Document:

Exhibit 4.13

EXECUTION COPY

NOTE PURCHASE AGREEMENT

among

FLAGSTONE REINSURANCE HOLDINGS LIMITED

and

MERRILL LYNCH INTERNATIONAL, as Purchaser

Dated as of August 23, 2006

NOTE PURCHASE AGREEMENT

€13,000,000 Floating Rate Deferrable Interest Subordinated Notes due 2036

          THIS
NOTE PURCHASE AGREEMENT, dated as of August 23, 2006 (this “Note
Purchase Agreement”), is
entered into among Flagstone Reinsurance Holdings Limited (the “Company”), and Merrill Lynch International or
its permitted assignees (the “Purchaser”).

W I T N E S S
E T H:

          WHEREAS,
the Company proposes to issue and sell Thirteen Million Euros (€13,000,000) in
aggregate principal amount of Floating Rate Deferrable Interest Subordinated
Notes due 2036, bearing a variable rate per annum, reset quarterly, equal to
EURIBOR (as defined in Schedule 3) plus 3.54% (the “Securities”and, together with this Note
Purchase Agreement, the “Operative Documents”);

          NOW,
THEREFORE, in consideration of the mutual agreements and subject to the terms
and conditions herein set forth, the parties hereto agree as follows:

          1. Purchase and Sale of the Securities.

          (a)
The Company agrees to sell to the Purchaser, and the Purchaser agrees to
purchase from the Company, the Securities for an aggregate amount (the “Purchase
Price”) equal
to Thirteen Million Euros (€13,000,000). The Purchaser shall be responsible for
the rating agency costs and expenses.

          (b)
Delivery or transfer of, and payment for, the Securities shall be made at 10:00
A.M. Chicago time (11:00 A.M. New York time), on August 23, 2006 or such later
date (not later than 30 days later) as the parties may designate (such date and
time of delivery and payment for the Securities being herein called the “Closing
Date”).The
Securities shall be transferred and delivered to the Purchaser against the
payment of the Purchase Price to the Company made by wire transfer in
immediately available funds on the Closing Date to a U.S. account designated in
writing by the Company.

          (c)
Delivery of the Securities, duly executed and registered in the name of the
Purchaser or its designees (subject to compliance with Section 13) and
denominations and in the form set out in Schedule 2 hereto with such
changes as may be agreed in writing by the Purchaser and the Company, shall be
made at such location as the Purchaser shall designate. The Company agrees to
have the Securities available for inspection and checking by the Purchaser in
Chicago, Illinois, not later than 1:00 P.M., Chicago time (2:00 P.M. New York
time), on the business day prior to the Closing Date. The closing for the
purchase and sale of the Securities shall occur at the offices of Mayer, Brown,
Rowe & Maw LLP, 71 South Wacker Drive, Chicago, Illinois 60606, or such
other place as the parties hereto shall agree.

          2. Conditions. The
obligations of the parties under this Note Purchase Agreement are subject to
the following conditions:

          (a)
The representations and warranties contained herein, and the statements of the
Company made in any certificates pursuant to this Note Purchase Agreement,
shall be accurate as of the date of delivery of the Securities.

          (b)
(i) Sidley Austin LLP, special New York counsel for the Company (“Sidley”), shall have delivered an opinion,
dated the Closing Date, addressed to the Purchaser and Cohen Bros. Financial
Management, LLC, in substantially the form set out in Annex A-I hereto, (ii)
Attride-Stirling & Woloniecki, special Bermuda counsel for the Company (“Bermuda
Counsel”and,
together with “Sidley” the “Company Counsel”), shall have delivered an opinion,
dated the Closing Date, addressed to the Purchaser and Cohen Bros. Financial
Management, LLC, in substantially the form set out in Annex A-II hereto, and
(iii) the Company shall have furnished to the Purchaser the opinion of the
Company’s General Counsel or a certificate signed by the Company’s Chief
Executive Officer, President, an Executive Vice President, Chief Financial
Officer, Treasurer or Assistant Treasurer or Secretary, dated the Closing Date,
addressed to the Purchaser, in substantially the form set out in Annex A-III
hereto. In rendering their opinion, the Company Counsel may rely as to factual
matters upon certificates or other documents furnished by officers and
directors of the Company and by government officials (provided, however, that
copies of any such certificates or documents are delivered to the Purchaser)
and by and upon such other documents as such counsel may, in their reasonable
opinion, deem appropriate as a basis for the Company Counsel’s opinion. The
Company Counsel may specify the jurisdictions in which they are admitted to
practice and that they are not admitted to practice in any other jurisdiction
and are not experts in the law of any other jurisdiction. Such Company Counsel
Opinion shall not state that they are to be governed or qualified by, or that
they are otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).

          (c)
The Purchaser shall have been furnished the opinion of Sidley Austin LLP,
special tax counsel for the Company, dated the Closing Date, addressed to the
Purchaser and Cohen Bros. Financial Management, LLC, in substantially the form
set out in Annex B hereto.

          (d)
The Company shall have furnished to the Purchaser a certificate of the Company,
signed by the Chief Executive Officer, President or an Executive Vice
President, and Chief Financial Officer, Treasurer or Assistant Treasurer of the
Company, dated as of the Closing Date, as to (i) and (ii) below.

	
  

 	
  

 
	
  

 	
           (i)
 the representations and warranties of the Company in this Note Purchase
 Agreement are true and correct on and as of the Closing Date with the same
 effect as if made on the Closing Date, and the Company has complied with all
 the agreements and satisfied all the conditions on its part to be performed
 or satisfied at or prior to the Closing Date; and

 
	
  

 	
  

 
	
  

 	
           (ii)
 since the date of the Financial Statements (as defined below), there has been
 no material adverse change in the condition (financial or other), earnings,
 business or business prospects of the Company and its subsidiaries, taken as
 a whole, whether or not arising from transactions occurring in the ordinary
 course of business.

 

2

          (e)
Subsequent to the date of the Financial Statements, there shall not have been
any change, or any development involving a prospective change, in or affecting
the condition (financial or other), earnings, business or business prospects of
the Company and its subsidiaries, taken as a whole, whether or not occurring in
the ordinary course of business, the effect of which is, in the Purchaser’s
reasonable judgment, so material and adverse as to make it impractical or
inadvisable to proceed with the purchase of the Securities.

          (f)
On or prior to the Closing Date, the Company shall have provided evidence
satisfactory to the Purchaser of the financial ratings set forth in the Cohen
Letter (as defined below).

          (g)
On or prior to the Closing Date, the Company shall have furnished to the
Purchaser and its special external counsel such further information,
certificates and documents as the Purchaser or its counsel may reasonably
request.

          If
any of the conditions specified in this Section 3 shall not have been
fulfilled when and as provided in this Note Purchase Agreement, or if any of
the opinions, certificates and documents mentioned above or elsewhere in this
Note Purchase Agreement shall not be reasonably satisfactory in form and
substance to the Purchaser or its counsel, this Note Purchase Agreement and all
the Purchaser’s obligations hereunder may be canceled at, or at any time prior
to, the Closing Date by the Purchaser. Notice of such cancellation shall be
given to the Company in writing or by telephone or facsimile and confirmed in
writing.

          Each
certificate signed by any officer of the Company and delivered to the Purchaser
or the Purchaser’s special external counsel in connection with the Operative
Documents and the transactions contemplated hereby and thereby shall be deemed
to be a representation and warranty of the Company and not by such officer in
any individual capacity.

          3.
Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with the Purchaser, as follows:

          (a) Neither
the Company, nor any of its “Affiliates” (as defined in Rule 501(b) of
Regulation D (“Regulation D”) under the Securities Act (as defined below)), nor
any person acting on its or their behalf (provided, that the Company makes no
representation, warranty or agreement with respect to the Purchaser or its
Affiliates), has, directly or indirectly, made offers or sales of any security,
or solicited offers to buy any security, under circumstances that would require
the registration of any of the Securities under the Securities Act of 1933, as
amended (the “Securities Act”).

          (b)
Neither the Company, nor any of its Affiliates, nor any person acting on its or
their behalf (provided, that the Company makes no representation, warranty or
agreement with respect to the Purchaser or its Affiliates), has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of any of the Securities.

          (c) The
Securities (i) are not and have not been listed on a national securities
exchange registered under section 6 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or quoted on a U.S. automated inter-dealer quotation
system and (ii) are not of 

3

an open-end
investment company, unit investment trust or face-amount certificate company
that are, or are required to be, registered under section 8 of the Investment
Company Act of 1940, as amended (the “Investment Company Act”), and the Securities otherwise
satisfy the eligibility requirements of Rule 144A(d)(3) promulgated pursuant to
the Securities Act (“Rule 144A(d)(3)”).

          (d) Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf (provided, that the Company makes no representation, warranty or
agreement with respect to the Purchaser or its Affiliates), has engaged, or
will engage, in any “directed selling efforts” within the meaning of Regulation
S under the Securities Act with respect to the Securities.

          (e)
The Company is not, and, immediately following consummation of the transactions
contemplated hereby and the application of the net proceeds therefrom, will not
be, an “investment company” within the meaning of section 3(a) of the
Investment Company Act.

          (f)
The Company has not paid or agreed to pay to any person or entity, directly or
indirectly, any compensation for soliciting another to purchase any of the
Securities, except for the sales commission the Company has agreed to pay to
Cohen Bros. & Company (or to the Company’s introducing agent on their
behalf) pursuant to the letter agreement between the Company and Cohen Bros.
& Company, dated August 11, 2006.

          (g)
The Securities have been duly authorized by the Company and, on the Closing
Date, will have been duly executed when delivered to the Purchaser against
payment therefor in accordance with the Note Purchase Agreement, will
constitute legal, valid and binding obligations of the Company entitled to the
benefits of the Note Purchase Agreement, enforceable against the Company in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar laws affecting
creditors’ rights generally and to general principles of equity.

          (h)
This Note Purchase Agreement has been duly authorized, executed and delivered
by the Company.

          (i)
Neither the issue and sale of the Securities nor the execution and delivery of
and compliance with the Operative Documents by the Company, nor the
consummation of the transactions contemplated herein or therein, (i) will
conflict with or constitute a violation or breach of the charter or bylaws of
the Company or any subsidiary of the Company or any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any government,
governmental authority, agency, or instrumentality, domestic or foreign, having
jurisdiction over the Company or any of its subsidiaries or their respective
properties or assets (collectively with any arbitrators or courts, the “Governmental
Entities”), (ii) will conflict with or constitute a violation or breach of, or a default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any Lien upon any property or assets of the Company or any of the
Company’s subsidiaries pursuant to, any contract, indenture, mortgage, loan
agreement, note, lease or other agreement or instrument to which (A) the
Company or any of its subsidiaries is a party or by which it or any of them may
be bound, or (B) to which any of the property or assets of any of them is
subject, except for such conflicts, breaches, violations, defaults, Repayment 

4

Events (as
defined below) or any pledge, security interest, claim, lien or other
encumbrance of any kind (each, a “Lien”) which
(X) would not, singly or in the aggregate, adversely affect the consummation of
the transactions contemplated by the Operative Documents and (Y) would not,
singly or in the aggregate, have a material adverse effect on the condition
(financial or otherwise), earnings, business or business prospects of the
Company and its subsidiaries, taken as a whole, whether or not occurring in the
ordinary course of business (a “Material Adverse Effect”) or (iii) require the consent,
approval, authorization or order of any court or Governmental Entity. As used
herein, a “Repayment Event” means
any event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder’s behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any of its subsidiaries prior to its
scheduled maturity.

          (j)
The Company has been duly organized and is validly existing as a company with
limited liability in good standing under the laws of Bermuda, with all
requisite power and authority to own, lease and operate its properties and
conduct the business it transacts and proposes to transact, and is duly
qualified to transact business and, where applicable, is in good standing as a
foreign company in each jurisdiction where the nature of its activities requires
such qualification, except where the failure of the Company to be so qualified
or be in good standing would not, singly or in the aggregate, have a Material
Adverse Effect.

          (k)
The Company has no subsidiaries that are material to its business, financial
condition or earnings other than those subsidiaries listed in Schedule 1
attached hereto (as defined in Section 1-02(w) of Regulation S-X of the
Securities Act, collectively, the “Significant Subsidiaries”). Each Significant Subsidiary has
been duly organized or formed and is validly existing and, where applicable, in
good standing under the laws of the jurisdiction in which it is organized or
formed, with all requisite power and authority to own, lease and operate its
properties and conduct the business it transacts and proposes to transact. Each
Significant Subsidiary is duly qualified to transact business and, where
applicable, is in good standing in each jurisdiction where the nature of its
activities requires such qualification, except where the failure to be so
qualified or be in good standing would not, singly or in the aggregate, have a
Material Adverse Effect.

          (l)
Each of the Company and each of the Company’s subsidiaries hold all necessary
approvals, authorizations, orders, licenses, consents, registrations,
qualifications, certificates and permits (including, without limitation,
insurance licenses from the insurance departments of the various states and
jurisdictions where the Company’s insurance subsidiaries write insurance business
or otherwise conduct insurance or reinsurance business, as the case may be. or
as may be required by any applicable insurance statutes of such states or other
jurisdictions (collectively, the “Insurance Licenses”)) (collectively, including the Insurance
Licenses, the “Governmental Licenses”) of and from Governmental Entities
necessary to conduct their respective businesses as now being conducted, and
neither the Company nor any of the Company’s subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
Governmental License, except where the failure to hold such Governmental
Licenses or the receipt of an unfavorable decision, ruling or finding in
respect of any such proceeding, would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except where the invalidity or the failure of such 

5

Governmental
Licenses to be in full force and effect would not, singly or in the aggregate,
have a Material Adverse Effect; and the Company and its subsidiaries are in
compliance with all applicable laws, rules, regulations, judgments, orders,
decrees and consents, except where the failure to be in such compliance would
not, singly or in the aggregate, have a Material Adverse Effect.

          (m)
All of the issued and outstanding shares of capital stock of the Company and
each of its subsidiaries are validly issued, fully paid and non-assessable; all
of the issued and outstanding shares of capital stock of each subsidiary of the
Company is owned by the Company, directly or through subsidiaries, free and
clear of any Lien, claim or equitable right; and none of the issued and
outstanding shares of capital stock of the Company or any subsidiary were
issued in violation of any preemptive or similar rights arising by operation of
law, under the charter or by-laws or other organizational document of such
entity or under any agreement to which the Company or any of its subsidiaries
is a party, subject to exceptions that would not, singly or in the aggregate,
have a Material Adverse Effect.

          (n)
Neither the Company nor any of its subsidiaries is (i) in violation of its
respective charter or by-laws or other organizational documents or (ii) in
default in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract. indenture, mortgage, loan agreement,
note, lease or other agreement or instrument to which the Company or any such
subsidiary is a party or by which it or any of them may be bound or to which
any of the property or assets of any of them is subject, except where such
violation or default would not, singly or in the aggregate, have a Material
Adverse Effect.

          (o)
There is no action, suit or proceeding before or by any Governmental Entity,
arbitrator or court, domestic or foreign, now pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of the
Company’s subsidiaries, except for such actions, suits or proceedings that, if
adversely determined, would not, singly or in the aggregate, adversely affect
the consummation of the transactions contemplated by the Operative Documents or
have a Material Adverse Effect; and the aggregate of all pending legal or
governmental proceedings to which the Company or any of its subsidiaries is a
party or of which any of their respective properties or assets is subject,
including ordinary routine litigation incidental to the business, are not
expected to result in a Material Adverse Effect.

          (p)
The accountants of the Company who certified the Financial Statements (as
defined below) are independent public accountants of the Company and its
subsidiaries within the meaning of the Securities Act, and the rules and
regulations of the Securities and Exchange Commission (the “Commission”)thereunder.

          (q)
The audited consolidated financial statements (including the notes thereto) and
schedules of the Company and its consolidated subsidiaries for the fiscal year
ended December 31, 2005 (the “Financial Statements”) and the interim unaudited
consolidated financial statements of the Company and its consolidated
subsidiaries for the six months ended June 30, 2006 (the “Interim
Financial Statements”) provided
to the Purchaser are the most recent available audited and unaudited
consolidated financial statements of the Company and its consolidated
subsidiaries, respectively, and fairly present in all material respects, in
accordance with U.S. generally accepted accounting principles (“GAAP”), the financial position of the 

6

Company and
its consolidated subsidiaries, and the results of operations and changes in
financial condition as of the dates and for the periods therein specified,
subject, in the case of Interim Financial Statements, to year-end adjustments
(which are expected to consist solely of normal recurring adjustments). Such
consolidated financial statements and schedules have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as otherwise noted therein).

          (r)
[Reserved]

          (s)
The Company and any of its subsidiaries, taken as a whole, do not have any
material liability, whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due, including any
liability for taxes (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action, suit,
proceeding, hearing, charge, complaint, claim or demand against the Company or
its subsidiaries that could give rise to any such liability), except for (i)
liabilities set forth in the Financial Statements or the Interim Financial
Statements and (ii) normal fluctuations in the amount of the liabilities
referred to in clause (i) above occurring in the ordinary course of business of
the Company and all of its subsidiaries since the date of the most recent
balance sheet included in such Financial Statements.

