Document:

Exhibit 10.30

 

QUOTA SHARE REINSURANCE TREATY

(Hereinafter referred to as “the Agreement”)

 

Between

Mont Fort Re Limited in respect of if
segregated account, designated as ILW 2 Cell

(Hereinafter referred to as “the Company”)

 

And

Flagstone Reinsurance Limited

(Hereinafter referred to as “the Reinsurer”)

 

DEFINITIONS

 

“Loss” shall mean actual
payments on claims and all charges and loss reserves related to claims filed as
well as claims expected to be filed (IBNR), including any extra-contractual or
punitive damages.

 

“Loss Adjustment Expense” shall
mean all expenses, excluding the salaries and expenses of the company’s
employees, incurred by the company associated with handling of claims on
company policies.

 

ARTICLE I

 

BUSINESS
REINSURED

 

The Company shall cede to the
Reinsurer and the Reinsurer shall accept from the Company an 8.33% quota share
participation of the net retained insurance liability of the Company with
respect to business designated as ILW 2 Cell.

 

The Reinsurer’s limit of
liability to the Company under this Agreement for any and all losses and loss
adjustment expenses incurred on all policies of insurance and reinsurance is
subject to a maximum total limit not to exceed (a) $5 million, plus (b) the
Reinsurer’s proportionate share of net retained premium.

 

 

ARTICLE II

 

ORIGINAL
CONDITIONS

 

All reinsurances embraced by
this Agreement shall be subject to the same terms and conditions which govern
the respective policies, endorsements, binders and certificates of the Company,
and the Reinsurer shall be entitled to 8.33% of the net retained premiums plus
interest earned by the Company, such premiums to be paid as received by the
company.

 

ARTICLE III

 

ATTACHMENT,
COMMENCEMENT AND TERMINATION

 

Liability hereunder shall be
automatic and shall commence obligatorily and simultaneously with that of the
Company. The premium on account of such liability shall be credited to the
Reinsurer from the orginal date of the Reinsurer’s liability.

 

This Agreement shall be
effective as of 12:01 AM Eastern Standard time January 1, 2007, and shall
remain continuously in force unless terminated by either party hereto giving
the other at least 30 days’ prior written notice of their intent to terminate.

 

In the event this Agreement is
terminated, the liability of the Reinsurer shall cease at the time and date of
termination. The Reinsurer shall be liable only for losses occurring during the
period this Agreement is in force. The date and time on which each loss of the
Company occurs shall be the date and time on which the liability of the
Reinsurer attaches.

 

In the event this Agreement is
terminated while an accident or occurrence covered hereby is in progress, it is
understood and agreed that subject to the other conditions of this Agreement,
the Reinsurer shall be liable for its proportion of only such losses resulting
from the accident or occurrence arising before such termination.

 

In the event this Agreement is
terminated, the Agreement shall be commuted based on the net present value of
the remaining estimated liabilities of the Company as so determined by a
qualified actuary and reported to the Company and the Reinsurer (the “Actuary’s
Valuation) as soon as practicable after and no later than 60 days following
such termination and notified to the parties in writing.

 

In the event that either party
shall disagree with the Actuary’s Valuation, such party shall give written
notice of all disagreements (a “Notice of Disagreement”) to the other party
within 30 days after having received such Actuary’s Valuation and shall specify
so far as reasonably practicable each item of disagreement and the basis for
such disagreement and shall specify the total adjustment as proposed by the
party in disagreement. If either party delivers a Notice of Disagreement to the
other party, the parties shall negotiate in good faith to resolve all
disagreements as promptly as practicable. If the parties are unable to resolve
all disagreements within 30 days following delivery of the Notice of
Disagreement, then all unresolved disagreements will be submitted within 30
days to an independent auditor mutually acceptable to the parties (“Settlement
Auditor”). The parties shall fully co-operate with the Settlement Auditor and
shall provide such Settlement Auditor with access to all books, information and
documents reasonably requested by the Settlement Auditor to make such
determination. The Settlement Auditor shall, within 30 days after its
engagement, deliver to the parties a conclusive written resolution of the
disagreements submitted to it and shall be final and binding on the parties.

 

 

ARTICLE IV

 

ACCOUNTS
REPORTS 

 

The Company shall furnish to
the Reinsurer quarterly statement of accounts of business ceded hereunder as
soon as possible after the close of the quarter, but in no event later than 30
days after the close of each quarter, showing net written premiums, net earned
premiums, commissions based on earned premiums and paid losses and loss
expenses.

 

The Company shall also furnish
quarterly to the Reinsurer on an accident year basis, a detailed statistical
report that provides quarterly and year-to-date information as follows:

 

1.               Written
premiums, commissions, premiums in force and unearned premium reserve;

 

2.               paid
losses and paid loss expenses less credit far salvages, subrogation recoveries
and loss adjustment expenses refunds; and

 

3.               loss
reserve outstanding.

 

ARTICLE V

 

LOSS
AND LOSS ADJUSTMENT EXPENSES

 

This Agreement is subject to
the same risks, conditions, privileges, valuations, assignments waivers and
modes of settlement as are or may hereafter assumed, granted or adopted by the
Company.

 

All loss settlement made or
loss adjustment expense incurred by the Company, provided they are within the
terms of this Agreement, shall be unconditionally binding upon the Reinsurer
and the amounts falling to the share of the reinsurer shall be payable within
60 days’ after the Company has furnished its quarterly statement of account.

 

Reinsurer shall benefit
proportionately in all salvage and recoveries.

 

ARTICLE VI

 

INDEMNIFICATION
AND ERRORS AND OMISSIONS

 

The Company shall be the sole
judge as to what constitutes a claim or loss covered under the Company’s
original policy or policies and as to the Company’s liability thereunder, and
the Reinsurer shall be bound by the judgment of the Company as to the liability
and obligation of the Company under its policy or policies.

 

Any inadvertent delays,
omissions or errors shall not be held to relieve either party hereto from any
liability which would attach to it hereunder if such delays, omissions or errors
had not been made, provided such delays, omissions or errors are rectified
immediately upon discovery.

 

 

ARTICLE VII

 

ARBITRATION

 

As a condition precedent to any
right of action hereunder, if any dispute shall arise between the Company and
the Reinsurer with reference to this Agreement, whether such dispute arises
before or after termination of this Agreement, such dispute, upon the written
request of either party, shall be submitted to three arbitrators, one to be
chosen by each party, and the third by the two so chosen. If either party
refuses or neglects to appoint an arbitrator within thirty days after the
receipt of written notice from the other party requesting it to do so, the
requesting party may appoint two arbitrators. If the two arbitrators fail to
agree in the selection of a third arbitrator within thirty days minimum of
their appointment, each of them shall name two, of whom the other shall decline
one and the decision shall be made by drawing lots. All Arbitrators shall be
executive officers of insurance or reinsurance companies not affiliated in any
capacity with either party to this Agreement.

 

The arbitrators shall interpret
this Agreement as an honorable engagement and not as merely a legal obligation.
They are relieved of all judicial formalities and may abstain from following
the strict rules of law and they shall make their award with a view to
effecting the general purpose of this Agreement in a reasonable manner rather
than in accordance with a literal interpretation of the language. Each party
shall submit its case to its arbitrator within thirty days of the appointment
of the third arbitrator.

 

The decision in writing of any
two arbitrators when filed with the parties hereto shall be final and binding
on both parties. Judgment may be entered upon the final decision of the
arbitration in any court having jurisdiction. Each party shall bear the expense
of its own arbitrator and shall jointly and equally bear with the other party
the expense of the third arbitrator and of the arbitration.

 

Said arbitration shall take
place in Bermuda, unless some other place is mutually agreed upon by the
Company and the Reinsurer.

 

ARTICLE VIII

 

INSOLVENCY

 

In the event of the insolvency
of the Company, this reinsurance shall be payable directly to the Company, or
to its liquidator, receiver, conservator or statutory successor (except where
this Agreement specifically provides another payee of such reinsurance in the
event of the insolvency of the Company or where the Reinsurer with the consent
of the direct insured or insureds has assumed such policy obligations of the
Company as direct obligations of the Reinsurer to the payees under such
policies and in substitution for the obligations of the Company to such payees)
on the basis of the claim or claims allowed by such liquidator, receiver,
conservator or statutory successor without diminution because of the insolvency
of the Company or because the liquidator, receiver, conservator or statutory
successor of the Company has failed to pay all or a portion of any claim.

 

It is agreed, however, that the
liquidator, receiver, conservator or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the

 

 

Company indicating the policy
reinsured which claim would involve a possible liability on the part of the
Reinsurer within a reasonable time after such claim is filed in the
conservation or liquidation proceeding or in the receivership, and that during
the pendency of such claim, the Reinsurer may investigate such claim and
interpose, at their own expense, in the proceeding where such claim is to be
adjudicated any defense or defenses that they may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense thus
incurred by the Reinsurer shall be chargeable subject to the approval of the
court against the Company as part of the expense of conservation or liquidation
to the extent of a pro rata share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.

