Document:

Exhibit 10.18

 

Execution Copy

 

OPERATIONAL
SUPPORT AGREEMENT

 

OPERATIONAL SUPPORT AGREEMENT, dated as of December 20,
2005 (the “Agreement”), among West End Capital Management (Bermuda)
Limited, an exempted company incorporated under the laws of Bermuda and
licensed to provide insurance management services pursuant to the licence
annexed hereto, and Flagstone Reinsurance Limited (“Flagstone”), a company
incorporated under the laws of Bermuda and registered as a Bermuda Class 4
insurer under the Insurance Act 1978.

 

WHEREAS, it is intended by the parties that West End
Bermuda and Flagstone shall enter into this Agreement pursuant to which West
End Bermuda will provide Flagstone certain insurance management and related
support services in respect of Flagstone’s business on the terms and subject to
the conditions set forth herein; and

 

NOW, THEREFORE, the parties hereto agree as follows:

 

1.             Provision
of Services. (a)  Subject to the
terms and conditions of this Agreement and in accordance with the standards of performance
set forth in Section 2, West End Bermuda shall provide to Flagstone,  the services listed and described in Schedule
1 hereto (the “Services”) for a period of 24 months commencing at the
date hereof.

 

(b)           In
addition to the Services, West End Bermuda shall provide Flagstone transitional
assistance for the term of this Agreement, consisting of consulting services of
personnel currently providing support for Flagstone’s administration, financial
matters, tax matters and corporate secretarial matters, in relation to
transitioning the Services to Flagstone and the use of reasonable efforts by
West End Bermuda to assist in the transfer of responsibility for each Service
to Flagstone. Such West End employees shall be available to provide such
transitional assistance at the rates listed on Schedule 2 of this Agreement. Flagstone
shall also reimburse West End Bermuda for its reasonable out-of-pocket expenses
incurred in connection with the provision of transitional assistance, which
shall include all expenses related to the use of corporate aircraft, provided
that, if more than one person from West End Bermuda is required at the
same destination on the same occasion for the purposes of the provision of
transitional assistance and they utilize corporate aircraft, then all such
persons shall utilize the same corporate aircraft.

 

2.             Standard
of Performance; Personnel. West End Bermuda agrees (i) to provide or cause
to be provided to Flagstone the Services in a reasonable manner; (ii) that the
Services shall be provided by personnel who are experienced, qualified and
trained in the business of insurance management and who shall provide such
services in a professional and timely manner. West End Bermuda may provide the
Services through the use of appropriate licensed (where applicable)
sub-contactors (whether affliated or not) or consultants; provided, that
West End Bermuda shall remain fully responsible for any such Services so
provided.

 

1

 

3.             Payment
for Services and Transitional Assistance. (a)  Flagstone shall pay West End Bermuda for (i)
the provision of the Services and the transitional assistance (at the rates
specified in Schedule 2), (ii) for the provision of premises (based on actual
square footage utilized) and direct overheads as specified in Schedule 3, provided
that, no premises located in Bermuda may be provided to Flagstone by
West End Bermuda without a licence issued to West End Bermuda by the Bermuda
Minister of Finance pursuant to Section 129A of the Companies Act 1981 of
Bermuda (the “Act’) and (iii)  any
out-of-pocket expenses incurred in providing the Services or the transitional
assistance, monthly, in arrears, within 15 days of receipt of an invoice to be
sent after the relevant month, except for amounts disputed in good faith;
provided, that in no event shall the total of all such payments to or for the
account of West End Bermuda and its affiliates exceed $2.5 million in any
calendar year. Each invoice shall set forth in reasonable detail the Services
or transitional assistance rendered during the month to which such invoice
relates, the personnel who provided those Services or transitional assistance,
the category to which they belong for purposes of Schedule 2 (if necessary),
the time spent on providing the Services or transitional assistance, the amount
of any out-of-pocket expenses incurred in providing the Services or the
transitional assistance and the aggregate amounts payable by Flagstone in
connection with such Services and transitional assistance for the relevant
month. If Flagstone has any objection to the amount of any invoice, it may
require West End Bermuda to substantiate such invoice amount with appropriate
records. In the event Flagstone continues to object to the amount of the invoice
following its receipt of substantiation thereof, West End Bermuda shall
cooperate fully by (i) providing all appropriate records of it and its
officers, employees, agents and consultants reasonably available during regular
business hours (to the extent that this will not result in a material
interruption to West End Bermuda) without charge to Flagstone and (ii) using
reasonable efforts to cause any other relevant person or entity to provide all
appropriate records and make its officers, employees, agents and consultants
reasonably available during business hours, in each case as may be required in
connection with such audit. The parties shall endeavor in good faith to resolve
any disagreement with respect to charges hereunder within 15 days of the date of
the relevant notice. In the event the parties fail to resolve such disagreement
within that period, such disagreement shall be resolved in accordance with
Section 5 hereof.

