet Five, and Robert Willison will constitute a majority of the members of
the board of managers of the JV Company.


68




ITEM
      9:
            The
      Offering and Listing




A.
            Offer
      and Listing Details




Our
Ordinary Shares, units and warrants are traded on the NYSE Amex Exchange under
the symbols “GFC”, “GFC.U”, and “GFC.WS”, respectively. Our units were approved
for listing on the NYSE Amex Exchange on January 16, 2008. Commencing on
February 13, 2008, the Ordinary Shares and warrants included in our units began
trading separately. The following tables set forth the reported high and low
closing prices per share for our Ordinary Shares based on information provided
by the NYSE Amex Exchange for (a) from the five most recent fiscal years
(December 31, 2008 and December 31, 2009); (b) each quarterly period for the
past two fiscal years, and (c) for the most recent twelve months.




High and Low Prices for the Five Most Recent Fiscal Years
                  (December 31, 2008 and December 31, 2009)
                
                High
                
                
                LowDecember
      31, 2009
                
                $
                9.98
                
                
                $
                9.00December
      31, 2008
                
                $
                9.44
                
                
                $
                8.05





High and Low Prices for Each Quarterly Period for the Past Two Fiscal YearsYear Ended December 31, 2009
                          
                          High
                          
                          
                          LowFirst
      Quarter ended March 31, 2009
                          
                          $
                          9.85
                          
                          
                          $
                          9.00Second
      Quarter ended June 30, 2009
                          
                          $
                          9.61
                          
                          
                          $
                          9.20Third
      Quarter ended September 30, 2009
                          
                          $
                          9.89
                          
                          
                          $
                          9.57Fourth
      Quarter ended December 31, 2009
                          
                          $
                          9.98
                          
                          
                          $
                          9.84Year Ended December
      31, 2008
                          
                          High
                          
                          
                          LowFirst
      Quarter ended March 31, 2008
                          
                          $
                          9.15
                          
                          
                          $
                          8.95Second
      Quarter ended June 30, 2008
                          
                          $
                          9.25
                          
                          
                          $
                          9.03Third
      Quarter ended September 30, 2008
                          
                          $
                          9.44
                          
                          
                          $
                          8.75Fourth
      Quarter ended December 31, 2008
                          
                          $
                          9.15
                          
                          
                          $
                          8.05





High and Low Prices for the Most Recent Twelve Months
                        
                        High
                        
                        
                        LowMay
      2010
                        
                        $
                        17.20
                        
                        
                        $
                        6.71April
      2010
                        
                        $
                        7.00
                        
                        
                        $
                        5.34March
      2010
                        
                        $
                        6.63
                        
                        
                        $
                        5.00February
      2010
                        
                        $
                        6.46
                        
                        
                        $
                        4.43January
      2010
                        
                        $
                        9.95
                        
                        
                        $
                        5.91December
      2009
                        
                        $
                        9.98
                        
                        
                        $
                        9.89November
      2009
                        
                        $
                        9.95
                        
                        
                        $
                        9.85October
      2009
                        
                        $
                        9.92
                        
                        
                        $
                        9.84September
      2009
                        
                        $
                        9.89
                        
                        
                        $
                        9.72August
      2009
                        
                        $
                        9.82
                        
                        
                        $
                        9.72July
      2009
                        
                        $
                        9.82
                        
                        
                        $
                        9.57June
      2009
                        
                        $
                        9.59
                        
                        
                        $
                        9.53





B.
            Plan
      of Distribution




Not
applicable.




C.
            Markets




See Item
9A above.


69




D.
            Selling
      Shareholders




Not
applicable.




E.
            Dilution




Not
applicable.




F.
            Expenses
      of the Issue




Not
applicable.




ITEM
      10:
            Additional
      Information




A.
            Share
      Capital




Not
applicable.




B.
            Memorandum
      and Articles of Association




At the
Company’s extraordinary general meeting held on May 12, 2010, our shareholders
approved the Company’s Third Amended and Restated Memorandum and Articles of
Association (the “Memorandum and Articles of Association”), to be effective on
May 19, 2010.  The Memorandum and Articles of Association were filed
with the SEC on May 3, 2010 as Exhibit B to the Company’s Proxy Statement filed
as Exhibit 99.2 to the Company’s Interim Report on Form 6-K.




Incorporation




We were
formed in the Cayman Islands on March 22, 2007 under the Companies Law (2009
Revision) of the Cayman Islands (the "Statute") with the name of Asia Special
Situation Acquisition Corp. In January 2010, we changed our corporate name to
GEROVA Financial Group, Ltd.




The
objects for which the Company was established are unrestricted and the Company
has full power and authority to carry out any object not prohibited by the
Statute or any revisions thereto.




Powers,
functions and qualifications of Directors




The
powers and functions of directors are set forth in the Statute and in the
Memorandum and Articles of Association of the Company.




With
respect to the voting powers of directors, the Statute provides that a director
(or senior officer) has a disclosable interest in a contract or transaction if
the contract or transaction is material to the Company and the director has a
material interest in the contract.




The
Memorandum and Articles of Association provides that a director may be or become
a director or other officer of or otherwise interested in any company promoted
by the Company or in which the Company may be interested as shareholder or
otherwise, and no such director shall be accountable to the Company for any
remuneration or other benefits received by him as a director or officer of, or
from his interest in, such other company.  A general notice that a
director is a shareholder, director, officer or employee of any specified firm
or company and is to be regarded as interested in any transaction with such firm
or company shall be sufficient disclosure for the purposes of voting on a
resolution in respect of a contract or transaction in which he has an interest,
and after such general notice it shall not be necessary to give special notice
relating to any particular transaction.




Rights
and Restrictions Attached to Shares




As all of
the Company's authorized and issued Ordinary Shares are of one class, there are
no special rights or restrictions of any nature or kind attached to any of the
Ordinary Shares. All authorized and issued Ordinary Shares rank equally in
respect of the declaration and receipt of dividends and the rights to share in
any profits or surplus on liquidation, dissolution or winding up of the Company.
Each Ordinary Share has attached to it one vote.


70




The
Company may by ordinary resolution (i) increase the share capital by such sum as
the resolution shall prescribe and with such rights, priorities and privileges
annexed thereto, as the Company in general meeting may determine; (ii)
consolidate and divide all or any of its share capital into shares of larger
amount than its existing shares; (iii) divide its shares into several classes
and without prejudice to any special rights previously conferred on the holders
of existing classes of shares; (iv) by subdivision of its existing shares or any
of them divide the whole or any part of its share capital into shares of smaller
amount or into shares without par value; and (v) cancel any shares that at the
date of the passing of the resolution have not been taken or agreed to be taken
by any person.




The
Company may by special resolution reduce its share capital and any capital
redemption reserve fund.




At the
Company’s extraordinary general meeting held on May 12, 2010, the shareholders
approved an increase in the authorized share capital of the Company from
350,000,000 Ordinary Shares and 10,000,000 preferred shares, to 500,000,000
Ordinary Shares and 500,000,000 preferred shares.




As of
April 23, 2010, the holders of over two-thirds of the Company’s outstanding
voting shares, including the record holders of 742,250 of the Preferred Shares,
consented to a modification of the conversion terms of the Preferred Shares, by
providing that the Preferred Shares may be converted at any time into Ordinary
Shares at a conversion price of $6.00.  Previously the Preferred
Shares were convertible at a rate of one-sixth of the Preferred Shares per
month, commencing on July 31, 2010, at a conversion price of $7.50. On May 12,
2010, after the Company’s extraordinary general meeting, all of the Preferred
Shares were converted into Ordinary Shares. Upon conversion, the holders of the
Preferred Shares received up to a maximum of 123,708,333 Ordinary Shares,
subject to reduction based on appraisals and audits of the net asset values of
the assets acquired from the Stillwater Funds and from the Wimbledon
Funds.  As of the date of filing of this Annual Report, no Preferred
Shares are issued or outstanding.




On May
21, 2010, our board of directors approved amendments to the January 16, 2008
warrant agreement to:




(a)
effect an exchange of the 17.7 outstanding warrants covered by the agreement, as
a result of which the holders of such warrants on the June 8, 2010 effective
date of the exchange received an additional warrant and now own an aggregate of
35.4 million warrants, entitling such holders to purchase an aggregate of 35.4
million of our Ordinary Shares;




(b)
reduce the exercise price of the warrants from $7.50 to $7.00; and




(c)
extend the exercise period of the warrants for two years, or until January 16,
2014.




Under the
terms of the warrant agreement, since such amendments inure to the benefit of
the holders of the warrants, they may be unilaterally taken by us.




General
Meetings




All
general meetings other than annual general meetings shall be called
extraordinary general meetings.  The Company shall in each year hold a
general meeting as its annual general meeting, and shall specify the meeting as
such in the notices calling it.  The annual general meeting shall be
held at such time and place as the directors shall appoint and if no other time
and place is prescribed by them, it shall be held on the second Wednesday in
December of each year.  The majority of the directors, the managing
director, the chief executive officer, the president, the chief financial
officer or the chairman of the board of directors may call general meetings, and
they shall on a members requisition, proceed to convene an extraordinary general
meeting of the Company.




Foreign
Ownership Limitations




There are
no limitations prohibiting shares being held by non-residents, foreigners or any
other group.




Change
of Control




Other
than the designation of directors into classes, there are no provisions in the
Memorandum and Articles of Association that would have the effect of delaying,
deferring or preventing a change in the control of the Company, or that would
operate with respect to any proposed merger, acquisition or corporate
re-structuring of the Company.


71




The
directors are divided into three classes: Class I, Class II and Class III. The
number of directors in each class shall be as nearly equal as possible. The
Class I Directors shall stand elected for a term expiring at the Company’s
annual general meeting held in 2011, the Class II Directors shall stand elected
for a term expiring at the Company’s annual general meeting held in 2012, and
the Class III Directors shall stand elected for a term expiring at the Company’s
annual general meeting held in 2013. Commencing at the Company’s annual general
meeting held in 2011, and at each annual general meeting thereafter, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the succeeding annual general meeting to be held
approximately 3 years after their election.




Share
Ownership Reporting Obligations




There are
no provisions in the Memorandum and Articles of Association requiring share
ownership to be disclosed. The securities laws of the United States require
disclosure of shareholdings by:




(a)       insiders
who are directors or senior officers of the Company; and




(b)       a
person who has direct or indirect beneficial ownership of, control or direction
over, or a combination of direct or indirect beneficial ownership of and of
control or direction over securities of the Company carrying more than 5% of the
voting rights attached to all the Company's outstanding voting
securities.




Certain
Differences in Corporate Law




The
following is a summary of material differences between the Statute and general
corporate law in the United States insofar as they relate to the material terms
of our ordinary shares. The Statute is modeled after that of England but does
not follow recent United Kingdom statutory enactments and differs from laws
applicable to United States corporations and their shareholders. Set forth below
is a summary of some significant differences between the provisions of the
Statute applicable to us and the laws applicable to companies incorporated in
the United States and their shareholders.





Mergers and Similar
Arrangements.  The Statute provides for the merger and
consolidation of Cayman Islands companies and Cayman Islands and foreign
companies if the merged company or continued company will continue to be a
Cayman Islands company.  In addition, Cayman Islands law does have
statutory provisions that facilitate the reconstruction and amalgamation of
companies in certain circumstances, commonly referred to in the Cayman Islands
as a “scheme of arrangement” which may be tantamount to a merger, this can be
achieved through other means, such as a share capital exchange, asset
acquisition or control, through contractual arrangements, of an operating
business. However, in the event that a merger was sought pursuant to these
statutory provisions (which are more rigorous and take longer to complete than
the procedures typically required to consummate a merger in the United States),
the arrangement in question must be approved by a majority in number of each
class of shareholders and creditors with whom the arrangement is to be made and
who must in addition represent three-fourths in value of each such class of
shareholders or creditors, as the case may be, that are present and voting
either in person or by proxy at a meeting, or meeting summoned for that purpose.
The convening of the meetings and subsequently the terms of the arrangement must
be sanctioned by the Grand Court of the Cayman Islands. While a dissenting
shareholder would have the right to express to the court the view that the
transaction should not be approved, the court can be expected to approve the
arrangement if it satisfies itself that:





·
            we
      are not proposing to act illegally or beyond the scope of our corporate
      authority and the statutory provisions as to majority vote have been
      complied with;


·
            the
      shareholders have been fairly represented at the meeting in
      question;


·
            the
      arrangement is such as a businessman would reasonably approve;
      and


·
            the
      arrangement is not one that would more properly be sanctioned under some
      other provision of the Statute or that would amount to a “fraud on the
      minority.”





When a
takeover offer is made and accepted by holders of 90% of the shares within four
months, the offeror may, within a two-month period, require the holders of the
remaining shares to transfer such shares on the terms of the offer. An objection
can be made to the Grand Court of the Cayman Islands but this is unlikely to
succeed unless there is evidence of fraud, bad faith, collusion or inequitable
treatment of the shareholders.





If the
arrangement and reconstruction is thus approved, the dissenting shareholder
would have no rights comparable to appraisal rights, which would otherwise
ordinarily be available to dissenting shareholders of United States
corporations, providing rights to receive payment in cash for the judicially
determined value of the shares.


72





Shareholders’ Suits.Our
Cayman Islands counsel is not aware of any reported class action having been
brought in a Cayman Islands court. Derivative actions have been brought in the
Cayman Islands courts, and the Cayman Islands courts have confirmed their
availability (although, the reported cases were unsuccessful for technical
reasons). In principle, we will normally be the proper plaintiff and a claim
against (for example) our officers or directors usually may not be brought by a
shareholder. However, based on English authorities, which would in all
likelihood be of persuasive authority and be applied by a court in the Cayman
Islands, exceptions to the foregoing principle apply in circumstances in
which:





·
            a
      company is acting or proposing to act illegally or beyond the scope of its
      authority;


·
            the
      act complained of, although not beyond the scope of the authority, could
      be effected if duly authorized by more than the number of votes which have
      actually been obtained; or


·
            those
      who control the company are perpetrating a “fraud on the
      minority.”





A
shareholder may have a direct right of action against the company where the
individual rights of that shareholder have been infringed or are about to be
infringed.





C.
            Material
      Contracts




The
following material contracts have been entered into by the Company within the
past two years:




1.           Letter
of Intent, dated December 18, 2009, with Stillwater Capital Partners, Inc.
(incorporated herein by reference to Exhibit 10.1 to the Company’s Report of
Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with the
Securities and Exchange Commission on January 7, 2010.




2.           Letter
Agreement dated December 22, 2009 with Northstar Companies (incorporated herein
by reference to Exhibit 10.2 to the Company’s Report of Foreign Private Issuer
on Form 6-K (File No. 001-33916), as filed with the Securities and Exchange
Commission on January 7, 2010.




3.           Stillwater
Merger Agreements, dated as of December 31, 2009 (incorporated herein by
reference to Exhibit 10.3 to the Company’s Report of Foreign Private Issuer on
Form 6-K (File No. 001-33916), as filed with the Securities and Exchange
Commission on January 7, 2010.




4.           Stillwater
Asset Purchase Agreements, dated as of December 31, 2009 (incorporated herein by
reference to Exhibit 10.4 to the Company’s Report of Foreign Private Issuer on
Form 6-K (File No. 001-33916), as filed with the Securities and Exchange
Commission on January 7, 2010.




5.           Wimbledon
Financing Master Fund Asset Purchase Agreement, dated as of December 31, 2009
(incorporated herein by reference to Exhibit 10.6 to the Company’s Report of
Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with the
Securities and Exchange Commission on January 7, 2010.




6.           Wimbledon
Real Estate Financing Master Fund Asset Purchase Agreement, dated as of December
31, 2009 (incorporated herein by reference to Exhibit 10.7 to the Company’s
Report of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
the Securities and Exchange Commission on January 7, 2010.




7.           Amalphis
Group Share Exchange Agreement, dated as of December 31, 2009 (incorporated
herein by reference to Exhibit 10.8 to the Company’s Report of Foreign Private
Issuer on Form 6-K (File No. 001-33916), as filed with the Securities and
Exchange Commission on January 7, 2010.




8.           Employment
Agreement dated as of December 1, 2009, by and between Marshall Manley and Asia
Special Situation Acquisition Corp. (incorporated herein by reference to Exhibit
10.10 to the Company’s Report of Foreign Private Issuer on Form 6-K (File No.
001-33916), as filed with the Securities and Exchange Commission on January 7,
2010.




9.           Share
Purchase Agreement dated as of January 1, 2010, by and among Asia Special
Situation Acquisition Corp., Marseilles Capital LLC and Marshal Manley
(incorporated herein by reference to Exhibit 10.9 to the Company’s Report of
Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with the
Securities and Exchange Commission on January 7, 2010.




10.         Engagement
Agreement with Roth Capital Partners (incorporated herein by reference to
Exhibit 10.11 to the Company’s Report of Foreign Private Issuer on Form 6-K
(File No. 001-33916), as filed with the Securities and Exchange Commission on
January 7, 2010.


73




11.         Agreement,
dated January 13, 2010, by and between Asia Special Situation Acquisition Corp.
and Victory Park Capital Advisors, LLC (incorporated herein by reference to
Exhibit 10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K (File
No. 001-33916), as filed with the Securities and Exchange Commission on January
14, 2010.




12.         Form
of Stock Purchase Agreement (incorporated herein by reference to Exhibit 10.2 to
the Company’s Report of Foreign Private Issuer on Form 6-K (File No. 001-33916),
as filed with the Securities and Exchange Commission on January 14,
2010.




13.         Management
Agreement, between WFM Holdings, Ltd. and Weston Capital Asset Management, LLC,
dated as of January 20, 2010 (incorporated herein by reference to Exhibit 10.2
to the Company’s Report of Foreign Private Issuer on Form 6-K (File No.
001-33916), as filed with the Securities and Exchange Commission on January 26,
2010.




14.         Management
Agreement, between WFM Holdings, Ltd. and Weston Capital Asset Management, LLC,
dated as of January 20, 2010 (incorporated herein by reference to Exhibit 10.3
to the Company’s Report of Foreign Private Issuer on Form 6-K (File No.
001-33916), as filed with the Securities and Exchange Commission on January 26,
2010.