 

When two or more Reinsurers are
involved in the same claim and a majority in interest elects to interpose
defense to such claim, the expenses shall be apportioned in accordance with the
terms of the reinsurance Agreement as though such expense had been incurred by
the Company.

 

ARTICLE IX

 

ACCESS
TO RECORDS

 

The Reinsurer or their
representative shall have free access to the books and records of the Company
at all reasonable times for the purpose of obtaining information concerning
this Agreement or the subject matter thereof.

 

ARTICLE X

 

GOVERNING LAW

 

This Agreement shall be
governed by and construed in accordance with Bermuda law.

 

ARTICLE XI

 

CURRENCY

 

Premium and losses hereunder
shall be payable in United States currency.

 

ARTICLE XII

 

LIKE
ECOMONICS

 

The intent of the Company and
the Reinsurer in entering this Agreement is to substantially replicate, for all
economic purposes, a direct subscription for preferred shares of the Company by
the Reinsurer. The Reinsurer’s rights and liabilities to the Company under this
Agreement, (including the right to profit commission, settlement and any
adjustment) under no circumstances, will be diminished or increased vis-à-vis
the Reinsurer’s rights and liabilities that would attach under a putative
subscription for preferred shares of the company under the terms of the sample
Subscription Agreement attached hereto as Annex A.

 

 

IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed in duplicate on this 4th day
of January, 2007.

 

 

	
  MONT FORT RE
  LTD

  
	
   

  
	
   

  
	
  /s/ David
  Brown

  	
   

  
	
   

  
	
   

  
	
  and, on this
  4th day of January, 2007.

  
	
   

  
	
   

  
	
  FLAGSTONE
  REINSURANCE LIMITED

  
	
   

  
	
   

  
	
  /s/ Mark
  Byrne

  	
   

  

 

 

ANNEX A - SUBSCRIPTION AGREEMENT

 

MONT FORT RE LTD.

MONT FORT ILW 2 CELL

 

Mont Fort Re Ltd.

Crawford House

23 Church Street

Hamilton HM11

Bermuda

 

Ladies and Gentlemen:

 

This letter agreement (the “Subscription
Agreement”) relates to the private placement of Non-Voting Redeemable Series B
Preferred Shares, par value $1 per share (the “Preferred Shares” or the “Shares”),
linked to the Mont Fort ILW 2 Cell (the “Cell”) of Mont Fort Re Ltd. (the “Company”).
The undersigned (the “Subscriber”) hereby subscribes for Preferred Shares on
the terms and conditions set out in the Confidential Private Placement
Memorandum dated 29 December, 2006 (the “Memorandum”) and the supplement
thereto dated 1 January, 2007 relating to the Cell (the “Cell Supplement”). For
the avoidance of doubt, this Subscription Agreement,  the Cell Supplement and, so far as consistent
with the Subscription Agreement and the Cell Supplement, the bye-laws of the
Company, together shall constitute the “governing instrument” of the Cell for
the purposes of the Bermuda Segregated Accounts Companies Act 2000 (as amended).

 

In connection with the
execution of this Subscription Agreement and to induce the Company to sell
Preferred Shares to the Subscriber, the Subscriber understands and agrees and
hereby represents and warrants to the Company as follows:

 

1.             The Subscriber has carefully reviewed and understands
the Memorandum and the Cell Supplement, and the Subscriber understands the
risks of, and other considerations relating to, a purchase of Preferred Shares
and the Company’s business plan, policies and strategies.

 

2.             Subject to the terms and conditions set forth herein and
in the Memorandum and the Cell Supplement, the Subscriber, intending to be
legally bound, hereby irrevocably subscribes for the number of Preferred Shares
set forth on the signature page of this Subscription Agreement. The Subscriber
is delivering to the Company the following:

 

(a)                                  one
original counterpart of the signature page to this Subscription Agreement
executed by the Subscriber; and

 

(b)                                 a
check or wire transfer of funds made payable to the order of Mont Fort Re Ltd.
in the amount subscribed for.

 

3.             The Subscriber acknowledges that this Subscription
Agreement will not be valid, binding and enforceable against the Company until
executed by the Subscriber and accepted, approved and executed by the Company. The
Subscriber understands and agrees that the Company, in its sole discretion,
reserves the right to accept or reject this subscription, in whole or in part,
for any reason at any time notwithstanding prior receipt by the Subscriber of
notice of acceptance and

 

 

that the subscription proceeds
paid herewith will be deemed held in escrow until accepted or rejected by the
Company. In the event that a transfer or check of the Subscriber is returned
unpaid, the Company shall cancel the Preferred Shares issued to the Subscriber
in connection with such dishonored transfer or check and the Subscriber agrees
to reimburse the Company for any expense or loss (including any trading loss)
incurred in connection with the issuance and cancellation of the Shares issued
to the Subscriber. In the event that this subscription is rejected in whole or
in part by the Company, the Company shall promptly (and in any event within 2
business days) return to the Subscriber the executed Subscription Agreement and
related documents, together with the applicable portion of the purchase price
paid by the Subscriber for the Preferred Shares, without deduction and without
any accrued interest earned thereon, and this subscription shall thereafter
have no force or effect to that extent.

 

4.             The Subscriber understands and acknowledges that: (i)
the Preferred Shares have not been registered for sale under the U.S.
Securities Act of 1993 (the “Securities Act”), or the Securities laws of any
State or other political subdivision of the U.S., and are being offered for
sale to the Subscriber in reliance upon the private offering exemption
contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder; (ii) the reliance of the Company upon such exemption is
predicated, in part, upon the representations and warranties made herein; and
(iii) such exemption may not be available if any of the Subscriber’s
representations and warranties are not true and accurate. The Company is
obligated neither to register the Preferred Shares under the Securities Act at
any time in the future nor to assist the Subscriber in complying with any
exemption from registration.

 

5.             The Subscriber understands that the Company will not
register as an “investment company” under the U.S. Investment Company Act of
1940, as amended from time to time (the “Investment Company Act”) by reason of
the provisions of Rule 3a-6 thereunder, which excludes from the definition of “investment
company” any foreign insurance company.

 

6.             The Subscriber is an “accredited investor,” as such term
is defined in Rule 501(a) of Regulation D under the Securities Act (“Accredited
Investor”), and has accurately indicated the basis for such accreditation on Attachment
A hereto, and is purchasing the Interest for its own account or for the
account of one other Accredited Investor for which the Subscriber is acting as
agent with complete discretionary investment authority and power to bind.

 

7.             The Subscriber is a “qualified client,” as such term is
defined in Rule 205-3 under the U.S. Investment Advisers Act of 1940, as
amended from time to time (the “Advisers Act”), and has accurately indicated
the basis for such accreditation on Attachment A hereto.

 

8.             The Subscriber has submitted to the auditors of the
Company a completed Questionnaire in the form of Attachment B hereto.

 

9.             The Subscriber understands that West End Capital
Management (Bermuda) Limited, the investment manager of the Cell (the “Investment
Manager”), will not be registered as an investment adviser the Advisers Act.

 

10.           The Subscriber understands that none of the Bermuda
Monetary Authority, the U.S. Securities and Exchange Commission nor any other
governmental authority has passed upon the merits or qualifications of, or
recommended or approved, the Preferred Shares.

 

11.           The Subscriber is aware that there will be substantial
restrictions on the transferability of the Preferred Shares under this
Subscription Agreement, the Company’s bye-laws (the “Bye-

 

 

Laws”), the Securities Act and
applicable Federal and state laws; that there is no established market for the
Preferred Shares, and none is expected to develop in the future; that the
Preferred Shares will not be, and holders of Preferred Shares have no rights to
require that the Preferred Shares be, registered under the Securities Act or
any other securities laws and therefore the Preferred Shares cannot be resold,
re-offered, pledged, hypothecated or otherwise transferred, disposed of or
assigned unless subsequently registered or unless an exemption from such
registration is available. Additionally, the Subscriber is aware that the
Preferred Shares may not be resold, re-offered, pledged, hypothecated or
otherwise transferred, disposed of or assigned, voluntarily or involuntarily
without prior written notice to, and written consent of, the Company (which
consent may be granted or withheld in the Company’s sole discretion) and
fulfillment by the Subscriber and the transferee of any related requirements of
the Company, and the Subscriber agrees that any such transfer or assignment
shall be made only in accordance with the Memorandum and Cell Supplement, all
applicable laws and the consent of the Company. In the event of an offer, sale,
pledge, hypothecation, transfer or disposition permitted under this paragraph,
the Company may require an opinion of counsel acceptable to the Company and
addressing such matters as the Company deems relevant, including but not
limited to (a) whether such offer, sale, pledge, hypothecation, transfer or
disposition is in compliance with the registration requirements of the
Securities Act and (b) whether the offer, sale, pledge, hypothecation, transfer
or disposition is being made to, or will result in Preferred Shares being owned
by, any entity the assets of which are considered to be “plan assets” of any
employee benefit plan or other plan under the U.S. Employee Retirement Income
Security Act of 1974, as amended. In addition, the Company may require such
other documents as it deems necessary. The Subscriber acknowledges that the
Company may restrict transfers or require repurchases of Shares in order to
comply with applicable laws.