          (t)
The Company has not filed, and is not required by Governmental Entities,
regulators, insurance commissioners or similar entities of the jurisdictions of
organization of the Company or its insurance subsidiaries, if any, to file any
regulatory or similar reports, until April 2007.

          (u)
Since the date of the Financial Statements, there has not been (A) any material
adverse change or development with respect to the condition (financial or
otherwise), earnings, business or business prospects of the Company and its
subsidiaries, taken as a whole, whether or not occurring in the ordinary course
of business or (B) any dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock other than regular
quarterly dividends on the Company’s common stock.

          (v)
The authorized capitalization of the Company and its subsidiary insurance
companies are as set forth in the Financial Statements and the Interim
Financial Statements and meet all applicable regulatory requirements with
respect thereto.

          (w)
[Reserved]

          (x)
None of the Company nor any of its subsidiaries, or any of their respective
officers, directors, employees or representatives, is subject or is party to,
or has received any notice from any Regulatory Agency (as defined below) that
any of them will become subject or party to any investigation with respect to,
any cease-and-desist order, agreement, civil monetary penalty, consent
agreement, memorandum of understanding or other regulatory enforcement action,
proceeding or order with or by, or is a party to any commitment letter or
similar undertaking to, or is subject to any directive by, or has been a
recipient of any supervisory letter from, or has adopted any board resolutions
at the request of, any Regulatory Agency that, in any 

7

such case,
currently restricts in any material respect the conduct of their business,
taken as a whole, or that in any material manner relates to their capital adequacy,
capital reserves, their marketing or sales practices, their ability or
authority to pay dividends or make distributions to their shareholders or make
payments of principal or interest on their debt obligations, their management
or their business, taken as a whole (each, a “Regulatory Action”), nor has the Company or any of its
subsidiaries been advised by any Regulatory Agency that it is considering
issuing or requesting any such Regulatory Action; and there is no unresolved
violation, criticism or exception by any Regulatory Agency with respect to any
report or statement relating to any examinations of the Company or any of its
subsidiaries, except where such unresolved violation, criticism or exception
would not, singly or in the aggregate, have a Material Adverse Effect. As used
herein, the term “Regulatory Agency” means any federal or state agency
charged with the supervision or regulation of insurance companies or holding
companies of insurance companies, or companies engaged in the insurance of insurance
company reserves, or any court, administrative agency or commission or other
governmental agency, authority or instrumentality having supervisory or
regulatory authority with respect to the Company or any of its subsidiaries.

          (y)
No labor dispute with the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the executive officers of the Company, is
imminent, except those which would not, singly or in the aggregate, have a
Material Adverse Effect.

          (z)
No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any Governmental Entity, other than
those that have been made or obtained, is necessary or required for the
performance by the Company of its obligations under the Operative Documents, as
applicable, or the consummation by the Company of the transactions contemplated
by the Operative Documents; provided, however, that the Company makes no
representation or warranty with to any U.S. state securities laws.

          (aa)
Each of the Company and each subsidiary of the Company has good and marketable
title to all of its respective real and personal properties, in each case free
and clear of all Liens and defects, except for those that would not, singly or
in the aggregate, have a Material Adverse Effect; and all of the leases and
subleases under which the Company or any subsidiary of the Company holds
properties are in full force and effect, except where the failure of such
leases and subleases to be in full force and effect would not, singly or in the
aggregate, have a Material Adverse Effect; and none of the Company or any
subsidiary of the Company has any notice of any claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any subsidiary of
the Company under any such leases or subleases, or affecting or questioning the
rights of such entity to the continued possession of the leased or subleased
premises under any such lease or sublease, except for such claims that would
not, singly or in the aggregate, have a Material Adverse Effect.

          (bb)
The Company has no present intention to exercise its option to defer payments
of interest on the Securities as provided in Schedule 2. The Company
believes that the likelihood that it would exercise its rights to defer
payments of interest on the Securities as provided in Schedule 2 at any
time during which the Securities are outstanding is remote because of the
restrictions that would be imposed on the Company’s ability to declare or pay
dividends or distributions on, or to redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company’s capital stock and on
the Company’s ability to make any payments of 

8

principal,
interest or premium, if any, on, or repay, repurchase or redeem, any of its
debt securities that rank pari passu in
all respects with or junior in interest to the Securities.

          (cc)
The information provided by the Company pursuant to this Note Purchase
Agreement does not, as of the date hereof, and will not, as of the Closing
Date, contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

          (dd)
The Company and the Significant Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts in all material respects as are customary in the businesses in which
they are engaged or propose to engage after giving effect to the transactions
contemplated hereby, including, but not limited to, real or personal property
owned or leased against theft, damage, destruction, act of vandalism and all
other risks customarily insured against. All policies of insurance and fidelity
or surety bonds insuring the Company or any of the Significant Subsidiaries and
the Company’s or Significant Subsidiaries’ respective businesses, assets,
employees, officers and directors are in full force and effect, subject to
exceptions that would not, singly or in the aggregate, have a Material Adverse
Effect. The Company and each of the Significant Subsidiaries are in compliance
with the terms of such policies and instruments, subject to exceptions that would
not, singly or in the aggregate, have a Material Adverse Effect. Neither the
Company nor any Significant Subsidiary has reason to believe that it will not
be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business as is currently conducted, subject to exceptions that
would not, singly or in the aggregate, have a Material Adverse Effect. Within
the past twelve months, neither the Company nor any Significant Subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied, subject to exceptions that would not, singly or in the aggregate, have
a Material Adverse Effect.

          4.
Representations and Warranties of the
Purchaser. The Purchaser, represents and warrants
to, and agrees with, the Company as follows:

          (a)
The Purchaser is aware that the Securities have not been and will not be
registered under the Securities Act or any other securities laws and may not be
offered, sold or otherwise transferred within the United States or to “U.S.
persons” (as defined in Regulation S under the Securities Act) except in
accordance with Rule 903 of Regulation S under the Securities Act or pursuant
to an effective registration statement or pursuant to an exemption from the
registration requirements of the Securities Act or in a transaction not subject
thereto and in accordance with the transfer restrictions set forth herein.
Prior to any transfer of the Securities by the Purchaser, the Purchaser agrees
to inform its transferee of the foregoing matters.

          (b)
The Purchaser is (i) a “qualified institutional buyer,” as such term is defined
in Rule 144A under the Securities Act or (ii) an “accredited investor,” as such
term is defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act.

          (c)
Neither the Purchaser, nor any of the Purchaser’s Affiliates, nor any person
acting on the Purchaser’s or the Purchaser’s Affiliate’s behalf has engaged, or
will engage, in any form 

9

of “general
solicitation or general advertising” (within the meaning of Regulation D under
the Securities Act) in connection with any offer or sale of the Securities.

          (d)
The Purchaser understands and acknowledges that (i) no public market exists for
any of the Securities and that it is unlikely that a public market will ever
exist for the Securities, (ii) the Purchaser is purchasing the Securities for
its own account, for investment and not with a view to, or for offer or sale in
connection with, any distribution thereof in violation of the Securities Act or
other applicable securities laws, subject to any requirement of law that the
disposition of its property be at all times within its control and subject to
its ability to resell such Securities pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption therefrom or in
a transaction not subject thereto, and the Purchaser agrees to the legends and
transfer restrictions applicable to the Securities contained in this Note
Purchase Agreement, and (iii) the Purchaser has had the opportunity to ask
questions of, and receive answers and request additional information from, the
Company and is aware that it may be required to bear the economic risk of an
investment in the Securities for an indefinite period of time.

          (e)
The Purchaser is a company duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized with all
requisite (i) power and authority to execute, deliver and perform the Operative
Documents to which it is a party, to make the representations and warranties
specified herein and therein and to consummate the transactions contemplated
herein and (ii) right and power to purchase the Securities.

          (f)
The Purchaser represents and warrants that: (i) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisers
in connection herewith to the extent it has deemed necessary; (b) it has had a
reasonable opportunity to ask questions or and receive answers from officers
and representatives of the Company concerning its financial condition and
results of operations and the purchase of the Securities and any such questions
have been answered to its satisfaction; (c) it has had the opportunity to
review all publicly available records and filings concerning the Company and it
has carefully reviewed such records and filings that it considers relevant to making
an investment decision; and (d) it has made its own investment decisions based
upon its own judgment, due diligence and advise from such advisers as it has
deemed necessary and not upon any view expressed by the Company.

          (g)
This Note Purchase Agreement has been duly authorized, executed and delivered
by the Purchaser and no filing with, or authorization, approval, consent,
license, order registration, qualification or decree of, any governmental body,
agency or court having jurisdiction over the Purchaser, other than those that
have been made or obtained, is necessary or required for the performance by the
Purchaser of its obligations under this Note Purchase Agreement or to
consummate the transactions contemplated herein.

          5. Agreements
of the Company. The Company agrees with the Purchaser as follows:

          (a)
During the period from the date of this Agreement to the Closing Date, the
Company shall use its best efforts and take all action necessary or appropriate
to cause their representations and warranties contained in Section 4
hereof to be true as of the Closing Date, 

10

after giving
effect to the transactions contemplated by this Note Purchase Agreement, as if
made on and as of the Closing Date.

          (b)
[Reserved].

          (c)
The Company will not, nor will it permit any of its Affiliates to, nor will it
permit any person acting on its or their behalf (other than the Purchaser or
its Affiliates) to, resell any Securities that have been acquired by any of
them.

          (d)
The Company will not, nor will it permit any of its Affiliates or any person
acting on its or their behalf (other than the Purchaser or its Affiliates as to
which the Company makes no agreement) to, engage in any “directed selling
efforts” within the meaning of Regulation S under the Securities Act with
respect to the Securities.

          (e)
The Company will not, nor will it permit any of its Affiliates or any person
acting on its or their behalf (other than the Purchaser or its Affiliates as to
which the Company makes no agreement) to, directly or indirectly, make offers
or sales of any security, or solicit offers to buy any security, under
circumstances that would require the registration of any of the Securities
under the Securities Act.

          (f)
The Company will not, nor will it permit any of its Affiliates or any person
acting on its or their behalf (other than the Purchaser or its Affiliates as to
which the Company makes no agreement) to, engage in any form of “general
solicitation or general advertising” (within the meaning of Regulation D) in
connection with any offer or sale of the any of the Securities.

          (g)
So long as any of the Securities are outstanding, (i) the Securities shall not
be listed on a national securities exchange registered under section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation system, (ii)
the Company shall not be an open-end investment company, unit investment trust
or face-amount certificate company that is, or is required to be, registered
under section 8 of the Investment Company Act, (iii) the Securities shall
otherwise satisfy the eligibility requirements of Rule 144A(d)(3) and (iv) the
Company shall not engage in any activity which would cause it to be an
“investment company” required to be registered under the provisions of the
Investment Company Act.

          (h)
The Company shall furnish to (i) the holders, and subsequent holders of the
Securities, (ii) Cohen Bros. Financial Management LLC (at Cira Centre, 2929
Arch Street, Suite 1703, Philadelphia, PA 19104, or such other address as
designated by Cohen Bros. Financial Management LLC) and (iii) any beneficial
owner of the Securities reasonably identified to the Company (which
identification may be made by either such beneficial owner or by Cohen Bros.
Financial Management LLC), a duly completed and executed certificate in the
form attached hereto as Annex C, including the financial statements
referenced in such Annex, which certificate and financial statements shall be
so furnished by the Company not later than forty-five (45) days after the end
of each of the first three fiscal quarters of each fiscal year of the Company
and not later than ninety (90) days after the end of each fiscal year of the
Company.

          (i)
So long as the Securities are outstanding and considered “restricted
securities” under Rule 144(a)(3) under the Securities Act, the Company, during
any period in which it is not subject to and in compliance with section 13 or
15(d) of the Exchange Act, nor exempt from 

11

such reporting
requirements pursuant to Rule 12g3-2(b) under the Exchange Act, shall provide
to each holder of the Securities and to each prospective purchaser (as
designated by such holder) of the Securities, upon the request of such holder
or prospective purchaser, any information required to be provided by Rule
144A(d)(4) under the Securities Act. This covenant is intended to be for the
benefit of the Purchaser, the holders of the Securities, and the prospective
purchasers designated by the Purchaser and such holders, from time to time, of
the Securities.

          (j)
[Reserved].

          (k)
In the event that either (a) an Event of Default (as defined in Schedule 2)
has occurred and is continuing, or (b) the Company has elected to defer
payments of interest on the Securities by extending the interest payment period
under the Securities (as provided for in Section 8(a) of Schedule 2),
the Company shall provide to (i) the holders, and subsequent holders of the
Securities, (ii) Cohen Bros. Financial Management LLC (at Cira Centre, 2929
Arch Street, Suite 1703, Philadelphia, PA 19104, or such other address as
designated by Cohen Bros. Financial Management LLC) and (iii) any beneficial
owner of the Securities reasonably identified to the Company (which
identification may be made by either such beneficial owner or by Cohen Bros.
Financial Management LLC) GAAP and statutory financial statements and interim
quarterly financial statements, if available, including accompanying management
discussion and analysis, for the Company and, if and as available, for its
subsidiaries or affiliates. In addition, for the Company or any of its
subsidiaries or affiliates which may be in liquidation. under regulatory
supervision or in runoff, the Company shall provide to the Purchaser any
reports and presentations to rating agencies, any run-off plan shared with
regulatory authorities, internal or external actuarial reports and management
projections.

          6. Calculation
Agent and Fiscal Agent.

          (a)
The Company undertakes that, on or before the first Interest Payment Date and
so long as any of the Securities remain outstanding, it shall hire, at its
expense, an agent appointed to calculate EURIBOR in respect of each Interest
Payment Date in accordance with the terms of Schedule 3 hereto (the “Calculation
Agent) to act
as fiscal agent to administer, invoice, collect, calculate and distribute
interest and principal amounts in respect of the Securities (the “Fiscal
Agent”), which
Fiscal Agent shall be the Euro-zone office of a major bank engaged in the
Euro-zone interbank market. The Fiscal Agent, once appointed, shall also act as
the Paying Agent and the Securities Registrar (as such terms are defined in Schedule
2) and may be the same entity as the Calculation Agent. The Company shall
notify the Holders of the appointment of such Fiscal Agent at the Company’s
expense. Neither the Calculation Agent nor the Fiscal Agent may resign its
duties without a successor reasonably acceptable to the Company having been
appointed at the expense of the Company.

          (b)
The Calculation Agent shall be required to agree that, as soon as possible
after 11:00 a.m. (Brussels time) on each EURIBOR Determination Date (as defined
in Schedule 3). but in no event later than 11:00 a.m. (Brussels time) on
the Business Day immediately following each EURIBOR Determination Date, the
Calculation Agent will calculate the Interest Rate and payment amount (which
payment amount shall be rounded to the nearest cent, with half a cent being
rounded upwards) for the related Interest Payment Date, and will communicate
such rate and amount to the Company and, if applicable, the Fiscal Agent (if
the Calculation Agent and the 

12

Fiscal Agent are not the same entity). The
Calculation Agent will also specify to the Company and, if applicable, the Fiscal Agent
the quotations upon which the foregoing rates and amounts are based and, in any
event, the Calculation Agent shall notify the Company before 5:00 p.m.
(Brussels time) on each EURIBOR Determination Date that either: (i) it has
determined or is in the process of determining the foregoing rates and amounts
or (ii) it has not determined and is not in the process of determining the
foregoing rates and amounts, together with its reasons therefor. The
Calculation Agent’s determination of the foregoing rates and amounts for any
Interest Payment Date will (in the absence of manifest error) be final and
binding upon all parties. For the sole purpose of calculating the interest rate
for the Securities, “Business Day” shall be defined as any day on which
dealings in deposits in Euro are offered in the Euro-zone interbank market.

          7. Payment of
Expenses. The Company agrees to pay all costs and expenses incident
to the performance of the obligations of the Company under this Note Purchase
Agreement, whether or not the transactions contemplated herein are consummated
or this Note Purchase Agreement is terminated, including all costs and expenses
incident to (i) the authorization, issuance, sale and delivery of the
Securities and any taxes payable by the Company in connection therewith; and
(ii) the fees and expenses of the counsel, the accountants and any other
experts or advisors retained by the Company.

          If
the sale of the Securities provided for in this Note Purchase Agreement is not
consummated because any condition set forth in Section 2 hereof to be
satisfied by either the Company is not satisfied, because this Note Purchase
Agreement is terminated pursuant to Sections 9(i), (ii), (iii)
or (iv) or because of any failure, refusal or inability on the part of
the Company to perform all obligations and satisfy all conditions on its part
to be performed or satisfied hereunder other than by reason of a default by the
Purchaser, the Company will reimburse the Purchaser upon demand for all
reasonable out-of-pocket expenses that shall have been incurred by the
Purchaser in connection with the proposed purchase and sale of the Securities.
The Company shall not in any event be liable to the Purchaser for the loss of
anticipated profits from the transactions contemplated by this Note Purchase
Agreement.