15.         Investment
Management Agreement, between the Company and Stillwater Capital Partners, Inc.,
dated as of January 20, 2010 (incorporated herein by reference to Exhibit 10.4
to the Company’s Report of Foreign Private Issuer on Form 6-K (File No.
001-33916), as filed with the Securities and Exchange Commission on
January 26, 2010.




16.         Separation
Agreement and Release, dated as of April 8, 2010, by and between Gerova
Financial Group, Ltd. and Marshall Manley (incorporated herein by reference to
Exhibit 4.1 to the Company’s Report of Foreign Private Issuer on Form 6-K (File
No. 001-33916), as filed with the Securities and Exchange Commission on April
12, 2010.




17.         Share
Repurchase Agreement, dated as of April 8, 2010, by and among Gerova Financial
Group, Ltd., Marseilles Capital LLC and Marshall Manley (incorporated herein by
reference to Exhibit 4.2 to the Company’s Report of Foreign Private Issuer on
Form 6-K (File No. 001-33916), as filed with the Securities and Exchange
Commission on April 12, 2010.




18.         Amended
and Restated Registration Rights Agreement by and among the Company, Stillwater
Capital Partners, Inc., Stillwater Capital Partners, LLC, the Wimbledon
Financing Master Fund, Ltd. and the Wimbledon Real Estate Financing Master Fund,
Ltd., dated as of April 23, 2010 (incorporated herein by reference to Exhibit
10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K (File No.
001-33916), as filed with the Securities and Exchange Commission on May 3,
2010.




19.         Employment
Agreement dated as of April 1, 2010 by and between Gerova Financial Group, Ltd.
and Lou E. Hensley (filed as an exhibit to this Annual Report on Form
20-F).




20.         Amendment
No. 1 to Warrant Agreement, dated as of May 25, 2010, by and among Gerova
Financial Group, Ltd. and Continental Stock Transfer & Trust Company
(incorporated herein by reference to Exhibit 4.1 to the Company’s Report of
Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with the
Securities and Exchange Commission on May 28, 2010.




D.
            Exchange
      Controls




See the
disclosure set forth under “Risk Factors” and “Business Overview” beginning on pages 7 and 30,
respectively, of this Annual Report.




E.
            Taxation




See the
disclosure set forth under “Risk Factors” and “Business Overview” beginning on pages 7 and 30,
respectively, of this Annual Report.




In
addition, the following summary of the material Cayman Islands and United States
federal income tax consequences of an investment in Ordinary Shares is based
upon laws and relevant interpretations thereof in effect as of the date of this
Annual Report, all of which are subject to change. This summary does not deal
with all possible tax consequences relating to an investment in our ordinary
shares, such as the tax consequences under state, local and other tax
laws.


74




Cayman
Islands Taxation




The
Government of the Cayman Islands will not, under existing legislation, impose
any income, corporate or capital gains tax, estate duty, inheritance tax, gift
tax or withholding tax upon the Company or the Company’s shareholders. The
Cayman Islands are not party to a double tax treaty with any country that is
applicable to any payments made to or by the Company.




The
Company has applied for and has received an undertaking dated April 3, 2007 from
the Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6
of the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period
of 20 years from the date of the undertaking, no law which is enacted in the
Cayman Islands imposing any tax to be levied on profits, income, gains or
appreciations shall apply to the Company or its operations and, in addition,
that no tax to be levied on profits, income, gains or appreciations or which is
in the nature of estate duty or inheritance tax shall be payable (i) on or in
respect of the shares, debentures or other obligations of the Company or (ii) by
way of the withholding in whole or in part of a payment of dividend or other
distribution of income or capital by the Company to its members or a payment of
principal or interest or other sums due under a debenture or other obligation of
the Company.




Certain
United States Federal Income Tax Consequences




The
following is a general summary of certain United States federal income tax
considerations, under current U.S. law, generally applicable to a U.S. Holder
(as defined below).  This summary does not address all potentially
relevant U.S. federal income tax matters and it does not address consequences to
persons subject to special provisions of U.S. federal income tax law, such as
those described below as excluded from the definition of a U.S.
Holder.  United States alternative minimum tax considerations are not
addressed in this summary.  In addition, this summary does not cover
any state, local or foreign tax consequences, nor any U.S. federal gift, estate
or generation-skipping transfer tax consequences.




This
summary is based on interpretations of the Code, regulations issued thereunder,
and rulings and decisions currently in effect (or in some cases proposed), all
of which are subject to change. Any such change may be applied retroactively and
may adversely affect the U.S. federal income tax consequences described herein.
This summary addresses only U.S. Holders that purchased shares prior to the date
of this Annual Report, and that beneficially own shares as capital assets and
not as part of a “straddle,” “hedge,” “synthetic security,” or a “conversion
transaction” for U.S. federal income tax purposes, or as part of some other
integrated investment. This summary does not discuss tax consequences of an
investor that is not a U.S. Holder, or all of the tax consequences that may be
relevant to particular investors or to investors subject to special treatment
under the U.S. federal income tax laws (such as banks, thrifts, or other
financial institutions; insurance companies; tax-exempt persons or
organizations; securities dealers or brokers, or traders in securities electing
mark-to-market treatment; mutual funds or real estate investment trusts; small
business investment companies; S corporations; investors that hold their notes
through a partnership or other entity treated as a partnership for U.S. federal
income tax purposes; persons who acquire shares as compensation or on exercise
of an option; investors whose functional currency is not the U.S. dollar;
certain former citizens or residents of the United States; persons subject to
the alternative minimum tax; retirement plans or persons holding the shares in
tax-deferred or tax-advantaged accounts; or “controlled foreign corporations” or
“passive foreign investment companies” for U.S. federal income tax
purposes).




This
summary is for general information only and it is not intended to be, nor should
it be construed to be, legal or tax advice to any U.S. Holder and no opinion or
representation with respect to the United States federal income tax consequences
to any such holder is made.  Accordingly, U.S. Holders should consult
their own tax advisors about the United States federal (income and non-income),
state, local, and foreign tax consequences of the proposed acquisition and
potential redemption of shares.  We intend to operate our business in
the best interests of itself, the Insurance Companies and their subsidiaries,
which may conflict with the optimal tax considerations of its
shareholders.




CIRCULAR
230 DISCLOSURE




ANY
STATEMENT MADE HEREIN REGARDING ANY U.S. FEDERAL TAX ISSUE IS NOT INTENDED OR
WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR PURPOSES OF AVOIDING
ANY PENALTIES.  ANY SUCH STATEMENT HEREIN IS WRITTEN IN CONNECTION
WITH THE MARKETING OR PROMOTION OF THE TRANSACTION TO WHICH THE STATEMENT
RELATES.  EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.




United
States Taxation




For
purposes of this summary, a “U.S. Holder” is an owner of shares that
is:


75




·   an
individual who is a citizen or resident of the United States (as defined under
United States tax laws) for U.S. federal income tax purposes;




·   a
corporation (or other entity that is treated as a corporation for U.S. federal
income tax purposes) that is created or organized in or under the laws of the
United States or any State thereof (including the District of
Columbia);




·   an
estate the income of which is subject to U.S. federal income taxation regardless
of its source; or




·   a trust
if (a) a court within the United States is able to exercise primary supervision
over its administration, and one or more United States persons have the
authority to control all of its substantial decisions, or (b) the trust was in
existence on August 20, 1996, and has properly elected to continue to be treated
as a United States person.




U.S.
Federal Income Tax Treatment of the Company and the Insurance
Companies




Trade or Business in the United
States.  Non-U.S. entities such as the Company and the
Insurance Companies will be subject to U.S. federal income tax if they are
engaged in a U.S. trade or business or have certain types of U.S. source
income.  The determination of whether the Company and the Insurance
Companies are engaged in a trade or business in the United States is highly
factual. Therefore, there can be no assurance that the Company and the Insurance
Companies will not be treated as engaged in a trade or business in the United
States for U.S. federal income tax purposes.




An
insurance enterprise resident in Bermuda may be entitled to the benefits of the
income tax treaty between the United States and Bermuda (the “U.S.-Bermuda tax
treaty”) if (i) more than 50% of its shares are owned beneficially, directly, or
indirectly, by U.S. citizens or by individuals who are residents of the United
States or Bermuda under their respective tax laws, (ii) its income is not used
in substantial part, directly or indirectly, to make disproportionate
distributions to, or to meet certain liabilities of, persons who are neither
residents of either the United States or Bermuda nor U.S. citizens, and (iii)
its income is not derived from a permanent establishment located in the United
States.




If
Northstar is entitled to benefits under the U.S.-Bermuda tax treaty, Northstar
would not be subject to U.S. federal income tax on its insurance income unless
that income is determined to be effectively connected with a U.S. trade or
business that is conducted through a permanent establishment in the United
States. However, because Northstar is wholly owned by the Company and the
Company’s shares are publicly-traded, it is uncertain whether more than 50% of
Northstar’s shares will be beneficially owned by U.S. citizens, U.S. residents,
and Bermuda residents, and it is uncertain whether Northstar could demonstrate
the identity of the beneficial ownership of its shares to the IRS if the IRS
were to challenge its entitlement to benefits under the U.S.-Bermuda tax treaty.
Accordingly, no assurance can be given that Northstar will be entitled to the
benefits of the U.S.-Bermuda treaty. Moreover, no assurance can be given that
Northstar will not be treated as having a permanent establishment in the United
States.




If it is
determined that Northstar is engaged in a trade or business in the United States
for U.S. federal income tax purposes and does not qualify for the benefits of
the U.S.-Bermuda tax treaty or has a permanent establishment in the United
States, then Northstar would be subject to U.S. federal income tax on a net
income basis (and possibly a 30% branch profits tax could be imposed in addition
to the net income tax) on all or a substantial portion of its
income.




Treaty
benefits may potentially be available to Allied Provident under the
U.S.-Barbados tax treaty.   If it is determined that Allied
Provident is engaged in a trade or business in the United States for U.S.
federal income tax purposes and does not qualify for the benefits of the
U.S.-Barbados tax treaty, then Allied Provident would be subject to U.S. federal
income tax on a net income basis (and possibly a 30% branch profits tax could be
imposed in addition to the net income tax) on all or a substantial portion of
its income.




No
representation or opinion is being made concerning whether the Company or the
Insurance Companies may be subject to U.S. federal income tax.




U.S. Withholding
Tax.  Non-U.S. corporations not engaged in a trade or business
in the United States are generally subject to a 30% U.S. income tax imposed by
withholding on certain “fixed or determinable annual or periodic gains, profits
and income” derived from sources within the United States (such as dividends and
certain interest on investments). However, most capital gains are exempt from
U.S. withholding tax, and most U.S.-source interest income is exempt from U.S.
withholding tax under a broad “portfolio interest exemption.” Even if the
Company and the Insurance Companies are not engaged in a trade or business in
the United States for federal income tax purposes, they would still potentially
be subject to this 30% U.S. withholding tax.


76




Federal Excise
Tax.  The United States imposes a federal excise tax (the
“FET”) generally at a 1% rate on reinsurance premiums that are paid to non-U.S.
reinsurers with respect to “U.S. risk.” For this purpose, “U.S. risk” refers to
(i) risks of a U.S. entity or individual located wholly or partly within the
United States or (ii) risks of a non-U.S. entity or individual engaged in a
trade or business in the United States which are located within the United
States. The IRS has held that the FET is applicable to all to reinsurance
cessions or retrocessions of U.S. risk by U.S. insurers or reinsurers to
non-U.S. insurers or reinsurers, as well as to all reinsurance cessions or
retrocessions of U.S. risks by non-U.S. insurers or reinsurers to non-U.S.
reinsurers, even if the FET has been paid on prior cessions or retrocessions of
the same risks. The liability for the FET may be imposed on either the ceding
party or the cedant. Also, in certain instances a 4% FET can
apply.  The Company makes no representation or opinion with respect to
the potential applicability of the FET.




Taxation
of the Company, the Insurance Companies and U.S. Holders




The
consummation of the Business Combinations generally will not give rise to any
U.S. federal income tax liability for the Company, the Insurance Companies, or
the shareholders of the Company. However, if a U.S. Holder redeemed its Ordinary
Shares for cash, the U.S. Holder will generally recognize a gain or loss on its
investment in the Ordinary  Shares for federal income tax
purposes.




Taxation
of U.S. Holders




Taxation of
Distributions.  Subject to the discussion below regarding PFICs
and CFCs, U.S. Holders receiving distributions (including constructive
distributions) with respect to the Ordinary Shares are required to include in
gross income as a dividend for U.S. federal income tax purposes the gross amount
of such distributions (without reduction for any income tax withheld from such
distributions), to the extent that the Company has current or accumulated
earnings and profits. To the extent that distributions exceed current or
accumulated earnings and profits, such distributions will be treated first as a
return of capital, to the extent of the U.S. Holder’s adjusted basis in the
Ordinary Shares, and thereafter as gain from the sale or exchange of our
Ordinary Shares. (See more detailed discussion at “Disposition of Shares”
below). Any tax withheld from a distribution may be credited, subject to certain
limitations, against the U.S. Holder’s U.S. federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holder's U.S. federal
taxable income by those who itemize deductions.




Dividend not Eligible for Reduced
Tax Rate. For taxable years beginning after December 31, 2002 and before
January 1, 2011, dividends received by U.S. Holders that are individuals,
estates or trusts from “qualified foreign corporations,” as defined in Section
1(h)(11) of the Code, generally are taxed at the same preferential tax rates
applicable to long-term capital gains. A corporation that is properly described
as a PFIC, as defined below, for its taxable year during which it pays a
dividend, or for its immediately preceding taxable year will not be treated as a
“qualifying foreign corporation” and dividends received by U.S. Holders that are
individuals, estates or trusts generally will be subject to U.S. federal income
tax at ordinary income tax rates (and not at the preferential tax rates
applicable to long-term capital gains).




Dividends not Eligible for Dividends
Received Deduction. In the case of U.S. Holders that are corporations,
dividends paid on Ordinary Shares generally will not be eligible for the
“dividends received deduction”. The availability of the dividends received
deduction is subject to several complex limitations that are beyond the scope of
this discussion, and U.S. Holders of Ordinary Shares should consult their own
tax advisor regarding the dividends received deduction.




Dispositions of
Shares.  Subject to the PFIC and CFC rules discussed further
below, generally a U.S. Holder will recognize gain or loss upon the sale,
redemption or other taxable disposition of the Ordinary Shares equal to the
difference, if any, between (i) the amount of cash plus the fair market value of
any property received, and (ii) the U.S. Holder’s tax basis in the Ordinary
Shares. This gain or loss will be capital gain or loss if the Ordinary Shares
are a capital asset in the hands of the U.S. Holder, which will be long-term
capital gain or loss if the Ordinary Shares are held for more than one
year.




Reduced Tax Rate. Under
current law, preferential tax rates apply to long-term capital gains of U.S.
Holders that are individuals, estates or trusts. There are currently no
preferential tax rates for long-term capital gains for a U.S. Holder that is a
corporation (other than a corporation subject to Subchapter S of the Code).
Deductions for net capital losses are subject to significant limitations. Sales
of PFIC stock are not eligible for the reduced long-term capital gains rates
that are usually applicable to sales of stock unless the shareholder made a
timely election regarding such shares. As discussed further below, the Company
may currently be classified as a PFIC.




After the
completion of the Business Combinations, U.S. tax rules related to the ownership
of non-U.S. insurance companies may become applicable. These rules are discussed
in further detail below. Specifically, Code section 1248 provides that if a
United States person (i) sells or exchanges stock in a non-U.S. corporation,
(ii) the United States person owned, directly, indirectly, or constructively,
10% or more of the voting power of the corporation at any time during the
five-year period ending on the date of disposition, and (iii) the corporation
was a CFC during that period, any gain from the sale or exchange of the shares
will be treated as a dividend to the extent of the CFC’s earnings and profits
(determined under U.S. federal income tax principles) during the period that the
shareholder held the shares and the corporation was a CFC.


77




Code
section 953(c)(7) provides that section 1248 also applies to the sale or
exchange of shares by any shareholder in a non-U.S. insurance company,
regardless of whether the shareholder is a 10% U.S. shareholder or whether the
20% gross income exception or the 20% ownership exception from the RPII rules
(discussed further below) apply. It is unclear whether sections 953(c)(7) and
1248 apply to a non-U.S. holding corporation (such as the Company) that is not a
CFC and does not earn RPII but has a subsidiary (such as an Insurance Company)
that is an insurance company and earns RPII.   Prospective U.S.
Holders should consult with their tax advisors regarding the effects of these
rules on a disposition of the Company’s shares.




Treatment of the Company and the
Insurance Companies as Passive Foreign Investment
Companies.  In general, a PFIC is a non-U.S. corporation 75% or
more of the income of which consists of passive income or 50% of the assets of
which produce passive income. For these purposes, income that is treated as
derived in the active conduct of an insurance business is not treated as passive
income. However, if a non-U.S. insurance company has reserves that are excessive
in proportion to the insurance risks it has undertaken, it may be treated as not
engaged in the active conduct of an insurance business.




The
Company was most likely classified as a PFIC in 2007, 2008 and 2009 and, as
described below, may be a PFIC in future years.  The PFIC provisions
contain a look-through rule under which a non-U.S. corporation (such as the
Company) is treated as if it earns directly its proportionate share of the
income, and holds directly its proportionate share of the assets, of any other
corporation in which it owns at least 25% of the value of the stock. However, it
is unclear at this time whether the Company will continue to be classified as a
PFIC after the consummation of the Business Combinations especially in light of
the nature of the assets that were acquired.  Accordingly, the Company
may continue to be a PFIC in future years. Potential investors should consult
with their tax advisor as to the specific application of the PFIC rules to their
particular situation.