 

12.           Notwithstanding any provisions of this Subscription
Agreement to the contrary, the Subscriber will be permitted to transfer any or
all of his, her or its Preferred Shares to a Permitted Transferee (as defined
herein); provided,
however, that, as conditions precedent to the
effectiveness of any such transfer (a) each Permitted Transferee of the
Subscriber shall (i) execute a counterpart to this Subscription Agreement, (ii)
complete and submit to the Company (x) an Investor Qualification Checklist in
the form of Attachment A hereto and (y) paragraphs 39 through 42 hereof,
and (iii) complete and submit to the auditor if the Company a Questionnaire in
the form of Attachment B hereto and (b) the Subscriber and any Permitted
Transferee shall comply with the requirements of paragraph 11 hereof, whereupon
such Permitted Transferee shall be deemed to be the Subscriber hereunder and
shall be bound by, and shall be entitled to the benefits of, this Subscription
Agreement with respect to the transferred Preferred Shares in the same manner
as the transferring Subscriber shall have been prior to the transfer. For the
purposes of this Subscription Agreement, the term “Permitted Transferee” means
(A) with respect to any Subscriber who is a natural person (i) his or her
spouse, lineal descendants (including legally adopted descendants), heirs and
legatees of such Subscriber and (ii) any trust or custodial account for the
sole benefit of any person referred to in (i) or any corporation, limited
liability company or partnership wholly owned and controlled by the persons
referred to in (i); and (B) with respect to any Subscriber which is not a
natural person, any Affiliate of such Subscriber. As used herein, the term “Affiliate”
means, with respect to any individual or entity (each a “Person”), any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with such Person. For
the purpose of this definition, the term “control” (including, with correlative
meaning, the terms “controlling,”

 

 

“controlled by,” and “under
common control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

 

13.           The Subscriber acknowledges and understands that the Preferred
Shares are subject to the following rights of first refusal of the Company and
the holders of Preferred Shares (the “Shareholders”):

 

(a)
Notice. If, at any time, the Subscriber (the “Seller”)
shall desire to transfer Preferred Shares owned by the Seller representing ten
percent (10%) or more of the Preferred Shares then issued and outstanding
(other than to one or more Permitted Transferees of the Seller), the Seller
shall first submit concurrently to the Company and the other Shareholders a
notice (the “Notice”). The Notice shall contain a reasonably detailed
description of the terms of the proposed transfer and shall also contain
irrevocable offers to the Company and to each Shareholder for (x) the Company
to purchase all the Preferred Shares to be transferred or, upon the Company’s
rejection of such offer and approval of such transfer by the Company’s board of
directors (the “Board”), (y) each Shareholder to acquire a number of Preferred
Shares equal to the product of (i) the total number of Preferred Shares the
Seller desires to transfer and (ii) a fraction the numerator of which is the
number of Preferred Shares owned by such Shareholder and the denominator of
which is the total number of outstanding Preferred Shares (less the number of
Preferred Shares owned by the Seller and any Shareholders not accepting such an
offer).

 

(b)
Company Acceptance. The Company may accept the
offer by delivering to the Seller, not more than 30 days after the date of the
Notice, a notice for the purchase of all, and not less than all, of the
Preferred Shares so offered at the price specified in the Notice. The Company
may, at its election, inform the Seller prior to the expiration of such 30-day
period that it will not purchase the Preferred Shares.

 

(c)
Shareholder Acceptance. At any time within 30 days
after the rejection of the offer by the Company and Board approval of such
sale, any or all Shareholders may accept the offer made to them in the Notice
by furnishing written notice to the Seller and may purchase not less than all
of the Shares so offered at the price specified in the Notice. Each Shareholder
may, at its election, inform the Seller prior to the expiration of such 30-day
period that it will not purchase any of the Preferred Shares.

 

(d)
Closing. The sale of the Shares to the Company or
the Shareholders pursuant to this paragraph 13 shall be made on a business day
designated by the Seller, not less than 10 and not more than 30 days after the
date of acceptance, on those terms and conditions set forth in the Notice not
inconsistent with this paragraph.

 

(e)
Permitted Sale. If at the end of the respective
30-day periods (or shorter period ending with a voluntary statement from the
Company as contemplated by paragraph (b) or a voluntary statement from each of the
Shareholders as contemplated by paragraph (c)) the offers contained in the
Notice have not been accepted by (i) the Company or (ii) any Shareholder, the
Seller shall have 90 days (or such longer time period necessary to comply with
governmental regulations, in any event not to exceed 150 days) in which to
transfer the Preferred Shares, on

 

 

terms and conditions not more favorable to
the buyer than, and for a price equal to or higher than, as set forth in such
Notice. If, at the end of such period, the Seller has not completed the
transfer of all such Preferred Shares as aforesaid, all the restrictions on
such transfer contained in this paragraph 13 shall again be in effect with
respect to any such Preferred Shares not transferred by the Seller.

 

14.           The Subscriber is aware the Subscriber will have one
opportunity to redeem the Preferred Shares during each calendar year and that
any redemptions may be limited by available funds. The Company will use its
reasonable best efforts to ensure that sufficient funds are available on the
applicable redemption date for any anticipated redemption. The Subscriber’s
overall commitment to investments which are not readily marketable is not
excessive in view of the Subscriber’s net worth and financial circumstances,
and the purchase of the Preferred Shares will not cause such commitment to
become excessive. The Subscriber has no contract, undertaking, arrangement, or
agreement with any person to sell or transfer or to have any person sell for
the Subscriber all or any portion of the Preferred Shares. The Subscriber has
no present obligation, indebtedness, or commitment, nor is any circumstance in
existence, which will compel the Subscriber to secure funds through the sale of
the Preferred Shares, nor is the Subscriber a party to any plan or undertaking
which would require or contemplate that proceeds from the sale of Preferred
Shares be utilized in connection therewith, and the Subscriber does not now
have any reason to anticipate any change in circumstances or other particular
occasion or event which would cause the Subscriber to sell the Preferred Shares.
In view of such facts, the Subscriber acknowledges that such Subscriber (i) has
adequate means of providing for such Subscriber’s current needs, anticipated
future needs and possible contingencies and emergencies, (ii) is able to bear
the economic risk of the investment in the Preferred Shares for an indefinite
period of time, including the risks summarized in the Memorandum and Cell
Supplement, and (iii) has no need for liquidity in the investment in the
Preferred Shares and could afford complete loss of such investment.

 

15.           The discussion of the tax consequences arising from an
investment in the Company set forth in the Memorandum and Cell Supplement is
general and not complete. The tax consequences to the Subscriber of an
investment in the Preferred Shares will depend on, among other things, the law
at the relevant time and the Subscriber’s particular circumstances.

 

16.           The Subscriber, such Subscriber’s advisers, if any, and
designated representatives, if any (collectively with the Subscriber, the “Subscriber
Group”) has sufficient knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks of the Subscriber’s
investment in the Interest and to make an informed decision relating thereto,
and the Subscriber has substantial experience in making investment decisions of
this type or is relying on such Subscriber’s own advisers or qualified
representatives in making such Subscriber’s investment decision. The Subscriber
fully understands that the Cell has no financial or operating history and that
the Preferred Shares offered by the Company are highly speculative investments
which involve a high degree of risk of loss of the entire investment. The
Subscriber Group has evaluated the nature of the risks involved in purchasing
the Preferred Shares and has carefully reviewed and understands the risks of,
and other considerations relating to, the purchase of Preferred Shares,
including the risks set forth in the Memorandum and Cell Supplement, the tax
matters described in the

 

 

Memorandum and Cell Supplement,
and the Subscriber Group has confirmed to their full satisfaction that an
investment in the Company is a suitable one for the Subscriber. The Subscriber
Group understands that the risks described in the Memorandum and Cell
Supplement are not a complete list of the risks involved in investment in the
Company.

 

17.           The Subscriber Group has had the opportunity to ask
questions of and receive answers from representatives of the Company concerning
the operations and prospects of the Company and the terms and conditions of a
proposed investment in the Company. The Subscriber Group has also had the
opportunity to obtain additional information necessary to verify the accuracy
of information set forth in the Memorandum and Cell Supplement about the
Company, has had all of its inquiries to representatives of the Company and the
Company answered to its full satisfaction, and has been furnished with all
information requested in writing by the Subscriber relating to the Company, the
terms of the transactions contemplated by the Memorandum and Cell Supplement,
the offering and sale of the Preferred Shares and any other matters set forth
in the Memorandum and Cell Supplement, including all material information
concerning any arrangement under which the Investment Manager may receive
compensation from the Company. The Subscriber Group is satisfied that it has
received information with respect to all matters which it considers material to
make an informed decision. Accordingly, the Subscriber Group has independently
evaluated the risks of purchasing the Interest.