          8. Indemnification and Contribution.

          (a)
The Company agrees to indemnify and hold harmless the Purchaser, the
Purchaser’s Affiliates and Cohen Bros. & Company (collectively, the “Indemnified
Parties”) and
the Indemnified Parties’ respective directors, officers, employees and agents
and each person who “controls” the Indemnified Parties within the meaning of
either the Securities Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (A) third party claims relating to (i) any
untrue statement or alleged untrue statement of a material fact contained in
any information or documents furnished or made available to the Purchaser by or
on behalf of the Company, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) the breach or alleged breach of any
representation, warranty or agreement of the Company contained herein, and (B)
with respect to all other claims, (i) any untrue statement of a material 

13

fact contained
in any information or documents furnished or made available to the Purchaser by
or on behalf of the Company, (ii) the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (iii) the breach of any representation, warranty or agreement of
the Company contained herein, and agrees to reimburse each such Indemnified
Party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.

          (b)
Promptly after receipt by an Indemnified Party under this Section 8 of
notice of the commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 8, promptly notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a)
above unless and to the extent that such failure results in the forfeiture by
the indemnifying party of material rights and/or defenses and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
Indemnified Party other than the indemnification obligation provided in
paragraph (a) above. Purchaser shall be entitled to appoint counsel to
represent the Indemnified Party in any action for which indemnification is
sought. An indemnifying party may participate at its own expense in the defense
of any such action; provided, that
counsel to the indemnifying party shall not (except with the consent of the
Indemnified Party) also be counsel to the Indemnified Party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. An indemnifying party will not, without
the prior written consent of the Indemnified Parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not the Indemnified Parties are actual or
potential parties to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action, suit or
proceeding.

          (c)
In order to provide for just and equitable contribution in circumstances under
which the indemnification provided for in this Section 8 is for any
reason held to be unenforceable for the benefit of an Indemnified Party in
respect of any losses, liability, claims. damages or expenses referred to
therein, then the indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
Indemnified Party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, on the one hand, and the
Purchaser, on the other hand, from the offering of the Securities, or (ii) if
the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of the Company, on
the one hand, and the Purchaser, on the other hand, in connection with the
statements, omissions or breaches, which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.

14

          (d)
The relative benefits received by the Company, on the one hand, and the
Purchaser, on the other hand, in connection with the offering of the Securities
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Securities (before deducting expenses)
received by the Company and any fee received by the Purchaser bear to the
aggregate of such net proceeds and such fee.

          (e)
The Company and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 8 was determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 8. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an Indemnified Party and referred to above in this Section 8 shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in investigation, preparing or defending against any
litigation, or any investigation or proceeding by any Governmental Entity,
commenced or threatened, or any claim whatsoever based upon any such untrue or
(as specified in Section 8(a)) alleged untrue statement, omission or (as
specified in Section 8(a)) alleged omission or breach or (as specified in
Section 8(a)) alleged breach.

          (f)
Notwithstanding any provision of this Section 8 to the contrary, the Purchaser
shall not be required to contribute any amount in excess of the amount of any
fee it has received.

          (g)
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

          (h)
For purposes of this Section 8, each person, if any, who controls the
Purchaser within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act and the respective partners, directors, officers, employees
and agents of the Purchaser or any such controlling person shall have the same
rights to contribution as the Purchaser, while each officer and director of the
Company and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act shall have
the same rights to contribution as the Company.

          (i)
The indemnity and contribution agreements contained in this Section 8
are in addition to any liability that the Company may otherwise have to any
Indemnified Party.

          9. Termination.
This Note Purchase Agreement shall be subject to termination in the
absolute discretion of the Purchaser, by notice given to the Company prior to
delivery of and payment for the Securities, if prior to such time (i) a
downgrading shall have occurred in the rating accorded the Company’s debt
securities by any “nationally recognized statistical rating organization,” as
that term is used by the Commission in Rule 15c3-1(c)(2)(vi)(F) under the
Exchange Act, or such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its rating
of the Company’s debt securities, (ii) the Company shall be unable to sell and
deliver to the Purchaser at least €13,000,000, in aggregate principal amount of
the Securities other than as a result of a Purchaser default, (iii) the Company
or any of its subsidiaries that is an insurance company shall cease to be
“adequately-capitalized” under the statutes, rules, regulations, codes or
ordinances of any Regulatory Agency within the meaning of any applicable
regulations of any Regulatory Agency, or any formal 

15

administrative
or judicial action is taken by any appropriate state or federal insurance
regulator against the Company or of its subsidiary insurance companies for
unsafe and unsound insurance practices, or violations of law, (iv) a suspension
or material limitation in trading in any of the Company’s securities shall have
occurred on the exchange or quotation system upon which the Company’ securities
are traded, if any, (v) a general moratorium on commercial insurance activities
shall have been declared either by federal or Bermuda authorities or (vi) there
shall have occurred any outbreak or escalation of hostilities, or declaration
by the United States of a national emergency or war or other calamity or crisis
the effect of which on the U.S. or European financial markets is such as to
make it, in the Purchaser’s reasonable judgment, impracticable or inadvisable
to proceed with the offering or delivery of the Securities.

          10. Representations
and Indemnities to Survive. The agreements, representations,
warranties, indemnities and other statements of the Company or its respective
officers or trustees and of the Purchaser set forth in or made pursuant to this
Note Purchase Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Purchaser, the Company or any of the
their respective officers, directors, trustees or controlling persons, and will
survive delivery of and payment for the Securities. The provisions of Sections
7 and 8 shall survive the termination or cancellation of this Note
Purchase Agreement.

          11. Amendments. This
Note Purchase Agreement may not be modified, amended, altered or supplemented,
except upon the execution and delivery of a written agreement by each of the
parties hereto; provided, however, that after the Closing Date, this Note
Purchase Agreement, including the Schedules, and the Securities, may not be
modified, amended, altered or supplemented, except upon the prior written
consent of the Holders of at least a majority of the Outstanding Securities.

          12. Notices. All communications
hereunder will be in writing and effective only on receipt, and, if sent to the
Purchaser, will be mailed, delivered by hand or courier or sent by facsimile
and confirmed to the Purchaser at Merrill Lynch Finance Centre, 2 King Edward
Street, London EC1A 1HQ England, Attn: Andrew Bellis, Facsimile: 44 0 20 7995
0039; with a copy to Mayer, Brown, Rowe & Maw LLP, 71 South Wacker Drive,
Chicago, Illinois 60606, Attention: J. Paul Forrester, Facsimile: (312)
701-7711 or other address as the Purchaser shall designate for such purpose in
a notice to the Company; and if sent to the Company, will be mailed, delivered
by hand or courier or sent by facsimile and confirmed to it at Flagstone
Reinsurance Holdings Limited, Crawford House, 23 Church Street, 3rd
Floor, Hamilton HM11 Bermuda, Attention: Todd White, Facsimile: (441) 296-9879.

          13.
Successors and Assigns.
This Note Purchase Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
Nothing expressed or mentioned in this Note Purchase Agreement is intended or
shall be construed to give any person other than the parties hereto and the
affiliates, directors, officers, employees, agents and controlling persons
referred to in Section 8 hereof and their successors, assigns, heirs and
legal representatives, any right or obligation hereunder. None of the rights or
obligations of the Company under this Note Purchase Agreement may be assigned,
whether by operation of law or otherwise, without the Purchaser’s prior written
consent. The rights and obligations of the Purchaser
under this Note Purchase Agreement may be assigned by the Purchaser without the
Company’s consent; provided that the assignee assumes the obligations of 

16

the Purchaser
and makes the representations, warranties and agreements of the Purchaser under
this Note Purchase Agreement and each assignee and its collateral manager, if
any, shall be entitled to enforce the rights of the Purchaser hereunder.

          14.
Applicable Law. THIS NOTE PURCHASE
AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF
LAW (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW).

          15.
Submission to Jurisdiction.
ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT
TO OR ARISING OUT OF THIS NOTE PURCHASE AGREEMENT MAY BE BROUGHT IN OR REMOVED
TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR
OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH
CASE SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS
NOTE PURCHASE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS (AND
COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR IN
CONNECTION WITH THIS NOTE PURCHASE AGREEMENT.

          16. Appointment
of Process Agent. The
Company will designate and appoint CT Corporation System in New York City as
its process agent (the “Process Agent”) upon which process may be served in any action
arising out of or relating to this Note Purchase Agreement which may be
instituted in any New York court by the Purchaser or the holders of the
Securities, in accordance with legal procedures prescribed for such courts
within fifteen (15) days of execution of the Note Purchase Agreement by the
parties hereto, and will expressly consent to the non-exclusive jurisdiction of
any such court in respect of any such action, and waive any other requirements
of or objections to personal jurisdiction with respect thereto. Such
appointment may only be revoked upon the Company’s appointment of a new Process
Agent in New York City and such Process Agent’s acceptance in writing of such
appointment upon the same terms specified herein prior to the revocation of the
previous Process Agent. Service of process upon the Process Agent and written
notice of such service of process to it shall be deemed, in every respect,
effective service of process upon the Company. Nothing herein shall in any way
be deemed to limit the ability of the Purchaser or the holders of the
Securities to serve any such legal process, summons, notices and documents in
any other manner permitted by applicable law or to obtain jurisdiction over the
Company or to bring actions, suits or proceedings against the Company in such
other jurisdictions, and in such manner, as may be permitted by applicable law.

          17. Entire
Agreement. This Note Purchase Agreement, together with the Operative
Documents and the other documents delivered in connection with the transactions
contemplated hereby, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein. This Note 

17

Purchase
Agreement, together with the Operative Documents and the other documents
delivered in connection with the transactions contemplated hereby, supersedes
all prior agreements and understandings between the parties with respect to
such subject matter.

          18. Severability.
In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in ever other respect and of the
remaining provisions hereof shall not be in any way impaired or affect, it
being intended that all of the Purchaser’s rights and privileges shall be
enforceable to the fullest extent permitted by law.

          19. Counterparts
and Facsimile. This Note Purchase Agreement may be executed by any
one or more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument. This Note Purchase Agreement may be
executed by any one or more of the parties hereto by facsimile.

          20. Currency
Indemnity. If, for
the purposes of obtaining judgment in any court in any jurisdiction with
respect to any payment due hereunder or under the Securities, it becomes
necessary to convert into the currency of such jurisdiction (the “Judgment
Currency”) any
amount due hereunder in any currency other than the Judgment Currency (the “Currency
Due”), then
conversion shall be made at the rate of exchange prevailing on the Business Day
before the day on which judgment is given. For this purpose, “rate of exchange”
means the rate at which the Purchaser or a Holder of the Securities is able, on
the relevant date, to purchase the Currency Due with the Judgment Currency in
accordance with its normal practices. In the event that there is a change in
the rate of exchange prevailing between the Business Day before the day on
which the judgment is given and the date of payment of the amount due, the
Company will, on the day of payment, pay such additional amount, if any, or be
entitled to receive reimbursement of such amount, if any, as may be necessary
to ensure that the amount paid on such date is the amount in the Judgment
Currency which when converted at the rate of exchange prevailing on the date of
payment is the amount then due hereunder in the Currency Due. If the amount of
the Currency Due which the Purchaser or such Holder would be able to purchase
at such rate of exchange is less than the amount of the Currency Due originally
due to it, the Company shall indemnify and save the Purchaser and the Holders
harmless from and against loss or damage arising as a result of such
deficiency. This indemnity shall constitute an obligation separate and
independent from the other obligations contained herein, shall give rise to a
separate and independent cause of action and shall continue in full force and effect
notwithstanding any judgment or order for a liquidated sum in respect of an
amount due hereunder or under any judgment or order.

18

          IN
WITNESS WHEREOF, this Purchase Agreement has been entered into as of the date
first written above.

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 FLAGSTONE REINSURANCE HOLDINGS 
LIMITED

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
 /s/James
 O’Shaughnessy 

 
	
  

 	
  

 	

 

 
	
  

 	
  

 	
 Name:

 	
 James
 O’Shaughnessy

 
	
  

 	
  

 	
 Title:

 	
 Chief
 Financial Officer

 

Flagstone Reinsurance Holdings Limited

Euro-Purchase Agreement

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 MERRILL LYNCH INTERNATIONAL

 
	
  

 	
  

 
	
  

 	
 By:

 	
 /s/ R. A.
 Bellis 

 
	
  

 	
  

 	

 

 
	
  

 	
  

 	
 Name:

 	
 Andrew
 Bellis

 
	
  

 	
  

 	
 Title:

 	
 Director

 

Flagstone
Reinsurance Holdings Limited

Euro-Purchase Agreement

Schedule 1

List of Significant Subsidiaries

Flagstone Reinsurance Limited

Schedule 2

TERMS AND CONDITIONS OF THE SECURITIES

SECTION 1. Payment of
Principal and Interest.

          (a)
The unpaid principal amount of the Securities shall bear interest at a variable
rate per annum, reset quarterly on an Interest Payment Date, equal to EURIBOR
plus 3.54% until paid or duly provided for, such interest to accrue from the
date of original issuance of each Security (the “Original Issue Date”) or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, and any
overdue principal, premium, if any, Additional Amounts and any overdue
installment of interest shall bear Additional Interest (to the . extent legally
enforceable) at the rate equal to a variable rate per annum, reset quarterly on
an Interest Payment Date, equal to EURIBOR plus 3.54%, compounded quarterly
from the dates such amounts are due until they are paid or funds for the
payment thereof are made available for payment.

          “Interest Payment Date” means March 15, June 15,
September 15 and December 15 of each year, commencing on December 15, 2006,
during the term of the Securities, subject to the Business Day Convention.

          “Business Day Convention” means that if any Interest
Payment Date, Redemption Date or Stated Maturity of any Security shall not be a
Business Day, then (notwithstanding any other provision of this Note Purchase
Agreementor the Securities) payment of interest, premium, if any, or principal
or other amounts in respect of such Security shall not be made on such date,
but shall be made on the next succeeding Business Day (and additional interest
shall accrue in respect of the amounts whose payment is so delayed for the
period from and after any such Interest Payment Date, other than a Redemption
Date or Maturity date, as the case may be, through but excluding such next
succeeding Business Day) except that, if such Business Day falls in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the Interest Payment Date or Redemption Date or at the Stated Maturity.

          “Additional Interest” means the interest, if any,
that shall accrue on any amounts payable on the Securities, the payment of
which has not been made on the applicable Interest Payment Date and which shall
accrue at the rate per annum specified or determined as specified in such
Securities, in each case to the extent legally enforceable.

          (b)
Interest and Additional Interest on any Security that is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, except that interest and any Additional Interest payable on
September 15, 2036 subject to adjustment as specified in the definition of
“Business Day Convention” (the “Stated Maturity”) (or any date of principal
repayment upon early maturity) of the principal of a Security or on a
Redemption Date shall be paid to the Person to whom principal is paid. The
initial payment of interest on any Security that is issued between a 

Sch. 2 - 1

Regular Record
Date and the related Interest Payment Date shall be payable as provided in such
Security.

          “Predecessor Security” of any particular Security
means every previous Security evidencing all or a portion of the same debt as
that evidenced by such particular Security. For the purposes of this
definition, any security authenticated and delivered in lieu of a mutilated,
destroyed, lost or stolen Security shall be deemed to evidence the same debt as
the mutilated, destroyed, lost or stolen Security.

          “Regular Record Date” for the interest payable on
any Interest Payment Date with respect to the Securities (other than a Maturity
date) means the date that is fifteen (15) days preceding such Interest Payment
Date (whether or not a Business Day).

          “Redemption Date” means, when used with respect to any Security
to be redeemed, the date fixed for such redemption, subject to adjustment as
specified in the definition of “Business Day Convention”.

          (c)
Any interest (including Additional Interest) on any Security that is due and
payable, but is not timely paid or duly provided for, on any Interest Payment
Date for Securities (other than a Maturity date) (herein called “Defaulted
Interest”) shall
forthwith cease to be payable to the Person in whose name a Security is
registered in the Securities Register (the “Holder”) on the relevant Regular Record
Date by virtue of having been such Holder, and such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in paragraph (i)
or (ii) below:

	
  

 	
  

 	
  

 
	
  

 	
 (i) The Company may elect to make payment of any Defaulted Interest
 to the Persons in whose names the Securities (or their respective Predecessor
 Securities) are registered at the close of business on a special record date
 for the payment of such Defaulted Interest (a “Special Record Date”), which shall be fixed in the
 following manner. At least thirty (30) days prior to the date of the proposed
 payment, the Company shall notify the Holders in writing of the amount of
 Defaulted Interest proposed to be paid on each Security and the date of the
 proposed payment, and at the same time shall make arrangements satisfactory
 to the Holders for the deposit of an amount of money equal to the aggregate
 amount proposed to be paid in respect of such Defaulted Interest or prior to
 the date of the proposed payment, such money when deposited to be held in
 trust for the benefit of the Persons entitled to such Defaulted Interest.
 Thereupon the Company shall fix a Special Record Date for the payment of such
 Defaulted Interest, which shall be not more than fifteen (15) days and not
 less than ten (10) days prior to the date of the proposed payment and not
 less than ten (10) days after the receipt by the Holders of the notice of the
 proposed payment. The Company shall cause notice of the proposed payment of
 such Defaulted Interest and the Special Record Date therefor to be mailed,
 first class, postage prepaid, to each Holder of a Security at the address of
 such Holder as it appears in the Securities Register not less than ten (10)
 days prior to such Special Record Date. Notice of the proposed payment of
 such Defaulted Interest and the Special Record Date therefor having been so
 mailed, such Defaulted Interest shall be paid to the Persons in whose names the

 	
  

 

Sch. 2 - 2

	
  

 	
  

 	
  

 
	
  

 	
 Securities (or their respective Predecessor Securities) are
 registered on such Special Record Date; or

 	
  

 
	
  

 	
  

 	
  

 
	
  

 	
 (ii) The Company may make payment of any Defaulted Interest in any
 other lawful manner not inconsistent with the requirements of any securities
 exchange on which the Securities may be listed and, upon such notice as may
 be required by such exchange.