QEF Election.  If a
U.S. Holder holds the shares while the Company is a PFIC and the U.S. Holder
does not make the “qualified electing fund” (“QEF”) or “mark-to market” election
described below for the U.S. Holder’s first taxable year it held the shares or
otherwise make a “purging election”, the U.S. Holder will be required to report
(i) any gain on the disposition of any shares and (ii) any distribution to the
extent it exceeds 125% of the average amount of distributions in respect thereof
during the three preceding taxable years or, if shorter, the U.S. Holder’s
holding period for the shares (an “excess distribution”) as if the gain or
excess distribution had been earned ratably over each day in the U.S. Holder’s
holding period for the shares. A U.S. Holder will be subject to tax on the gain
or excess distribution at its applicable tax rate on ordinary income for the
portion of the gain or excess distribution that is treated as having been earned
in the current year, and at the highest ordinary income tax rate for the items
that are treated as having been earned in prior taxable years, regardless of the
rate otherwise applicable to the U.S. Holder. Further, the U.S. Holder will also
be subject to a nondeductible interest charge (at the “underpayment rate”) as if
the income tax liabilities had been due with respect to gain or excess
distributions allocable to prior years in each such prior year. These adverse
consequences of owning shares in a PFIC may be avoided by making a QEF election
described below.




If a U.S.
Holder makes a timely QEF election with respect to a PFIC, the electing U.S.
Holder is required in each taxable year to include in gross income (i) as
ordinary income, such U.S. Holder’s pro rata share of the PFIC’s ordinary
earnings and (ii) as long term capital gain, such U.S. Holder’s pro rata share
of the PFIC’s net capital gain, whether or not distributed. However, a U.S.
Holder that makes a timely QEF election with respect to the Company will not be
subject to the nondeductible interest charge described above and may be entitled
to capital gains treatment upon a sale.




U.S.
Holders should be aware that in the event that the Company is a PFIC and a U.S.
Holder wishes to make a QEF Election, the Company may not (1) comply with the
record keeping requirements that apply to a QEF, or (2) supply U.S. Holders with
information that such U.S. Holders require to report under the QEF
rules.  Therefore, U.S. Holders should consult their own tax advisor
regarding the impact of the PFIC rules on them and the availability or lack of
availability of any applicable elections.




Mark-to-Market Election. U.S.
Holders who hold, actually or constructively, marketable stock (as specifically
defined in the Treasury Regulations) of a foreign corporation that qualifies as
a PFIC may annually elect to mark such stock to the market (a “mark-to-market
election”). If such an election is made, such U.S. Holder will generally not be
subject to the special PFIC taxation rules of Code Section 1291 discussed above.
However, if the mark-to-market election is made by a Non-Electing U.S. Holder
after the beginning of the holding period for the PFIC stock, then the Section
1291 rules will apply to certain dispositions of, distributions on and other
amounts taxable with respect to the Ordinary Shares. A U.S. Holder who makes the
mark-to market election will include in income for the taxable year for which
the election was made an amount equal to the excess, if any, of the fair market
value of the Ordinary Shares as of the close of such tax year over such U.S.
Holder’s adjusted basis in such Public Shares. In addition, the U.S. Holder is
allowed a deduction for the lesser of (i) the excess, if any, of such U.S.
Holder’s adjusted tax basis in the Ordinary Shares over the fair market value of
such shares as of the close of the tax year, or (ii) the excess, if any, of (A)
the mark-to-market gains for the Ordinary Shares included by such U.S. Holder
for prior tax years, including any amount which would have been included for any
prior tax year but for the Section 1291 interest on tax deferral rules discussed
above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market
losses for shares that were allowed as deductions for prior tax years. A U.S.
Holder’s adjusted tax basis in the Ordinary Shares will be adjusted to reflect
the amount included in or deducted from income as a result of a mark-to-market
election. A mark-to-market election applies to the taxable year in which the
election is made and to each subsequent taxable year, unless the Ordinary Shares
cease to be marketable, as specifically defined, or the IRS consents to
revocation of the election.


78




Application of the PFIC Rules to
Warrantholders.  Under Proposed Treasury
Regulations,  if a U.S. Holder has a warrant or other right to acquire
stock of a PFIC, such warrant is considered to be PFIC stock subject to the
default rules of Section 1291 of the Code.  However, a holder of a
warrant may not make a QEF election that will apply to the
warrant.  In addition, if a U.S. Holder holds a warrant, the holding
period with respect to the shares of stock of the PFIC acquired upon exercise of
such warrant will include the period that the warrant was held.  Each
U.S. Holder should consult its own tax advisor regarding the application of the
PFIC rules to its ownership of warrants.




Classification of the Company as a
Controlled Foreign Corporation.  A non-U.S. corporation (such
as the Company) will constitute a “controlled foreign corporation” (a “CFC”) if
more than 50% of the voting power or value of the equity interests in the
non-U.S. corporation (or more than 25% if the non-U.S. corporation is an
insurance company) is owned directly, indirectly (including through non-U.S.
entities), or constructively by any U.S. Holder that possesses directly,
indirectly, or constructively 10% or more of the combined voting power of all
classes of equity in the non-U.S. corporation (such a shareholder, a “10% U.S.
shareholder”).




If, for
any given taxable year, the Company is treated as a CFC for an uninterrupted
period of 30 days or more, a 10% U.S. shareholder in the Company would be
required to include as ordinary income an amount equal to that person’s pro rata
share of the Company’s “subpart F income” at the end of such taxable year, even
if the subpart F income is not distributed.




If the
Company is treated as a CFC and a U.S. Holder is treated as a 10% U.S.
shareholder of such company, then the Company will not be treated as a PFIC with
respect to the U.S. Holder for the period during which it remains a CFC and the
U.S. Holder is a 10% U.S. shareholder of it.  The Company makes no
representation or opinion with respect to the potential applicability of the CFC
rules.




Related Person Insurance Income
Rules.  Special rules may apply to require any U.S. Holder
(i.e., even a U.S. Holder that owns and is treated as owning less than 10% of
the voting stock of the Company) to include in income the U.S. Holder’s pro rata
share of any “related person insurance income” (“RPII”) of the
Company.




These
special RPII rules will not apply unless (i) 25% or more of the value or voting
power of the Company is held by U.S. Holders directly, indirectly, or through
attribution, (ii) at least 20% of the Company’s gross insurance income consists
of RPII, and (iii) 20% or more of either the voting power or value of the
Company’s equity (as determined for U.S. federal income tax purposes) is owned
directly (or indirectly through foreign entities) by persons that are directly
or indirectly insured or reinsured by the Company or that are related to such
insureds or reinsureds. For these purposes, RPII is income (including investment
income and premium income) from the direct or indirect insurance or reinsurance
of any U.S. Holder or a person related to such U.S. Holder.




Because
(1) the amount of this RPII can not be accurately predicted and (2) the Company
is publicly traded and it would be impracticable to monitor its shareholders on
an ongoing basis, no assurance can be given that the Company will not earn RPII
income in any taxable year.




In
general, if the Company earns RPII, each U.S. Holder that owns an equity
interest in the Company will be required to include in its gross income for U.S.
federal income tax purposes its share of the RPII of the Company, determined as
if all such RPII were distributed proportionately only to such U.S. Holders at
that date, but limited by each such U.S. Holder’s share of the Company’s
current-year earnings and profits as reduced by the U.S. Holder’s share of
certain prior-year deficits in earnings and profits.




Uncertainty as to the Application of
the RPII Rules.  The application of the RPII provisions to the
Company is uncertain. The amount of RPII or the amounts of the RPII inclusions
for any particular U.S. Holder, if any, may be challenged upon subsequent IRS
examination. U.S. Holders should consult with their tax advisors as to the
application and effect of the RPII rules.


79




Transfer
and Other Reporting Requirements




A U.S.
Holder that purchases shares for cash is required to file an IRS Form 926 or
similar form with the IRS, if (i) the U.S. Holder owns or is treated as owning,
directly or by attribution, immediately after the transfer at least 10% of the
voting stock vote or value of the Company or (ii) the amount of cash transferred
by such person (or any related person) to the Company during the 12-month period
ending on the date of such transfer, exceeds $100,000. Additionally, if the
Company is treated as a CFC, a 10% U.S. Holder may in certain circumstances be
required to report a disposition of shares in the Company by attaching IRS Form
5471 to the U.S. federal income tax or information return that it would normally
file for the taxable year in which the disposition occurs. A U.S. Holder that
(i) is treated as owning (actually or constructively) at least 10% by vote or
value of the equity of the Company for U.S. federal income tax purposes or (ii)
includes RPII in income as a result of its ownership of an interest in the
Company may be required to file an information return on IRS Form 5471. Holders
should consult with their tax advisors with respect to these and any other
reporting requirements that may apply with respect to their ownership of the
shares.




Information
Reporting and Backup Withholding




Under
certain circumstances, the Code requires “information reporting” annually to the
IRS and to each U.S. Holder, and “backup withholding” with respect to certain
payments made on or with respect to the shares. Backup withholding generally
does not apply with respect to certain shareholders, such as corporations.
Backup withholding will apply to a U.S. Holder only if the U.S. Holder (i) fails
to furnish its taxpayer identification number (“TIN”), (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest and dividends, or (iv) under certain circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that it is subject to backup withholding
for failure to report interest and dividend payments. The application for
exemption is available by providing a properly completed IRS Form
W-9.




Information
reporting and backup withholding may apply to the proceeds of a sale of shares
made within the United States or conducted through certain U.S. related
financial intermediaries unless the payor receives the statement described
above. Backup withholding is not an additional tax and may be refunded (or
credited against the U.S. Holder’s U.S. federal income tax liability, if any),
provided that certain required information is furnished. The information
reporting requirements may apply regardless of whether withholding is
required.




Future
U.S. Tax Legislation or Regulations




It is
possible that legislation could be introduced and enacted by the U.S. Congress,
or U.S. Treasury regulations could be issued, that could have an adverse effect
on the Company, the Insurance Companies, or its investors. In particular, a bill
was introduced in the U.S. Congress on October 27, 2009 that would require
certain foreign corporations, (such as the Company and the Insurance Companies)
to enter into an agreement with the IRS to disclose to the IRS the name,
address, and tax identification number of any U.S. person who owns an interest
in the Company or an Insurance Company, and imposes a 30% withholding tax on
certain payments of income or capital gains to the Company or the Insurance
Company if it fails to enter into the agreement or satisfy its obligations under
the agreement. A version of this legislation was introduced in a bill that
passed the U.S. House of Representatives on December 9, 2009.  If the
Company or an Insurance Company fails to enter into the agreement or satisfy its
obligations under the agreement, payments to it may be subject to a withholding
tax, which could reduce the cash available for investors.




FBAR
Reporting




U.S.
Holders should consider their possible obligation to file a Form TD F 90-22.1 —
Foreign Bank and Financial Accounts Report — with respect to the shares. Holders
should consult with their tax advisors with respect to these and any other
reporting requirements that may apply with respect to their ownership and
disposition of the shares.




THE
PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN OF THE U.S. FEDERAL INCOME TAX
IMPLICATIONS OF THE OWNERSHIP AND DISPOSITION OF THE SHARES. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE TAX
IMPLICATIONS OF THEIR OWNERSHIP AND DISPOSITION OF THE SHARES IN LIGHT OF EACH
SUCH INVESTOR’S PARTICULAR CIRCUMSTANCES.




F.
            Dividends
      and Paying Agents




Not
applicable.


80




G.
            Statements
      by Experts




Not
applicable.




H.
            Documents
      on Display




Any
statement in this Annual Report about any of the Company's contracts or other
documents is not necessarily complete. If the contract or document is filed as
an exhibit to this Annual Report, the contract or document is deemed to modify
the description contained in this Annual Report. Readers must review the
exhibits themselves for a complete description of the contract or
document.




Readers
may review a copy of the Company's filings with the SEC, including exhibits and
schedules filed with it, at the SEC's public reference facilities at 100 F
Street, N.E., Washington, D.C. 20549. Readers may call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. The SEC maintains a Web
site (http://www.sec.gov) that contains reports, submissions and other
information regarding registrants that file electronically with the
SEC.




Readers
may read and copy any reports, statements or other information that the Company
files with the SEC at the address indicated above and may also access them
electronically at the Web site set forth above. These SEC filings are also
available to the public from commercial document retrieval
services.




The
Company is required to file reports and other information with the SEC under the
Exchange Act. Reports and other information filed by the Company with the SEC
may be inspected and copied at the SEC's public reference facilities described
above. As a foreign private issuer, the Company is exempt from the rules under
the Exchange Act prescribing the furnishing and content of proxy statements and
the Company's officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of
the Exchange Act. Under the Exchange Act, as a foreign private issuer, the
Company is not required to publish financial statements as frequently or as
promptly as United States companies.




I.
            Subsidiary
      Information




Not
applicable.




ITEM
      11:
            Quantitative
      and Qualitative Disclosures about Market
Risk




Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices, and other market-driven rates or
prices. The net proceeds of our initial public offering held in the Trust
Account were invested only in US Treasury bills and money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act
of 1940, as amended.  Additional information concerning such risks can
be found under Item 3D.




ITEM
      12:
            Description
      of Securities other than Equity
Securities




Not
Applicable.




PART
II




ITEM
      13:
            Defaults,
      Dividend Arrearages and
Delinquencies




None.




ITEM
      14:
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds




As of
April 23, 2010, the holders of over two-thirds of the Company’s outstanding
voting shares, including the record holders of 742,250 of the Preferred Shares,
consented to a modification of the conversion terms of the Preferred Shares, by
providing that the Preferred Shares may be converted at any time into Ordinary
Shares at a conversion price of $6.00.  Previously the Preferred
Shares were convertible at a rate of one-sixth of the Preferred Shares per
month, commencing on July 31, 2010, at a conversion price of $7.50. On May 12,
2010, after the Company’s extraordinary general meeting, all of the Preferred
Shares were converted into Ordinary Shares. Upon conversion, the holders of the
Preferred Shares received up to a maximum of 123,708,333 Ordinary Shares,
subject to reduction based on appraisals and audits of the net asset values of
the assets acquired from the Stillwater Funds and from the Wimbledon
Funds.  As of the date of filing of this Annual Report, no Preferred
Shares are issued or outstanding.


81




ITEM
      15:
            Controls
      and Procedures




(a)
            Disclosure
      Controls and Procedures




Disclosure
controls and procedures reporting as promulgated under the Exchange Act is
defined as controls and procedures that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms. Disclosure controls and procedures
include without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our President and our Chief Financial Officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.




Our
President and our Chief Financial Officer and Secretary have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2009 and have concluded that these disclosure
controls and procedures are effective.




(b)
            Management’s
      Report on Internal Control Over Financial
  Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company. Internal control over
financial reporting provides reasonable assurance of the reliability of our
financial statements for external purposes in accordance with the generally
accepted accounting principles in the United States of America. Internal control
involves maintaining records that accurately represent our business
transactions, providing reasonable assurance that receipts and expenditures of
company assets are made in accordance with management authorization, and
providing reasonable assurance that unauthorized acquisition, use or disposition
of company assets that could have a material affect on out financial statements
would be detected or prevented on a timely basis.




Because
of its innate limitations, internal control over our financial statements is not
intended to provide absolute guarantee that a misstatement can be detected or
prevented on the statements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also projections or any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in condition, or that the degree of compliance
with the policies or procedures may deteriorate.




Management
conducted an evaluation of the effectiveness of out internal control over
financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organization of the Treadway
Commission (COSO). Based on management’s assessment and those criteria,
management believes that the company’s internal control over financial reporting
was effective as of December 31, 2009.




(c)           Attestation report of the registered
public accounting firm.This annual report does not include an
attestation of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management’s report in this annual report.




(d)           Changes in internal control over
financial reporting.During the six month period ended December 31, 2009,
there were no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or Rule 15d-15 of the Exchange Act that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.




ITEM
      16:
            Reserved




A.
            Audit
      Committee Financial Expert




Our Audit
Committee consists of Messrs. Bos, Laslop and van Roon, with Mr. Laslop serving
as chairman. Each member of our Audit Committee is financially literate under
the current listing standards of the NYSE Amex Exchange, and our board of
directors has determined that at least one the members of the Audit Committee
qualifies as an “audit committee financial expert,” as such term is defined by
SEC and the NYSE Amex Exchange rules.


82




B.
            Code
      of Ethics




We have
adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of
the Exchange Act, which is filed as Exhibit 99.1 to our Registration Statement
on Form S-1 (File No. 333-145163), as filed with the Securities and Exchange
Commission on August 6, 2007. Our Code of Ethics applies to our chief executive
officer, president and senior financial officers.




C.
            Principal
      Accountant Fees and Services




Appointment
of Auditors




Our board
of directors have appointed Rothstein, Kass & Company, P.C. to serve as our
independent auditors since September 2007.




Audit
Fees




Rothstein,
Kass & Company, P.C. billed us $55,500 in fees for audit services for the
period January 1, 2009 to December 31, 2009. Audit fees consist of fees billed
for professional services rendered in connection with the audit of our financial
statements and review of the interim financial statements reflecting quarterly
results included in our Form 6-K.




Audit-Related
Fees




We paid
$83,000 to Rothstein, Kass & Company, P.C. for assurance and related
services that are not reported under Audit Fees above, for the period ended
December 31, 2009.  These services were related to procedures
performed in connection with the Company’s acquisitions and related regulatory
filings.




Tax
and All Other Fees




We were
billed $6,000 in fees by Rothstein, Kass & Company, P.C. for tax compliance
and other work for the year ended December 31, 2009.




Pre-Approval
Policies and Procedures




We have
implemented pre-approval policies and procedures related to the provision of
audit and non-audit services. Under these procedures, our Audit Committee
pre-approves all services to be provided by Rothstein, Kass & Company, P.C.
and the estimated fees related to these services.




With
respect to the audit of our financial statements as of December 31, 2009, and
for the year then ended, none of the hours expended by Rothstein, Kass &
Company, P.C.’s engagement to audit those financial statements were attributed
to work by persons other than Rothstein, Kass & Company, P.C., and its
full-time, permanent employees.




D.
            Exemptions
      From the Listing Standards for Audit
Committees




Not
Applicable.




E.
            Purchases
      of Equity Services by the Issuer and Affiliated
  Purchasers




In
connection with the Business Combinations, the Company redeemed 3,278,991
Ordinary Shares subject to redemption for approximately $32,790,000 and
repurchased 7,916,656 Ordinary Shares for approximately
$79,639,000.