 

18.           The Subscriber has, in making such Subscriber’s decision
to purchase the Preferred Shares, relied solely upon independent investigations
made by the Subscriber and the Subscriber Group and has not relied upon any
representations or other information (whether oral or written) other than (i)
as explicitly set forth in the Memorandum and Cell Supplement, or (ii) as
described in paragraph 17 above, information furnished or made available to the
Subscriber at such Subscriber’s written request by the Company. The Subscriber
is not relying on the Company with respect to the tax and other economic considerations
involved in this investment and understands that the Subscriber is urged to
seek independent advice from such Subscriber’s professional advisors relating
to the suitability of an investment in the Company in view of such Subscriber’s
overall financial needs and with respect to the legal and tax implications of
such an investment.

 

19.           The Subscriber is not subscribing for Preferred Shares as
a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or general
meeting, or any solicitation by a person not previously known to the Subscriber
in connection with the investments generally.

 

20.           The Subscriber is purchasing Preferred Shares for such
Subscriber’s own account for investment and not with a view to, or for resale
in connection with, any distribution or other disposition of the Preferred
Shares within the meaning of the Securities Act, nor with any present intention
of distributing or selling the Preferred Shares or any portion thereof and no
one other than the Subscriber will have any interest in, or any right to
acquire, the Preferred Shares or any part thereof and nor does anyone other
than the Subscriber have any interest in this subscription.

 

21.           The
Subscriber has full right, power and authority to execute this Subscription
Agreement, pursuant to power-of-attorney or otherwise. The Subscriber has duly
and validly executed this Subscription Agreement and such Subscriber has full
right, power and authority to execute, deliver and perform its obligations
hereunder.

 

22.           If the Subscriber is not a natural person, it represents
that: (i) it is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it has been formed;

 

 

(ii) the execution and delivery
of this Subscription Agreement has been duly authorized by all necessary action
on the part of all officers, directors, stockholders, partners or trustees and
will not violate any agreement to which the Subscriber is a party; (iii) the
individual executing and delivering this Subscription Agreement has the
requisite right, power, capacity and authority to do so on behalf of the
Subscriber; (iv) it has its principal place of business at the address set
forth in paragraph 41 hereof, and (v) it has substantial assets in addition to
the funds to be used to purchase the Preferred Shares. In addition, the
execution and performance of this Subscription Agreement by the Subscriber will
not result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, any of its organizational instruments.

 

23.           This Subscription Agreement when executed by the
Subscriber constitutes the Subscriber’s valid and binding obligation and the
Subscriber has taken no action in connection herewith which could subject the
Company to any valid claim for any commission, fee or other compensation to a
finder or broker. The execution and performance of this Subscription Agreement
by the Subscriber does not violate any statute, regulation, law, order, writ,
injunction, judgment, decree, agreement or controlling document to which the
Subscriber is subject, or require any authorization or approval under or
pursuant to any of the foregoing.

 

24.           Subject to the preceding sentence, the Subscriber hereby
acknowledges and agrees that such Subscriber may not cancel, terminate or
revoke this Subscription Agreement or any agreement made by the Subscriber
hereunder and that this Subscription Agreement and any agreements of the
Subscriber hereunder shall survive the death, disability or legal incapacity of
the Subscriber and shall be binding upon and inure to the benefit of the
Company and their heirs, executors, administrators, successors, assignees and
legal representatives. If the Subscriber is more than one person, the
obligations of the Subscriber hereunder shall be joint and several and the
agreements, representations, warranties and acknowledgments herein contained
shall be deemed to be made by and be binding upon each such person and his
heirs, executors, administrators, successors, legal representatives and
assigns.

 

25.           The Subscriber understands that the Company, at any time
and for any reason in its sole discretion, may give notice in writing to any
holder of Preferred Shares that it will compulsorily repurchase, in full or in
such part as specified in such notice, of such Preferred Shares upon a date
specified in the notice. Upon the date specified as the repurchase date in such
notice, the Preferred Shares specified in such notice shall be deemed cancelled
without any further action on the part of such shareholder, and shall be
entitled solely to payment calculated in the manner described in the Memorandum
and Cell Supplement.

 

26.           If this subscription is accepted in whole or in part by
the Company in its sole discretion, and the other conditions precedent set
forth herein are met, the Subscriber shall become a shareholder of the Company
upon his name being entered into the register of members of the Company, and
the amount to be paid by the Subscriber for the Preferred Shares to be issued
to such Subscriber may be transferred to the capital of the Company.

 

27.           Additional Preferred Shares may be offered or sold by the
Company, following the offer and sale of the Preferred Shares to the Subscriber
in such amounts and at such times as the Company may determine from time to
time.

 

28.           This Subscription Agreement supersedes any previous
subscription agreement executed by or on behalf of the Subscriber relative to
Preferred Shares, and any such previous agreement

 

 

is hereby rescinded and is of
no further force and effect. The Subscriber understands that this Subscription
Agreement constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof, there are no representations, covenants
or other agreements except as stated or referred to herein, and that this
Subscription Agreement may be amended only by a writing executed by all parties
hereto.

 

29.           This Subscription Agreement shall be enforced, governed
and construed in all respects in accordance with the laws of Bermuda, without
giving effect to the conflict of law principles thereof.

 

30.           The Subscriber hereby constitutes and appoints the Company
with full power of substitution and re-substitution, its true and lawful
attorney, for it, in its name, place and stead, and for its use and benefit to
execute, deliver, certify, acknowledge, file and record any certificates,
instruments or documents which may be required by any governmental agency or
which the Company deems necessary or advisable in order to vest in Subscriber
good and marketable title to the Preferred Shares.

 

31.           The Subscriber understands the meaning and legal
consequences of this Subscription Agreement and hereby agrees to indemnify and
hold harmless the Company and each person, if any, who controls either of them
within the meaning of Section 15 of the Securities Act, against any loss,
liability, claim, damage, cost and expense whatsoever (including but not
limited to any and all expenses reasonably incurred in investigating, preparing
or defending against any litigation commended or threatened or any claim
whatsoever) arising out of or based upon any breach of any of the Subscriber’s
representations or warranties or breach or failure by the Subscriber to comply
with any covenant or agreement made by the Subscriber herein or in any other
document furnished by the Subscriber to any of the foregoing in connection with
this subscription or in connection with the sale or distribution by it of the
Preferred Shares or any portion thereof purchased by it pursuant hereto in
violation of the Securities Act or of any applicable securities law.

 

32.           All of the information that the Subscriber has heretofore
furnished or which is set forth herein is correct and complete as of the date
of this Subscription Agreement and will be true and correct on the date
Preferred Shares are issued to the Subscriber and shall survive such issuance. If
there should be any material change to such information prior to the issuance
of the Preferred Shares or if at any time the Subscriber shall become an “employee
benefit plan” as defined below, the Subscriber will immediately furnish revised
or corrected information to the Company.

 

33.           Within 10 days after receipt of a written request from the
Company, the Subscriber agrees to provide such information and to execute and
deliver such documents as reasonably may be necessary to comply with any and
all laws and ordinances to which the Company is subject, provided that nothing
herein contained shall require the Subscriber to provide any such information
or execute and deliver any such documents if the Subscriber determines, in its
sole discretion, that doing so is not in Subscriber’s interest.

 

34.           The Subscriber agrees to hold the Memorandum and Cell
Supplement in confidence, it being understood that the Memorandum and Cell
Supplement are strictly for the Subscriber’s use and is not to be redistributed
or reduplicated by the Subscriber, except to Subscriber’s advisors.

 

35.           All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered or mailed by
first class, registered or certified mail, postage

 

 

prepaid, addressed (a) if to
the Company, to its address set forth above; and (b) if to the Subscriber, to
its address set forth below.

 

36.           Whenever used herein, the singular number shall include
the plural, the plural shall include the singular, the use of any gender shall
include all persons, and all capitalized terms used and not otherwise defined
herein shall have the meanings given them in the Memorandum and Cell
Supplement.

 

37.           This Subscription Agreement may be executed in counterpart
copies, each of which shall be considered an original and all of which together
shall constitute one and the same instrument binding on the parties,
notwithstanding that the parties are not signatories to the same counterpart.

 

38.           Each provision of this Subscription Agreement is intended
to be severable from every other provision, and the invalidity or illegality of
any portion hereof shall not affect the validity or legality of the remainder
hereof.