 

(b)           West
End Bermuda shall maintain, in all material respects, true and complete
documentation supporting all amounts to be paid to West End Bermuda by
Flagstone under the terms of this Agreement until at least three years after
the termination of this Agreement.

 

4.             Term.
(a)  The term of this Agreement shall be
for a period of 24 months commencing at the date hereof ; provided  that,
this Agreement may be terminated:

 

(i)            by Flagstone or West
End Bermuda, at any time, not less than 30 days after delivery of notice to the
other party, in the event that the other party shall have defaulted on or
breached any material term of this Agreement and shall not have cured such
breach within five Business Days after receiving notice specifying the nature
of such default or breach; or

 

(ii)           by Flagstone or West
End Bermuda if the other party hereto should commence any case, proceeding or
action (a) under any existing or future law of any jurisdiction, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an

 

2

 

order
for relief entered with respect to it, or seeking to adjudicate it as a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding up, liquidation, dissolution, composition or other relief with respect
to it or its debts or (b) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets; or, there shall be commenced against that party any such case,
proceeding or other action which results in the entry of an order for relief or
any such adjudication or appointment remains undismissed, undischarged or
unbonded for a period of thirty days.

 

(b)           During
the term of this Agreement, Flagstone shall use all commercially reasonable
efforts to assume responsibility for each Service within 24 months from the
date hereof.

 

(c)           The
parties agree that Flagstone may terminate this Agreement with respect to any
Service upon 30 calendar days prior written notice to West End Bermuda. Any
requested termination of a Service pursuant to this Section 4(c) shall become
effective at the end of such 30 day period, and Flagstone shall with effect
from the effective date of such termination no longer be obligated to pay for
such Service.

 

(d)           Upon
termination of this Agreement and settlement in full of amounts owing to West
End Bermuda in respect of this Agreement, West End Bermuda shall deliver to
Flagstone, at Flagstone’s expense, all books, records, data and reports
(whether print or electronic) used or prepared exclusively in relation to the
provision of the Services, to the extent that West End Bermuda is legally
entitled to do so.

 

(e)           Sections
5, 13 and 18 shall survive any termination of this Agreement.

 

5.             Dispute
Resolution. In the event any dispute arises under this Agreement, the
parties hereto agree to negotiate in good faith to resolve such dispute prior
to seeking relief in a court of law. Either Flagstone, on the one hand or West
End Bermuda, on the other, may at any time deliver a notice to any other party
that it wishes to refer a dispute to a senior executive of Flagstone and the
Compliance Officer of West End Bermuda. Following receipt of such notice
Flagstone, on the one hand and West End Bermuda on the other, shall designate
one of its senior executives to negotiate in good faith to resolve such dispute
within 10 days (or such longer period of time as such officers may agree to in
writing). If at the end of such 10 day (or longer if properly extended) period
the designated officers have not fully resolved the dispute to their mutual
satisfaction, then:

 

(a) with respect to any dispute relating to charges
under Section 3 of this Agreement, the parties shall within a 10 day (or longer
if properly extended) period submit such dispute to arbitration by a single
arbitrator. The arbitrator shall be an independent accounting firm of
international reputation, mutually acceptable to Flagstone and West End Bermuda
(or, if the parties are unable to agree upon such an accounting firm, such an
accounting firm selected by the parties’ independent accounting firms). In the
event, no agreement can be reached as to the identity of the arbitrator, either
party may invoke the assistance of the court to appoint an arbitrator pursuant
to the provisions of the Arbitration Act 1986. Any arbitrator appointed,
whether by the parties or by the court, shall, within 30 days of the submission
of the dispute to them, determine and report to Flagstone and West End Bermuda
their determination which shall 

 

3

 

be final and binding on the parties hereto, the cost
of such determination to be borne by the parties in the proportions determined
by the arbitrator;

 

(b) all other disputes shall be resolved through the
courts of Bermuda.