On April
8, 2010, Marshall Manley, our then chief executive officer and chairman of our
board of directors, resigned from all positions held with the
Company.  In connection with the resignation, we entered into a
Separation Agreement and Release with Mr. Manley. We also entered into a Share
Repurchase Agreement with Mr. Manley and Marseilles Capital LLC, an affiliate of
Mr. Manley, pursuant to which Marseilles Capital LLC agreed to sell 5,333,333
Ordinary Shares back to the Company as further described in Item 8B
above.




F.
            Change
      in Registrant’s Certifying
Accountant




Not
Applicable.


83




G.
            Corporate
      Governance and Exchange Act
Reporting




We are a
Cayman Islands company, and our corporate affairs are governed by the Memorandum
and Articles of Association and the Statute and common law of the Cayman
Islands. A majority of our executive officers and a majority of the
members of our board of directors are not United States citizens or
residents, and substantially all of our assets are located
outside of the United States. Based upon these and other relevant
factors, management and the board of directors believe that we are a
“foreign private issuer” as such term is defined in Rule 3b-4 of the
Exchange Act.  On May 15, 2008, we furnished a Form 6-K to the SEC
stating that we would discontinue filing period reports on Form 10-K and 10-Q
and interim reports on Form 8-K and that, going forward, we would file annual
and periodic reports under the Exchange Act as a “foreign private
issuer.” This means generally that in lieu of reports on Forms 10-K, 10-Q
or 8-K, we file annual reports on Form 20-F and periodic information on Form
6-K. We provide quarterly and other interim material information under cover of
Form 6-K in accordance with applicable rules and regulations (including the
listed company rules of the NYSE Amex Exchange) in a manner which we believe
provides material and timely information. It is important to note that
disclosure under Forms 20-F and 6-K may differ in certain material respects from
disclosure on Forms 10-K, 10-Q and 8-K.




The
principal differences between the reporting obligations of a foreign private
issuer and those of a U.S. domestic company are as follows: Foreign private
issuers are not required to file their annual report on Form 20-F until six
months after the end of each fiscal year while U.S domestic issuers that are
accelerated filers are required to file their annual report of Form 10-K within
75 days after the end of each fiscal year. Foreign private issuers are not
required to file regular quarterly reports on Form 10-Q that contain unaudited
financial and other specified information.




However,
if a foreign private issuer makes interim reports available to shareholders, the
foreign private issuer will be required to furnish copies of such reports to the
SEC on a Form 6-K. Foreign private issuers are also not required to file current
reports on Form 8-K upon the occurrence of specified significant events.
However, foreign private issuers are required to file reports on Form 6-K
disclosing whatever information the foreign private issuer has made or is
required to make public pursuant to its home country’s (Cayman Islands) laws or
distributes to its shareholders and that is material to the issuer and its
subsidiaries. Foreign private issuers are also exempt from the requirements
under the U.S. proxy rules prescribing content of proxy statements and annual
reports to shareholders. Although the NYSE Amex Exchange does require that we
prepare and deliver to shareholders annual reports and proxy statements in
connection with all meeting of shareholders, these documents are not required to
comply with the detailed content requirements of the SEC’s proxy regulations
applicable to U.S. domestic companies. Foreign private issuers generally
disclose less detailed information regarding executive compensation and related
matters.  Officers, directors and 10% beneficial owners of foreign
private issuers are exempt from requirements to file Forms 3, 4 and 5 to report
their beneficial ownership of the issuer’s common stock under Section 16(a) of
the Exchange Act and are also exempt from the related short-swing profit
recapture rules under Section 16(b) of the Exchange Act.




As a
foreign private issuer, we are exempt from, and you are not provided with the
benefits of, most of the NYSE Amex Exchange corporate governance requirements,
other than the requirement to maintain an audit committee consisting solely of
independent directors under SEC Rule 10A-3.  As a result, our
independent directors will not have as much influence over our corporate policy
as they would if we were not a foreign private issuer.




In
addition, as a foreign private issuer, are exempt from certain rules of the NYSE
Amex Exchange, including shareholder approval requirements for the actual or
potential issuance of securities representing 20% or more of our outstanding
ordinary shares, at below market prices or in connection with acquisitions, as
the laws of the Cayman Islands permit such issuances.




As a
result of all of the above, our public shareholders may have more difficulty in
protecting their interests in the face of actions taken by management, members
of the board of directors or controlling shareholders than they would as public
shareholders of a U.S. company.


84


PART
III




ITEM
      17:
            Financial
      Statements




GEROVA
Financial Group Ltd.


(f/k/a
Asia Special Situation Acquisition Corp.)


(a
corporation in the development stage)




Index
to Financial Statements


PageReport
      of Independent Registered Public Accounting Firm
                                      
                                      F-1Financial
      Statements:Balance
      Sheets as of December 31, 2009 and , 2008
                                      
                                      F-2Statements
      of Operations for the years ended December 31, 2009 and 2008, for the
      period from March 22, 2007 (inception) to December 31, 2009 and from March
      27, 2007 (inception) to December 31, 2007
                                      
                                      F-3Statements
      of Cash Flows for the years ended December 31, 2009 and 2008, for the
      period from March 22, 2007 (inception) to December 31,2009 and from March
      22, 2007 (inception) to December 31, 2007
                                      
                                      F-4Statements
      of Shareholders’ Equity for the period from March 22, 2007 (inception) to
      December 31, 2009
                                      
                                      F-5Notes
      to Financial Statements
                                      
                                      F-6
      –
F-19




85




Report
of Independent Registered Public Accounting Firm


To the
Board of Directors and Shareholders of


Gerova
Financial Group Ltd. (f/k/a Asia Special Situation Acquisition
Corp.)




We have
audited the accompanying balance sheets of Gerova Financial Group Ltd. (f/k/a
Asia Special Situation Acquisition Corp.) (a corporation in the development
stage) (the “Company”) as of December 31, 2009 and 2008 and the related
statements of operations, changes in shareholders’ equity, and cash flows for
the years end December 31, 2009 and 2008 and the periods from March 22, 2007
(inception) through December 31, 2009 and March 22, 2007 (inception) to December
31, 2007.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.  An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Gerova Financial Group Ltd (a
corporation in the development stage)  as of December 31, 2009 and 2008,
and the results of its operations and its cash flows for the years ended
December 31, 2008 and 2009 and the periods from March 22, 2007 (inception) to
December 31, 2009 and March 22, 2007 (inception) to December 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.





/s/
      Rothstein, Kass & Company,
P.C.


Roseland,
New Jersey


May 17,
2010


F-1





GEROVA
FINANCIAL GROUP, LTD.


(f/k/a
ASIA SPECIAL SITUATION ACQUISITION CORP.)


(a
corporation in the development stage)





BALANCE
SHEETS





December
      31,
                                
                                
                                December
      31,2009
                                
                                
                                2008ASSETSCurrent
      assetsCash
      and cash equivalents
                                
                                $
                                973,000
                                
                                
                                $
                                96,000Interest
      receivable from Trust Account
                                
                                
                                47,000
                                
                                
                                
                                -Prepaid
      expenses and other assets
                                
                                
                                68,000
                                
                                
                                
                                120,000Total
      current assets
                                
                                
                                1,088,000
                                
                                
                                
                                216,000Other
      assetsInvestment
      in Trust Account
                                
                                
                                115,000,000
                                
                                
                                
                                115,000,000Deferred
      finance costs, net
                                
                                
                                -
                                
                                
                                
                                672,000Total
      other assets
                                
                                
                                115,000,000
                                
                                
                                
                                115,672,000$
                                116,088,000
                                
                                
                                $
                                115,888,000LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses (including approximately $270,000 and
      $264,000, respectively, payable to the Company's former Chief Executive
      officer)
                                
                                $
                                890,000
                                
                                
                                $
                                524,000Note
      payable together with accrued interest/current portion of
    debt
                                
                                
                                -
                                
                                
                                
                                501,000Total
      current liabilities
                                
                                
                                890,000
                                
                                
                                
                                1,025,000Long-term liabilities,deferred underwriters' fee net of redemption
    forfeiture
                                
                                
                                3,450,000
                                
                                
                                
                                3,450,000Ordinary shares subject to
      redemption, 4,024,999 shares at redemption, approximately $10 per
      share
                                
                                
                                40,250,000
                                
                                
                                
                                40,250,000Commitments
      and contingenciesShareholders'
      equityPreferred
      shares, $0.0001 par value; 10,000,000 shares authorized; none
      issuedOrdinary
      shares, $0.0001 par value; 50,000,000 shares authorized; 14,000,000 shares
      issued and outstanding
                                
                                
                                1,000
                                
                                
                                
                                1,000Additional
      paid-in capital
                                
                                
                                71,036,000
                                
                                
                                
                                71,036,000Retained
      earnings
                                
                                
                                461,000
                                
                                
                                
                                126,000Total
      shareholders' equity
                                
                                
                                71,498,000
                                
                                
                                
                                71,163,000$
                                116,088,000
                                
                                
                                $
                                115,888,000





See
accompanying notes to financial statements


F-2


GEROVA
FINANCIAL GROUP, LTD.


(f/k/a
ASIA SPECIAL SITUATION ACQUISITION CORP.)


(a
corporation in the development stage)





STATEMENTS
OF OPERATIONS





For
      the periodMarch
      22, 2007(date
      of inception) toYear
      ended December 31,
                                                
                                                
                                                to
      December 31,2009
                                                
                                                
                                                2008
                                                
                                                
                                                2007
                                                
                                                
                                                2009Revenue
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -Costs
      of China Tel acquisition not completed
                                                
                                                
                                                -
                                                
                                                
                                                
                                                978,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                978,000Formation,
      operating and diligence costs
                                                
                                                
                                                2,438,000
                                                
                                                
                                                
                                                924,000
                                                
                                                
                                                
                                                6,000
                                                
                                                
                                                
                                                3,368,000Transaction
      costs recovered
                                                
                                                
                                                (3,123,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (3,123,000
                                                )Income
      (loss) from operations
                                                
                                                
                                                685,000
                                                
                                                
                                                
                                                (1,902,000
                                                )
                                                
                                                
                                                (6,000
                                                )
                                                
                                                
                                                (1,223,000
                                                )Other
      income (expense):Interest
      income from Trust Account
                                                
                                                
                                                470,000
                                                
                                                
                                                
                                                2,054,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,524,000Other
      interest
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,000
                                                
                                                
                                                
                                                3,000Amortization
      of deferred finance costs
                                                
                                                
                                                (696,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (696,000
                                                )Interest
      expense
                                                
                                                
                                                (124,000
                                                )
                                                
                                                
                                                (23,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (147,000
                                                )Net
      income (loss) applicable to ordinary shareholders
                                                
                                                $
                                                335,000
                                                
                                                
                                                $
                                                129,000
                                                
                                                
                                                $
                                                (3,000
                                                )
                                                
                                                $
                                                461,000Weighted
      average number of ordinary shares outstanding excluding ordinary shares
      subject to possible redemption:Basic
                                                
                                                
                                                14,000,000
                                                
                                                
                                                
                                                9,506,000
                                                
                                                
                                                
                                                2,500,000
                                                
                                                
                                                
                                                7,707,000Diluted
                                                
                                                
                                                17,678,000
                                                
                                                
                                                
                                                12,245,000
                                                
                                                
                                                
                                                2,500,000
                                                
                                                
                                                
                                                10,113,000Net income (loss)
      per ordinary share excluding shares subject
      to possible redemption:Basic
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                .01
                                                
                                                
                                                $
                                                0.00
                                                
                                                
                                                $
                                                (0.20
                                                )Diluted
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                .01
                                                
                                                
                                                $
                                                0.00
                                                
                                                
                                                $
                                                (0.20
                                                )Weighted
      average number of ordinary shares subject to possible
      redemption:
                                                
                                                
                                                4,025,000
                                                
                                                
                                                
                                                3,772,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,534,000Net
      income per ordinary share for shares subject to possible
      redemption:
                                                
                                                $
                                                0.00
                                                
                                                
                                                $
                                                0.00
                                                
                                                
                                                $
                                                0.00
                                                
                                                
                                                $
                                                0.00





See
accompanying notes to financial statements


F-3





GEROVA
FINANCIAL GROUP, LTD.


(f/k/a
ASIA SPECIAL SITUATION ACQUISITION CORP.)


(a
corporation in the development stage)





STATEMENTS
OF CASH FLOWS





For
      the periodMarch
      22, 2007(date
      of inception)Year
      ended December 31,
                                    
                                    
                                    to
      December 31,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2009Cash
      flows from operating activitiesNet
      income (loss)
                                    
                                    $
                                    335,000
                                    
                                    
                                    $
                                    129,000
                                    
                                    
                                    $
                                    (3,000
                                    )
                                    
                                    $
                                    461,000Adjustments
      to reconcile net income (loss) to netcash
      provided by operating activities:Amortization
      of deferred finance costs
                                    
                                    
                                    696,000
                                    
                                    
                                    
                                    9,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    705,000Increase
      (decrease) in cash attributable to change in current assets and
      liabilities:Interest
      receivable from Trust account
                                    
                                    
                                    (47,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (47,000
                                    )Prepaid
      expenses and other assets
                                    
                                    
                                    52,000
                                    
                                    
                                    
                                    128,000
                                    
                                    
                                    
                                    (248,000
                                    )
                                    
                                    
                                    (68,000
                                    )Accounts
      payable and accrued expenses and other
                                    
                                    
                                    365,000
                                    
                                    
                                    
                                    272,000
                                    
                                    
                                    
                                    253,000
                                    
                                    
                                    
                                    890,000Net
      cash provided by operating activities
                                    
                                    
                                    1,401,000
                                    
                                    
                                    
                                    538,000
                                    
                                    
                                    
                                    2,000
                                    
                                    
                                    
                                    1,941,000Cash flows used in investing
      activities: Investment inTrust
      account
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (115,000,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (115,000,000
                                    )Cash
      flows from financing activitiesProceeds
      from line of credit, shareholder
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    500,000
                                    
                                    
                                    
                                    500,000Proceeds
      from offering of 11,500,000 Units in intial public
offering
                                    
                                    
                                    -
                                    
                                    
                                    
                                    115,000,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    115,000,000Proceeds
      from sale of warrants to purchase 5,725,000 ordinary shares to
      founders
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,725,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,725,000Payments
      of offering costs
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (6,345,000
                                    )
                                    
                                    
                                    (333,000
                                    )
                                    
                                    
                                    (6,678,000
                                    )Payment
      of line of credit, shareholder
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (500,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (500,000
                                    )Proceeds
      from note payable
                                    
                                    
                                    750,000
                                    
                                    
                                    
                                    690,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,440,000Payment
      of notes payable
                                    
                                    
                                    (1,250,000
                                    )
                                    
                                    
                                    (190,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (1,440,000
                                    )Payment
      of financing costs
                                    
                                    
                                    (24,000
                                    )
                                    
                                    
                                    (16,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (40,000
                                    )Proceeds
      from issuance of ordinary shares to founders
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    25,000
                                    
                                    
                                    
                                    25,000Net
      cash provided by (used in) financing activities
                                    
                                    
                                    (524,000
                                    )
                                    
                                    
                                    114,364,000
                                    
                                    
                                    
                                    192,000
                                    
                                    
                                    
                                    114,032,000Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    877,000
                                    
                                    
                                    
                                    (98,000
                                    )
                                    
                                    
                                    194,000
                                    
                                    
                                    
                                    973,000Cash
      and cash equivalents, beginning of period
                                    
                                    
                                    96,000
                                    
                                    
                                    
                                    194,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Cash
      and cash equivalents, end of period
                                    
                                    $
                                    973,000
                                    
                                    
                                    $
                                    96,000
                                    
                                    
                                    $
                                    194,000
                                    
                                    
                                    $
                                    973,000Supplemental
      disclosure of cash flow information:Cash
      paid for interest during the period
                                    
                                    $
                                    124,000
                                    
                                    
                                    $
                                    2,000
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    126,000Supplemental
      schedule of non-cash financing activity:Accrued
      offering costs
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    260,000
                                    
                                    
                                    $
                                    -Deferred
      underwriters' fee
                                    
                                    $
                                    3,450,000
                                    
                                    
                                    $
                                    3,450,000
                                    
                                    
                                    $
                                    3,450,000
                                    
                                    
                                    $
                                    3,450,000Ordinary
      shares assigned in connection with debt financing
                                    
                                    $
                                    665,000
                                    
                                    
                                    $
                                    665,000
                                    
                                    
                                    $
                                    665,000
                                    
                                    
                                    $
                                    665,000





See
accompanying notes to financial statements


F-4





GEROVA
FINANCIAL GROUP, LTD.


(f/k/a
ASIA SPECIAL SITUATION ACQUISITION CORP.)