 

39.           The Company will provide on an annual basis all
information required by Subscriber in order to make a “QEF” election with
respect to the Preferred Shares.

 

40.           The Employer Identification Number of the Subscriber is:                                                              

 

41.           Under penalties of perjury, the Subscriber certifies that:

 

(a)           The number shown above is its correct Taxpayer
Identification Number.

(b)           It is not subject to backup withholding because (i) it is
exempt from backup withholding, (ii) it has not been notified by the Internal
Revenue Service (the “IRS”) that it is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the IRS has
notified it that it is no longer subject to backup withholding.

 

42.           The Subscriber is purchasing the Shares as follows [please initial one]:

 

________             (a)           The
Subscriber is using or will use to purchase the Preferred Shares funds that are
assets of (i) an “employee benefit plan” (as defined in Section 3(3) of ERISA),
whether or not it is subject to the provisions of Title I of ERISA, (ii) a “plan”
described in Section 4975(e)(1) of the United States Internal Revenue Code of
1986, as amended from time to time (the “Code”) or (iii) an entity whose
underlying assets include assets of an employee benefit plan or plans by reason
of such employee benefit plan or plan’s investment in the entity (such persons
and entities described in clauses (i), (ii) and (iii) being referred to herein
as “Benefit Plan Investors”).

 

OR

 

________             (b)           The
Subscriber is not using and will not use to purchase the Preferred Shares funds
that are assets of Benefit Plan Investors.

 

 

42.           The address of the Subscriber’s principal place of
business is                                                                     .

 

 

IN WITNESS WHEREOF,
the undersigned represents that the foregoing statements are true and correct
and that it has executed (or caused to be executed) this Subscription Agreement
on the     day of January, 2007.

 

	
   

  	
   

  
	
   

  	
   

  
	
  (Print Name
  of Entity)

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  
	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  U.S. $

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Total Amount
  of investment in Preferred Shares

  	
   

  
						

(in words and in dollars)

 

 

Mont Fort Re Ltd.

 

ACKNOWLEDGMENT FOR CORPORATE OR PARTNERSHIP SUBSCRIBER

 

	
  State of

  	
  )

  
	
   

  	
   

  
	
  ss.:    

  	
   

  
	
   

  	
   

  
	
  County of

  	
  )

  

 

On this      
day of                    ,
2007, before me, the undersigned Notary Public, duly commissioned and sworn,
personally appeared                        ,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be (a) (the)                     
of the entity that executed the within instrument on behalf of the entity
therein named, and acknowledged to me that on behalf of such entity he (or she)
duly executed the same.

 

In Witness Whereof, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate above written.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Notary
  Public in and for the 

  	
   

  	
   

  
	
  aforesaid County
  and State)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  My
  commission expires on:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [Seal]

  	
   

  	
   

  

 

 

Mont Fort Re Ltd.

 

ACKNOWLEDGMENT FOR TRUST SUBSCRIBER

 

	
  State of

  	
  )

  
	
   

  	
   

  
	
  ss.:    

  	
   

  
	
   

  	
   

  
	
  County of

  	
  )

  

 

For Individual Trustees:

 

On this     
day of              ,
2007, before me, the undersigned Notary Public, duly commissioned and sworn,
personally appeared                        
and               
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name is (or whose names are) subscribed to the within
instrument, and subscribed and swore to such instrument and acknowledged that
he (or she or they) executed the same.

 

For Corporate Trustee:

 

On this     
day of              ,
2007, before me, the undersigned Notary Public, duly commissioned and sworn,
personally appeared                      
and               ,
personally known to me (or proved to me on the basis of satisfactory evidence) to
be the               
of the corporation that executed the within instrument, and known to me to be
the person who executed the within instrument on behalf of the corporation
therein named, and acknowledged to me that such corporation executed the same pursuant
to its bylaws or a resolution of its board of directors.

 

In Witness Whereof, I have
hereunto set my hand and affixed my official seal the day and year in this
certificate above written.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Notary
  Public in and for the 

  	
   

  	
   

  
	
  aforesaid County
  and State)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  My
  commission expires on:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [Seal]

  	
   

  	
   

  

 

 

* * * *

 

Do not Write Below This Point

 

 

Subscription accepted on                  ,
2007.

 

	
  MONT FORT RE LTD.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
			

 

 

MONT FORT RE LTD.

 

ATTACHMENT A

 

INVESTOR QUALIFICATION

 

Name of Subscriber:                            

 

1.             Accredited Investor
Qualification. Please check one or more of the
appropriate entries below that accurately describes the Subscriber on whose
behalf the Subscription Agreement is executed.

 

o            (a)  The Subscriber is a bank as defined in
Section 3(a)(2) of the U.S. Securities Act of 1933, as amended from time to
time (the “Securities Act”), or a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended from
time to time; any insurance company as defined in Section 2(13) of the
Securities Act; any investment company registered under the U.S. Investment
Company Act of 1940, as amended from time to time (the “Investment Company Act”),
or a business development company as defined in Section 2(a)(48) of the
Investment Company Act; a Small Business Investment Company licensed by the
United States Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958, as amended from time to time; a plan
established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000.

 

o            (b)  The Subscriber is a private business
development company as defined in Section 202(a)(22) of the U.S. Investment
Advisers Act of 1940, as amended from time to time (the “Advisers Act”).

 

o            (c)  The Subscriber is an organization described
under section 501(c)(3) of the Internal Revenue Code, a corporation,
Massachusetts or similar business trust, or partnership, not formed for the
specific purpose of acquiring the Preferred Shares offered, with total assets
in excess of $5,000,000.

 

o            (d)  The Subscriber is a trust with total assets
in excess of $5,000,000, not formed for the specific purpose of acquiring the
Preferred Shares offered, whose purchase is directed by a sophisticated person
as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the
Securities Act.

 

 

o            (e)  The Subscriber is an entity in which all of
the equity owners are accredited investors.

 

2.             Qualified Client
Qualification. Please check one or more of the
appropriate entries below that accurately describes the Subscriber on whose
behalf the Subscription Agreement is executed.

 

o            (a)  Immediately after entering into the
Subscription Agreement, the Subscriber will have at least $750,000 under the
management of the Investment Manager.

 

o            (b)  the Subscriber has a net worth of more than
$1,500,000.

 

o            (c)  The Subscriber is a “qualified purchaser,” as
defined in Section 2(a)(51)(A) of the Investment Company Act.

 

22

 

Attachment B

 

QUESTIONNAIRE

For Investors in

Mont Fort Re Ltd.

MFR ILW 2 Cell

 

The purpose of this
questionnaire is to help the Company determine whether it will generate more
than a de minimis amount of related person insurance income (“RPII”) or
otherwise qualify for an exemption from the RPII rules. For this purpose, “RPII”
is any insurance income attributable to a policy of insurance or reinsurance with
respect to which the person (directly or indirectly) insured is a United States
shareholder of the Company or is a related party or “50% affiliate” (as defined
below) to such a shareholder. For purposes of the preceding sentence, a United
States shareholder is a U.S. Person (as defined below) that owns any stock of the Company, either directly
or indirectly through a corporation, partnership, trust or estate that is not a
U.S. Person.

 

Please refer to the Memorandum
for a discussion of the United States federal income tax consequences to any
U.S. shareholder if the Company generates more than a de minimis amount of RPII
and fails to qualify for any other exemption from the RPII rules. Failure to
determine accurately whether the Company has more than a de minimis amount of
RPII could have adverse tax consequences to other investors, as well as to you.

 

For purposes of this
questionnaire, the term “Person” includes an individual, corporation,
partnership, estate or trust. The term “U.S. Person” means (i) an individual
who is a citizen or resident of the United States, (ii) a corporation or
partnership that is organized under the laws of the United States or any
political subdivision thereof, (iii) an estate that is subject to U.S. federal
income tax on all of its income regardless of source and (iv) any trust if a
U.S. court is able to exercise primary jurisdiction over the administration of
the trust and one or more U.S. trustees have the authority to control all
substantial decisions of the trust. A “Non-U.S. Person” is any Person that is
not a U.S. Person.

 

If an entity is disregarded as
separate from its owner for U.S. federal income tax purposes, please reply to
this questionnaire as if the relevant person is the owner of such disregarded
entity.

 

A Person is considered a
related person or “50% affiliate” to another Person if (i) such Person is an
individual, corporation, partnership, trust, or estate which controls that
other Person or which that other Person controls; or (ii) such Person is a
corporation, partnership, trust, or estate which is controlled by the same
Person or Persons that control the other Person. Control with respect to a
corporation means the direct or indirect ownership of stock possessing more
than 50% of the total voting power or value of all classes of stock. In the
case of a partnership, trust, or estate, control means the direct or indirect
ownership of more than 50% (by value) of the beneficial interest in such
partnership, trust, or estate.