 

6.             Specific
Performance; Liability. (a) It is specifically understood and agreed that
any breach of this Agreement by Flagstone or West End Bermuda will result in
irreparable injury to the aggrieved party, that the remedy at law alone will be
an inadequate remedy for such breach and that Flagstone or West End Bermuda
shall be entitled to specific performance of this Agreement, in addition to any
other remedy at law or equity.

 

(b)           Flagstone
acknowledges that the Services and transitional assistance are being provided
by West End Bermuda pursuant to this Agreement pending an assumption of
responsibility for the provision of the Services by Flagstone. Accordingly, all
warranties and representations relating to the Services and transitional
assistance, whether implied, statutory or otherwise, are hereby excluded to the
maximum extent permitted by law, except as expressly set forth in this
Agreement (including, without limitation, Section 2 hereof); provided, however,
that nothing in this Agreement shall exclude either party’s liability for fraud
or dishonesty or liability for death or personal injury arising out of its
gross negligence.

 

(c)           West
End Bermuda shall have no liability for any loss to Flagstone or its officers,
directors, employees, agents, successors or assigns that arises in relation to
the provision of the Services and transitional assistance except with respect
to losses resulting from fraud, dishonesty, willful default, bad faith or gross
negligence or to the extent the exclusion of such liability is contrary to any
applicable laws.

 

7.             Cooperation;
Access. (a)  The parties hereto agree
to fully cooperate in good faith with one another in connection with the
Services provided under this Agreement.

 

(b)           Flagstone
shall permit West End Bermuda and its employees and agents reasonable access
during regular business hours (or otherwise upon agreement) to such data and
personnel designated by Flagstone as involved in receiving or overseeing the
Services and other information as reasonably requested by West End Bermuda to
facilitate West End Bermuda’s performance of this Agreement. West End Bermuda
shall permit Flagstone and its employees and agents reasonable access during
regular business hours (or otherwise upon agreement) to individuals responsible
for the Services and provide Flagstone with such data and other information as
Flagstone may reasonably request for the purposes of allowing Flagstone to
monitor the performance of the Services and to assist Flagstone in
transitioning the Service functions to Flagstone’s own systems upon the
termination of this Agreement, in each case to the extent that such permission
or provision does not result in material interruption to West End Bermuda.

 

(c)           Flagstone
and West End Bermuda shall cooperate with and assist one another in obtaining
any third party consents or amendments necessary for the performance of the
Services hereunder, including, without limitation, any required consent or
amendment under any software license; provided, however, that
West End Bermuda shall not be required to cooperate with and assist Flagstone
in obtaining any consent to amendment where West End Bermuda reasonably 

 

4

 

concludes (after consultation with Flagstone) that
such consent or amendment will result in it incurring out-of-pocket expenses
which Flagstone, in its sole discretion, does not approve. Flagstone and West
End Bermuda will notify one another promptly after becoming aware that any such
consents or amendments are required. Subject to Flagstone’s prior approval, the
out-of-pocket costs and expenses of obtaining any such consents or amendments
shall be borne by Flagstone. In the event that the parties are unable to obtain
any required consent or amendment, they shall negotiate in good faith
reasonable modifications of the Services and applicable fees such that such
consents or amendments are not required.

 

8.             Force
Majeure. West End Bermuda shall not be liable to Flagstone for delay in
performing or failure to perform its obligations under this Agreement if the
delay or failure results from events or circumstances outside its reasonable
control including, without limitation, fire, flood, explosion, acts of war or
hostilities or terrorist activity, riots, government action or inaction,
request by any governmental, regulatory or administrative agency, accident or
breakage of any machinery or apparatus, strikes or labor disputes or any
inability to obtain fuel, power, gas, equipment or transportation, and such
delay or failure shall not constitute a breach of this Agreement.