(a
corporation in the development stage)





STATEMENTS
OF SHAREHOLDERS' EQUITY


For the
period March 22. 2007 (date of inception) to Decemeber 31, 2009





Retained
      Earnings/(DeficitAccumulatedAdditional
                            
                            
                            During
                            
                            
                            TotalOrdinary
      Shares
                            
                            
                            Paid-in
                            
                            
                            Development
                            
                            
                            Shareholders'Shares
                            
                            
                            Amount
                            
                            
                            Capital
                            
                            
                            Stage)
                            
                            
                            EquityOrdinary
      shares issued to founders at $0.01 per shareon
      March 23, 2007
                            
                            
                            2,500,000
                            
                            
                            $
                            -
                            
                            
                            $
                            25,000
                            
                            
                            $
                            -
                            
                            
                            $
                            25,000Net
      loss for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (3,000
                            )
                            
                            
                            (3,000
                            )Balances,
      at December 31, 2007
                            
                            
                            2,500,000
                            
                            
                            
                            -
                            
                            
                            
                            25,000
                            
                            
                            
                            (3,000
                            )
                            
                            
                            22,000Sale
      of 10,000,000 units on January 23, 2008 at a price of $10 per unit in the
      public offering (each unit consists of one ordinary share and one warrant
      to purchase one ordinary share) (including 3,499,999 shares subject to
      possible redemption)
                            
                            
                            10,000,000
                            
                            
                            
                            1,000
                            
                            
                            
                            99,999,000
                            
                            
                            
                            -
                            
                            
                            
                            100,000,000Sale
      of 1,500,000 units in underwriters overallotment option on January 30,
      2008 at a price of $10 per unit in the public offering (each unit consists
      of one ordinary share and one warrant to purchase one ordinary share)
      (including 525,000 shares subject
                            
                            
                            1,500,000
                            
                            
                            
                            -
                            
                            
                            
                            15,000,000
                            
                            
                            
                            -
                            
                            
                            
                            15,000,000Underwriter's
      discount and offering costs related to the public offering (includes
      $3,450,000 payable upon a business combination)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (10,128,000
                            )
                            
                            
                            -
                            
                            
                            
                            (10,128,000
                            )Sale
      of warrants to purchase 5,725,000 ordinary shares at $1 per warrant on
      January 16, 2008 to a founding shareholder
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            5,725,000
                            
                            
                            
                            -
                            
                            
                            
                            5,725,000-
                            
                            
                            
                            -Ordinary
      shares sold in the public offering subject to redemption (4,024,999 shares
      at redemption value)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (40,250,000
                            )
                            
                            
                            -
                            
                            
                            
                            (40,250,000
                            )Shares
      assigned in connection with debt financing
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            665,000
                            
                            
                            
                            
                            
                            
                            
                            665,000Net
      income for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            129,000
                            
                            
                            
                            129,000Balances,
      at December 31, 2008
                            
                            
                            14,000,000
                            
                            
                            $
                            1,000
                            
                            
                            $
                            71,036,000
                            
                            
                            $
                            126,000
                            
                            
                            $
                            71,163,000Net
      income for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            335,000
                            
                            
                            
                            335,000Balances,
      at December 31, 2009
                            
                            
                            14,000,000
                            
                            
                            $
                            1,000
                            
                            
                            $
                            71,036,000
                            
                            
                            $
                            461,000
                            
                            
                            $
                            71,498,000





See
accompanying notes to financial statements


F-5


GEROVA
FINANCIAL GROUP, LTD.


(F/K/A
ASIA SPECIAL SITUATION ACQUISITION CORP.)


(a
corporation in the development stage)





Notes to
Financial Statements





NOTE
1—BASIS OF PRESENTATION, DESCRIPTION OF ORGANIZATION AND BUSINESS
OPERATIONS  AND ACQUISITION TRANSACTION





Basis
of Presentation & Description of Organization and Business
Operations:





Gerova Financial Group, Ltd. (f/k/a
Asia Special Situation Acquisition Corp.) (a corporation in the development
stage) (the “Company”) was formed under the laws of the Cayman Islands for the
purpose of acquiring, engaging in a capital stock exchange with, purchasing all
or substantially all of the assets of, or obtaining a majority interest through
contractual arrangements, of one or more unidentified operating
businesses.  The Company’s intent has been to acquire all or a controlling
interest in the equity of such operating business or businesses. In addition,
the Company intent has been to only acquire a business or businesses that, upon
completion of the Company’s initial business combination, will be its
majority-owned subsidiaries and will be neither investment companies nor
companies excluded from the definition of investment company by Sections 3(c)(1)
or 3(c)(7) of the Investment Company Act of 1940, as amended.  If the
Company’s initial business combination involves a transaction in which it
acquires less than a 100% interest in the target company, the value of that
interest that the Company acquires will be equal to at least 80% of the balance
in the Trust Account (excluding deferred underwriting discounts and
commissions).  In all instances, the Company would control the target
company.  At December 31, 2009 the Company is considered to be in the
development stage and is subject to the risks associated with activities of
development stage companies.





At December 31, 2009, the Company had
not commenced any operations or generated revenue.  All activity through
December 31, 2009 relates to the Company’s formation, capital raising, initial
public offering (the “Offering”) described below and efforts to locate a
suitable acquisition target.  Following the Offering, the Company has not
and will not generate any operating revenues until after completion of its
initial business combination, at the earliest.  The Company generates
non-operating income in the form of interest income on investments held in a
Trust Account, as described below, from the proceeds of the
Offering.





The Company’s intent has been to
identify prospective acquisitions that are located in or providing products or
services to customers located in Asia.  The Company’s efforts to identify a
prospective target business has not be limited to a particular industry or area
in Asia, although the Company initially intends to focus efforts on acquiring an
operating business in the leisure and hospitality and financial services
industries, that is located in or providing products or services to consumers in
China.  In evaluating a prospective target business, the Company will
consider, among other factors, the financial condition and results of
operations; growth potential; experience and skill of management; availability
of additional personnel; capital requirements; competitive position; barriers to
entry into other industries; stage of development of the products, processes or
services; degree of current or potential market acceptance of the products,
processes or services; proprietary features and degree of intellectual property
or other protection of the products, processes or services; regulatory
environment of the industry; and costs associated with effecting the business
combination.  These criteria are not intended to be exhaustive.  Any
evaluation relating to the merits of a particular business combination will be
based, to the extent relevant, on the above factors, as well as other
considerations deemed relevant by the Company in effecting a business
combination consistent with its business objective.  The Company’s
operations, if a business combination is consummated outside the United States,
will be subject to local government regulations and to the uncertainties of the
economic and political conditions of those areas.





The registration statement for the
Offering (as described in Note 8) was declared effective on January 16, 2008 and
the Company consummated the Offering on January 23, 2008.  Preceding the
consummation of the Offering, an affiliate of the Company’s sponsor, which is an
entity co-managed and jointly owned by Angela Ho, the Company’s former chief
executive officer and chairman, and Noble Investment Fund Limited, purchased
warrants to purchase 5,725,000 ordinary shares, par value $0.0001 per share
(“Ordinary Shares”), at $1 per warrant in a private placement (the “Private
Placement”) (see Note 9).





Upon the closing of the Offering and
overallotment, $114,250,000 of the proceeds from the Offering and the private
placement have been placed in a trust account (the “Trust Account”) pursuant to
an agreement with the underwriters.  Of this amount, up to $110,800,000 may
be used for the purpose of effecting a business combination, and up to
$3,450,000 will be paid to the underwriters if a business combination is
consummated, but will be forfeited by the underwriters if a business combination
is not consummated.  These funds will not be released until the earlier of
the completion of a business combination or automatic dissolution and
liquidation; provided, however, that the Company plans to draw the following
amounts from the interest accrued on the Trust Account prior to, or upon the
consummation of, a business combination or the Company’s liquidation: (i) taxes
payable on interest earned and (ii) up to $2,000,000 of interest income to fund
working capital.  Prior to the release of interest income to fund working
capital, the first $750,000 in interest earned on the amount held in the Trust
Account has been used to cover the shortfall between the required amount to be
held in trust, $115,000,000 ($10.00 per share), and the amount actually
deposited upon the exercise of the underwriters overallotment, $114,250,000
($9.93 per share).


F-6


The Company's first business
combination must be with a business or combination of businesses with a fair
market value of at least 80% of the amount in the Trust Account, less deferred
offering costs of $3,450,000 at the time of acquisition.  In the event that
shareholders owning 35% or more of the outstanding shares excluding, for this
purpose, those persons who were shareholders prior to the Offering, vote against
the business combination and request their redemption right as described below,
the business combination will not be consummated.  In the event that more
than 20%, but less than 35% of the shares owned by the Company’s public
shareholders vote against a proposed business combination and exercise their
redemption rights, the Company is still required to complete a business
combination whose fair market value is equal to at least 80% of the amount in
the Trust Account at the time of such acquisition, and as a result of any such
redemptions may have to issue debt or additional equity securities to consummate
the business combination or otherwise may be forced to dissolve and liquidate
the Company.  All of the Company's shareholders prior to the Offering,
including all of the officers and directors of the Company (the “Initial
Shareholders”), have agreed to vote their 2,500,000 founding Ordinary Shares in
accordance with the vote of the majority in interest of all other shareholders
of the Company (the “Public Shareholders”) with respect to any business
combination.  Additionally, in the event that any of the Initial
Shareholders acquire shares of the Company in connection with the initial public
offering, or in the aftermarket, they have each agreed to vote in favor of any
business combination.





With respect to the first business
combination which is approved and consummated, any Public Shareholder who voted
against the business combination may demand that the Company redeem his or her
shares.  The per share redemption price will equal the amount in the Trust
Account as of the record date for determination of shareholders entitled to vote
on the business combination divided by the number of ordinary shares held by
Public Shareholders at the consummation of the Offering. Accordingly, Public
Shareholders holding one share less than 35% of the aggregate number of ordinary
shares owned by all Public Shareholders may seek redemption of their shares in
the event of a business combination. Such Public Shareholders are entitled to
receive their per share interest in the Trust Account computed without regard to
the shares held by Initial Shareholders.





The shares owned by the Initial
Shareholders are being held in an escrow account maintained by the trustee,
acting as escrow agent, for up to three years.





Acquisition
Transaction:





Subsequent
event:  As discussed further in Note 12, in January 2010, the Company
acquired an 81.5% interest in Amalphis Group, Inc. (“Amalphis”), the parent
company of Allied Provident Insurance Company, Ltd. (“Allied Provident”), a
specialty insurance company domiciled in Barbados. At the same time, the Company
also acquired what was estimated to be approximately $655 million of the net
assets (subject to assumed liabilities as well as valuation and audit
adjustments) of a series of investment funds managed by Stillwater Capital
Partners, Inc. (“Stillwater”) and Weston Capital Asset Management, LLC
(“Weston”).  The Company contributed to Allied Provident a portion of the
net assets of the funds managed by Stillwater and Weston and may contribute the
remaining Stillwater and Weston fund assets and other hedge fund assets the
Company may acquire in the future to Allied Provident and to other insurance
companies the Company may acquire.  The Company plans to redeem or sell
some of the investment assets in order to generate additional working capital
for operations.  The Company believes that it has sufficient sources of
liquidity to finance its operations for the coming twelve months. The Company
may, however, also attempt to raise additional debt and/or equity financing in
connection with its planned activities or potential acquisitions.





NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of presentation:





The
accompanying financial statements are presented in U.S. dollars and have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) and pursuant to the rules and regulations of
the U.S. Securities and Exchange Commission (the “SEC”).


F-7


Development stage
company:





The Company complies with GAAP
reporting requirements for Development Stage Enterprises.





Cash
and cash equivalents:





For the purpose of the statements of
cash flows, the Company considers money market and mutual fund accounts as well
as all highly liquid debt instruments purchased with maturities of three months
or less to be cash equivalents.





Income
(loss) per ordinary share:





Net income (loss) per Ordinary Share is
computed by dividing net income (loss) by the weighted average number of
Ordinary Shares outstanding for the period.  Net income (loss) per Ordinary
Share, assuming dilution, reflects the maximum potential dilution that could
occur if securities or other contracts to issue Ordinary Shares were exercised
or converted into Ordinary Shares and would then share in the earnings of the
Company except where the result would be anti-dilutive.  For the years
ended December 31, 2009 and 2008 and for the period from March 22, 2007 (date of
inception) to December 31, 2007 and 2009, the effect of the 17,225,000 warrants
outstanding (including 5,725,000 warrants issued in connection with the Private
Placement) have been considered in the calculation of fully diluted income per
share under the treasury stock method.  The effect of the 475,000 units
issued to the underwriters (see Note 7) was excluded from the calculation as the
effect would be anti-dilutive.  For the period from March 22, 2007
(inception) to December 31, 2007, the Company did not have any dilutive
securities therefore diluted loss per Ordinary Share is equal to basic loss per
Ordinary Share for the period.





The
Company’s statement of operations includes a presentation of net income per
share for Ordinary Shares subject to possible conversion in a manner similar to
the two-class method of net income per share.  Net income per Ordinary
Share, basic and diluted amount for the maximum number of shares subject to
possible conversion is calculated by dividing the interest income, net of
applicable income taxes, attributable to ordinary shares subject to conversion
(nil for the years ended December 31, 2009 and 2008 and for the period from
March 22, 2007 (inception) to December 31, 2007 and 2009) by the weighted
average number of ordinary shares subject to possible conversion.





Fair value of financial
instruments:





The carrying amounts of the Company's
assets and liabilities, which qualify as financial instruments approximates
their fair value represented in the accompanying balance sheet, due to their
short-term maturities.





Concentration of credit
risk:





Financial instruments that potentially
subject the Company to concentrations of credit risk consist of a cash account
in a financial institution, which at times, may exceed the Federal depository
insurance coverage of $250,000, and investments held in a Trust Account with a
financial institution. The Company has not experienced losses on these accounts
and management believes the Company is not exposed to significant risks on such
accounts.





Use of
estimates:





The preparation of financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.





Preferred
shares




As of
December 31, 2009, the Company is authorized to issue 10,000,000 preferred
shares with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.


F-8


Redeemable
ordinary shares:





If the
Company’s initial business combination is approved, Public Shareholders voting
against the business combination will be entitled to convert their Ordinary
Shares into a pro rata share of the aggregate amount then on deposit in the
Trust Account, including their pro rata portion of the deferred underwriting
discount and any interest income earned on the Trust Account, net of (1) income
taxes payable on the interest income on the Trust Account and (2) up to
$2,000,000 of interest earned on the Trust Account balance which will be
available to the Company, net of income taxes payable on this amount, to fund
working capital requirements. The per share conversion price was $10.00 at
December 31, 2009.




Securities
that are redeemable for cash or other assets are classified outside of permanent
equity if they are redeemable at the option of the holder. The Company
recognizes changes in the redemption value immediately as they occur and will
adjust the carrying value of the redeemable ordinary shares to equal its
redemption value at the end of each reporting period.





Deferred
finance costs:





Deferred
financing costs include amounts paid to lenders and others to obtain
financing.  Such costs are capitalized and amortized using the
straight-line method over the term of the related loan, which approximately the
effective interest rate method.  Amortization of deferred financing costs
is included in interest expense in our accompanying statements of
operations.





Income
taxes:





The
Company follows the asset and liability method of accounting for income taxes.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date.  Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount to be
realized.





Under
current Cayman Islands laws, the Company is not subject to income taxes or
capital gains, and there is no Cayman Islands withholding tax imposed upon
payments of dividends by the Company to its shareholders.  In the future,
the Company's tax rate will be impacted by acquisitions of
non-Cayman subsidiaries governed by the respective local income tax
laws.  Accordingly, no provision for income taxes has been made in the
accompanying financial statements.





Uncertain
tax positions:





The
Company periodically assesses its uncertain tax positions and recognizes tax
benefits if they are “more-likely-than-not” to be upheld upon review by the
appropriate taxing authority. The Company measures the tax benefit by
determining the maximum amount that has a “greater than 50 percent likelihood”
of ultimately being realized. The Company reverses previously accrued
liabilities for uncertain tax positions when audits are concluded, statutes
expire, and administrative practices dictate that a liability is no longer
warranted, or in other circumstances as deemed necessary. These assessments can
be complex and the Company often obtains assistance from external advisors. The
Company recognizes interest and penalties related to uncertain tax positions in
other income (expense) on its Statement of Operations. The Company did not
recognize any adjustments for uncertain tax positions for any of the periods
presented in the accompanying financial statements.





Foreign
Currency Translation




Foreign
currency balance sheet items will be translated using the end of period exchange
rates, and statement of operations items will be translated at the transaction
date at the average exchange rates for each period.  The resulting
translation adjustments to the balance sheet will be recorded in accumulated
other comprehensive income (loss) within shareholders’
equity.





Foreign
currency transaction gains and losses will be included in the statement of
operations as they occur.


As of
December 31, 2009 and 2008, there were no local currency financial statements
and, therefore, no such gains or losses were recognized in the statement of
operations and no translation adjustments were recognized in shareholders’
equity.


F-9


NOTE
3 - FAIR VALUE MEASUREMENTS





In September 2006, the Financial
Accounting Standards Board issued a statement which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. The implementation during the first quarter of 2008 did
not have a material impact on our financial condition, results of operations, or
cash flows. We deferred the adoption of this statement with respect to
non-financial assets until January 1, 2009 which include goodwill, and
intangible assets with indefinite lives. This implementation did not have any
effect on our financial condition, results of operations or cash flows. Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date (exit price).





The following table presents
information about the Company’s assets that are measured at fair value on a
recurring basis, and indicates the fair value hierarchy of the valuation
techniques the Company utilized to determine such fair value.  In general,
fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets.  Fair values determined by Level 2
inputs utilize data points that are observable such as quoted prices, interest
rates and yield curves.  Fair values determined by Level 3 inputs are
unobservable data points for the asset, and includes situations where there is
little, if any, market activity for the asset as of December 31, 2009 and, 2008
follows:





Description
              
              December
      31,
                2009
              
              
              Quoted
      Prices in
                Active
      Markets
                (Level
      1)
              
              
              Significant
      Other
                Observable
      Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
                Inputs
                (Level
      3)Assets
      (at fair value):Investment
      in Trust Account (see Note 4)
              
              $
              115,000,000
              
              
              $
              115,000,000
              
              
              $
              —
              
              
              $
              —Cash
      equivalent
              
              
              47,000
              
              
              
              47,000
              
              
              
              —
              
              
              
              —Total
              
              $
              115,047,000
              
              
              $
              115,047,000
              
              
              $
              —
              
              
              $
              —





Description
              
              December
      31,
                2008
              
              
              Quoted
      Prices in
                Active
      Markets
                (Level
      1)
              
              
              Significant
      Other
                Observable
      Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
                Inputs
                (Level
      3)Assets
      (at fair value):Investment
      in Trust Account (see Note 4)
              
              $
              115,000,000
              
              
              $
              115,000,000
              
              
              $
              —
              
              
              $
              —Cash
      equivalent
              
              
              96,000
              
              
              
              96,000
              
              
              
              —
              
              
              
              —Total
              
              $
              115,096,000
              
              
              $
              115,096,000
              
              
              $
              —
              
              
              $
              —





NOTE
4 – INVESTMENT IN TRUST ACCOUNT; MARKETABLE SECURITIES





The Company periodically invests in
United States Treasury bills and classifies such bills as held-to-maturity
securities in accordance with GAAP.  Held-to-maturity securities are those
securities which the Company has the ability and intent to hold until
maturity.  Held-to-maturity treasury securities are recorded at amortized
cost and adjusted for the amortization or accretion of premiums or
discounts.  During portions of 2008 and 2009, investment securities in the
Company’s Trust Account consisted of a US dollar denominated Institutional Money
Market Fund whose objective is to provide investors with as high a level of
current income in U.S. dollars as is consistent with the preservation of capital
and liquidity by investing in a diversified portfolio of high quality U.S.
dollar denominated short-term money market instruments.  During 2008,
investments also included repurchase agreements, time deposits, commercial
paper, certificates of deposit, medium term notes and floating rate notes rated
A-1/P-1 or better with a maximum weighted average maturity of 60
days.