 

The Questionnaire does not need
to be completed by (1) an investor who is an individual Non-U.S. Person or (2)
an investor who is a Non-U.S. Person all of whose ultimate beneficial
individual owners are also Non-U.S. Persons.

 

23

 

Please
send your responses to the attached questionnaire to the address shown as soon
as possible but no later than January 2       ,
2007.

 

Deloitte Tax LLP

555 12th Street, NW

Washington, DC 20004

Attn: Richard Safranek

Rsafranek@deloitte.com

Fax: 202-661-1021

Phone:  202-879-5326

 

24

 

Questionnaire

 

If one of the following
statements is true, please check the appropriate box and return the
Questionnaire without completing any of the questions set forth below.

 

o  I certify that I am an investor who is an
individual Non-U.S. Person.

 

o  I certify that I am an investor who is a
Non-U.S. Person all of whose ultimate beneficial individual owners are also
Non-U.S. Persons.

 

If neither of the statements
set forth above is true, please answer the questions set forth below.

 

1.                                       Please
identify whether the Person through which you propose to make the investment in
the Company (the “Company Investor”) is a U.S. Person or Non-U.S. Person and
whether, for U.S. tax purposes, the Person is treated as an individual,
corporation, partnership, trust or estate.

 

If the Company
Investor is a Non-U.S. Person, please answer Questions 2 and 3 

 

2.                                       Please
provide a list of all partners/shareholders/beneficiaries that are U.S. Persons
holding an ownership interest (or an option or right to acquire an ownership
interest) in the Company Investor, including their respective ownership
interests with respect to this investment. Please describe any carried
interests or variations in interests based on investment performance or other
factors.

 

3.                                       Please
indicate whether any Person identified under Question 2 or any 50% affiliate to
such Person is an insurance company or reinsurance company (U.S. or non-U.S.).

 

If the Company
Investor is a U.S. Person, please answer Question 4 or 5 and Question 6

 

4.                                       If
the Company Investor is treated as a partnership or trust for U.S. tax
purposes, please provide a list of all partners/ beneficiaries holding an
ownership interest (or an option or right to acquire an ownership interest) in
the entity.

 

5.                                       If
the Company Investor is treated as a corporation for U.S. tax purposes, please
provide a list of all Persons that own, directly or indirectly, 10% or more of
the value of the stock (or an option or right to acquire 10% or more of the
value of the stock) of such Company Investor.

 

6.                                       Please
indicate whether the Company Investor or any 50% affiliate of the Company
Investor is an insurance company or reinsurance company (U.S. or non-U.S.).

 

25Exhibit 10.31

 

January 1, 2007

 

Facultative/Obligatory

Surplus

Reinsurance
Contract

Effective: 
January 1, 2007

 

between

 

Flagstone
Reinsurance Limited

Hamilton, Bermuda

 

and

 

Mont
Fort Re Ltd in respect of its segregated account, designated as ILW Cell 2

Hamilton,
Bermuda

 

 

Table of Contents

 

	
  Article

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Article I - Classes of Business Reinsured

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Article II - Commencement and Termination

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Article III - Territory (BRMA 51A)

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Article IV - Exclusions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Article V - Retention and Limit

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Article VI - Security

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Article VII - Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Article VIII - Loss in Excess of Policy Limits/Extra Contractual
  Obligations

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  Article IX - Other Reinsurance

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  Article X - Losses and Loss Adjustment Expense

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  Article XI - Salvage and Subrogation

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  Article XII - Original Conditions (BRMA
  37B)

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  Article XIII - Commission

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  Article XIV - Reports and Remittances

  	
   

  	
  5

  
	
   

  	
   

  	
   

  
	
  Article XV - Offset

  	
   

  	
  5

  
	
   

  	
   

  	
   

  
	
  Article XVI - Access to Records

  	
   

  	
  5

  
	
   

  	
   

  	
   

  
	
  Article XVII - Errors and Omissions

  	
   

  	
  6

  
	
   

  	
   

  	
   

  
	
  Article XVIII - Currency (BRMA 12A)

  	
   

  	
  6

  
	
   

  	
   

  	
   

  
	
  Article XIX - Insolvency (BRMA 19C)

  	
   

  	
  6

  
	
   

  	
   

  	
   

  
	
  Article XX - Arbitration

  	
   

  	
  6

  
	
   

  	
   

  	
   

  
	
  Article XXI - Governing Law

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  Article XXII - Service of Suit

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  Schedule A

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Schedule B

  	
   

  	
  1

  
	
   

  	
   

  	
   

  

 

 

Facultative/Obligatory

Surplus

Reinsurance
Contract (“Contract”)

Effective: 
January 1, 2007

 

between

 

Flagstone
Reinsurance Limited

Hamilton, Bermuda

(hereinafter referred to as the “Company”)

 

and

 

Mont
Fort Re Ltd in respect of its segregated account designated as ILW Cell 2

Hamilton,
Bermuda

(hereinafter
referred to as the “Reinsurer”)

 

Article I - Classes of
Business Reinsured

 

A.     By
this contract the Company may cede to the Reinsurer and the Reinsurer obligates
itself to accept reinsurance of the Company’s Industry Loss Warranty Liability,
“ILW liability” or surplus liability (as hereinafter defined) under policies,
contracts and binders of reinsurance (hereinafter called “policies”) in force
at the effective date hereof or issued or renewed on or after that date.

 

B.      The
liability of the Reinsurer with respect to each cession hereunder shall
commence obligatorily and simultaneously with that of the Company, subject to
the terms, conditions and limitations hereinafter set forth.

 

Article II - Commencement
and Termination

 

A.     This
Contract shall become effective on 1 January 2007, with respect to losses
occurring on or after that date, and shall continue in force thereafter until
terminated.

 

B.      Either
party may terminate this Contract at the end of any contract year by giving the
other party not less than 365 days’ prior notice by certified mail.

 

C.      Unless
the Company elects to reassume the ceded unearned premium in force on the
effective date of termination, and so notifies the Reinsurer prior to or as
promptly as possible after the effective date of termination, reinsurance
hereunder on business in force on the effective date of termination shall
remain in full force and effect until expiration, cancellation or the next
premium anniversary of such business, whichever first occurs, but in no event
beyond 18 months following the effective date of termination.

 

D.      “Contract
year” as used herein shall mean the period from 1 January 2007 to 31 December 2007,
both days inclusive, and each respective 12-month period thereafter that this 

 

1

 

Contract continues in force. However, if this
Contract is terminated, the final contract year shall be from the beginning of
the then current contract year through the date of termination if this Contract
is terminated on a “cutoff” basis, or the end of the runoff period if this
Contract is terminated on a “runoff” basis.

 

Article III - Territory
(BRMA 51A)

 

The territorial limits of this Contract shall be worldwide in its
geographical scope.

 

Article IV - Exclusions

 

This Contract does not apply to and specifically excludes any cession
hereunder which is not within the scope of Schedule A.

 

Article V - Retention and
Limit

 

A.     For
each policy subject to this Contract, the Company shall retain and be liable
for an amount of its gross liability that meets the requirements set forth in
Schedule A attached to and forming part of this Contract. With respect to any
one program that meets the requirements set forth in Schedule A, the Company
shall then cede, and the Reinsurer agrees to accept, an amount of the Company’s
surplus liability, subject to a maximum cession to the Reinsurer.

 

B.      Any
policy ceded hereunder shall be disclosed by the Company to the Reinsurer
within 15 days of the end of the month in which the cession of liability by the
Company occurs.

 

C.      Notwithstanding
the foregoing, any reinsurance falling outside the scope of Schedule A hereof
that is specially accepted from the Company in writing by the Underwriting
Committee of the Board of Directors of the Reinsurer shall be covered under
this Contract and be subject to the terms hereof, except as such terms shall be
modified by the special acceptance.

 

Article VI - Security

 

The Reinsurer shall provide security for its obligations hereunder in
accordance with the requirements set forth in Schedule B attached hereto.

 

Article VII - Definitions

 

A.     “Surplus
liability” as used herein is defined as that portion of the Company’s gross
liability on any policy which exceeds the amount of its net retention.

 

B.      The
Company shall be the sole judge of what constitutes “one program.”

 

2

 

C.      References
to “the Reinsurer” as used herein shall mean the Reinsurer acting by its Board
of Directors, any duly appointed committee thereof, its duly authorized
officers and employees, its duly authorized representatives or agents, or such
other person as it may lawfully appoint.

 

Article VIII - Loss in
Excess of Policy Limits/Extra Contractual Obligations

 

A.     In
the event the Company pays or is held liable to pay an amount of loss in excess
of its policy limit, but otherwise within the terms of its policy (hereinafter “loss
in excess of policy limits”), or any punitive, exemplary, compensatory or
consequential damages other than loss in excess of policy limits (hereinafter “extra
contractual obligations”) such loss in excess of policy limits and/or extra
contractual obligations shall be added to the Company’s loss, if any, under the
policy involved, and the sum thereof shall be subject to the provisions of
Article V.