 

9.             Notices.
All notices, requests, claims, demands and other communications hereunder shall
be in writing and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by an internationally
recognized overnight courier service or by facsimile (with confirmation of
sending) to the respective parties hereto at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 9):

 

if to
Flagstone, to:

 

Crawford
House

12
Church Street, suite 224

Hamilton,
HM Bermuda

Telephone:
+1 (441) 278-4319

Fax:  +1 (441) 295-4927

Attention:
Todd White

 

If to
West End Bermuda to:

 

West
End Capital Management (Bermuda) Limited

Crawford
House

12
Church Street, suite 224

Hamilton,
HM Bermuda

Telephone:
+1 (441) 278-4302

Fax:  +1 (441) 295-4927

Attention:
Anthony M. Philip

 

10.           Amendment.
This Agreement may not be amended or modified except (a) by an instrument in
writing signed by, or on behalf of, West End Bermuda and Flagstone or (b) by a
waiver in accordance with Section 11.

 

5

 

11.           Waiver.
West End Bermuda, on the one hand, and Flagstone, on the other, may
(a) extend the time for the performance of any of the obligations or other
acts of the other party to this Agreement or (b) waive compliance with any
of the agreements of the other party or conditions to such party’s obligations
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby. Any waiver
of any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any
other term or condition of this Agreement. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of any of such
rights. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

 

12.           Assignment.
This Agreement may not be assigned without the express written consent of West
End Bermuda and Flagstone (which consent may be granted or withheld the sole
discretion of West End Bermuda or Flagstone), it being understood and agreed
that any direct or indirect change of control of West End Bermuda shall be
deemed to be an assignment of this Agreement.

 

13.           Counterparts.
This Agreement may be executed and delivered (including by facsimile transmission)
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original,
but all of which taken together shall constitute one and the same agreement.

 

14.           Entire
Agreement. This Agreement (including all Schedules hereto) constitutes the
entire agreement and supersedes all prior agreements, representations and
understandings, except to the extent repeated in this Agreement, of any nature,
both written and oral, between the parties with respect to the subject matter
hereof. Flagstone and West End Bermuda each acknowledge that in entering into
this Agreement it is not relying on any representation or understanding that is
not set out in this Agreement and neither Flagstone nor West End Bermuda shall
have any right of action (except in the case of fraud or dishonesty) against
the other party to this Agreement arising out of or in connection with any
prior representation or understanding to the extent that it is not repeated in this
Agreement.

 

15.           Applicable Law. This
Agreement shall be governed by and construed in accordance with Bermuda law and
shall be treated, in all respects, as an Bermuda contract without regard to
conflicts of laws and principles. The Parties submit to the non-exclusive
jurisdiction of the courts of Bermuda.

 

16.           Headings.
The heading references herein are for convenience purposes only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

17.           No
Partnership. Nothing in this Agreement and no action taken by the parties
pursuant to this Agreement shall constitute, or be deemed to constitute, the
parties a partnership, unincorporated association, or other co-operative
entity.

 

18.           Non-solicitation.
Flagstone shall not, during the term of this Agreement and for a period of one
year following the termination or expiry of this Agreement directly or
indirectly solicit, endeavor to entice away, employ or offer to employ any
person employed by West End Bermuda 

 

6

 

who is involved with the provision of Services or
transitional assistance under this Agreement at any time, whether or not such
person would commit any breach of his contract of service in leaving such
employment.

 

19.           Change
of Control. West End Bermuda shall use its reasonable best efforts to
ensure that the provision of the Services and transitional assistance
contemplated by this Agreement shall continue in the event West End Bermuda is
subject to a change in ownership or a change of control.

 

7

 

IN WITNESS WHEREOF, the parties have duly executed
this OPERATIONAL SUPPORT Agreement as of the date first written above by their
respective officers thereunto duly authorized.