 	
  

 

          (d)
Payments of interest on the Securities shall include interest accrued to but excluding
the respective Interest Payment Dates or Maturity dates. Interest payments for
the Securities shall be computed and paid on the basis of a 360-day year and
the actual number of days elapsed in the relevant interest period.

Payment
of principal of, premium, if any, and interest (including Additional Interest)
on the Securities shall be made in such coin or currency of the European Union
as at the time of payment is legal tender for payment of public and private
debts.

          “Paying Agent” means any Person authorized by the Company to
pay the principal of or any premium or interest on, or other amounts in respect
of, any Securities on behalf of the Company.

          Payments
of principal of, premium, if any, and interest (including Additional Interest)
due at the Maturity of such Securities shall be made at the place of payment
given by the Holder to the Company upon surrender of such Securities to the
Company or the Paying Agent, if any, and other payments of interest (including
Additional Interest) shall be made by wire transfer at such place and to such
account at a banking institution in the European Union as may be designated in
writing to the Company or the Paying Agent, if any, at least ten (10) Business
Days prior to the date for payment by the Person entitled thereto unless proper
written transfer instructions have not been received by the relevant date, in
which case such payments shall be made by check mailed to the address of such
Person as such address shall appear in the Security Register.

          “Maturity,” when used with respect to any Security, means the date
on which the principal of such Security or any installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity
or by declaration of acceleration, call for redemption or otherwise.

          “Business Day” means any day other than (i) a Saturday or
Sunday, or (ii) a day on which banking institutions in the City of New York are
authorized or required by law or executive order to remain closed; provided,
however, that for purposes of calculating the interest rate for the Securities,
“Business Day” shall also be a day on which dealings in deposits in Euro are
offered in the Euro-zone interbank market.

          (e)
Subject to the foregoing provisions, each Security delivered upon transfer of
or in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, that were carried by such other
Security. 

Sch. 2 - 3

SECTION 2. Denominations.

          The
Securities shall be in registered form without coupons and shall be issuable in
minimum denominations of €100,000 and any integral multiple of €1,000 in excess
thereof. 

SECTION 3. Execution, Delivery and
Dating. 

          The
Securities shall be executed on behalf of the Company by its Chairman of the
Board, its Vice Chairman of the Board, its Chief Executive Officer, its
President, its General Counsel, its Chief Financial Officer or one of its Vice
Presidents. The signature of any of these officers on the Securities may be
manual or facsimile. Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities. 

SECTION 4. Registration, Transfer
and Exchange Generally. 

          (a) The
Company shall keep a register (the “Securities
Register”) in which
it, as the registrar and transfer agent with respect to the Securities (the “Securities Registrar”), subject to such reasonable regulations as
it may prescribe, shall provide for the registration of Securities and of
transfers and exchanges of Securities. 

          (b) Subject
to compliance with Section 17 hereof, upon surrender for registration of
transfer of any Security at the offices or agencies of the Company designated
for that purpose the Company shall execute, in the name of the designated
transferee or transferees, one or more new Securities of any authorized
denominations of like tenor and aggregate principal amount. 

          (c) At the
option of the Holder, Securities may be exchanged for other Securities of any
authorized denominations, of like tenor and aggregate principal amount, upon
surrender of the Securities to be exchanged at the offices or agencies of the
Company designated for such purpose. Whenever any Securities are so surrendered
for exchange, the Company shall execute the Securities that the Holder making
the exchange is entitled to receive. 

          (d) All
Securities issued upon any transfer or exchange of Securities shall be the
valid obligations of the Company, evidencing the same debt, and entitled to the
same benefits under this Note Purchase Agreement, as the Securities surrendered
upon such transfer or exchange. 

          (e) Every
Security presented or surrendered for transfer or exchange shall (if so required
by the Company) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company (or the Securities Registrar if
the Company is not the Securities Registrar), duly executed by the Holder
thereof or such Holder’s attorney duly authorized in writing. 

          (f) No
service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities. 

Sch. 2 - 4

          (g) the
Company shall not be required pursuant to the provisions of this Section
4(g): (i) to issue, register the transfer of or exchange any Security
during a period beginning at the opening of business fifteen (15) days before
the day of selection for redemption of Securities and ending at the close of
business on the day of mailing of the notice of redemption or (ii) to register
the transfer of or exchange any Security so selected for redemption in whole or
in part, except, in the case of any such Security to be redeemed in part, any
portion thereof not to be redeemed. 

          (h) The
Company shall designate an office or offices or agency or agencies where Securities
may be surrendered for registration or transfer or exchange. The Company
initially designates Flagstone Reinsurance Holdings Limited, Crawford House, 23
Church Street, Third Floor, Hamilton HM 11 Bermuda, as its office and agency
for such purposes. The Company shall give prompt written notice to the Holders
of any change in the location of any such office or agency. 

SECTION 5. Mutilated, Destroyed,
Lost and Stolen Securities. 

          (a) If any
mutilated Security is surrendered to the Company together with such security or
indemnity as may be required by the Company to save it harmless, the Company
shall execute in exchange therefor a new Security of like tenor and aggregate
principal amount and bearing a number not contemporaneously outstanding. 

          (b) If
there shall be delivered to the Company (i) evidence to its satisfaction of the
destruction, loss or theft of any Security and (ii) such security or indemnity
as may be required by it to save it harmless, then, in the absence of notice to
the Company that such Security has been acquired by a bona fide purchaser, the Company shall
execute, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and aggregate principal amount as such destroyed, lost or stolen
Security, and bearing a number not contemporaneously outstanding. 

          (c) If any
such mutilated, destroyed, lost or stolen Security has become or is about to
become due and payable, the Company in its discretion may, instead of issuing a
new Security, pay such Security. 

          (d) Upon
the issuance of any new Security under this Section 5, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. 

          (e) Every
new Security issued pursuant to this Section 5 in lieu of any mutilated,
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the mutilated, destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Note Purchase Agreement equally and
proportionately with any and all other Securities duly issued hereunder. 

          (f) The
provisions of this Section 5 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities. 

Sch. 2 - 5

SECTION 6. Persons Deemed Owners. 

          The
Company and any agent of the Company shall treat the Person in whose name any
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and any interest on such Security and for all
other purposes whatsoever, and neither the Company nor any agent of the Company
shall be affected by notice to the contrary. 

SECTION 7. Cancellation. 

          All
Securities surrendered for payment, redemption, transfer or exchange shall, if
surrendered to any Person other than the Company, be delivered to the Company,
and any such Securities and Securities surrendered directly to the Company for
any such purpose shall be promptly canceled by it. 

SECTION 8. Deferrals of Interest Payment Dates. 

          (a) So long
as no Event of Default has occurred and is continuing, the Company shall have
the right, at any time and from time to time during the term of the Securities,
to defer the payment of interest on the Securities for a period of up to twenty
(20) consecutive quarterly interest payment periods (each such period, an “Extension Period”), during which Extension Period(s), the
Company shall have the right to make no payments or partial payments of
interest on any Interest Payment Date. No Extension Period shall end on a date
other than an Interest Payment Date and no Extension Period shall extend beyond
the Stated Maturity of the principal of the Securities. No interest shall be
due and payable during an Extension Period, except at the end thereof, but each
installment of interest that would otherwise have been due and payable during
such Extension Period shall bear Additional Interest (to the extent payment of
such interest would be legally enforceable) at the rate equal to a variable
rate per annum equal to EURIBOR plus 3.54%, compounded quarterly, from the
dates on which amounts would have otherwise been due and payable until paid or
until funds for the payment thereof have been made available for payment. At
the end of any such Extension Period, the Company shall pay all interest then
accrued and unpaid on the Securities together with such Additional Interest.
Prior to the termination of any such Extension Period, the Company may extend
such Extension Period and further defer the payment of interest; provided, that (i) all such previous and
further extensions comprising such Extension Period do not exceed twenty (20)
consecutive quarterly interest payment periods, (ii) no Extension Period shall
end on a date other than an Interest Payment Date and (iii) no Extension Period
shall extend beyond the Stated Maturity of the principal of the Securities.
Upon the termination of any such Extension Period and upon the payment of all
accrued and unpaid interest and any Additional Interest then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period; provided, that (i) such Extension Period does not exceed twenty (20)
consecutive quarterly interest payment periods, (ii) no Extension Period shall
end on a date other than an Interest Payment Date, (iii) no Extension Period
shall extend beyond the Stated Maturity of the principal of the Securities and
(iv) no Event of Default has occurred and is continuing. The Company shall
notify (i) the Holders of the Securities at the address provided upon request
to the Securities Registrar and (ii) Cohen Bros. Financial Management LLC at
Cira Centre, 2929 Arch Street, Suite 1703, Philadelphia, PA 19104, (215)
861-7868, Attention: Matthew T. Mueller, in writing and by telephone (except in
the case of notice to the Holders) of its election to begin any such Extension 

Sch. 2 - 6

Period at least five (5) Business Days prior to the next succeeding
Interest Payment Date on which interest on the Securities would be payable but
for such deferral. 

          (b)
In connection with any such Extension Period, the Company shall be subject to
the restrictions set forth in Section 11. 

SECTION 9. Agreed Tax Treatment. 

          Each
Security issued hereunder shall provide that the Company and, by its acceptance
or acquisition of a Security or a beneficial interest therein, the Holder of,
and any Person that acquires a direct or indirect beneficial interest in, such
Security, intend and agree to treat such Security as indebtedness of the
Company for United States Federal, state and local tax purposes. The Company
will treat the Securities as indebtedness, and the amounts, other than payments
of principal, payable in respect of the principal amount of such Securities as
interest, for all U.S. federal income tax purposes. All payments in respect of
the Securities will be made free and clear of U.S. withholding tax to any
beneficial owner thereof that has provided an Internal Revenue Service Form W-9
or W-8BEN (or any substitute or successor form). 

SECTION 10. Additional Amounts. 

          All
payments of principal of and premium, if any, interest (including any
Additional Interest) and any other amounts on, or in respect of, the Securities
shall be made without withholding or deduction at source for, or on account of,
any present or future taxes, fees, duties, assessments or governmental charges
of whatever nature imposed or levied by or on behalf of Bermuda or any other
jurisdiction in which the Company is organized (each, a “taxing jurisdiction”) or any political subdivision or taxing
authority thereof or therein, unless such taxes, fees, duties, assessments or
governmental charges are required to be withheld or deducted by (i) the laws
(or any regulations or ruling promulgated thereunder) of a taxing jurisdiction or
any political subdivision or taxing authority thereof or therein or (ii) an
official position regarding the application, administration, interpretation or
enforcement of any such laws, regulations or rulings (including, without
limitation, a holding by a court of competent jurisdiction or by a taxing
authority in a taxing jurisdiction or any political subdivision thereof). 

          If
a withholding or deduction at source is required, the Company shall, subject to
certain limitations and exceptions set forth below, pay to the Holder of any
such Security such additional amounts (“Additional
Amounts”) as may be
necessary so that every net payment of principal, premium, if any, interest
(including any Additional Interest) or any other amount made to such Holder,
after such withholding or deduction, shall not be less than the amount provided
for in such Security and this Note Purchase Agreement to be then due and
payable; provided, however, that the Company shall not be required to make payment of such
Additional Amounts for or on account of: 

	
  

 	
  

 	
  

 
	
  

 	
 a.

 	
 any tax,
 fee, duty, assessment or governmental charge of whatever nature which would
 not have been imposed but for the fact that such Holder: (A) was a resident,
 domiciliary or national of, or engaged in business or maintained a permanent
 establishment or was physically present in, the relevant taxing jurisdiction
 or any political subdivision thereof or otherwise had some 

 

Sch. 2 - 7

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 connection
 with the relevant taxing jurisdiction other than by reason of the mere
 ownership of, or receipt of payment under, such Security; (B) presented such
 Security, where presentation is required, for payment in the relevant taxing
 jurisdiction or any political subdivision thereof, unless such Security could
 not have been presented for payment elsewhere; or (C) presented such
 Security, where presentation is required, more than thirty (30) days after
 the date on which the payment in respect of such Security first became due
 and payable or provided for, whichever is later, except to the extent that
 the Holder would have been entitled to such Additional Amounts if it had
 presented such Security for payment on any day within such period of thirty
 (30) days;

 
	
  

 	
  

 	
  

 
	
  

 	
 b.

 	
 any estate,
 inheritance, gift, sale, transfer, personal property or similar tax,
 assessment or other governmental charge; 

 
	
  

 	
  

 	
  

 
	
  

 	
 c.

 	
 any tax,
 assessment or other governmental charge that is imposed or withheld by reason
 of the failure by the Holder or the beneficial owner of such Security to
 comply with any reasonable request by the Company addressed to the Holder
 within ninety (90) days of such request (A) to provide information concerning
 the nationality, residence or identity of the Holder or such beneficial owner
 or (B) to make any declaration or other similar claim or satisfy any
 information or reporting requirement, which, in the case of (A) or (B), is
 required or imposed by statute, treaty, regulation or administrative practice
 of the relevant taxing jurisdiction or any political subdivision thereof as a
 precondition to exemption from all or part of such tax, assessment or other
 governmental charge; 

 
	
  

 	
  

 	
  

 
	
  

 	
 d.

 	
 any
 withholding or deduction required to be made pursuant to any EU Directive on
 the taxation of savings implementing the conclusions of the ECOFIN Council meetings
 of 26-27 November 2000, 3 June 2003 or any law implementing or complying
 with, or introduced in order to confirm to, such EU Directive; or 

 
	
  

 	
  

 	
  

 
	
  

 	
 e.

 	
 any
 combination of items (a), (b), (c) and (d); 

 

Whenever in
this Note Purchase Agreement or in the Security there is mentioned, in any
context, the payment of the principal of or any premium, interest (including
Additional Interest) or any other amounts on, or in respect of, any Security or
the net proceeds received on the sale or exchange of any Security, such mention
shall be deemed to include mention of the payment of Additional Amounts
provided by the terms established hereby or pursuant hereto to the extent that,
in such context, Additional Amounts are, were or would be payable in respect
thereof pursuant to such terms, and express mention of the payment of
Additional Amounts (if applicable) in any provision hereof shall not be
construed as excluding the payment of Additional Amounts in those provisions
hereof where such express mention is not made. 

Sch. 2 - 8

SECTION 11. Events of Default. 

          (a)
“Event of Default” means, wherever used herein with respect
to the Securities, any one of the following events (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body): 

                    (i)
default in the payment of any interest upon any Security, including any
Additional Interest in respect thereof, when it becomes due and payable, and
continuance of such default for a period of thirty (30) days (subject to the
deferral of any due date in the case of an Extension Period); or 

                    (ii)
default in the payment of the principal of or any premium on any Security at
its Maturity; or 

                    (iii)
default in the performance, or breach, of any covenant or warranty of the
Company in this Note Purchase Agreement and continuance of such default or
breach for a period of thirty (30) days after there has been given, by
registered or certified mail, to the Company by the Holders of at least twenty
five percent (25%) in aggregate principal amount of the Outstanding Securities a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a “Notice of Default” hereunder; 

                    (iv)
the entry by a court having jurisdiction in the premises of a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or
in respect of the Company under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar official
of the Company or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of sixty (60) consecutive days; 

                    (v)
the institution by the Company of proceedings to be adjudicated a bankrupt or insolvent,
or the consent by the Company to the institution of bankruptcy or insolvency
proceedings against it, or the filing by the Company of a petition or answer or
consent seeking reorganization or relief under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law, or the consent by
it to the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due and its willingness to be adjudicated a bankrupt or insolvent, or
the taking of corporate action by the Company in furtherance of any such
action; or 

                    (vi)
Any representation, warranty, certification or statement of fact made or deemed
made by the Company (i) in this Schedule 2 or in the Securities shall be
incorrect or misleading in any material respect when made or deemed made or
(ii) in this Note Purchase 

Sch. 2 - 9

Agreement or
in any document delivered in connection herewith or therewith shall be
incorrect or misleading so as to reasonably be expected to have, singly or in
the aggregate, a material adverse effect on the condition (financial or
otherwise), earnings, business or business prospects, of the Company and its
subsidiaries, taken as a whole, whether or not occurring in the ordinary course
of business. 