 

B.      An
extra contractual obligation shall be deemed to have occurred on the same date
as the loss covered or alleged to be covered under the policy.

 

C.      Notwithstanding
anything stated herein, this Contract shall not apply to any loss in excess of
policy limits or any extra contractual obligation incurred by the Company as a
result of any fraudulent and/or criminal act by any officer or director of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.

 

D.      If
any provision of this Article shall be rendered illegal or unenforceable by the
laws, regulations or public policy of any country, such provision shall be
considered void in such country, but this shall not affect the validity or
enforceability of any other provision of this Contract or the enforceability of
such provision in any other jurisdiction.

 

E.      It
is understood that loss in excess of policy limits and extra contractual
obligations paid by the Company under the original contracts subject hereto
shall be covered as contractual losses hereunder.

 

Article IX - Other
Reinsurance

 

A.     The
Company shall be entitled, but not obligated, to purchase reinsurance
protection inuring to the benefit of this Contract.

 

B.      The
Company shall be permitted to carry whole account excess reinsurance or
reinsurance that covers broad classes of risk, recoveries under which shall
inure solely to the benefit of the Company and be entirely disregarded in
applying all of the provisions of this Contract.

 

Article X - Losses and Loss
Adjustment Expense

 

A.     Whenever
losses sustained by the Company appear likely to result in a claim hereunder,
the Company shall notify the
Reinsurer promptly.

 

3

 

B.      Notifications
shall comprise the Company’s best estimate of the expected amount of losses,
inclusive of loss adjustment expense, case reserves and, if at that time
established by the Company, a provision for losses incurred but not reported (“IBNR”).

 

C.      All
loss settlements made by the Company, whether under strict policy conditions or
by way of compromise, shall be binding upon the Reinsurer, and the Reinsurer
agrees to pay or allow, as the case may be, its proportion of each such
settlement in accordance with Article XIV.

 

D.      In
the event of a claim under a policy subject hereto, the Reinsurer shall be
liable for its proportionate share of loss adjustment expense incurred by the
Company in connection therewith (including, but not limited to, litigation
expenses, interest on judgments, expenses of outside adjusters and declaratory
judgment expenses or other legal expenses and costs incurred in connection with
coverage questions and legal actions connected thereto), but not including
office expenses or salaries of the Company’s regular employees, and shall be
credited with its proportionate share of any recoveries of such expense.

 

E.      In
the event that the Company establishes a provision for loss, including IBNR,
the Reinsurer shall be liable for its proportionate share of such provision,
and may be required to provide security for any such obligation.

 

Article XI - Salvage and
Subrogation

 

The Reinsurer shall be credited with its proportionate share of salvage
(i.e., reimbursement obtained or recovery made by the Company, less the actual
cost, excluding salaries of officials and employees of the Company and sums
paid to attorneys as retainer, of obtaining such reimbursement or making such
recovery) on account of claims and settlements involving reinsurance hereunder.
The Company hereby agrees to enforce its rights to salvage or subrogation
relating to any loss, a part of which loss was sustained by the Reinsurer, and
to prosecute all claims arising out of such rights.

 

Article
XII - Original Conditions (BRMA 37B)

 

A.     All
reinsurance under this Contract shall be subject to the same rates, terms, conditions,
waivers and interpretations and to the same modifications and alterations as
the respective policies of the Company. However, in no event shall this be
construed in any way to provide coverage outside the terms and conditions set
forth in this Contract. The Reinsurer shall be credited with its exact
proportion of the original premiums received by the Company.

 

B.      Nothing
herein shall in any manner create any obligations or establish any rights
against the Reinsurer in favor of any third party or any persons not parties to
this Contract.

 

Article XIII - Commission

 

The Reinsurer shall pay its proportional share of all original
deductions and acquisition expense including taxes on policies ceded by the
Company to the Reinsurer hereunder and shall allow the Company a ceding
commission of 5% on all written premiums gross of such original 

 

4

 

deductions and acquisition expense including taxes. The Company shall
allow the Reinsurer return commission on return premiums at the same rate.

 

Article XIV - Reports and
Remittances

 

A.     Within
14 days after the end of each month, the Company shall report to the Reinsurer:

 

1.       Ceded
gross premiums written and collected during the month:

 

2.       Commissions,
deductions and ceding commission thereon;

 

3.       Ceded
losses and loss adjustment expense incurred and paid during the month;

 

4.       The
change in amount of ceded reserves for outstanding losses and loss
adjustment  expense as of the end of the
month;

 

5.       The
change in amount of ceded IBNR as of the end of the month; and

 

6.       The
balance of (1) less (2) less (3).

 

B.      The
positive balance shown in A (6) above shall be due the Reinsurer and shall be
remitted by the Company with its report. The Company may, at its election,
withhold from payment an amount equal to A (4) plus A (5), above, provided the
Company credits the Reinsurer with interest equal to the one-month LIBOR rate
as quoted in The Wall Street Journal
on the first business day of the month for which the calculation is made
applied to such cumulative amount held by the Company. Any balance shown to be
due the Company or otherwise due pursuant to the requirements set forth in
Schedule B attached hereto shall be remitted by the Reinsurer as promptly as
possible after receipt and verification of the Company’s report.

 

C.      Annually,
or at such other times as may be reasonably requested, the Company shall
furnish the Reinsurer with such information as the Reinsurer may require in
order to fulfill its financial and regulatory reporting requirements.

 

Article XV - Offset

 

The Company and the Reinsurer shall have the right to offset any
balance or amounts due from one party to the other under the terms of this
Contract. The party asserting the right of offset may exercise such right any
time whether the balances due are on account of premiums or losses or
otherwise.

 

Article XVI - Access to
Records

 

The Reinsurer or its designated representatives shall have access at
any reasonable time to all records of the Company which pertain in any way to
this reinsurance.

 

5

 

Article XVII - Errors and
Omissions

 

Inadvertent delays, errors or omissions made in connection with this
Contract or any transaction hereunder shall not relieve either party from any
liability which would have attached had such delay, error or omission not
occurred, provided, however, that such error or omission is rectified as soon
as possible after discovery.

 

Article XVIII - Currency
(BRMA 12A)

 

Whenever the word “Dollars” or the “$” sign appears in this Contract,
they shall be construed to mean United States Dollars and all transactions
under this Contract shall be denominated in United States Dollars.

 

Article XIX - Insolvency
(BRMA 19C)

 

A.     In
the event of the insolvency of the Company, this reinsurance shall be payable
directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurer of the pendency of a claim against the Company
indicating the policy insured which claim would involve a possible liability on
the part of the Reinsurer within a reasonable time after such claim is filed in
the conservation or liquidation proceeding or in the receivership, and that
during the pendency of such claim, the Reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses that it may deem available to the Company
or its liquidator, receiver, conservator or statutory successor. The expense
thus incurred by the Reinsurer shall be chargeable, subject to the approval of
the court, against the Company as part of the expense of conservation or liquidation
to the extent of a pro rata share of the benefit which may accrue to the
Company solely as a result of the defense undertaken by the Reinsurer.

 

B.      Where
two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Contract as though such
expense had been incurred by the insolvent Company.

 

Article XX - Arbitration

 

A.     As
a condition precedent to any right of action hereunder, in the event of any
dispute or difference of opinion hereafter arising with respect to this
Contract, it is hereby mutually agreed that such dispute or difference of
opinion shall be submitted to arbitration. One Arbiter shall be chosen by the
Company, the other by the Reinsurer, and an Umpire shall be chosen by the two
Arbiters before they enter upon arbitration, all of whom shall be active or
retired disinterested executive officers of insurance or reinsurance companies
or Lloyd’s London Underwriters. In the event that either party should fail to
choose an Arbiter within 

 

6

 

30 days following a written request by
the other party to do so, the requesting party may choose two Arbiters who
shall in turn choose an Umpire before entering upon arbitration. If the two
Arbiters fail to agree upon the selection of an Umpire within 30 days
following their appointment, either party may request a justice of a court of
general jurisdiction of Hamilton, Bermuda, to appoint the Umpire.

 

B.      Each
party shall present its case to the Arbiters within 30 days following the
date of appointment of the Umpire. The Arbiters shall consider this Contract as
an honorable engagement rather than merely as a legal obligation and they are
relieved of all judicial formalities and may abstain from following the strict
rules of law. The decision of the Arbiters shall be final and binding on both
parties; but failing to agree, they shall call in the Umpire and the decision
of the majority shall be final and binding upon both parties. Judgment on the
award may be entered in any court having jurisdiction.

 

C.      Each
party shall bear the expense of its own Arbiter, and shall jointly and equally
bear with the other the expense of the Umpire and of the arbitration. In the
event that the two Arbiters are chosen by one party, as above provided, the
expense of the Arbiters, the Umpire and the arbitration shall be equally
divided between the two parties.