 

	
   

  	
  FLAGSTONE
  REINSURANCE LIMITED

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Todd White

  	
   

  
	
   

  	
  Name: Todd White

  
	
   

  	
  Title: Secretary

  
	
   

  
	
   

  
	
   

  	
  WEST END CAPITAL
  MANAGEMENT

  (BERMUDA) LIMITED

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Anthony
  Philip

  	
   

  
	
   

  	
  Name: Anthony
  Philip

  
	
   

  	
  Title: Secretary

  
						

 

8

 

Annex A

 

 

(Insurance Managers Licence — omitted)

 

9

 

Schedule 1

 

The
Services shall include each of the services specified below and such other
services as Flagstone and West End Bermuda shall agree in writing, subject to
West End Bermuda having the required licenses/regulatory approvals necessary to
provide such other services:

 

1)     Operational Services:  The Services shall include all activities,
services and procedures which activities, services and procedures shall be
performed for up to the entire 24 month term of this Agreement unless this
Agreement is terminated in accordance with its terms or, with respect to
specific Services, terminated in accordance with 4(c) :

 

a)     Company secretarial services

b)    Accounting & tax services

c)     Risk modeling services

d)    Information technology &
communication services

e)     Provision of premises and
utilities; provided that no premises located in Bermuda may be provided to
Flagstone by West End Bermuda without a licence issued to West End Bermuda by
the Bermuda Minister of Finance pursuant to Section 129A of the Act

f)     Administrative Services

g)    Disaster Recovery Procedures

 

2)     Training Services:  West End Bermuda shall provide adequate personnel
for instructing Flagstone’s personnel to take over the provision of the
Services contemplated herein during the term of this agreement. The instruction
shall occur at times and locations mutually agreeable to Flagstone and West End
Bermuda, and to the extent Flagstone reasonably requests additional instruction
beyond that contemplated by this Section 2, West End Bermuda shall be
compensated for such services consistent with the rates set forth on Schedule 2
of this Agreement.

 

3)     Future Services. To
the extent Flagstone and West End Bermuda determine that additional services
are required for Flagstone to transition on to the systems necessary to operate
without assistance from West End Bermuda the parties hereto agree to negotiate
in good faith the provision of such services and the fees related thereto.

 

10

 

Schedule
2

 

The amount to be invoiced
under Section 3 in respect of the personnel providing the Services and
transitional assistance in accordance with Section 1 shall be according to the
following table. The amount to be invoiced in respect of each of the personnel
providing the Services for any one day shall be the lower of the aggregate of
the applicable hourly rate, or the applicable daily rate.

 

	
  Category of Staff

  	
   

  	
  US$ per Hour

  	
   

  	
  US$ per 8-hour day

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Phd Quantative Analyst- Bermuda

  	
   

  	
  400

  	
   

  	
  2500

  	
   

  
	
  Other Computer Programmer- Bermuda

  	
   

  	
  200

  	
   

  	
  1250

  	
   

  
	
  Phd Quantative Analyst- Elsewhere

  	
   

  	
  400

  	
   

  	
  2500

  	
   

  
	
  Other Computer Programmer- Elsewhere

  	
   

  	
  200

  	
   

  	
  1250

  	
   

  
	
  Network Infrastructure Engineer

  	
   

  	
  175

  	
   

  	
  1000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Chartered Accountant -
  Elsewhere

  	
   

  	
  100

  	
   

  	
  600

  	
   

  
	
  Corporate Secretarial -
  Bermuda

  	
   

  	
  90

  	
   

  	
  600

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Specific Personnel

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Todd White

  	
   

  	
  250

  	
   

  	
  1500

  	
   

  
	
  Anthony Philip

  	
   

  	
  250

  	
   

  	
  1500

  	
   

  
	
  Tim Calveley

  	
   

  	
  225

  	
   

  	
  1500

  	
   

  
	
  Brenton Slade

  	
   

  	
  225

  	
   

  	
  1500

  	
   

  
	
  Patrick Boisvert

  	
   

  	
  175

  	
   

  	
  1000

  	
   

  

 

11

 

Schedule
3

 

The amount to be invoiced
under Section 3 in respect of the provision of premises shall be the
following:.

 

 

	
  Fully Loaded Space Cost

  	
   

  	
  US$ per square foot

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Halifax

  	
   

  	
  20

  	
   

  
	
  Hydrabad

  	
   

  	
  19

  	
   

  

 

 

This charge shall apply
to the space used by the cubicle, desk, or office as the case may be, of all
Flagstone personnel working in offices outside of Bermuda rented or owned by
West End Bermuda or affiliates. It shall further apply to a proportionate share
of common space (hallways, conference rooms, kitchen, etc).