          (b)
Acceleration of Maturity; Rescission and Annulment. If an Event of
Default occurs and is continuing, then and in every such case the Holders of
not less than twenty five percent (25%) in aggregate principal amount of the
Outstanding Securities may declare the principal amount of all the Securities
to be due and payable immediately, by a notice in writing to the Company, and,
upon any such declaration, the principal amount of and the accrued interest (including
any Additional Interest) on all the Securities shall become immediately due and
payable; provided, that the payment of principal and interest and all other
amounts due with respect to such Securities remain subordinated to the extent
provided hereinafter. 

          At
any time after such a declaration of acceleration with respect to Securities
has been made and before a judgment or decree for payment of the money due has
been obtained, the Holders of a majority in aggregate principal amount of the
Outstanding Securities, by written notice to the Company, may rescind and annul
such declaration and its consequences if: 

                    (i)
the Company has paid a sum sufficient to pay: 

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (A) all
 overdue installments of interest on all Securities, 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (B) any
 accrued Additional Interest on all Securities, and 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 (C) the
 principal of and any premium on any Securities that have become due otherwise
 than by such declaration of acceleration and interest (including any
 Additional Interest) thereon at the rate borne by the Securities; and 

 

	
  

 	
  

 
	
  

 	
           (ii)
 all Events of Default with respect to Securities, other than the non-payment
 of the amounts that have become due solely by such acceleration, have been
 cured or waived. 

 

          No such
rescission shall affect any subsequent default or impair any right consequent
thereon. 

          In the
event that either (i) an Event of Default has occurred and is continuing or
(ii) the Company has elected to defer payments of interest on the Securities by
extending the interest payment period (as provided for in Section 8(a) hereof),
the Company shall provide to the Holders GAAP and statutory financial
statements and interim quarterly financial statements, if available, including
accompanying management discussion and analysis, for the Company and, if and as
available, for its subsidiaries or affiliates. In addition, for the Company or
any of its subsidiaries or affiliates which may be in liquidation, under
regulatory supervision or in runoff, the Company shall provide to the Purchaser
under the Note Purchase Agreement any reports and presentations to rating
agencies, any run-off plan shared with Applicable Insurance Regulatory  

Sch. 2 - 10

Authorities, internal or external actuarial reports and management
projections. “Applicable Insurance
Regulatory Authority” means,
when used with respect to any Regulated Insurance Company, (x) the insurance
department or similar administrative authority or agency located in each state
or jurisdiction (foreign or domestic) in which such Regulated Insurance Company
is domiciled or (y) to the extent asserting regulatory jurisdiction over such
Regulated Insurance Company, the insurance department, authority or agency in
each state or jurisdiction (foreign or domestic) in which such Regulated
Insurance Company is licensed, and shall include any Federal or national
insurance regulatory department, authority or agency that may be created and
that asserts insurance regulatory jurisdiction over such Regulated Insurance
Company. 

          (c) Collection
of Indebtedness and Suits for Enforcement. The Company covenants that if:
(i) default is made in the payment of any installment of interest (including
any Additional Interest) on any Security when such interest becomes due and payable
and such default continues for a period of thirty (30) days, or (ii) default is
made in the payment of the principal of and any premium on any Security at the
Maturity thereof, then the Company will pay to the Holders of such Securities,
the whole amount then due and payable on such Securities for principal and any
premium and interest (including any Additional Interest). If the Company fails
to pay such amounts forthwith upon such demand, the Holders may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated. 

          (d) Unconditional
Rights of Holders to Receive Principal, Premium, if any, and Interest.
Notwithstanding any other provision in this Note Purchase Agreement. the Holder
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and any premium on such Security at its
Maturity and payment of interest (including any Additional Interest (to the
extent legally enforceable)) on such Security when due and payable and to
institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder. The rights of any Holder
under this Note Purchase Agreement or under the Securities may be exercised by
such Holder or any collateral manager of any such Holder. 

          (e) Restoration
of Rights and Remedies. If any Holder has instituted any proceeding to
enforce any right or remedy under this Note Purchase Agreement and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to such Holder, then and in every such case the Company
and such Holders shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of such Holder shall continue as though no
such proceeding had been instituted. 

          (f) Rights
and Remedies Cumulative. Except as otherwise provided in this Note Purchase
Agreement, no right or remedy herein conferred upon or reserved to the Holders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or 

Sch. 2 - 11

employment of any right or remedy hereunder, or otherwise, shall not
prevent the concurrent assertion or employment of any other appropriate right
or remedy. 

          (g) Delay
or Omission Not Waiver. No delay or omission of any Holder of any
Securities to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given hereby or
by law to the Holders may be exercised from time to time, and as often as may
be deemed expedient, by the Holders. 

          (h) Waiver
of Past Defaults. The Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities may waive any past Event of
Default hereunder and its consequences except an Event of Default: (i) in the
payment of the principal of or any premium or interest (including any
Additional Interest) on any Outstanding Security (unless such Event of Default
has been cured and the Company has paid to the Holders a sum sufficient to pay
all installments of interest (including any Additional Interest) due and past
due and all principal of and any premium on all Securities due otherwise than
by acceleration), or (ii) in respect of a covenant or provision hereof that
cannot be modified or amended without the consent of each Holder of any Outstanding
Security. Any such waiver shall be deemed to be on behalf of the Holders of all
the Securities. Upon any such waiver, such Event of Default shall cease to
exist and any Event of Default arising therefrom shall be deemed to have been
cured for every purpose of this Note Purchase Agreement; but no such waiver
shall extend to any subsequent or other Event of Default or impair any right
consequent thereon. 

          (i) Undertaking
for Costs. Each Holder of any Security by his or her acceptance thereof
shall be deemed to have agreed that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Note Purchase
Agreement, the filing by any party litigant in such suit of an undertaking to
pay the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys’ fees and expenses, against
any party litigant in such suit, having due regard to the merits and good faith
of the claims or defenses made by such party litigant; but the provisions of
this Section 11(i) shall not apply to any suit instituted by any Holder,
or group of Holders, holding in the aggregate more than ten percent (10%) in
aggregate principal amount of the Outstanding Securities, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
or any premium on the Security after the Stated Maturity or any interest
(including any Additional Interest) on any Security after it is due and
payable. 

          (j) Waiver
of Usury, Stay or Extension Laws. The Company covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or
in any manner whatsoever claim or take the benefit or advantage of, any usury,
stay or extension law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of this Note Purchase
Agreement; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law. 

          (k) Restrictions
during Events of Default, Extension Periods. The Company covenants and
agrees with each Holder of Securities that if (1) an Event of Default shall
have occurred and be continuing, (2) the Company shall have given notice of its
election to begin an Extension Period with respect to the Securities or such
Extension Period, or any extension 

Sch. 2 - 12

thereof, shall be continuing, or (3) any insurance company, which is a
Covenant Significant Subsidiary (as defined hereinafter) of the Company, is
rated by A.M. Best Company, Inc. and (x) is downgraded by A.M. Best Company,
Inc. to a rating below A- and fails to renew more than 51% of its net premiums
written in one or more transactions during any twelve (12) month period; (y) is
downgraded by A.M. Best Company, Inc. to a rating below A- and sells more than
51% of its rights to renew net premiums written of its Covenant Significant
Subsidiaries in one or more transactions over the course of a twelve (12) month
period; or (z) (A) is downgraded by A.M. Best Company, Inc. to a rating below
B++ or (B) withdraws its rating by A.M. Best Company, Inc., then, the Company
shall not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any shares of
the Company’s capital stock or make any guarantee payments with respect to the
foregoing, (ii) make any payment of principal of or any interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company that
rank pari passu in all respects
with or junior in interest to the Securities (other than (A) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of any one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase or similar plan or in connection with the issuance
of capital stock of the Company ( or securities convertible into or exercisable
for such capital stock) as consideration in an acquisition transaction entered
into prior to the applicable Event of Default, Extension Period or the
applicability of the circumstances specified in clause (3) above, (B) as a
result of an exchange or conversion of any class or series of the Company’s
capital stock for any class or series of the Company’s capital stock or of any
class or series of the Company’s indebtedness for any class or series of the
Company’s capital stock, (C) the purchase of fractional interests in shares of
the Company’s capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (D) any declaration
of a dividend in connection with any Rights Plan, the issuance of rights, stock
or other property under any Rights Plan or the redemption or repurchase of
rights pursuant thereto, (E) any dividend in the form of stock. warrants,
options or other rights where the dividend stock or the stock issuable upon
exercise of such warrants, options or other rights is the same stock as that on
which the dividend is being paid or ranks pari
passu with or junior to such stock and any cash payments in lieu of
fractional shares issued in connection therewith), or (iii) enter into any
contracts with shareholders holding more than 10% of the outstanding shares of
common stock of the Company other than on an arm’s-length-basis and in the
ordinary course of business ((i), (ii) and (iii) above, collectively, the “Block”);
provided, however, that the Block shall only apply to
subsections 3(x) and (y) above for so long as any such insurance subsidiary
which is a Covenant Significant Subsidiary is rated below A- by A.M. Best
Company, Inc.; provided, further, that the Block shall only apply to subsection 3(z) above for so long
as any such insurance subsidiary which is a Covenant Significant Subsidiary is
rated below B++ by A.M. Best Company, Inc. For purposes of this Section 10.6 only, a “Covenant Significant Subsidiary”shall have the meaning as defined in
Section 1-02(w) of Regulation S-X (“Reg S-K”) of the Securities Act, except that
wherever Reg S-X states “10 percent,” such “10 percent” shall be replaced by
“20 percent.”  

          “Rights Plan” means a plan of the Company
providing for the issuance by the Company to all holders of its Common Stock of
rights entitling the holders thereof to subscribe for or purchase, directly or
indirectly, shares of its Common Stock which rights (i) are deemed to be
transferred with such shares of such Common Stock and (ii) are also issued in
respect of future 

Sch. 2 - 13

issuances of
such Common Stock, in each case until the occurrence of a specified event or
events. 

          “Common Stock” means the common shares, par value $0.01 per share, of the
Company. 

          “Outstanding” means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore delivered under this Note
Purchase Agreement, except: (i) Securities theretofore canceled by the Company
or delivered to the Company for cancellation; (ii) Securities for whose payment
or redemption money in the necessary amount has been theretofore deposited with
any Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent) for
the Holders of such Securities; provided, that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this Note
Purchase Agreement; and (iii) Securities that have been paid or in substitution
for or in lieu of which other Securities have been delivered pursuant to this
Note Purchase Agreement, unless proof satisfactory to the Company is presented that
any such Securities are held by Holders in whose hands such Securities are
valid, binding and legal obligations of the Company; provided, that,
in determining whether the Holders of the requisite principal amount of
Outstanding Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Securities owned by the Company
or any other obligor upon the Securities or any Affiliate of the Company or
such other obligor shall be disregarded and deemed not to be Outstanding
Securities unless the Company holds all of the Outstanding Securities so owned
that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Company the pledgee’s right so
to act with respect to such Securities and that the pledgee is not the Company
or any other obligor upon the Securities or any Affiliate of the Company or
such other obligor. 

SECTION 12. Consolidation, Merger, Conveyance, Transfer or Lease.

          (a)
Company May Consolidate, Etc., Only on Certain Terms. The Company shall
not, while any of the Securities remain outstanding, consolidate or amalgamate
with or merge into any other Person or sell, convey, transfer or lease all or
substantially all of its properties and assets as an entirety to any Person
unless: 

                    (i)
if the Company shall consolidate or amalgamate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the entity formed by such consolidation or
amalgamation into which the Company is merged or the Person that acquires by
conveyance or transfer, or that leases, the properties and assets of the
Company substantially as an entirety shall be an entity organized and existing
under the laws of the United States of America or any State or Territory
thereof, the District of Columbia, Bermuda, the Cayman Islands or any other
country, which is a member state of the Organization for Economic Cooperation
and Development unless it has: (1) agreed to make all payments due in respect
of the Securities without withholding or deduction for, or on account of, any
taxes, duties, assessments or other governmental charges under the laws or
regulations of the jurisdiction of organization or residence (for tax purposes)
of such entity or any political subdivision or taxing authority thereof or
therein unless required by applicable law, in which case such entity shall have
agreed to pay such additional amounts as shall be required so that the net
amounts received and retained by the Holders of such Securities after payment
of all taxes 

Sch. 2 - 14

(including
withholding taxes), duties, assessments or other governmental charges, will be
equal to the amounts that such Holders would have received and retained had no
such taxes (including withholding taxes), duties, assessments or other
governmental charges been imposed; (2) irrevocably and unconditionally
consented and submitted to the jurisdiction of any United States federal court
or New York state court, in each case located in the Borough of Manhattan, The
City of New York, in respect of any action, suit or proceeding against it
arising out of or in connection with this Note Purchase Agreement or the
Securities and irrevocably and unconditionally waived, to the fullest extent
permitted by law, any objection to the laying of venue in any such court or
that any such action, suit or proceeding has been brought in an inconvenient
forum; (3) irrevocably appointed an agent in The City of New York for service
or process in any action, suit or proceeding referred to in clause (2) above;
and (4) has provided an opinion of counsel that the Holders’ rights to enforce
the Company’s obligations in the successor’s jurisdiction of organization are
substantially the same as provided to creditors in Bermuda and there are no
currency restrictions in such jurisdiction, and the successor shall expressly
assume, by note purchase agreement substantially and substantively in the same
form as this Note Purchase Agreement, executed and delivered to the Holders, in
form reasonably satisfactory to the Holders, the due and punctual payment of
the principal of and any premium and interest (including any Additional
Interest) on all the Securities and the performance of every covenant of this
Note Purchase Agreement on the part of the Company to be performed or observed;

                    (ii)
immediately after giving effect to such transaction, no Event of Default, and
no event that, after notice or lapse of time, or both, would constitute an
Event of Default, shall have happened and be continuing; and 

                    (iii)
the Company has delivered to the Holders an Officers’ Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and, and that all conditions precedent herein provided for
relating to such transaction have been complied with; and the Holders may rely
upon such Officers’ Certificate and Opinion of Counsel as conclusive evidence
that such transaction complies with this Section 12. 

          (b) Successor
Company Substituted. Upon any consolidation, amalgamation or merger by the
Company with or into any other Person, or any sale, conveyance, transfer or
lease by the Company of its properties and assets substantially as an entirety
to any Person, the successor entity formed by such consolidation or
amalgamation into which the Company is merged or to which such sale,
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under this Note Purchase
Agreement with the same effect as if such successor Person had been named as
the Company herein; and in the event of any such conveyance, merger,
amalgamation or transfer, the Company shall be discharged from all obligations
and covenants under this Note Purchase Agreement and the Securities. Such
successor Person may cause to be executed, and may issue either in its own name
or in the name of the Company, any or all of the Securities issuable hereunder
that theretofore shall not have been signed by the Company. All the Securities
so issued shall in all respects have the same legal rank and benefit under this
Note Purchase Agreement as the Securities theretofore or thereafter issued in
accordance with the terms of this Note Purchase Agreement. In case of any such
consolidation, amalgamation, merger, sale, 

Sch. 2 - 15

conveyance, transfer or lease, such changes in phraseology and form may
be made in the Securities thereafter to be issued as may be appropriate to
reflect such occurrence. 

SECTION 13. Covenants. 

          (a) Payment
of Principal, Premium, if any, and Interest. The Company covenants and
agrees for the benefit of the Holders of the Securities that it will duly and
punctually pay the principal of and any premium and interest (including any
Additional Interest) on the Securities in accordance with the terms of the
Securities and this Note Purchase Agreement. As of the date of this Note
Purchase Agreement, the Company represents that it has no present intention to
exercise its right to defer payments of interest on the Securities. 

          (b)
Money for Security Payments to be Held in Trust. 

                    (i)
If the Company shall at any time act as its own Paying Agent with respect to
the Securities, it will, on or before each due date of the principal of and any
premium or interest (including any Additional Interest) on the Securities,
segregate and hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal and any premium or interest (including
Additional Interest) so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided, and will promptly notify
the Holders in writing of its failure so to act. 

                    (ii)
Whenever the Company shall have one or more Paying Agents, it will, prior to
10:00 a.m., New York City time, on each due date of the principal of or any
premium or interest (including any Additional Interest) on any Securities,
deposit with a Paying Agent a sum sufficient to pay such amount, and the
Company will promptly notify the Holders of its failure so to act. 

                    (iii)
Any money deposited with any Paying Agent, or then held by the Company in trust
for the payment of the principal of and any premium or interest (including any
Additional Interest) on any Security and remaining unclaimed for two years
after such principal and any premium or interest has become due and payable
shall (unless otherwise required by mandatory provision of applicable escheat
or abandoned or unclaimed property law) be paid upon request to the Company, or
(if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed property law) be
discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of such Paying Agent with respect to such trust money, and
all liability of the Company as trustee thereof, shall thereupon cease; provided, that such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in a
newspaper published in the English language, customarily published on each
Business Day and of general circulation in the Borough of Manhattan, The City
of New York, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than thirty (30) days from the date
of such publication, any unclaimed balance of such money then remaining will be
repaid to the Company. 