 

D.      Any
arbitration proceedings shall take place in Hamilton, Bermuda; all proceedings
pursuant hereto shall be governed by the law of Bermuda.

 

Article XXI - Governing Law

 

This Contract shall be governed by and construed in accordance with the
laws of Bermuda.

 

For the avoidance of doubt, with respect to any obligations of the
Reinsurer to the Company under the terms of this Contract, the Company shall,
in accordance with the Segregated Accounts Companies Act 2000 (as amended),
have recourse only to the assets of ILW 2 Cell, and not the assets of any other
segregated account or the general account of Mont Fort Re Ltd.

 

Article XXII - Service of
Suit

 

It is agreed that in the event the Reinsurer fails to pay any amount
claimed to be due hereunder, the Reinsurer, at the request of the Company, will
submit to the jurisdiction of a court of competent jurisdiction within Bermuda.
Nothing in this Article constitutes or should be understood to constitute a
waiver of the Reinsurer’s rights to commence an action in any court of
competent jurisdiction in Bermuda, to remove an action to a Bermuda Court, or
to seek a transfer of a case to another court as permitted by the laws of
Bermuda.

 

7

 

In Witness Whereof, the
parties by their respective duly authorized representatives have executed this
Contract as of the dates undermentioned at:

 

 

Hamilton, Bermuda,                                 this
4th day of January in the year 2007.

 

	
   

  	
    /s/
  Mark Byrne

  	
   

  
	
   

  	
  Flagstone
  Reinsurance Limited

  
	
   

  	
  By: Mark
  Byrne, Director

  

 

 

Hamilton, Bermuda,                 this
4th day of January in the year 2007.

 

	
   

  	
     /s/ David Brown

  	
   

  
	
   

  	
  Mont Fort Re Ltd ILW 2 Cell

  
	
   

  	
  By: David Brown, Director

  

 

8

 

Schedule
A

 

Facultative/Obligatory

Surplus

Reinsurance
Contract

Effective: 
January 1, 2007

 

issued to

 

Flagstone
Reinsurance Limited

Hamilton, Bermuda

 

Reinsurance
Guidelines

 

1)      Policies

 

Policies ceded by the Company to the
Reinsurer shall comprise of industry loss warranties (ILW’s) and certain
non-ILW excess of loss reinsurance policies classified by the Company as
Property Catastrophe, Property Specialty and Other Specialty, subject to the
terms, conditions and limitations herein set forth.

 

2)      Cession and Limit

 

The Company shall cede policies up to a maximum
aggregate limit of exposure in each of one or more risk zones. The risk zones
may comprise distinct classes of business, or as respects property catastrophe
business, one or more geographical areas of the world that the Company
considers to have low or no correlation with respect to losses from the insured
perils.

 

The Company and the Reinsurer shall agree the
number and nature of the risk zones and the limit of exposure for each risk
zone from time to time.

 

3)      Modification

 

The parties to this Contract authorize the
Reinsurer to modify, change, add or delete any requirements under this Schedule
A, paragraphs (2) and (3), in its sole discretion, upon 14 days’ prior written
notice to the Company.

 

1

 

Schedule
B

 

Facultative/Obligatory

Surplus

Reinsurance
Contract

Effective: 
January 1, 2007

 

issued to

 

Flagstone
Reinsurance Limited

Hamilton, Bermuda

 

1)      Security

 

The Reinsurer shall provide security for its
obligations to the Company under this Contract in the manner set forth in this
Schedule B.

 

2)      Definitions

 

Limit shall mean
the maximum aggregate amount of insurance and reinsurance loss exposures
written by the Reinsurer in any Risk Zone.

 

Reinsurer’s Proportionate Reserves shall mean the Reinsurer’s proportion
of the loss reserves in respect of losses that have been reported to the
Company and allocated loss expenses relating thereto, and unearned premium
reserves, and any amounts relating to reserves in respect of losses or loss
expenses Incurred But Not Reported, as shown in the statement prepared by the
Company.

 

Required Security  shall mean a clean, irrevocable and
unconditional Letter of Credit issued by a bank chosen by the Reinsurer and
acceptable to the Company, or such other security as may be reasonably
acceptable to the Company.

 

Risk Zone shall
mean one or more geographical areas of the world, or distinct classes or lines
of business other than property catastrophe, in which the Company underwrites
policies.

 

RITC shall mean
a reinsurance policy or policies purchased by the Reinsurer whereby the
Company, and/or a third party or third parties reasonably acceptable to the
Company, commutes or assumes liability for the run-off to extinction of the
policies ceded to the Company pursuant to this Contract or by a third party.

 

3)      Notice
of Loss

 

The Company agrees that when
it shall set up on its books reserves for losses covered hereunder, or unearned
premium reserves on Policies subject to this Contract, it will forward to the
Reinsurer a statement showing the Reinsurer’s Proportionate Reserves.

 

1

 

4)      Obligation
to Provide Required Security

 

The Reinsurer hereby agrees
that upon receiving Notice of Loss it will provide the Required Security, in an
amount equal to the Reinsurer’s Proportionate Reserves.

 

The Reinsurer and the Company agree that the
obligation to provide Required Security shall survive any expiry or non-renewal
of this Contract and any run-off of the Reinsurer and the insolvency of any of
the Company or the Reinsurer.  Upon the occurrence of any of these events,
the Reinsurer shall be obligated to maintain the Required Security at an amount
equal to the Limit in each Risk Zone in respect of which the Reinsurer may have
incurred a Loss (as determined in the reasonable judgment of the Company) until
such time as the Company reasonably determines that the remaining risk of
adverse development is immaterial, achieved, as necessary, by way of the
purchase of RITC; plus,

 

5)      Periodic
Adjustments to Required Security

 

At quarterly intervals, or at
such other times as may be agreed by the parties, the Company shall prepare a
specific statement of the Reinsurer’s Proportionate Reserves on policies
subject to this Contract for the sole purpose of amending the amount of
Required Security. Within thirty (30) days after the receipt of such statement,
the amount of the actual security provided shall be adjusted to reflect the
revised amount of Required Security, through either an amendment to the respective
Letter of Credit or such other adjustment as is necessary and appropriate to
the form of security provided.

 

6)      Drawdown
on Required Security

 

The Reinsurer and the Company agree that,
notwithstanding anything to the contrary which may be contained in this
Contract, the Required Security may be drawn upon by the Company or its
successors at any time, without diminution because of the insolvency of the
Company or the Reinsurer, for one or more of the following purposes:

 

a)      To
reimburse itself for the Reinsurer’s share of unearned premiums on account of
cancellations, unless paid in cash by the Reinsurer;

 

b)      To
reimburse itself for Losses, unless paid in cash by the Reinsurer;

 

c)      To
reimburse itself for the Reinsurer’s share of any other amounts claimed to be
due under this Contract, unless paid in cash by the Reinsurer;

 

d)      To
refund to the Reinsurer any sum in excess of the actual amount required to fund
the Reinsurer’s obligations under this Schedule B, if so requested by the
Reinsurer.

 

The Company shall promptly return to the
Reinsurer any amount so drawn on the Required Security which is in excess of
the actual amounts required for a) or b) or, in the case of c), the actual
amount determined to be due. All settlements of account under this Contract
relating to the Required Security between the Company and the Reinsurer shall
be made in cash or its equivalent.

 

2

 

7)      RITC

 

The Reinsurer
shall purchase RITC after consultation with the Company (which shall advise in
good faith), as follows:

 

a)      to
the extent necessary to cure any breach by the Reinsurer of this Schedule B;

 

b)      to
the extent necessary to permit Redemptions, as provided for in the Articles of
Association and therein defined, of up to 50.0% of the aggregate net worth of
the Reinsurer and Holdings after taking into account the requirements of this
Schedule B;

 

c)      if
Redemption Notices, as provided for in the Articles of Association and therein
defined, are received by Holdings in respect of Redemptions which, in the
aggregate, exceed the aggregate amount of Subscriptions, as provided for in the
Articles of Association and therein defined;

 

d)      to
the extent directed by the Company; if at any time the Company exercises the
Collateral Preservation Right; or

 

e)      to
the extent so resolved by the Board of Directors of the Reinsurer, any
directors appointed by the Company not exercising their right to vote.

 

The Reinsurer
and the Company agree that RITC shall inure either to the benefit of the Reinsurer
or to the benefit of Company as directed by the Company. In the event that RITC
inures to the benefit of the Company this Contract shall be endorsed
accordingly and, subject to the assignment by the Reinsurer to the Company of
any and all rights relating thereto, the Reinsurer shall be relieved by the
Company of any or all liabilities the subject of RITC.

 

The Reinsurer
and the Company agree that, unless the Company otherwise agrees, the S&P
rating of any entity from whom RITC is purchased shall be not less than “A” (or AM Best rating not less that “A-”)

 

3

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