Investment securities in the Company’s
Trust Account at December 31, 2008 consisted of an investment in a Municipal
Obligations mutual fund account (approximately $115,000,000 at December 31,
2008) which is recorded at cost, which approximates fair value, and adjusted for
income distributions which occur monthly.





In February 2009, the Company purchased
$115,000,000 face amount of Treasury Bills that mature on September 25,
2009.  In June 2009, such Treasury Bills were sold and the proceeds
invested in a money market account.  Investment securities in the Company’s
Trust Account at December 31, 2009 consist of $115,000,000 in a money market
fund, which is recorded at cost, which approximates fair value, and is adjusted
for income distributions which occur monthly.


F-10


For the period from March 22, 2007
(inception) to June 30, 2008, approximately $60,000 was deducted from the Trust
Account for withholding of taxes which are not likely to be recovered.  As
such, this amount was charged to formation and operating costs during the year
ended December 31, 2008.  Through December 31, 2009, the first $750,000 of
trust income was retained (see Note 1) and approximately $1,675,000 of trust
income had been transferred to fund working capital of the Company.





NOTE
5 – ACQUISITION ACTIVITY AND ACQUISITIONS NOT COMPLETED





Amalphis
Group, Inc. and certain investment funds –





As
discussed further in Note 12, in January 2010, the Company acquired an 81.5%
interest in Amalphis Group, Inc., the parent company of Allied Provident
Insurance Company, Ltd., a specialty insurance company domiciled in Barbados. At
the same time, the Company also acquired what was estimated to be approximately
$655 million of the net assets (subject to assumed liabilities as well as
valuation and audit adjustments) of a series of investment funds managed by
Stillwater and Weston.





White
Energy -





On December 17, 2008, the Company
entered into an Acquisition Framework Agreement (the “Framework Agreement”) with
White Energy Company Limited (“White Energy”) and Binderless Coal Briquetting
Company Pty Limited, a wholly owned subsidiary of White Energy (“BCBC”). Under
the terms of the Framework Agreement, the Company agreed to acquire, through an
exchange of shares, White Energy’s South-East Asian business operated by its
indirect wholly owned subsidiary, BCBC Singapore Pte Ltd. (“BCBC
Singapore”).  The Company and White Energy subsequently entered into a
merger implementation agreement, as amended on August 28, 2009 and
October 9, 2009 (the “Merger Agreement”).  The Merger Agreement replaced
and superseded the terms of a prior agreement entered into with White Energy on
March 12, 2009.  Under the terms of the Merger Agreement, it was
contemplated that the Company would acquire, through an Australian court
approved merger implementation arrangement, all of the outstanding shares
of White Energy.  Under the terms of the Merger Agreement, White
Energy was valued at approximately $490.0 million and, depending upon the amount
of funds available from the Company as working capital after consummation of the
transaction, the shareholders of White Energy would have owned approximately 75%
to 83% of the Company’s fully diluted ordinary shares.





Consummation
of the merger transaction was subject to a number of conditions, including the
Company retaining (after all transaction expenses) not less than $100.0 million
in cash in its trust fund, the approval by a majority number of holders holding
not less than 75% of the voting share capital of White Energy, approval of the
Australian courts, and the approval by holders of a majority of the 11,500,000
publicly traded voting ordinary shares of the Company.





On
November 11, 2009, White Energy announced that it received commitments for
$100.0 million of equity financing from unrelated institutional investors. 
 In addition, the Company was advised that the board of directors of White
Energy determined in good faith that a number of the conditions precedent and
other matters fundamental to the successful completion of the merger transaction
with the Company were unlikely to be achieved.  After discussions between
representatives of the Company and White Energy, the parties entered into a
termination agreement pursuant to which the Merger Agreement and the
transactions contemplated thereby were terminated by mutual agreement and each
of the parties released the other and their respective affiliates and
representatives.   In consideration for the Company’s agreement to
terminate the Merger Agreement, White Energy agreed to pay the Company
$3,125,000, consisting of $2,500,000 payable directly to the Company and
$625,000 payable to retire 50% of the Company’s $1,250,000 line of credit note
to an unaffiliated third party; both of which payments were made on November 27,
2009.





ChinaTel
-





On July 8, 2008, the Company entered
into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with ChinaTel
Group, Inc. (“ChinaTel”) and Trussnet USA, Inc. (“Trussnet”).   The
Stock Purchase Agreement provided for the investment by the Company into
ChinaTel of between $201,675,000 and $270,000,000 at a price of $2.25 per
share.   All of the proceeds from the sale of the ChinaTel securities
would have gone to ChinaTel, and no shareholders of ChinaTel would have sold
their shares.




On August 6, 2008, the Company,
ChinaTel, Trussnet and George Alvarez amended and restated the Stock Purchase
Agreement in its entirety, by executing an Amended and Restated Stock Purchase
Agreement dated as of July 31, 2008 (the “Amended Stock Purchase
Agreement”).  In addition to the Amended Stock Purchase Agreement, on
August 6, 2008 the Company entered into an Agreement and Plan of Merger dated as
of July 31, 2008 (the “Merger Agreement”) with ChinaTel, CHTL Acquisition Corp.,
a wholly owned subsidiary of the Company which was subsequently dissolved (“CHTL
Acquisition”), George Alvarez, and the other principal shareholders of
ChinaTel.  Under the Merger Agreement, at the effective time of the merger,
CHTL Acquisition was to be merged into ChinaTel, with ChinaTel as the surviving
corporation of the merger (the “Merger”), as a result of which, ChinaTel would
have become a wholly-owned subsidiary of the Company.


F-11


On November 3, 2008, pursuant to a
Termination and Mutual Release Agreement with ChinaTel, the Company and ChinaTel
agreed to terminate the Stock Purchase Agreement, the Amended and Restated Stock
Purchase Agreement and the Merger Agreement (collectively, the “ChinaTel
Agreements”) in their entirety.  In addition, the parties agreed to release
each other, and their respective officers, directors, employees, agents,
shareholders, representatives and affiliates against any and all rights, claims,
liabilities, demands, actions, proceedings and causes of action, in law or in
equity, by reason of any matter, event, cause or thing whatsoever, including,
but not limited to, the obligations of the parties under the ChinaTel
Agreements.  The Company elected to terminate the ChinaTel Agreements
primarily due to the fact that the Company believed there were a number of
unresolved regulatory due diligence issues in the People’s Republic of China
relating to the proposed transaction.





NOTE
6 – NOTES PAYABLE





On December 16, 2008, the Company
consummated a Funding Agreement (the “Funding Agreement”) with a placement agent
calling for loans of up to $1,250,000 pursuant to promissory notes (the “Notes”)
that called for interest at 12% per year and matured on the earlier of (a)
January 16, 2010 or (b) the consummation of a business combination satisfactory
to the lender.  The Notes are non-recourse to the amounts in the Trust
Account in favor of the Public Shareholders and are secured by the assignment of
100,000 Ordinary Shares that are owned by certain Initial Shareholders. 
Under the agreement, $500,000 was borrowed on December 26, 2008, and the
remaining $750,000 was borrowed during the year ended December 31, 2009. 
On December 1, 2009 the Notes were paid in full. The Notes were secured by the
interest earned in the Trust Account up to $2,000,000.  In connection with
the financing, as an inducement, certain of the Ordinary Shares held by certain
initial investors were assigned to the lenders and will be conveyed upon release
from escrow.  The value of these shares, $665,000 was treated as a capital
contribution and the related financing costs are being amortized over the term
of the loan.  Pursuant to the Funding Agreement, the Company is obliged to
pay, and has paid, approximately $40,000 of costs associated with the agreement,
proportionally with each draw down against the total.  Such costs are
included in deferred financing costs and amortized over the term of the
loan.





On February 28, 2008, the Company
consummated a Loan and Security Agreement with a bank pursuant to which it
issued a $500,000 promissory note to the bank in exchange for a line of credit
that was used for working capital and general corporate purposes.  On March
28, 2008, the Company drew down $190,000, and on June 8, 2008 the Company repaid
$50,000, under the note payable and on July 3, 2008 the remaining $140,000
principal amount, plus interest, was repaid.  Borrowings under the
promissory note bore interest at the bank’s prime rate and were secured by
certain assets of the Company.  No amounts were outstanding at December 31,
2009 and 2008 under this agreement.




NOTE
7—INITIAL PUBLIC OFFERING





On January 23, 2008, the Company
consummated the sale of 10,000,000 units (“Units”) at a price of $10.00 per
unit.  Each Unit consists of one Ordinary Share and one Redeemable Ordinary
Share Purchase Warrant (“Warrant”).  On January 30, 2008, an additional
1,500,000 Units were sold pursuant to a 45-day option granted to the
underwriters to cover any over-allotments.  Each Warrant entitles the
holder to purchase from the Company one Ordinary Share at an exercise price of
$7.50 commencing on the later of: (i) the completion of business combination
with a target, or (ii) January 16, 2009, and expiring on January 16, 2012. 
The Warrants may be redeemed by the Company, at a price of $0.01 per Warrant,
upon thirty (30) days notice after the Warrants become exercisable, only in the
event that the average sale price of the ordinary share is at least $14.25 per
share for any twenty (20) trading days within a thirty (30) trading-day period
ending on the third day prior to date on which notice of redemption is
given.  If the Company is unable to deliver registered Ordinary Shares to
the holder upon exercise of warrants during the exercise period, there will be
no cash settlement of the warrants and the warrants will expire
worthless.




In connection with the Offering, the
Company paid an underwriting discount of $4,600,000 (4.0%) and a non-accountable
corporate finance fee of $1,150,000 (1%).  An additional fee of $3,450,000
(3.0%) is payable upon the Company's consummation of a business
combination.  The underwriters are not entitled to any interest accrued on
the deferred fee and have agreed to forfeit their share of the deferred fee due
them to the extent of shares redeemed by Public Shareholders.  See however,
Note 12.


F-12


In connection with the Offering, the
Company has also sold to the underwriter, for $100 as additional compensation,
an option to purchase up to a total of 475,000 units at a price of $12.50 per
unit.  The 475,000 units to be issued upon exercise of these options are
identical to those sold in the Offering.  The Company has accounted for
this purchase option as a cost of raising capital and has included the
instrument as equity in its financial statements. Accordingly, there is no net
impact on the Company’s financial position or results of operations, except for
the recording of the $100 proceeds from the sale.





The Company has estimated, based upon a
Black Scholes model, that the fair value of the purchase option on the date of
sale is approximately $0.78 per unit (a total value of $368,525), using an
expected life of five years, volatility of 9.45% and a risk-free rate of
4.17%.  The volatility calculation is based on the average volatility of 16
business combination companies that have completed their public offerings in
amounts ranging from $75,000,000 to $150,000,000, but have not yet announced an
acquisition, during the period from January 1, 2002 to September 26, 2007. 
Because the Company did not have a trading history at the time of the
calculation, it needed to estimate the potential volatility of the unit price,
which will depend on a number of factors which could not be ascertained at the
time.  The Company used these companies because management believes that
the volatility of these companies is a reasonable benchmark to use in estimating
the expected volatility for the Company’s units.  Although an expected life
of five years was used in the calculation, if the Company does not consummate a
business combination within the prescribed time period and the Company is
liquidated, the option will become worthless.




NOTE
8—RELATED PARTY TRANSACTIONS





At December 31, 2009, the Company is
obligated to Angela Ho, its former chief executive officer for approximately
$276,000 consisting of amounts advanced to pay certain costs on behalf of the
Company in February 2008, together with approximately $24,000 of accrued
interest at 5% per year.




On March 23, 2007, the Company sold
2,500,000 Ordinary Shares to the Initial Shareholders for proceeds of
$25,000.




On March 23, 2007, the Company entered
into an unsecured $500,000 line of credit (the “Line”) with the majority
shareholder of the Company, which is an entity whose chief executive officer is
a director of the Company.  The Line bore no interest and was due, and paid
in full, on the closing date of the Offering.




On January 16, 2008, immediately prior
to the Offering, the Company’s sponsor, Ho Capital Management, LLC, an entity
co-managed and jointly owned by Angela Ho, the Company’s former chief executive
officer and chairman, and Noble Investment Fund Limited, purchased an aggregate
of 5,725,000 warrants, or “insider warrants,” at a price of $1.00 per warrant in
the Private Placement. Ho Capital Management LLC and Noble Investment Fund
Limited each have a 50% beneficial ownership interest in the insider
warrants.  So long as the insider warrants are owned by Ho Capital
Management LLC, Noble Investment Fund Limited or Angela Ho, the insider warrants
may be exercised on a cashless basis and will not be subject to
redemption.  The insider warrants may not be sold, assigned or transferred
by Ho Capital Management LLC (nor may the members interest in Ho Capital
Management LLC be sold, assigned or transferred) until the Company has
consummated a business combination or (if the Company fails to consummate such
business combination ) liquidates.  The insider warrants transfer
restriction expires on the earlier of (i) a business combination or (ii) the
Company’s liquidation.





The sale of the warrants to the
Company’s sponsor did not result in the recognition of any stock-based
compensation expense because they were sold above fair market value. The Company
has granted the holders of such warrants demand and “piggy back” registration
rights with respect to the 5,725,000 warrants and the 5,725,000 Ordinary Shares
underlying the warrants at any time commencing on the date the Company announces
that it has entered into a letter of intent with respect to a proposed business
combination, provided, however, any such registration shall not become effective
until the business combination has been completed.  The demand registration
may be exercised by the holders of a majority of such warrants.  Insider
warrants will not be subject to redemption if held by the initial holder thereof
or its permitted assigns.  Permitted assigns include transfers to Noble
Investment Fund Limited, as partial consideration for the $5,725,000 loan
provided to Ho Capital Management LLC by Noble to purchase the insider warrants
immediately prior to the Offering, or to Angela Ho, a member of Ho Capital
Management LLC; provided that, the insider warrants may not be sold, assigned or
transferred until the Company consummates a business combination.  The
Company will bear the expenses incurred in connection with the filing of any
such registration statements.  If the Company does not complete a business
combination, then the $5,725,000 proceeds will be part of the liquidating
distribution to Public Shareholders and the warrants issued under the
transaction will expire worthless.  As a result of the business
combinations consummated in January 2010 described in Note 12, the warrants
remained in force.  However, the warrants or the Ordinary Shares issuable
upon exercise of the warrants may not be transferred or sold until January 20,
2011, or one year after completion of the business
combinations.


F-13


The holders of the Company’s initial
2,500,000 issued and outstanding Ordinary Shares are entitled to registration
rights pursuant to an agreement.  The holders of the majority of these
shares are entitled to make up to two demands that the Company register these
shares.  The holders of the majority of these shares can elect to exercise
these registration rights at any time after the date on which these Ordinary
Shares are released from escrow.  In addition, these shareholders have
certain “piggy-back” registration rights on registration statements filed
subsequent to the date on which these Ordinary Shares are released from
escrow.  The Company will bear the expenses incurred in connection with the
filing of any such registration statements.  The holders of the Company’s
initial 2,500,000 issued and outstanding Ordinary Shares at the time of the
Offering placed their initial shares purchased by them into an escrow account
maintained by Continental Transfer and Trust Company, acting as escrow
agent.  The initial shares will not be released from escrow until three
years from the date of the Offering, except that following the consummation of a
business combination, such shares and members interests may be transferred to
family members and trusts of permitted assignees for estate planning purposes,
or upon the death of any such person, to an estate or beneficiaries or permitted
assignees; in each case, such transferee will be subject to the same transfer
restrictions as the Company’s Initial Shareholders until after the shares and
members interests are released from escrow.





In
connection with the acquisitions of the net assets of the Stillwater Funds
(Notes 1, 5 and 12), the Company entered into a management agreement with
Stillwater. Pursuant to such management agreement, Stillwater agreed to manage
such assets in consideration for the payment of certain management and incentive
fees.  A director of the Company is a principal of Stillwater.




NOTE
9 - REDEEMABLE ORDINARY SHARES





If the Company’s initial business
combination is approved, Public Shareholders voting against the business
combination will be entitled to convert their Ordinary Shares into a pro rata
share of the aggregate amount then on deposit in the Trust Account, including
their pro rata portion of the deferred underwriting discount and any interest
income earned on the Trust Account, net of (1) income taxes payable on the
interest income on the Trust Account and (2) up to $2,000,000 of interest earned
on the Trust Account balance which will be available to the Company, net of
income taxes payable on this amount, to fund working capital requirements. The
initial per share conversion price was $10.00 at January 23, 2008.  In
order to maintain that per share conversion price after the exercise of the
underwriters overallotment option on January 30, 2008, the first $750,000 in
interest earned on the amount held in the Trust Account (net of taxes payable)
has been used raise the balance held in trust for the benefit of the public
shareholders to $115,000,000 ($10.00 per share).  The per share conversion
price at December 31, 2009 is $10.00 per share.





The Company accounts for redeemable
Ordinary Shares in accordance with GAAP.  Securities that are redeemable
for cash or other assets are classified outside of permanent equity if they are
redeemable at the option of the holder.  The Company recognizes changes in
the redemption value immediately as they occur and will adjust the carrying
value of the redeemable Ordinary Shares to equal its redemption value at the end
of each reporting period.





NOTE
10 – COMMITMENTS





In December 2008, the Company entered
into an investment banking agreement (“Banking Agreement”) with two banks
calling for financial advisory and investment banking services for a period
ending with the completion of a transaction or January 23, 2010.  The
Banking Agreement calls for a monthly fee of $50,000 commencing on December 15,
2008 plus a success fee as defined in the Banking Agreement of 3% of transaction
consideration and a financing fee of 6% of any financing of the Company or the
acquisition target in connection with an acquisition or merger
transaction.  In addition, if the Company becomes entitled to any break up
fee in connection with a proposed transaction, then the investment bankers would
be entitled to receive 10% of any such fee or payment received by the
Company.   In addition, the Banking Agreement calls for the issuance
of five year warrants for 10% of the amount of the Company or target shares or
securities at a per share price of 110% of the offering price in the
financing.   The investment banks are entitled to reimbursement of
their reasonable expenses under the Banking Agreement subject to prior approval
of amounts individually or aggregating in excess of $50,000.