Sch. 2 - 16

          (c) Statement
as to Compliance. The Company shall deliver to the Holders, within one
hundred and twenty (120) days after the end of each fiscal year of the Company
ending after the date hereof, an Officers’ Certificate covering the preceding
calendar year, stating whether or not to the knowledge of the signers thereof
the Company is in default in the performance or observance of any of the terms,
provisions and conditions of this Note Purchase Agreement (without regard to
any period of grace or requirement of notice provided hereunder), and if the
Company shall be in default, specifying all such defaults and the nature and
status thereof of which they may have knowledge. 

“Officers’ Certificate” means a certificate signed by the
Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President, the General Counsel or a Vice President, and by the
Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary, of the Company. 

          (d) Waiver
of Covenants. The Company may omit in any particular instance to comply
with any covenant or condition contained in this Note Purchase Agreement if,
before or after the time for such compliance, the Holders of at least a
majority in aggregate principal amount of the Outstanding Securities shall, by
Act of such Holders, either waive such compliance in such instance or generally
waive compliance with such covenant or condition, but no such waiver shall
extend to or affect such covenant or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company in respect of any such covenant or condition shall remain in
full force and effect. 

SECTION 14. Redemption. 

          (a) Optional
Redemption. The Company may, at its option, on any Interest Payment Date,
on or after September 15, 2011, redeem the Securities in whole at any time or
in part from time to time, at a Redemption Price equal to one hundred percent
(100%) of the principal amount thereof (or of the redeemed portion thereof, as
applicable), together, in the case of any such redemption, with accrued
interest, including any Additional Interest (to the extent legally
enforceable), through but excluding the date fixed as the Redemption Date (the
“Optional Redemption Price”); provided, that the Company shall have received the prior approval of any
Applicable Insurance Regulatory Authorities with respect to such redemption if
then required. 

          (b) Special
Event Redemption. Prior to September 15, 2011, upon the occurrence and
during the continuation of a Special Event, the Company may, at its option,
redeem the Securities, in whole but not in part, at a Redemption Price equal to
one hundred seven and one half percent (107.5%) of the principal amount
thereof, together, in the case of any such redemption, with accrued interest,
including any Additional Interest (to the extent legally enforceable), through
but excluding the date fixed as the Redemption Date (the “Special Redemption Price”), provided, that the Company shall have received the prior approval of any
Applicable Insurance Regulatory Authority with respect to such redemption if
then required. “Special Event” means the occurrence of an Investment
Company Event or a Tax Event. “Investment
Company Event” means
the receipt by the Company of an opinion of counsel experienced in such matters
to the effect that, as a result of the occurrence of a change in law or
regulation (including any announced prospective change) or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or 

Sch. 2 - 17

regulatory authority, there is more than an insubstantial risk that the
Company is or, within ninety (90) days of the date of such opinion will be,
considered an “investment company” that is required to be registered under the
Investment Company Act, which change or prospective change becomes effective or
would become effective, as the case may be, on or after the Original Issue
Date. “Tax Event” means the receipt by the Company of an
opinion of counsel experienced in such matters to the effect that, as a result
of (a) any amendment to or change (including any announced prospective change)
in the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein or (b) any judicial decision
or any official administrative pronouncement (including any private letter
ruling, technical advice memorandum or field service advice) or regulatory
procedure, including any notice or announcement of intent to adopt any such
pronouncement or procedure (an “Administrative
Action”), regardless
of whether such judicial decision or Administrative Action is issued to or in
connection with a proceeding involving the Company and whether or not subject
to review or appeal, which amendment, change, judicial decision or
Administrative Action is enacted, promulgated or announced, in each case, on or
after the Original Issue Date, there is more than an insubstantial risk that
interest payable by the Company on the Securities is not, or within ninety (90)
days of the date of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes, or that the
Company will be subject to more than a de
minimis amount of other taxes, duties or other governmental charges.

          (c) Election
to Redeem. The election of the Company to redeem any Securities, in whole
or in part, shall be evidenced by or pursuant to a Board Resolution. In the
case of any redemption of Securities, in whole or in part, (a) prior to the
expiration of any restriction on such redemption provided in this Note Purchase
Agreement or the Securities or (b) pursuant to an election of the Company which
is subject to a condition specified in this Note Purchase Agreement or the
Securities, the Company shall furnish the Holders with an Officers’ Certificate
and an opinion of counsel evidencing compliance with such restriction or
condition. “Board of Directors” means the board of directors of the
Company or any duly authorized committee of that board of directors. 

          (d) Selection
of Securities to be Redeemed. If less than all the Securities are to be
redeemed, the particular Securities to be redeemed shall be selected and
redeemed on a pro rata basis not more than sixty (60) days prior to the
Redemption Date by the Company from the Outstanding Securities not previously
called for redemption, provided, that the unredeemed portion of the
principal amount of any Security shall be in an authorized denomination (which
shall not be less than the minimum authorized denomination) for such Security. 

The provisions of Section 14(d) shall not apply with respect to
any redemption affecting only a single Security, whether such Security is to be
redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed portion of the principal amount of the Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. 

          (e) Notice
of Redemption. Notice of redemption shall be given not later than the
thirtieth (30th) day, and not earlier than the sixtieth (60th)
day, prior to the Redemption Date to each Holder of Securities to be redeemed,
in whole or in part. With respect to Securities to be redeemed, in whole or in
part, each notice of redemption shall state: (i) the Redemption Date; (ii) 

Sch. 2 - 18

the Redemption Price or, if the Redemption Price cannot be calculated
prior to the time the notice is required to be sent, the estimate of the
Redemption Price, as calculated by the Company, together with a statement that
it is an estimate and that the actual Redemption Price will be calculated on
the fifth Business Day prior to the Redemption Date (and if an estimate is
provided, a further notice shall be sent of the actual Redemption Price on the
date that such Redemption Price is calculated); (iii) if less than all
Outstanding Securities are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed; (iv) that on the Redemption Date, the Redemption
Price will become due and payable upon each such Security or portion thereof,
and that any interest (including any Additional Interest) on such Security or
such portion, as the case may be, shall cease to accrue on and after said date;
and (v) the place or places where such Securities are to be surrendered for
payment of the Redemption Price. Notice of redemption of Securities to he
redeemed, in whole or in part, at the election of the Company shall be given by
the Company in the name and at the expense of the Company and shall be
irrevocable. The notice if mailed in the manner provided above shall be
conclusively presumed to have been duly given, whether or not the Holder receives
such notice. In any case, a failure to give such notice by mail or any defect
in the notice to the Holder of any Security designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security. 

          (f) Deposit
of Redemption Price. Prior to 10:00 a.m., New York City time, on the
Redemption Date specified in the notice of redemption, the Company will deposit
with one or more Paying Agents (or if the Company is acting as its own Paying
Agent, the Company will segregate and hold in trust) an amount of money
sufficient to pay the Redemption Price of, and any accrued interest (including
any Additional Interest) on, all the Securities (or portions thereof) that are
to be redeemed on that date. 

          (g) Payment
of Securities Called for Redemption. If any notice of redemption has been
given, the Securities or portion of Securities with respect to which such
notice has been given shall become due and payable on the date and at the place
or places stated in such notice at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to but excluding the
Redemption Date. On presentation and surrender of such Securities at the place
of payment specified in such notice, the Securities or the specified portions
thereof shall be paid and redeemed by the Company at the applicable Redemption
Price, together with accrued interest (including any Additional Interest) to
but excluding the Redemption Date. Upon presentation of any Security redeemed
in part only, the Company shall execute and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities, of authorized
denominations, in aggregate principal amount equal to the unredeemed portion of
the Security so presented and having the same, Stated Maturity and other
terms. If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal of and any premium on such
Security shall, until paid, bear interest from and including the Redemption
Date at the rate prescribed therefor in the Security. 

          “Redemption Price” means, when used with respect to any
Security to be redeemed, in whole or in part, the Special Redemption Price or
the Optional Redemption Price, as applicable, at which such Security or portion
thereof is to be redeemed as fixed by or pursuant to this Note Purchase
Agreement. 

Sch. 2 - 19

SECTION 15. Subordination of Securities.

          (a)
Securities Subordinate to Senior Debt. The Company covenants and agrees,
and each Holder of a Security, by its acceptance thereof, likewise covenants
and agrees, that, to the extent and in the manner hereinafter set forth, the
payment of the principal of and any premium and interest (including any
Additional Interest) on each and all of the Securities are hereby expressly
made subordinate and subject in right of payment to the prior payment in full
of all Senior Debt. “Senior Debt” means the principal of and any
premium and interest on (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to the Company,
whether or not such claim for post-petition interest is allowed in such
proceeding) all Debt of the Company, whether incurred on or prior to the date
of this Note Purchase Agreement or thereafter incurred, unless it is provided
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding that the obligations under such instrument are not superior in
right of payment to the Securities issued under this Note Purchase Agreement; provided, however, that if the Company is subject to the regulation and
supervision of any Applicable Insurance Regulatory Authority, the Company shall
have received the approval of each appropriate Applicable Insurance Regulatory
Authority prior to issuing any such obligation if then required; and provided, further, that Senior Debt shall not be deemed to include (i) any other
debt securities and guarantees in respect of such debt securities issued to any
trust (or a trustee of any such trust), partnership or other entity affiliated
with the Company that is a financing vehicle of the Company (a “financing entity”) in connection with the issuance by
such financing entity of equity securities or other securities that are treated
as equity capital for regulatory capital purposes guaranteed by the Company
pursuant to an instrument that ranks pari passu with or junior in right of payment to the Securities, or (ii)
subordinated debt securities issued by the Company, whether denominated in U.S.
dollars or Euro, including the Floating Rate Deferrable Interest Subordinated
Notes due 2036 issued by the Company pursuant to the Indenture (between the
Company and JPMorgan Chase Bank, National Association, as Trustee) and the
Purchase Agreement (between the Company and the Purchasers named therein), each
dated as of even date herewith. “Debt”
means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person, whether currently existing or hereafter
incurred and whether or not contingent and without duplication, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with respect
to letters of credit, bankers’ acceptances or similar facilities issued for the
account of such Person; (iv) every obligation of such Person issued or assumed
as the deferred purchase price of property or services (but excluding trade
accounts payable or other accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person, whether incurred on or prior to the date of this
Note Purchase Agreement or thereafter incurred, for claims in respect of
derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; (vii)
every obligation of the type referred to in clauses (i) through (vi) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed or is responsible or liable for, directly or
indirectly, as obligor or otherwise; and (viii) any renewals, extensions,
refundings, amendments or modifications of any obligation of the type referred
to in clauses (i) through (vii).  

Sch. 2 - 20

          (b)
No Payment When Senior Debt in Default; Payment Over of Proceeds Upon
Dissolution, Etc.

                    (i)
In the event and during the continuation of any default by the Company in the
payment of any principal of or any premium or interest on any Senior Debt
(following any grace period, if applicable) when the same becomes due and
payable, whether at maturity or at a date fixed for redemption or by
declaration of acceleration or otherwise, then, upon written notice of such
default to the Company by the holders of such Senior Debt or any trustee
therefor, unless and until such default shall have been cured or waived or
shall have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of or any premium or interest (including any
Additional Interest) on any of the Securities, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of any of the Securities.

                    (ii)
In the event of a bankruptcy, insolvency or other proceeding described in the
definition of Event of Default (each such event, if any, herein sometimes
referred to as a “Proceeding”), all Senior Debt (including any
interest thereon accruing after the commencement of any such proceedings) shall
first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made to any Holder of any of the
Securities on account thereof. Any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
entity provided for by a plan of reorganization or readjustment the payment of
which is subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by the Securities, to the
payment of all Senior Debt at the time outstanding and to any securities issued
in respect thereof under any such plan of reorganization or readjustment),
which would otherwise (but for these subordination provisions) be payable or
deliverable in respect of the Securities shall be paid or delivered directly to
the holders of Senior Debt in accordance with the priorities then existing
among such holders until all Senior Debt (including any interest thereon
accruing after the commencement of any Proceeding) shall have been paid in
full. In the event of any Proceeding, after payment in full of all sums owing
with respect to Senior Debt, the Holders of the Securities, together with the
holders of any obligations of the Company ranking on a parity with the
Securities, shall be entitled to be paid from the remaining assets of the
Company the amounts at the time due and owing on account of unpaid principal of
and any premium and interest (including any Additional Interest) on the
Securities and such other obligations before any payment or other distribution,
whether in cash, property or otherwise, shall be made on account of any capital
stock or any obligations of the Company ranking junior to the Securities and
such other obligations.

                    (iii)
If, notwithstanding the foregoing, any payment or distribution of any character
or any security, whether in cash, securities or other property (other than
securities of the Company or any other entity provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in these subordination provisions with respect to the
indebtedness evidenced by the Securities, to the payment of all Senior Debt at
the time outstanding and to any securities issued in respect thereof under any
such plan of reorganization or readjustment) shall be received by any Holder in
contravention of any of the terms hereof and before all Senior Debt shall have
been paid in full, such payment or distribution or security shall be received
in trust for the benefit of, and shall be paid over or delivered and

Sch. 2 - 21

transferred
to, the holders of the Senior Debt at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Debt remaining unpaid, to the extent necessary to pay all such
Senior Debt (including any interest thereon accruing after the commencement of
any Proceeding) in full. In the event of the failure of any Holder to endorse
or assign any such payment, distribution or security, each holder of Senior
Debt is hereby irrevocably authorized to endorse or assign the same.

                    (iv)
The Holders, at the expense of the Company, shall take such reasonable action
(including the delivery of this Note Purchase Agreement to an agent for any
holders of Senior Debt or consent to the filing of a financing statement with
respect hereto) as may, in the opinion of counsel designated by the holders of
a majority in principal amount of the Senior Debt at the time outstanding, be
necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.

                    (v)
These subordination provisions shall not impair any rights, interests, remedies
or powers of any secured creditor of the Company in respect of any security
interest the creation of which is not prohibited by the provisions of this Note
Purchase Agreement.

                    (vi)
The securing of any obligations of the Company, otherwise ranking on a parity
with the Securities or ranking junior to the Securities, shall not be deemed to
prevent such obligations from constituting, respectively, obligations ranking
on a parity with the Securities or ranking junior to the Securities.

          (c)
Payment Permitted If No Default. Nothing contained herein or elsewhere
in this Note Purchase Agreement or in any of the Securities shall prevent the
Company, at any time, except during the pendency of the conditions described
above or of any Proceeding, from making payments at any time of principal of
and any premium or interest (including any Additional Interest) on the
Securities.

          (d)
Subrogation to Rights of Holders of Senior Debt. Subject to the payment
in full of all amounts due or to become due on all Senior Debt, or the
provision for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, the Holders of the Securities shall
be subrogated to the extent of the payments or distributions made to the
holders of such Senior Debt pursuant to the provisions hereof (equally and
ratably with the holders of all indebtedness of the Company that by its express
terms is subordinated to Senior Debt of the Company to substantially the same
extent as the Securities are subordinated to the Senior Debt and is entitled to
like rights of subrogation by reason of any payments or distributions made to
holders of such Senior Debt) to the rights of the holders of such Senior Debt
to receive payments and distributions of cash, property and securities
applicable to the Senior Debt until the principal of and any premium and
interest (including any Additional Interest) on the Securities shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Debt of any cash, property or securities to which the
Holders of the Securities would be entitled except for these subordination
provisions, and no payments made pursuant to these subordination provisions to
the holders of Senior Debt by Holders of the Securities, shall, as among the
Company, its creditors other than holders of Senior Debt, and the Holders of
the Securities, be deemed to be a payment or distribution by the Company to or
on account of the Senior Debt.

Sch. 2 - 22

          (e)
Provisions Solely to Define Relative Rights. These subordination
provisions are and are intended solely for the purpose of defining the relative
rights of the Holders of the Securities on the one hand and the holders of
Senior Debt on the other hand. Nothing contained herein or elsewhere in this
Note Purchase Agreement or in the Securities is intended to or shall (a)
impair, as between the Company and the Holders of the Securities, the
obligations of the Company, which are absolute and unconditional, to pay to the
Holders of the Securities the principal of and any premium and interest
(including any Additional Interest) on the Securities as and when the same
shall become due and payable in accordance with their terms, (b) affect the
relative rights against the Company of the Holders of the Securities and
creditors of the Company other than their rights in relation to the holders of
Senior Debt or (c) prevent the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this Note
Purchase Agreement, including filing and voting claims in any Proceeding,
subject to the rights, if any, of the holders of Senior Debt to receive cash,
property and securities otherwise payable or deliverable to such Holder.

          (f)
No Waiver of Subordination Provisions. No right of any present or future
holder of any Senior Debt to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the terms, provisions
and covenants of this Note Purchase Agreement, regardless of any knowledge
thereof that any such holder may have or be otherwise charged with. Without in
any way limiting the generality of the foregoing sentence, the holders of
Senior Debt may, at any time and from to time, without the consent of or notice
to the Holders of the Securities, without incurring responsibility to such
Holders of the Securities and without impairing or releasing the subordination
provided herein or the obligations hereunder of such Holders of the Securities
to the holders of Senior Debt, do any one or more of the following: (i) change
the manner, place or terms of payment or extend the time of payment of, or
renew or alter, Senior Debt, or otherwise amend or supplement in any manner
Senior Debt or any instrument evidencing the same or any agreement under which
Senior Debt is outstanding, (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Debt, (iii)
release any Person liable in any manner for the payment of Senior Debt and (iv)
exercise or refrain from exercising any rights against the Company and any
other Person.