 

12Exhibit
10.19

 

Execution
Copy

 

[LETTERHEAD OF
FLAGSTONE REINSURANCE HOLDINGS LIMITED]

 

February 23, 2006

 

Lightyear Fund
II (Cayman), L.P. 

375 Park Avenue

New York, New
York 10152

 

Dear
Sir/Madam:

 

Reference is made to the purchase on
February 1, 2006 by Lightyear Fund II (Cayman), L.P. (the “VCOC Investor”)
from Flagstone Reinsurance Holdings Limited (the “Company”) of 4,985,000 common
shares, par value $.01 per share, of stock of the Company pursuant to the
Second Subscription Agreement dated as of December 30, 2005 between the
Company and Lightyear Fund II, L.P. (“Lightyear”) and the Assignment
Agreement dated February 1, 2006 among the Company, the VCOC Investor,
Lightyear and Lightyear Co-Invest Partnership II (Cayman), L.P. (the “Initial Stock”),
and the contemplated direct or indirect purchase pursuant to the Fourth
Subscription Agreement dated as of February 23, 2006 between the Company
and the VCOC Investor by the VCOC Investor from the Company of an additional
997,000 common shares, par value $.01 per share, of stock of the Company
(together with the Initial Stock, the “Stock”). This letter agreement amends, restates
and supersedes the letter agreement delivered on February 1, 2006 by the
Company to the VCOC Investor pertaining to the same matters discussed herein.

 

The Company hereby agrees that for so long as
the VCOC Investor, directly or through one or more conduit subsidiaries,
continues to hold any Stock (or, solely for purposes of paragraph (c) below, at
least 2,492,500 shares of Stock) or other securities of the Company into which
such shares of Stock may be converted or for which such shares of Stock may be
exchanged, the Company, without limitation or prejudice of any of the rights
provided to shareholders of the Company generally, shall:

 

(a)           Provide the VCOC Investor or its designated
representative with:

 

(i)            the right to visit and
inspect during business hours any of the offices and properties of the Company
and its subsidiaries and inspect books and records of the Company and its
subsidiaries, at such times as are mutually agreed upon between the VCOC
Investor and the Company;

 

 

(ii)           as soon as available
and in any event within 45 days after the end of each of the first three
quarters of each fiscal year of the Company, consolidated balance sheets of the
Company and its subsidiaries as of the end of such period, and consolidated
statements of income and cash flows of the Company and its subsidiaries for the
period then ended prepared in conformity with generally accepted accounting principles
applied on a consistent basis, except as otherwise noted therein, and subject
to the absence of footnotes and to year-end adjustments;

 

(iii)          as soon as available and
in any event within 120 days after the end of each fiscal year of the Company,
a consolidated balance sheet of the Company and its subsidiaries as of the end
of such year, and consolidated statements of income and cash flows of the
Company and its subsidiaries for the year then ended prepared in conformity
with generally accepted accounting principles applied on a consistent basis,
except as otherwise noted therein, together with an auditor’s report thereon of
a firm of established reputation; and

 

(iv)          to the extent the
Company or any of its subsidiaries is required by law or pursuant to the terms
of any outstanding indebtedness of the Company or such subsidiary to prepare
such reports, any annual reports, quarterly reports and other periodic reports,
actually prepared by the Company or such subsidiary as soon as available.

 

(b)           Make appropriate officers and directors of
the Company, and its subsidiaries, available periodically and at such times as
reasonably requested by the VCOC Investor for consultation with the VCOC
Investor or its designated representative with respect to matters relating to
the business and affairs of the Company and its subsidiaries, including,
without limitation, significant changes in management personnel and
compensation of employees, introduction of new products or new lines of
business, important acquisitions or dispositions of plants and equipment,
significant research and development programs, the purchasing or selling of
important trademarks, licenses or concessions or the proposed commencement or
compromise of significant litigation;

 