In March 2009, the Company issued
warrants to purchase 200,000 Ordinary Shares to a consultant in connection with
performing due diligence on potential acquisitions.  The warrants have an
exercise price of $7.50 and expire in January 2013.  The Company valuation
of the warrants resulted in an immaterial amount.


F-14


NOTE
11 – NEW ACCOUNTING PRONOUNCEMENTS





In June
2009, GAAP was amended to require an analysis to determine whether a company has
a controlling financial interest in a variable interest entity. This analysis
identifies the primary beneficiary of a variable interest entity as the
enterprise that has a) the power to direct the activities of a variable interest
entity that most significantly impact the entity’s economic performance and b)
the obligation to absorb losses of the entity that could potentially be
significant to the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the variable interest
entity. The statement requires an ongoing assessment of whether a company is the
primary beneficiary of a variable interest entity when the holders of the
entity, as a group, lose power, through voting or similar rights, to direct the
actions that most significantly affect the entity’s economic performance. This
amendment also enhances disclosures about a company’s involvement in variable
interest entities and is effective as of the beginning of the first annual
reporting period that begins after November 15, 2009. Although. The Company is
in the process of evaluating this amendment to GAAP and the impact, if any, it
will have on the acquisitions discussed in Note 12.





Management
does not believe that any recently issued, but not yet effective, accounting
standards if currently adopted would have a material effect on the accompanying
financial statements.





NOTE
12 – SUBSEQUENT EVENTS





Business
Combination and Related Transactions -





On
January 20, 2010, the Company consummated a business combination in which it (a)
acquired an 81.5% interest in Amalphis, the parent company of Allied Provident,
and (b) acquired what was estimated to be approximately $655 million of the net
assets (subject to assumed liabilities as well as valuation and audit
adjustments) of a series of investment funds managed by Stillwater and
Weston.  The Company contributed to Allied Provident a portion of the net
assets of the funds managed by Stillwater and Weston and intends to contribute
the remaining Stillwater and Weston fund assets and other hedge fund assets it
may acquire in the future to Allied Provident and to other insurance companies
it may acquire. As part of the acquisition of certain of the assets managed by
Stillwater, the Company acquired a 38% economic interest (representing
approximately a 40% voting interest) in Northstar.  A description of the
businesses comprising the business combination is as follows:




(a)
Allied Provident is a specialty insurance company domiciled, and holding an
insurance license, in Barbados and is authorized to conduct a general insurance
business, including the sale of property, general liability, business
interruption and political risk insurance, as well as compensation bonds,
directors and officers insurance, errors and omissions insurance, structured
transactions insurance wraps, and reinsurance.  Allied
Provident commenced its insurance business in Barbados in November
2007.  It has primarily issued quota share policies that reinsure
automobile insurance policies in the United States.  It has also directly
written a number of directors’ and officers’ liability policies and a financial
guaranty policy.





(b) The
Stillwater Funds were a collection of Delaware limited partnerships and Cayman
Islands exempt companies, all of which were pooled investment vehicles. 
The Stillwater Funds were managed by Stillwater or its affiliates.  The
portfolios consisted of mostly illiquid short and medium term loans and other
asset backed obligations for various types of borrowers (consisting of lines of
credit to attorneys real estate investments and life insurance settlement and
premium finance loans) including participation in loans and loan portfolios of
other lenders undervalued real estate, distressed real estate and real estate
sold at foreclosure sales and a portfolio of hedge funds with diversified
investment strategies.





(c) The
Wimbledon Funds were master funds in a master-feeder structure which invested in
investment pools managed by investment managers such as secured and unsecured
loans and convertible and non-convertible notes and other debt instruments
including investments coupled with warrants or other equity securities and
issued by small-capitalization and private companies.





(d)
Northstar Group Holdings, Ltd. is a Bermuda-based insurance holding company with
a 100% interest in two licensed reinsurance companies in Ireland and Bermuda,
Northstar Reinsurance Ireland Ltd. and Northstar Reinsurance, Ltd.  The
insurance operating subsidiaries are life and annuity specialist reinsurers that
commenced operations on July 1, 2004.  They were organized by Stillwater
and Argus Insurance, together with management.  In Bermuda, Northstar holds
a Class 3 license as a reinsurer and is a licensed life and annuity reinsurer in
Ireland.  The Northstar Subsidiaries have approximately $800 million in
assets and $120 million in capital.  Northstar’s current insurance
activities are represented by two reinsurance treaties in force. The first
treaty reinsures equity-indexed annuities (EIA) on a co-insurance, funds
withheld basis. This treaty was effective April 1, 2005, and Northstar continued
to accept new business under this agreement until the end of February,
2008.  The second treaty reinsures in force, fixed premium, fixed cash
value, whole life insurance policies. Northstar reinsures on a coinsurance basis
various pieces of in force life insurance policies that were issued from 1996
through 2004


F-15


In
connection with the business combination, the Company designated Series A Fixed
Price Mandatory Convertible Preferred Shares, $0.0001 par value, $1,000
liquidation value (“Series A Preferred Shares”) that were convertible into
Ordinary Shares at $7.50 per share.  Consideration paid for the business
combination is as follows:





(a)
57,000 Series A Preferred Shares in consideration of shares in Amalphis equal to
an 81.5% interest in the equity of Amalphis, and 30,000 Series A Preferred
Shares for other assets contributed to Allied Provident (a subsidiary of
Amalphis), which shares are to be converted into 11.6 million Ordinary Shares at
$7.50 and are valued at approximately $87,000,000





(b) 
655,250 Series A Preferred Shares in consideration for the net assets of the
acquired Stillwater Funds and Wimbledon Funds, which shares are valued,
initially, at $655,250,000 subject to appraisal and audit, and convertible into
Ordinary Shares at $7.50 based on the final audited and appraised net asset
value (initially, 87,366,666 Ordinary Shares).





(c) As
part of the acquisition of the net assets of the Stillwater Funds, the Company
acquired a 38% interest in Northstar Group Holdings, Ltd.





In
connection with the acquisitions, the Company estimates that it has incurred
approximately $23,500,000 costs directly attributable to the Amalphis,
Stillwater and Wimbledon transactions relating to attorneys, accountants and
other advisors fees.  Of this amount, approximately $10,400,000 million was
satisfied through the issuance of 1,391,667 Ordinary Shares and certain private
warrants.  In addition, there are approximately $24,000,000 in unpaid
management fees due to the managers of the Stillwater Funds that are to be paid
out of available cash flow as determined by the Company.  In connection
with the retention of a new chief executive officer (see below), the Company
sold that person $5,333,333 Ordinary Shares in consideration of a limited
recourse note in the amount of $20,000,000 ($3.75 per share).  The
difference between the fair value of the Ordinary Shares on the date of the sale
($5.09) and the sales price aggregated approximately $7,150,000 and will be
charged to operations.





The
business combination will be accounted for under the purchase method of
accounting in accordance with IFRS 3R. Under the purchase method of accounting,
the total estimated purchase price, as calculated in the table below, is
allocated to the net tangible and intangible assets acquired and liabilities
assumed in connection with the transaction, based on their estimated fair values
as of the completion of the transaction.  Any excess of the purchase price
over the estimated fair value of the net assets acquired (including both
tangible and identifiable intangible assets) is allocated to goodwill.  The
initial purchase price allocation has been made using estimates that are subject
to audit and appraisal and therefore are subject to change.  The
acquisition of the Stillwater Funds and Wimbledon Funds will be accounted for at
their estimated total net asset value (“NAV”), initially estimated to be
approximately $685,000,000, but subject to post closing audit and
appraisal.  The term “NAV” is defined to mean (a) the aggregate fair market
values of the assets of the applicable funds (including loan participations),
calculated (i) as to the lending funds and the real estate funds at the lower of
original investment cost or market value, and (ii) as to the Stillwater fund of
funds (both Delaware and Cayman) at the market value of the portfolios of the
investee-funds, as at December 31 2009, less (b)  any liabilities or
obligations of such Fund as at December 31, 2009.  The assets of the
Stillwater Funds and the Wimbledon Funds are included in the pro-forma
information based on preliminary estimates and are subject to adjustment based
on completion of appraisals and audits that are in process.  Such
adjustments could be material.





In
connection with the business combination, the Company redeemed 3,278,991
Ordinary Shares subject to redemption for approximately $32,790,000 and
repurchased 7,916,656 Ordinary Shares for approximately $79,639,000.  The
Company has entered into a settlement and release agreement with respect to an
underwriter concerning the deferred underwriting fee.  Such agreement calls
for the cash payment of $250,000 and a non-interest bearing note payable for
$1,300,000 which is due on December 15, 2011 (subject to a discount if paid by
December 15, 2010 or June 15, 2011 of $130,000 and $65,000, respectively). 
If the note is not paid at maturity, the principal amount, after a notice and
cure period, would increase to 2,250,000 less all amounts paid through the date
of such increase.





In
connection with the business combination, the Company granted the Stillwater
Funds and Wimbledon Funds registration rights for the Ordinary Shares underlying
the conversion feature of the Series A Preferred Shares issued to them. 
 The Company could be assessed penalties, as defined in the related
agreement, for the failure to file a registration statement in a certain
timeframe or for the failure to obtain effectiveness of such registration
statement by July 31, 2010 or maintain effectiveness after such date.  Such
penalties shall not exceed, in the aggregate, 10% of the aggregate net asset
value transferred.  The Company intends to file the registration statement
within the required timeframe and believes that such registration statement will
be declared effective in the requisite timeframe and therefore there is not a
material likelihood of a liability under the registration rights
agreement.


F-16


On
January 20, 2010, the shareholders of the Company approved the change of the
Company’s name to Gerova Financial Group, Ltd.





On May
12, 2010, the shareholders of the Company at an extraordinary general meeting
approved the following: (i) an increase in the authorized Ordinary Shares from
350,000,000 to 500,000,000; (ii) an increase in the authorized preferred shares
from 10,000,000 to 500,000,000; (iii) the automatic conversion of all 742,250
outstanding Series A Preferred Shares into 123,708,334 Ordinary Shares,
resulting from a reduction in the conversion price of such Series A Preferred
Shares from $7.50 per share to $6.00 per share; and (iv) the 2010 Plan (defined
below).  As a result, there are approximately 133,400,000 Ordinary Shares
issued and outstanding and no Series A Preferred Shares issued and
outstanding.  All but 9,500,000 of the 123,708,334 shares issued upon
conversion of the Series A Preferred Shares are subject to post-acquisition
audit and other adjustments.





The
following unaudited condensed pro-forma information reflects the business
combination with Amalphis as though they occurred at the beginning of each
period presented.





Year ended December 31,2009
                  
                  
                  2008Revenues
                  
                  $
                  22,859,000
                  
                  
                  $
                  17,468,000Net
      Income
                  
                  $
                  13,222,000
                  
                  
                  $
                  3,932,000Earnings
      per share:Basic
                  
                  $
                  1.36
                  
                  
                  $
                  0.04Diluted
                  
                  $
                  0.12
                  
                  
                  $
                  0.04





On May
21, 2010, the board of directors of the Company approved amendments to the
January 16, 2008 warrant agreement to: (a) effect an exchange of the 17.7
outstanding warrants covered by the agreement, as a result of which the holders
of such warrants on the June 8, 2010 effective date of the exchange received an
additional warrant and own an aggregate of 35.4 million warrants, entitling such
holders to purchase an aggregate of 35.4 million Ordinary Shares; (b) reduce the
exercise price of the warrants from $7.50 to $7.00; and (c) extend the exercise
period of the warrants for two years, or until January 16, 2014. The Company set
June 8, 2010 as the record date for determining the appropriate warrant holders
entitled to receive the benefit of the foregoing amendments.




On May
26, 2010, the Company entered into a real estate joint venture transaction with
Planet Five Development Group, LLC (“Planet Five”) and two other unaffiliated
third parties.   The Company, Planet Five and Robert Willison
(collectively, the “Operating Members”) formed a new Florida limited liability
company called Net Five Holdings, LLC (the “JV Company”).   The
Company intends to contribute to the JV Company all of the owned real estate
properties and real estate loan assets acquired in connection with the January
2010 acquisition of the Stillwater Funds, and Planet Five and its affiliates
will contribute to the JV Company not less than $100.0 million in net asset
value of seven income producing operating properties and four undeveloped
commercial and residential properties located in Florida (collectively, the
“Contributed Assets”).  The Company or its subsidiaries will own a 49%
Class A equity percentage interest in the JV Company, Planet Five will own a 38%
Class A equity percentage interest and Mr. Willison and a third party will
collectively own 12% Class B equity percentage interests in the JV
Company.  The Class B equity interests only share in earning and profits of
the JV Company after each of the Company and Planet Five recoup in cash the net
asset values of the respective properties contributed by them to the JV
Company.  In addition, the holders of the Class B equity interests have
granted to Planet Five a three year irrevocable proxy to vote all Class B equity
interests in the JV Company.   The management of the JV Company will
be conducted by the Operating Members through a board of managers, a majority of
which members are and will be persons designated by the Operating Members of the
JV Company.  Messrs. Paul Rohan and Gregory Laubach, principal owners of
Planet Five, and Robert Willison will constitute a majority of the members of
the board of managers of the JV Company.




Employment
Agreements -





The
Company retained the services of a new chief executive officer effective
December 1, 2009 under a contract that calls for a base salary of $650,000 (as
increased by the greater of 3% per year or the increase in the consumer price
index) and a bonus of up to 100% of his base salary as may be determined by the
board of directors.  On April 8, 2010, such chief executive officer
resigned from all positions held with the Company and entered into a separation
agreement and release with the Company.  In addition, the Company also
agreed to repurchase from an entity affiliated with such executive, all of the
5,333,333 Ordinary Shares sold to such entity in January 2010, in consideration
for termination of a secured note issued to the Company and certain deferred
payments aggregating $4.95 million.


F-17


Effective
April 1, 2010, the Company entered into an employment agreement pursuant to
which, among other things, an executive serves as President and Chief Executive
Officer of Gerova Holdings, Ltd. for an initial term of three years, subject to
mutual agreement to extend the term for such period as may be agreed. 
 The executive shall also provide services to one or more direct or
indirect subsidiary corporations or divisions of the Company or related
affiliates of the Company that are engaged in the insurance and/or reinsurance
businesses.  He also has such additional responsibilities or duties with
respect to the Company as may be determined and assigned to him by the board of
directors.





This
executive is entitled to a base salary of $400,000, subject to increase at the
discretion of our board of directors, and to a targeted bonus of 100% of his
base salary as may be determined by the board of directors.  He is also
entitled to receive options to purchase 120,000 Ordinary Shares under the 2010
Plan.  Such options shall vest at a rate of one-third per year on the each
anniversary of the employment agreement and are exercisable at a price per share
that is the greater of 100% of the closing market price of the Ordinary Shares,
as traded on the NYSE Amex Exchange or other national securities exchange, or
100% of the per share value of the shareholders’ equity of the Company. 
Such options are subject to immediate vesting if the executive terminates the
employment agreement for “good reason” or his employment is terminated for
reasons other than “cause” as defined.  Should his employment be terminated
for “cause,” all such options will be immediately cancelled and forfeited. 
He is also entitled to receive standard insurance, health and medical benefits
as are generally made available to other employees of the Company. The agreement
also contains provisions for payment in the event of death or disability or
termination without “cause,” all as defined in the agreement.





2010
Stock Incentive Plan -





In
January 2010, the Company adopted a Stock Incentive Plan (the “2010 Plan”) for
its employees, which was approved by the shareholders at an extraordinary
general meeting. The 2010 Plan provides for various types of awards denominated
in Ordinary Shares to employees, officers, nonemployee directors and agents of
the Company and its participating subsidiaries. The purposes of the 2010 Plan
are to align employee interests with those of our shareholders, to attract and
retain employees by providing competitive compensation opportunities, and to
provide incentives for those employees who contribute to the long-term
performance and growth of the Company and its subsidiaries.





The
2010 Plan is administered by the compensation committee of the board of
directors. With respect to participants who are directors, the plan may be
administered by the entire board of directors.  The committee has the
authority to administer and interpret the 2010 Plan, to determine the employees
to whom awards will be made under the 2010 Plan and, subject to the terms of the
2010 Plan, the type and size of each award, the terms and conditions for
vesting, cancellation and forfeiture of awards and the other features applicable
to each award or type of award. The committee may accelerate or defer the
vesting or payment of awards, cancel or modify outstanding awards, waive any
conditions or restrictions imposed with respect to awards or the stock issued
pursuant to awards and make any and all other determinations that it deems
appropriate with respect to the administration of the 2010 Plan, subject to the
minimum vesting requirements of the 2010 Plan, the prohibitions in the 2010 Plan
against re-pricing, the provisions of Sections 162(m) and 409A of the Internal
Revenue Code of 1986, as amended, the laws of the Cayman Islands, the Memorandum
and  Articles of Association of the Company and any other applicable laws
or exchange rules.





The
2010 Plan provides that up to 20 million shares shall be available for grant
pursuant to the various types of awards that may be granted under the plan, but
that each share subject to an option or SAR shall be counted as one share. 
The number of shares authorized for grant under the 2010 Plan is subject to
adjustment if there is a change in the Ordinary Shares, such as a share split or
other transaction that increases (or decreases) the number of Ordinary Shares
outstanding.





If an
award under the 2010 Plan is forfeited, cancelled, or terminated or expires
prior to the issuance of shares, the shares subject to the award will be
available for future grants under the 2010 Plan.