          (g)
Notice to Holders. The Company shall give prompt written notice to the
Holders of any fact known to the Company that would prohibit the making of any
payment in respect of the Securities.

          (h)
Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any
payment or distribution of assets of the Company, the Holders of the Securities
shall be entitled to conclusively rely upon any order or decree entered by any
court of competent jurisdiction in which such Proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto.

Sch. 2 - 23

SECTION 16. No Recourse Against Others.

          No
director, officer, employee, incorporator, Affiliate or stockholder of the
Company shall have any liability for any obligations of the Company under the
Securities or the Note Purchase Agreement or for a claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of
Securities by accepting a Security waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Securities.

SECTION 17. Form of Securities.

          Any
Security issued hereunder shall be substantially in the following form:

          THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND SUCH SECURITIES, AND ANY INTEREST THEREIN,
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF ANY
SECURITIES IS HEREBY NOTIFIED THAT THE SELLER OF THE SECURITIES MAY BE RELYING
ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A UNDER THE SECURITIES ACT OR BY REGULATION S UNDER THE
SECURITIES ACT.

          THE
HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AGREES FOR THE BENEFIT
OF THE COMPANY THAT (A) SUCH SECURITIES MAY BE OFFERED, RESOLD OR OTHERWISE
TRANSFERRED ONLY (I) TO THE COMPANY, (II) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(III) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF
SUBPARAGRAPH (a) (1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT
IS ACQUIRING SUCH SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF AN
“ACCREDITED INVESTOR” (WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR
(7) OF RULE 501 UNDER THE SECURITIES ACT), FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, (IV) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (V) TO A PERSON THAT IS NEITHER A U.S. PERSON
(AS DEFINED IN REGULATION S) NOR A U.S. RESIDENT (WITHIN THE MEANING OF THE
INVESTMENT COMPANY ACT) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903
OR RULE 904 OF REGULATION S, ACTING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
ONE OR MORE PERSONS WITH RESPECT TO WHICH IT EXERCISES SOLE INVESTMENT
DISCRETION, EACH OF WHICH IS NEITHER A U.S. PERSON (AS DEFINED IN REGULATIONS
S) NOR A U.S. RESIDENT (WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT) OR
(VI) PURSUANT TO AN EXEMPTION FROM THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR

Sch. 2 - 24

ANY OTHER
APPLICABLE JURISDICTION AND IN COMPLIANCE WITH THE CERTIFICATIONS AND OTHER
REQUIREMENTS SPECIFIED IN THE NOTE PURCHASE AGREEMENTREFERRED TO HEREIN AND, IN
THE CASE OF (III) OR (VI), SUBJECT TO THE RIGHT OF THE COMPANY TO REQUIRE AN
OPINION OF COUNSEL AND OTHER INFORMATION SATISFACTORY TO IT AND (B) THE HOLDER
WILL NOTIFY ANY PURCHASER OF ANY SECURITIES FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE.

          THE
SECURITIES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN
AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN €100,000 AND INTEGRAL MULTIPLES OF
€1,000 IN EXCESS THEREOF. TO THE FULLEST EXTENT PERMITTED BY LAW, ANY ATTEMPTED
TRANSFER OF SECURITIES, OR ANY INTEREST THEREIN, IN A BLOCK HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN €100,000 AND MULTIPLES OF €1,000 IN EXCESS
THEREOF SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED
NOT TO BE THE HOLDER OF SUCH SECURITIES FOR ANY PURPOSE, INCLUDING, BUT NOT
LIMITED TO, THE RECEIPT OF PRINCIPAL OF OR INTEREST ON SUCH SECURITIES, OR ANY
INTEREST THEREIN, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO
INTEREST WHATSOEVER IN SUCH SECURITIES.

THE
HOLDER OF THIS SECURITY, OR ANY INTEREST THEREIN, BY ITS ACCEPTANCE HEREOF OR
THEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE
BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”),
OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF
ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF
ANY PLAN MAY ACQUIRE OR HOLD THIS SECURITY OR ANY INTEREST THEREIN, UNLESS SUCH
PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S.
DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38,
90-1, OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF
THIS SECURITY, OR ANY INTEREST HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF
ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE AND HOLDING.
ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE
DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i)
IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA,
OR OTHER PLAN TO WHICH TITLE 1 OF ERISA OR SECTION 4975 OF THE CODE IS
APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE
BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN ASSETS” OF
ANY SUCH EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE OR (ii) SUCH
PURCHASE OR HOLDING WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER  

Sch. 2 - 25

SECTION 406 OF
ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT
AVAILABLE UNDER AN APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

FLAGSTONE REINSURANCE HOLDINGS LIMITED

Floating Rate Deferrable Interest
Subordinated Note due 2036

	
  

 	
  

 	
  

 
	
 No.________________

 	
  

 	
 €
 [___________]

 
	
  

 	
  

 	
  

 

          Flagstone
Reinsurance Holdings Limited, a limited liability exempted company organized
and existing under the laws of Bermuda (hereinafter called the “Company,” which term includes any successor
Person under the Note Purchase Agreement hereinafter referred to), for value
received, hereby promises to pay to [__________], or registered assigns,
the principal sum of [________________] Million Euro (€[________])
on September 15, 2036 (subject to the Business Day Convention), unless redeemed
prior to such date in accordance herewith and with the Note Purchase Agreement.
The Company further promises to pay interest on said principal sum from August
23, 2006, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, quarterly (subject to deferral as set forth
herein) in arrears on March 15, June 15, September 15 and December 15 of each
year, commencing December 15, 2006, or if any such day is not a Business Day,
on the next succeeding Business Day (and additional interest shall accrue in
respect of the amounts whose payment is so delayed for the period from and
after any such Interest Payment Date, other than a Maturity date until such
next succeeding Business Day), in each case, with the same force and effect as
if made on the Interest Payment Date, at a variable rate per annum, reset
quarterly on an Interest Payment Date, equal to EURIBOR plus 3.54% (the
“Interest Rate”), together with Additional Amounts, if any, as provided in
Section 10 of Schedule 2 to the Note Purchase Agreement, until the principal
hereof is paid or duly provided for or made available for payment; provided, further, that any overdue principal,
premium, if any, or Additional Amounts and any overdue installment of interest
shall bear Additional Interest at a variable rate per annum, reset quarterly on
an Interest Payment Date, equal to EURIBOR plus 3.54% (to the extent that the
payment of such interest shall be legally enforceable), compounded quarterly,
from the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand. Notwithstanding the
foregoing, in no event shall interest accrue hereon at a rate that is higher
than the maximum rate permitted by New York Law, as the same may be modified by
United States Law of General Application.

          The
amount of interest payable for any interest period shall be computed and paid
on the basis of a 360-day year and the actual number of days elapsed in the
relevant interest period. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date, other than a Maturity date shall,
as provided in the Note Purchase Agreement, be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest installment. Any
such interest not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder on such Regular Record Date and may either be paid
to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, notice whereof shall be given to Holders
of Securities

Sch. 2 - 26

not less than
ten (10) days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Note Purchase
Agreement.

          So
long as no Event of Default has occurred and is continuing, the Company shall
have the right, at any time and from time to time during the term of this
Security, to defer the payment of interest on this Security for a period of up
to twenty (20) consecutive quarterly interest payment periods (each such
period, an “Extension Period”), during
which Extension Period(s), no interest shall be due and payable. No Extension
Period shall end on a date other than an Interest Payment Date, and no
Extension Period shall extend beyond the Stated Maturity of the principal of
this Security. No interest shall be due and payable during an Extension Period,
except at the end thereof, but each installment of interest that would
otherwise have been due and payable during such Extension Period shall bear
Additional Interest (to the extent payment of such interest would be legally
enforceable) at a variable rate per annum, reset quarterly on an Interest
Payment Date, equal to EURIBOR plus 3.54%; compounded quarterly, from the dates
on which amounts would have otherwise been due and payable until paid or made
available for payment. At the end of any such Extension Period, the Company
shall pay all interest then accrued and unpaid on this Security, together with
such Additional Interest. Prior to the termination of any such Extension
Period, the Company may further defer the payment of interest; provided, that (i) all
such previous and further extensions comprising such Extension Period do not
exceed twenty (20) consecutive quarterly interest payment periods, (ii) no
Extension Period shall end on a date other than an Interest Payment Date and
(iii) no Extension Period shall extend beyond the Stated Maturity of the
principal of this Security. Upon the termination of any such Extension Period
and upon the payment of all accrued and unpaid interest and any Additional
Interest then due on any Interest Payment Date, the Company may elect to begin
a new Extension Period; provided, that
(i) such Extension Period does not exceed twenty (20) consecutive quarterly
interest payment periods, (ii) no Extension Period shall end on a date other
than an Interest Payment Date, (iii) no Extension Period shall extend beyond
the Stated Maturity of the principal of this Security and (iv) no Event of
Default has occurred and is continuing. The Company shall give the Holder of
this Security written notice of its election to begin any such Extension Period
at least five (5) Business Days prior to the next succeeding Interest Payment
Date on which interest on this Security would be payable but for such deferral.

          During
any such Extension Period, the Company shall not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company’s capital stock or make
any guarantee payments with respect to the foregoing, (ii) make any payment of
principal of or any interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu in all respects with or junior in interest to
this Security (other than (a) repurchases, redemptions or other acquisitions of
shares of capital stock of the Company in connection with (1) any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants, (2) a dividend
reinvestment or stockholder stock purchase plan and/or (3) the issuance of
capital stock of the Company (or securities convertible into or exercisable for
such capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period, (b) as a result of an exchange or
conversion of any class or series of the Company’s capital stock for any class
or series of the Company’s capital stock or of any class or series of the

Sch. 2 - 27

Company’s
indebtedness for any class or series of the Company’s capital stock, (c) the
purchase of fractional interests in shares of the Company’s capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with any Rights Plan, the issuance of rights, stock or other
property under any Rights Plan, or the redemption or repurchase of rights
pursuant thereto or (e) any dividend in the form of stock, warrants, options or
other rights where the dividend stock or the stock issuable upon exercise of
such warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with
or junior to such stock and any cash payments in lieu of fractional shares
issued in connection therewith, or (iii) enter into any contracts with
shareholders holding more than 10% of the outstanding shares of common stock of
the Company other than on an arm’s-length-basis and in the ordinary course of
business.

          Payment
of principal of, premium, if any, and interest on this Security shall be made
in such coin or currency of the European Union as at the time of payment is
legal tender for payment of public and private debts. Payments of principal,
premium, if any, and interest due at the Maturity of this Security shall be
made at the Place of Payment upon surrender of such Securities to the Paying
Agent, and other payments of interest shall be made by wire transfer at such
place and to such account at a banking institution in the European Union as may
be designated in writing to the Paying Agent at least ten (10) Business Days
prior to the date for payment by the Person entitled thereto unless proper
written transfer instructions have not been received by the relevant date, in
which case such payments shall be made by check mailed to the address of such
Person as such address shall appear in the Security Register.

          The
indebtedness evidenced by this Security is, to the extent provided in the Note
Purchase Agreement, subordinate and junior in right of payment to the prior
payment in full of all Senior Debt, and this Security is issued subject to the
provisions of the Note Purchase Agreement with respect thereto. Each Holder of
this Security, by accepting the same, agrees to and shall be bound by such
provisions. Each Holder hereof, by his or her acceptance hereof, waives all
notice of the acceptance of the subordination provisions contained herein and
in the Note Purchase Agreement by each holder of Senior Debt, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.

 [FORM OF REVERSE OF SECURITY]

          This
Security is one of a duly authorized issue of securities of the Company (the “Securities”) issued under the Note Purchase Agreement, dated as of August 23, 2006 (the “Note
Purchase Agreement”), between
the Company and Merrill Lynch International to which Note Purchase Agreement
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the holders of
Senior Debt and the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered. All terms used in
this Security that are defined in the Note Purchase Agreement shall have the
meanings assigned to them in the Note Purchase Agreement.

          The
Company may, on any Interest Payment Date, on or after September 15, 2011 and
subject to the terms and conditions of the Note Purchase Agreement, redeem this
Security in whole at any time or in part from time to time at a Redemption
Price equal to one hundred

Sch. 2 - 28

percent (100%)
of the principal amount hereof, together, in the case of any such redemption,
with accrued interest, including any Additional Interest, through but excluding
the date fixed as the Redemption Date; provided, that
the Company shall have received the prior approval of any Applicable Insurance
Regulatory Authority then required.

          Prior
to September 15, 2011, upon the occurrence and during the continuation of a
Special Event, the Company may, at its option, and in accordance with the Note
Purchase Agreement, redeem the Securities, in whole but not in part, subject to
the terms and conditions of the Note Purchase Agreement at a Redemption Price
equal to one hundred seven and one half percent (107.5%) of the principal
amount thereof, together, in the case of any such redemption, with accrued
interest, including any Additional Interest, through but excluding the date
fixed as the Redemption Date (the “Special Redemption Price”), provided, that the Company
shall have received the prior approval of any Applicable Insurance Regulatory
Authority with respect to such redemption if then required.

          In
the event of redemption of this Security in part only, a new Security or
Securities for the unredeemed portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof. If less than all the Securities are
to be redeemed, the particular Securities to be redeemed shall be selected not
more than sixty (60) days prior to the Redemption Date by the Calculation Agent
from the Outstanding Securities not previously called for redemption, by such
method as the Calculation Agent shall deem fair and appropriate and which may
provide for the selection for redemption of a portion of the principal amount
of any Security.

          The
Note Purchase Agreement permits, with certain exceptions as herein and therein
provided, the Company at any time to modify in any manner the rights and
obligations of the Company and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities. The Note Purchase Agreement also contains provisions
permitting Holders of specified percentages in principal amount of the
Securities, on behalf of the Holders of all Securities, to waive compliance by
the Company with certain provisions of the Note Purchase Agreement and certain
past defaults under the Note Purchase Agreement and their consequences. Any
such consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Security.

          No
reference herein to the Note Purchase Agreement and no provision of this
Security or of the Note Purchase Agreement shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of
and any premium, if any, and interest, including any Additional Interest (to
the extent legally enforceable), on this Security at the times, place and rate,
and in the coin or currency, herein prescribed.

          As
provided in the Note Purchase Agreement and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the
Securities Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar and duly executed by,
the Holder hereof

Sch. 2 - 29

or such
Holder’s attorney duly authorized in writing, and thereupon one or more new
Securities, of like tenor, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

          The
Securities are issuable only in registered form without coupons in minimum
denominations of €100,000 and any integral multiple of €1,000 in excess
thereof. As provided in the Note Purchase Agreement and subject to certain
limitations herein and therein set forth, Securities are exchangeable for a
like aggregate principal amount of Securities and of like tenor of a different
authorized denomination, as requested by the Holder surrendering the same.

          No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.

          The
Company and any agent of the Company may treat the Person in whose name this
Security is registered as the owner hereof for all purposes, whether or not
this Security be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

          The
Company and, by its acceptance of this Security or a beneficial interest
herein, the Holder of, and any Person that acquires a direct or indirect
beneficial interest in, this Security intend and agree to treat this Security
as indebtedness of the Company, for United States federal, state and local tax
purposes.

          This
Security shall be construed and enforced in accordance with and governed by the
laws of the State of New York, without reference to its conflict of laws
provisions (other than Section 5-1401 of the General Obligations Law).

          IN WITNESS WHEREOF, the Company
has caused this instrument to be duly executed on this________day
of____________ ,20____.

	
  

 	
  

 	
  

 
	
  

 	
 Flagstone
 Reinsurance Holdings Limited

 
	
  

 	
  

 
	
  

 	
 By:

 	
  

 
	
  

 	
  

 	

 

 
	
  

 	
  

 	
 Name:

 
	
  

 	
  

 	
 Title:

 

Sch. 2 - 30

Schedule 3

DETERMINATION OF EURIBOR

          With
respect to the Securities, the Euro-zone inter-bank offered rate (“EURIBOR”) shall be determined by the
Calculation Agent with the following provisions (in each case rounded to the
nearest .000001%):

          1. On
the second Business Day prior to an Interest Payment Date (except with respect
to the first interest payment period, such date shall be two (2) Business Days
prior to the Closing Date) (each such day, a “EURIBOR Determination Date”), EURIBOR for any given Security
shall for the following interest payment period equal the rate, as obtained by
the Calculation Agent, at which deposits in Euro are offered by the Calculation
Agent to prime banks in the Euro-zone interbank market for three month Eurodollar
deposits that appears on Reuters Telerate Page 248, or such other page as may
replace such Page 248, as of 11:00 a.m. (Brussels time) on such EURIBOR
Determination Date.