(c)           At any time the VCOC Investor does not have
a written contractual agreement with the Company which entitles the VCOC
Investor to unilaterally appoint at least one member to the Board of Directors
of the Company, provide the VCOC Investor with the right to designate one non-voting
board observer who will be entitled to attend all meetings of the Company’s
Board of Directors, participate in all deliberations of the Board and receive
copies of all materials provided to the Board, provided that such observer
shall have no voting rights with respect to actions taken or elected not to be
taken by the Board;

 

2

 

(d)           At any time the VCOC Investor does not have
a written contractual agreement with the Company which entitles the VCOC Investor
to unilaterally appoint at least one member to the Board of Directors of the
Company or to designate one non-voting board observer as provided in paragraph
(c) above, to the extent consistent with applicable law (and with respect to
events which require public disclosure, only following the Company’s public
disclosure thereof through applicable securities law filings or otherwise),
inform the VCOC Investor or its designated representative in advance with
respect to any significant corporate actions, including, without limitation,
extraordinary dividends, mergers, acquisitions or dispositions of assets,
issuances of significant amounts of debt or equity and material amendments to
the certificate of incorporation or by laws of the Company or any of its subsidiaries,
and to provide the VCOC Investor or its designated representative with the
right to consult with the Company and its subsidiaries with respect to such
actions; and

 

(e)           Provide the VCOC Investor or its designated
representative with such other rights of consultation which the VCOC Investor’s
counsel may determine to be reasonably necessary under applicable legal
authorities promulgated after the date hereof to qualify its investment in the
Company as a “venture capital investment” for purposes of the United States
Department of Labor Regulation published at 29 C.F.R. Section
2510.3-101(d)(3)(i) (the “Plan Asset Regulation”).

 

The Company agrees to consider, in good
faith, the recommendations of the VCOC Investor or its designated
representative in connection with the matters on which it is consulted as
described above, recognizing that the ultimate discretion with respect to all
such matters shall be retained by the Company.

 

The VCOC Investor agrees, and will require
each designated representative of the VCOC Investor to agree, to hold in
confidence and not use or disclose to any third party (other than its legal
counsel and accountants) any confidential information provided to or learned by
such party in connection with the VCOC Investor’s rights under this letter
agreement except as may otherwise be required by law or legal, judicial or
regulatory process, provided that the VCOC Investor takes reasonable steps to
minimize the extent of any such required disclosure.

 

The rights set forth in this letter agreement
are not transferable by the VCOC Investor to any other person or entity. Notwithstanding
the preceding sentence, in the event the VCOC Investor transfers all or any
portion of its investment in the Company to an affiliated entity or to a Qualified
Fund (or to a direct or indirect wholly-owned conduit subsidiary of any such
affiliated entity or Qualified Fund) that is intended to qualify as a venture
capital operating company under the Plan Asset Regulation, such affiliated
entity or Qualified Fund shall be afforded the same rights with respect to the
Company afforded to the VCOC Investor hereunder, and in such event the Company
agrees to execute a 

 

3

 

management
rights agreement in the form of this agreement with such affiliated entity or
Qualified Fund, as applicable, and the name of the assignee shall be
substituted for the VCOC Investor in each place it appears. For purposes of
this paragraph, “affiliated entity” shall mean any entity that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the VCOC Investor, and a “Qualified Fund” is an
investment fund managed by an affiliated entity.

 

This letter agreement and the rights and the
duties of the parties hereto shall be governed by, and construed in accordance
with, the laws of the State of New York and may be executed in counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same instrument.

 

	
   

  	
  FLAGSTONE REINSURANCE

  HOLDINGS LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Todd White

  	
   

  
	
   

  	
   

  	
    Name: Todd White

  
	
   

  	
   

  	
    Title:   Secretary

  
	
   

  
	
  Agreed and
  acknowledged as of the 

  date first above written:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  LIGHTYEAR FUND II
  (CAYMAN), L.P.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:  LIGHTYEAR
  FUND II (Cayman) GP, L.P.,

  	
   

  	
   

  
	
  its general
  partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:  LIGHTYEAR
  FUND II (Cayman) GP, Ltd.,

  	
   

  	
   

  
	
  its general
  partner

  	
   

  	
   

  
	
   

  
	
   

  
	
  By:

  	
  /s/ 

  	
   

  
	
   

  	
  Name: 

  
	
   

  	
  Title:   Vice President

  	
   

  
							

 

4

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