Under the
2010 Plan, the shares available for awards under the plan may not vest in full
prior to the third anniversary of the award date (except in certain
circumstances, such as retirement, death, disability, leave of absence,
termination of employment, the sale or other disposition of a participant’s
employer or other similar event). Additionally, this three-year minimum vesting
schedule will not apply to the extent that any award would become vested upon
the achievement of performance objectives over a period of at least one year,
and such objectives are in fact achieved.  Payment of the exercise price of
a non-qualified stock option or incentive stock option may be made by methods
permitted by the committee from time to time, including payment in cash, by
tendering (actually or by attestation) Ordinary Shares owned by the participant
for any minimum period of time that the committee may specify, and that have a
fair market value equal to the exercise price; by a combination of cash and
Ordinary Shares; or by authorizing the sale of the number of shares otherwise
issuable upon exercise, with the sale proceeds applied towards the exercise
price. Additionally, the committee may provide that stock options can be net
exercised, that is, to be exercised by issuing shares having a value
approximately equal to the difference between the aggregate value of the shares
as to which the option is being exercised and the aggregate exercise price for
such number of shares.


F-18


The 2010
Plan provides that at any time prior to, at or after the time of a “change of
control” (as defined in the plan) that, with respect to a participant whose
employment has been terminated as a result of the change of control, the
committee, may, in its discretion, provide for the acceleration of any time
periods or the waiver of any other conditions to vesting, exercise, payment or
distribution of an award, or provide for the purchase of any award.





The
Company has evaluated the need to disclose events subsequent to the balance
sheet date through the filing date of this 20-F and concluded that all such
material items are disclosed.


F-19




ITEM
      18:
            Financial
      Statements




See Item
17.




ITEM
      19:
            Exhibits




Financial
Statements




The
following financial statements are filed as part of this report under Item 8 of
Part II “Financial Statements and Supplementary Data:




A.
            Report
      of Independent Registered Public Accounting
Firm


B.
            Balance
      Sheets as of December 31, 2009 and
2008.


C.
            Statements
      of Operations for the years ended December 31, 2009 and 2008 and for the
      period from March 22, 2007 (inception) to December 31,
    2009.


D.
            Statements
      of Cash Flows for the years ended December 31, 2009 and 2008 and for the
      period from March 22, 2007 (inception) to December 31,
    2009.


E.
            Statements
      of Shareholders’ Equity for the period from March 22, 2007 (inception) to
      January 1, 2009.





Exhibits




The
exhibits listed below are filed or incorporated by reference as part of this
Annual Report on Form 20-F.





Exhibit
                  No.
                
                Description1.1
                
                Underwriting
      Agreement (incorporated herein by reference to Exhibit 10.1 to the
      Registrant’s Current Report on Form 8-K (File No. 001-33916), as filed
      with the Securities and Exchange Commission on January 25,
      2008).3.1
                
                Amended
      and Restated Memorandum and Articles of Association (incorporated herein
      by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant’s
      Registration Statement on Form S-1 (File No. 333-145163), as filed with
      the Securities and Exchange Commission on November 2,
    2007).3.2
                
                Second
      Amended and Restated Memorandum and Articles of Association (incorporated
      herein by reference to Annex A to the Registrant’s Proxy Statement filed
      as Exhibit 99.1 to the Company’s Report of Foreign Private Issuer on Form
      6-K (File No. 001-33916), as filed with the Securities and Exchange
      Commission on January 7, 2010).3.3
                
                Third
      Amended and Restated Memorandum and Articles of Association (incorporated
      herein by reference to Exhibit B of Exhibit 99.2 of the Company’s Report
      of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
      the Securities and Exchange Commission on May 3, 2010).4.1
                
                Specimen
      Unit Certificate (incorporated herein by reference to Exhibit 4.1 to
      Amendment No. 1 to the Registrant’s Registration Statement on Form S-1
      (File No. 333-145163), as filed with the Securities and Exchange
      Commission on October 1, 2007).4.2
                
                Specimen
      Ordinary Share Certificate (incorporated herein by reference to Exhibit
      4.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form
      S-1 (File No. 333-145163), as filed with the Securities and Exchange
      Commission on October 1, 2007).4.3
                
                Specimen
      Warrant Certificate (incorporated herein by reference to Exhibit 4.3 to
      Amendment No. 1 to the Registrant’s Registration Statement on Form
      S-1 (File No. 333-145163), as filed with the Securities and Exchange
      Commission on October 1,
2007).




86





4.4
                
                Warrant
      Agreement between Continental Stock Transfer & Trust Company and the
      Registrant. (incorporated herein by reference to Exhibit 4.1 to the
      Registrant’s Current Report on Form 8-K (File No. 001-33916), as filed
      with the Securities and Exchange Commission on January 25,
      2008).4.5
                
                Unit
      Purchase Option in favor of Maxim Partners LLC (incorporated herein by
      reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K
      (File No. 001-33916), as filed with the Securities and Exchange Commission
      on January 25, 2008).4.6
                
                Unit
      Purchase Option in favor of CRT Capital Group LLC (incorporated herein by
      reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K
      (File No. 001-33916), as filed with the Securities and Exchange Commission
      on January 25, 2008).4.7
                
                2010
      Stock Incentive Plan of the Company (incorporated herein by reference to
      Exhibit A of Exhibit 99.2 of the Company’s Report of Foreign Private
      Issuer on Form 6-K (File No. 001-33916), as filed with the Securities and
      Exchange Commission on May 3, 2010).4.8
                
                Amendment
      No. 1 to Warrant Agreement, dated as of May 25, 2010, by and among Gerova
      Financial Group, Ltd. and Continental Stock Transfer & Trust Company
      (incorporated herein by reference to Exhibit 4.1 to the Company’s Report
      of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
      the Securities and Exchange Commission on May 28,
2010).10.1
                
                Form
      of Letter Agreement by Insiders of the Registrant to Maxim Group LLC and
      the Registrant (incorporated herein by reference to Exhibit 10.1 to
      Amendment No. 4 to the Registrant’s Registration Statement on Form
      S-1 (File No. 333-145163), as filed with the Securities and Exchange
      Commission on December 17, 2007).10.2
                
                Investment
      Management Trust Agreement between Continental Stock Transfer & Trust
      Company and the Registrant (incorporated herein by reference to Exhibit
      10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-33916),
      as filed with the Securities and Exchange Commission on January 25,
      2008).10.3
                
                Stock
      Escrow Agreement between the Registrant, Continental Stock Transfer &
      Trust Company and the Initial Shareholders (incorporated herein by
      reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K
      (File No. 001-33916), as filed with the Securities and Exchange Commission
      on January 25, 2008).10.4
                
                Registration
      Rights Agreement among the Registrant and the Initial Shareholders
      (incorporated herein by reference to Exhibit 10.4 to the Registrant’s
      Current Report on Form 8-K (File No. 001-33916), as filed with the
      Securities and Exchange Commission on January 25,
2008).10.5
                
                Subscription
      Agreement between the Registrant and certain officers and directors of the
      Registrant (incorporated herein by reference to Exhibit 10.5 to the
      Registrant’s Current Report on Form 8-K (File No. 001-33916), as filed
      with the Securities and Exchange Commission on January 25,
      2008).10.6
                
                Promissory
      Note in the amount of up to $500,000 issued to Ho Capital Management LLC
      (incorporated herein by reference to Exhibit 10.8 to the Registrant’s
      Registration Statement on Form S-1 (File No. 333-145163), as filed with
      the Securities and Exchange Commission on August 6,
  2007).10.7
                
                Promissory
      Note in the amount of up to $500,000 issued by Ho Capital Management LLC
      to Noble Investment Fund Limited (incorporated herein by reference to
      Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File
      No. 333-145163), as filed with the Securities and Exchange Commission on
      August 6, 2007).10.8
                
                Letter
      Agreement among Noble Investment Fund Limited, Ho Capital Management LLC
      and Allius Ltd. (incorporated herein by reference to Exhibit 10.10 to the
      Registrant’s Registration Statement on Form S-1 (File No. 333-145163), as
      filed with the Securities and Exchange Commission on August 6,
      2007).10.9
                
                Form
      of Promissory Note in the amount of $5,725,000 issued by Ho Capital
      Management LLC to Noble Investment Fund Limited (incorporated herein by
      reference to Exhibit 10.9 to Amendment No. 3 to the Registrant’s
      Registration Statement on Form S-1 (File No. 333-145163), as filed with
      the Securities and Exchange Commission on November 26,
    2007).


87





10.10
              
              Form
      of Pledge Agreement between Ho Capital Management LLC, Noble Investment
      Fund Limited and Hodgson Russ LLP (incorporated herein by reference to
      Exhibit 10.10 to Amendment No. 4 to the Registrant’s Registration
      Statement on Form S-1 (File No. 333-145163), as filed with the
      Securities and Exchange Commission on December 17,
  2007).10.11
              
              Form
      of Operating Agreement of Ho Capital Management LLC (incorporated herein
      by reference to Exhibit 10.11 to Amendment No. 4 to the Registrant’s
      Registration Statement on Form S-1 (File No. 333-145163), as filed
      with the Securities and Exchange Commission on December 17,
      2007).10.12
              
              Form
      of Letter Agreement by affiliated entities of the Registrant’s officers,
      directors and initial shareholders to Maxim Group LLC and the Registrant
      (incorporated herein by reference to Exhibit 10.12 to Amendment No. 2 to
      the Registrant’s Registration Statement  on Form S-1 (File No.
      333-145163), as filed with the Securities and Exchange Commission on
      November 2, 2007).10.13
              
              Loan
      and Security Agreement dated as of February 28, 2008 by and between Asia
      Special Situation Acquisition Corp. and Wachovia Bank, National
      Association (incorporated herein by reference to Exhibit 10.1 to the
      Registrant’s Current Report on Form 8-K (File No. 001-33916), as filed
      with the Securities and Exchange Commission on March 3,
    2008).10.14
              
              $500,000
      Promissory Note of Asia Special Situation Acquisition Corp. dated as of
      February 28, 2008 in favor of Wachovia Bank, National Association
      (incorporated herein by reference to Exhibit 10.2 to the Registrant’s
      Current Report on Form 8-K (File No. 001-33916), as filed with the
      Securities and Exchange Commission on March 3, 2008).10.15
              
              Letter
      from Angela Ho to certain shareholders of Asia Special Situation
      Acquisition Corp. (incorporated herein by reference to Exhibit 10.2 to the
      Registrant’s Report on Form 6-K (File No. 001-33916), as filed with the
      Securities and Exchange Commission on July 10, 2008).10.16
              
              Letter
      of Intent, dated December 18, 2009, with Stillwater Capital Partners, Inc.
      (incorporated herein by reference to Exhibit 10.1 to the Company’s Report
      of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
      the Securities and Exchange Commission on January 7,
  2010).10.17
              
              Letter
      Agreement dated December 22, 2009 with Northstar Companies (incorporated
      herein by reference to Exhibit 10.2 to the Company’s Report of Foreign
      Private Issuer on Form 6-K (File No. 001-33916), as filed with the
      Securities and Exchange Commission on January 7, 2010).10.18
              
              Stillwater
      Merger Agreements, dated as of December 31, 2009 (incorporated herein by
      reference to Exhibit 10.3 to the Company’s Report of Foreign Private
      Issuer on Form 6-K (File No. 001-33916), as filed with the Securities and
      Exchange Commission on January 7, 2010).10.19
              
              Stillwater
      Asset Purchase Agreements, dated as of December 31, 2009 (incorporated
      herein by reference to Exhibit 10.4 to the Company’s Report of Foreign
      Private Issuer on Form 6-K (File No. 001-33916), as filed with the
      Securities and Exchange Commission on January 7, 2010).10.20
              
              Wimbledon
      Financing Master Fund Asset Purchase Agreement, dated as of December 31,
      2009 (incorporated herein by reference to Exhibit 10.6 to the Company’s
      Report of Foreign Private Issuer on Form 6-K (File No. 001-33916), as
      filed with the Securities and Exchange Commission on January 7,
      2010).10.21
              
              Wimbledon
      Real Estate Financing Master Fund Asset Purchase Agreement, dated as of
      December 31, 2009 (incorporated herein by reference to Exhibit 10.7 to the
      Company’s Report of Foreign Private Issuer on Form 6-K (File No.
      001-33916), as filed with the Securities and Exchange Commission on
      January 7, 2010).10.22
              
              Amalphis
      Group Share Exchange Agreement, dated as of December 31, 2009
      (incorporated herein by reference to Exhibit 10.8 to the Company’s Report
      of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
      the Securities and Exchange Commission on January 7,
  2010).




88





10.23
              
              Employment
      Agreement dated as of December 1, 2009, by and between Marshall Manley and
      Asia Special Situation Acquisition Corp. (incorporated herein by reference
      to Exhibit 10.10 to the Company’s Report of Foreign Private Issuer on Form
      6-K (File No. 001-33916), as filed with the Securities and Exchange
      Commission on January 7, 2010).10.24
              
              Share
      Purchase Agreement dated as of January 1, 2010, by and among Asia Special
      Situation Acquisition Corp., Marseilles Capital LLC and Marshall Manley
      (incorporated herein by reference to Exhibit 10.9 to the Company’s Report
      of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
      the Securities and Exchange Commission on January 7,
  2010).10.25
              
              Engagement
      Agreement with Roth Capital Partners (incorporated herein by reference to
      Exhibit 10.11 to the Company’s Report of Foreign Private Issuer on Form
      6-K (File No. 001-33916), as filed with the Securities and Exchange
      Commission on January 7, 2010).10.26
              
              Agreement,
      dated January 13, 2010, by and between Asia Special Situation Acquisition
      Corp. and Victory Park Capital Advisors, LLC (incorporated herein by
      reference to Exhibit 10.1 to the Company’s Report of Foreign Private
      Issuer on Form 6-K (File No. 001-33916), as filed with the Securities and
      Exchange Commission on January 14, 2010).10.27
              
              Form
      of Stock Purchase Agreement (incorporated herein by reference to Exhibit
      10.2 to the Company’s Report of Foreign Private Issuer on Form 6-K (File
      No. 001-33916), as filed with the Securities and Exchange Commission on
      January 14, 2010).10.28
              
              Management
      Agreement, between WFM Holdings, Ltd. and Weston Capital Asset Management,
      LLC, dated as of January 20, 2010 (incorporated herein by reference to
      Exhibit 10.2 to the Company’s Report of Foreign Private Issuer on Form 6-K
      (File No. 001-33916), as filed with the Securities and Exchange Commission
      on January 26, 2010).10.29
              
              Management
      Agreement, between WFM Holdings, Ltd. and Weston Capital Asset Management,
      LLC, dated as of January 20, 2010 (incorporated herein by reference to
      Exhibit 10.3 to the Company’s Report of Foreign Private Issuer on Form 6-K
      (File No. 001-33916), as filed with the Securities and Exchange Commission
      on January 26, 2010).10.30
              
              Investment
      Management Agreement, between the Company and Stillwater Capital Partners,
      Inc., dated as of January 20, 2010 (incorporated herein by reference to
      Exhibit 10.4 to the Company’s Report of Foreign Private Issuer on Form 6-K
      (File No. 001-33916), as filed with the Securities and Exchange Commission
      on January 26, 2010).10.31
              
              Separation
      Agreement and Release, dated as of April 8, 2010, by and between Gerova
      Financial Group, Ltd. and Marshall Manley (incorporated herein by
      reference to Exhibit 4.1 to the Company’s Report of Foreign Private Issuer
      on Form 6-K (File No. 001-33916), as filed with the Securities and
      Exchange Commission on April 12, 2010).10.32
              
              Share
      Repurchase Agreement, dated as of April 8, 2010, by and among Gerova
      Financial Group, Ltd., Marseilles Capital LLC and Marshall Manley
      (incorporated herein by reference to Exhibit 4.2 to the Company’s Report
      of Foreign Private Issuer on Form 6-K (File No. 001-33916), as filed with
      the Securities and Exchange Commission on April 12,
  2010).10.33
              
              Amended
      and Restated Registration Rights Agreement by and among the Company,
      Stillwater Capital Partners, Inc., Stillwater Capital Partners, LLC, the
      Wimbledon Financing Master Fund, Ltd. and the Wimbledon Real Estate
      Financing Master Fund, Ltd., dated as of April 23, 2010 (incorporated
      herein by reference to Exhibit 10.1 to the Company’s Report of Foreign
      Private Issuer on Form 6-K (File No. 001-33916), as filed with the
      Securities and Exchange Commission on May 3,
  2010).




89





10.34
              
              Employment
      Agreement dated as of April 1, 2010 by and between Gerova Financial Group,
      Ltd. and Lou E. Hensley (incorporated herein by reference to Exhibit 10.34
      to the Company’s Annual Report on Form 20-F (File No. 001-33916), as filed
      with the Securities and Exchange Commission on June 2,
    2010).10.35
              
              Form
      of Operating Agreement of Net Five Holdings, LLC, dated as of May 26,
      2010, by and among Planet Five Development Group, LLC, Gerova Financial
      Group, Ltd., Planet Five at Gerova, LLC, Robert V. Willison, and the other
      parties thereto (incorporated herein by reference to Exhibit 10.35 to the
      Company’s Annual Report on Form 20-F (File No. 001-33916), as filed with
      the Securities and Exchange Commission on June 2,
2010).10.36
              
              Form
      of Contribution Agreement, dated as of May 26, 2010, by and among Gerova
      Financial Group, Ltd., Planet Five Development Group, LLC and Net Five
      Holdings, LLC (incorporated herein by reference to Exhibit 10.36 to the
      Company’s Annual Report on Form 20-F (File No. 001-33916), as filed with
      the Securities and Exchange Commission on June 2,
2010).12.A
              
              Certification
      by President pursuant to Sarbanes Oxley Section 302.*12.B
              
              Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Section
      302.*13.A
              
              Certification
      by President pursuant to 18 U.S.C. Section 1350.*13.B
              
              Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section
      1350.*99.1
              
              Code
      of Ethics (incorporated herein by reference to Exhibit 99.1 to the
      Registrant’s Registration Statement on Form S-1 (File No. 333-145163), as
      filed with the Securities and Exchange Commission on August 6,
      2007).





*
Filed herewith.


90


SIGNATURES




The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that is has duly caused and authorized the undersigned to sign
this annual report on its behalf.





GEROVA
      FINANCIAL GROUP, LTD.June
      16, 2010
                By:/s/
      Joseph J. BiancoJoseph
      J. BiancoChief
      Executive Officer(Principal
      Executive Officer)


91