          (2)
If, on any EURIBOR Determination Date, such rate does not appear on Reuters
Telerate Page 248 or such other page as may replace such Page 248, the
Calculation Agent shall determine the arithmetic mean of the offered quotations
of the Reference Banks (as defined below) to leading banks in the Euro-zone
interbank market for three month Eurodollar deposits in an amount determined by
the Calculation Agent by reference to requests for quotations as of
approximately 11:00 a.m. (Brussels time) on the EURIBOR Determination Date made
by the Calculation Agent to the Reference Banks. If, on any EURIBOR
Determination Date, at least two of the Reference Banks provide such
quotations, EURIBOR shall equal such arithmetic mean of such quotations. If, on
any EURIBOR Determination Date, only one or none of the Reference Banks provide
such quotations, EURIBOR shall be deemed to be the arithmetic mean of the
offered quotations that leading banks in the City of New York selected by the
Calculation Agent are quoting on the relevant EURIBOR Determination Date for
three-month Eurodollar deposits in an amount determined by the Calculation
Agent by reference to the principal Brussels offices of leading banks in the
Euro-zone interbank market; provided that,
if the Calculation Agent is required but is unable to determine a rate in
accordance with the foregoing, EURIBOR shall be EURIBOR as determined on the
previous EURIBOR Determination Date.

          (3)
As used herein: “Reference Banks” means four major banks in the Euro-zone interbank
market selected by the Calculation Agent; and “EURIBOR Business Day” means a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) in Brussels.

Sch. 3 - 1

ANNEX A-I

          Pursuant
to Section 2(b)(i) of the Note Purchase Agreement. Sidley Austin LLP, special
New York counsel for the Company, shall deliver an opinion substantially in the
following form:

Ladies and
Gentlemen:

          This
opinion is being furnished to you pursuant to Section 2(b)(i) of the Note
Purchase Agreement, dated August 23, 2006 (the “Purchase Agreement”), between
Flagstone Reinsurance Holdings Limited, a Bermuda company (the “Company”), and
Merrill Lynch International (the “Purchaser”), relating to the issuance and
sale by the Company to the Purchaser of €13,000,000 aggregate principal amount
of Floating Rate Deferrable Interest Subordinated Notes due 2036 (the
“Securities”). Capitalized terms used but not otherwise defined herein shall
have the meaning assigned to such terms in the Purchase Agreement.

          As
special U.S. counsel to the Company, we have examined and relied upon originals
or copies of such agreements. instruments, certificates, records and other
documents and have made such examination of law as we have deemed necessary or
appropriate for the purpose of this letter, including the following:

          1.
Copy of the Memorandum of Association of the Company, certified to be a true
copy as of a recent date by the Registrar of Companies in Bermuda.

          2.
Copy of the Bye-Laws of the Company. as amended, certified as of the date
hereof by the Secretary of the Company to be a true and correct copy.

          3.
Certificate of a recent date of the Registrar of Companies in Bermuda
certifying the due incorporation and good standing of the Company under the laws
of Bermuda.

          4.
Copies, certified by the Secretary of the Company to be true and complete
copies, of resolutions adopted by the Board of Directors of the Company at a
meeting held on August 12, 2006 relating to the issuance and sale of the Securities.

          5.
Executed counterparts of the Purchase Agreement.

          6.
Copies, certified by the Secretary of the Company to be full, true and correct
specimens, of the certificates representing the Securities.

          In
connection with this letter, we have assumed, without independent investigation
or verification, the genuineness of signatures of all persons signing any
document, the legal capacity of all natural persons, the authority of all
persons signing any document on behalf of parties thereto, the authenticity of
all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies or by facsimile or other means of electronic transmission or
obtained by us through sites on the internet, the authenticity of the originals
of such latter documents and the truth and accuracy of all matters set forth in
all documents. As to all facts relevant to the opinions set forth herein, we
have relied, without independent investigation or verification, on the
existence and the

A-I-1

consequences
of those facts upon certificates and oral or written representations or other
statements of governmental authorities, public officials, officers and other
representatives of the Company and their accountants and counsel and others.

Based upon the
foregoing, but subject to the assumptions, limitations, qualifications and
exceptions referred to herein, we are of the opinion that:

                    a.
the Securities, when duly executed and delivered by the Company to the
Purchaser against payment of the consideration therefor specified in the
Purchase Agreement, will constitute valid and legally binding obligations of
the Company, entitled to the benefit of the Purchase Agreement and enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors’ rights generally or by general principles
of equity (regardless of whether considered in a proceeding in equity or at
law), and except further as enforcement thereof may be limited by (1)
requirements that a claim with respect to any of the Securities (or a foreign
currency judgment in respect of such claim) be converted into U.S. dollars at a
rate of exchange prevailing on a date determined pursuant to applicable law or
(2) governmental authority to limit, delay or prohibit the making of payments
outside of the United States of America;

                    b.
assuming the truth and accuracy of the respective representations and
warranties, and compliance with the respective agreements of the Company and
the Purchaser under the Purchase Agreement, it is not necessary in connection
with the Company’s offer, sale and delivery of the Securities to the Purchaser
to register the same under the Securities Act of 1933, as amended, under the
circumstances contemplated in the Purchase Agreement (it being understood that
we express no opinion as to any reoffer or resale of Securities by any
Purchaser);

                    c.
the Company is not required to register as an investment company under the
Investment Company Act of 1940, as amended; and

                    d.
except for authorizations, approvals, consents, orders, filings, registrations
or qualifications that may be required by applicable securities laws, no
filing, registration or qualification with, or authorization, approval, consent
or order of, any U.S. federal or New York state court or governmental body or
authority is required to be made or obtained by the Company under the federal
laws of the United States of America or New York state law in connection with
the transactions contemplated by the Purchase Agreement.

          The
foregoing opinions are subject to the following assumptions, limitations,
qualifications and exceptions:

A-I-2

	
  

 	
  

 	
  

 
	
  

 	
 A.

 	
 This letter
 is limited to matters arising under the federal laws of the United States of
 America and the laws of the State of New York, and we express no opinion as
 to the laws of any other jurisdiction or as to the municipal laws, or the
 laws, rules or regulations of any local agencies, of or within the State of
 New York. In rendering the foregoing opinions, we have relied exclusively,
 with your permission, as to all matters of Bermuda law, without independent
 investigation or verification, upon the opinion of Attride-Sterling &
 Woloniecki, dated the date hereof, and this letter is subject to the
 assumptions, limitations, qualifications and exceptions referred to therein.

 
	
  

 	
  

 	
  

 
	
  

 	
 B.

 	
 With respect
 to any instrument or agreement that we have reviewed (each, an “Instrument”),
 we have assumed, to the extent relevant to the opinions expressed herein,
 that (i) each party thereto (if not a natural person) has been duly organized
 and is validly existing and in good standing under the laws of its
 jurisdiction of organization, (ii) each party thereto has full right, power
 and authority to execute, deliver and perform its obligations under each
 Instrument to which it is a party, (iii) each party thereto has duly
 authorized, executed and delivered each Instrument to which it is a party and
 (iv) except to the extent otherwise specified in clause (a) or (b) above with
 respect to the Note Purchase Agreement and the Securities of the Company, each
 Instrument is a valid, legally binding and enforceable agreement or
 obligation of each party thereto.

 

          The
opinions expressed herein are given as of the date hereof, and we undertake no
obligation to update or supplement this letter if any applicable law changes
after the date hereof or if we become aware of any fact or other circumstance
that changes or might change any opinion expressed herein after the date hereof
or for any other reason.

          This
letter is rendered solely to, and is for the benefit of, the parties to whom it
is expressly addressed in connection with the matters described herein;
accordingly, this letter may not be copied or relied upon by, or be quoted or
delivered to, any other person or entity (including, without limitation, any
person or entity who acquires Securities from the Purchaser) or be relied upon
or used by the Purchaser for any other purpose, in any case without our express
prior written consent.

	
  

 	
  

 	
  

 
	
  

 	
 Very truly
 yours,

 	
  

 

A-I-3

ANNEX A-II 

          Pursuant
to Section 2(b)(ii) of the Note Purchase Agreement, Attride-Sterling &
Woloniecki, special Bermuda counsel for the Company shall deliver an opinion in
substantially the following form: 

To: Merrill
Lynch International 

Merrill Lynch Finance Centre 

2 King Edward Street 
London, EC1A 1HQ 

England 

Attention:
Andrew Bellis 

Dear Sirs, 

Flagstone Reinsurance Holdings Limited –
Issuance and sale of Floating Rate Deferrable Interest Subordinated Notes due
2036 

We have acted
as special legal counsel in Bermuda to Flagstone Reinsurance Holdings Limited
(the “Company”) in connection with the issuance and sale by the Company of up
to Thirteen Million Euros in aggregate principal amount of Floating Rate
Deferrable Interest Subordinated Notes due 2036 (the “Securities”). 

	
  

 	
  

 	
  

 
	
 1.

 	
 For the
 purpose of giving this opinion, we have reviewed the following documents: 

 
	
  

 	
  

 	
  

 
	
  

 	
 1.1

 	
 An executed
 copy of the purchase agreement (“Purchase Agreement”) between the Company and
 Merrill Lynch International (the “Purchaser”) relating to the sale and
 purchase of the Securities; 

 
	
  

 	
  

 	
  

 
	
  

 	
 1.2

 	
 A copy of
 the form of security (“Security Instrument”) to be issued pursuant to the
 Purchase Agreement in respect of the Securities; 

 
	
  

 	
  

 	
  

 
	
 (the
 Purchase Agreement and the Security Instrument are sometimes collectively
 referred to in this opinion as the “Operative Documents”)

 
	
  

 	
  

 	
  

 
	
  

 	
 1.3

 	
 A copy of
 the memorandum of association and the bye-laws of the Company each certified
 by the Assistant Secretary of the Company on 22 August, 2006; 

 
	
  

 	
  

 	
  

 
	
  

 	
 1.4

 	
 The minutes
 of meetings of the board of directors of the Company held on 12 August, 2006
 certified by the Assistant Secretary of the Company on 22 August, 2006; and 

 
	
  

 	
  

 	
  

 
	
  

 	
 1.5

 	
 Certificates
 of Compliance from the Bermuda Ministry of Finance in respect of the Company
 (dated 21 August, 2006), Flagstone Reinsurance Limited (“FRL”) (dated 21
 August, 2006) and Mont Fort Re Ltd. (“MFRL”) (dated 22 August, 

 

A-II-1

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 2006) and
 from the Bermuda Monetary Authority in respect of FRL (dated 17 August, 2006)
 and MFRL (dated 22 August, 2006); and 

 
	
  

 	
  

 	
  

 
	
  

 	
 1.6

 	
 Such other
 documents (and made such enquiries as to questions of Bermuda law) in
 relation thereto as we have deemed necessary in order to render the opinions
 given below. 

 
	
  

 	
  

 	
  

 
	
 2.

 	
 We have
 assumed for the purposes of this opinion letter: 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.1

 	
 the
 capacity, power and authority of each of the parties (other than the Company)
 to enter into and perform its respective obligations under the Operative
 Documents and the due authorisation, execution and the delivery of the
 Operative Documents by each of the respective parties thereto (other than the
 Company) in the form of the execution copies examined by us; 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.2

 	
 the
 genuineness and authenticity of all signatures on all documents which we have
 examined; 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.3

 	
 the
 authenticity of all documents submitted to us as originals, and the
 conformity to authentic originals of all documents produced to us as copies
 of such documents and the conformity to authentic original documents of all
 documents and other documentation submitted to us as certified, conformed,
 notarised, faxed or photostatic copies; wherever we have reviewed draft
 documents we have assumed that the documents were executed in all material
 respects in the form of such drafts; 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.4

 	
 that each of
 the documents and other documentation which was received by electronic means
 is complete, intact and in conformity with the transmission as sent; 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.5

 	
 the accuracy
 and completeness of all factual representations contained in the Operative Documents;
 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.6

 	
 that there
 is no provision of the law of any jurisdiction, other than Bermuda, which
 would have any implication in relation to the opinions expressed herein; 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.7

 	
 that the
 resolutions set forth in the Minutes are in full force and effect, have not
 been rescinded and that there is no matter affecting the authority of the
 directors to effect entry by the Company into the Operative Documents, not
 disclosed by the Constitutional Documents or the Minutes, which would have
 any adverse implication in relation to the opinions expressed herein 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.8

 	
 the validity
 and binding effect under the laws of the State of New York (the “Foreign
 Laws”) of the Operative Documents, which are expressed to be governed by such
 Foreign Laws in accordance with their respective terms; 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.9

 	
 the validity
 and binding effect under the Foreign Laws of the submission by the Company
 pursuant to the Purchase Agreement to the non-exclusive jurisdiction of 

 

A-II-2

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 the courts
 of any state or federal court located within New York County, State of New
 York, USA (“Foreign Courts”); and 

 
	
  

 	
  

 	
  

 
	
  

 	
 2.10

 	
 that at the
 time of entering into the Operative Documents, the Company is, and after
 entering into the Operative Documents, will be able to pay its liabilities as
 they become due.

 
	
  

 	
  

 
	
 3.

 	
 Based upon
 and subject to the foregoing, and further subject to the reservations set out
 below and to any matters not disclosed to us, we are of the opinion that: 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.1

 	
 Each of the
 Company, FRL and MFRL respectively is duly incorporated with limited
 liability and each of the Company, FRL and MFRL respectively is existing in
 good standing under the laws of Bermuda (meaning that each of the Company,
 FRL and MFRL respectively has not failed to make any filing with any Bermuda
 governmental authority or to pay any Bermuda government fee or tax which
 might make any of the Company, FRL and MFRL respectively liable to be struck
 off the Register of Companies and thereby cease to exist under the laws of
 Bermuda). 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.2

 	
 The entry
 into the Operative Documents and the execution and delivery of the Operative
 Documents by the Company and the performance by the Company of its respective
 obligations thereunder are within the corporate powers of the Company and
 have been duly authorised by the Company. The Operative Documents have been
 duly executed and delivered by or on behalf of the Company. 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.3

 	
 The
 Operative Documents constitute the legal, valid and binding obligations of
 the Company, enforceable in Bermuda in accordance with their respective
 terms. 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.4

 	
 The
 execution and delivery by the Company of the Operative Documents and the
 performance by the Company of its respective obligations thereunder will not
 conflict with the memorandum of association or bye-laws of the Company or
 violate or breach any Bermuda law, regulation, order or decree. 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.5

 	
 It is not
 necessary to ensure the enforceability in Bermuda of any of the Operative
 Documents that they be registered in any register kept by, or filed with, any
 governmental authority or regulatory body in Bermuda. However, to the extent
 that any of the Operative Document, creates a charge over assets of the
 Company, it may be desirable to ensure the priority in Bermuda of the charge
 that it be registered in the Register of Charges in accordance with Section
 55 of the Companies Act 1981. On registration, to the extent that Bermuda law
 governs the priority of a charge, such charge will have priority in Bermuda
 over any unregistered charges and over any subsequently registered charges,
 in respect of the assets which are the subject of the charge. A registration
 fee of $515 will be payable in respect of the registration. 

 
	
  

 	
  

 	
  

 
	
  

 	
  

 	
 While there
 is no exhaustive definition of a charge under Bermuda law, a charge includes
 any interest created in property by way of security (including any 

 

A-II-3

	
  

 	
  

 	
  

 
	
  

 	
  

 	
 mortgage,
 assignment, pledge, lien or hypothecation). As the Operative Documents are
 governed by the Foreign Laws, the question of whether they create such an
 interest in property would be determined under the Foreign Laws. 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.6

 	
 The
 submission to the jurisdiction of the Foreign Courts in the Purchase
 Agreement is not contrary to Bermuda law and would be recognised by the
 courts of Bermuda as a legal, valid and binding submission to the courts of
 the Foreign Laws if such submission is legal, valid and binding under the
 Foreign Laws.

 
	
  

 	
  

 	
  

 
	
  

 	
 3.7

 	
 The choice
 of the Foreign Laws as the governing law of each of the Operative Documents
 constitutes a valid choice of law and would be recognized and given effect to
 in any action brought before a court of competent jurisdiction in Bermuda,
 except for those laws (i) which such court considers to be procedural in
 nature, (ii) which are revenue or penal laws or (iii) the application of
 which would be inconsistent with public policy, as such term is interpreted
 under the laws of Bermuda. 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.8

 	
 No
 authorisation, order, consent, approval, licence, qualification, validation
 or formal exemption from, or any filing, declaration or registration with any
 court, governmental or municipal authority or other public body of Bermuda is
 required in connection with the execution, delivery, and/or performance by
 the Company of its obligations under the Operative Documents or the
 enforceability or admissibility in evidence of the Operative Documents. 

 
	
  

 	
  

 	
  

 
	
  

 	
 3.9

 	
 The
 Purchaser will not be deemed to be resident, domiciled or carrying on
 business by reason only of the execution, performance and/or enforcement of
 the Operative Documents. 

 
	
  

 	
  

 
	
 4.

 	
 The term
 “enforceable” when used in this opinion means that the obligation is of a
 type which the courts of Bermuda enforce. It does not mean that those
 obligations will be enforced in all circumstances in accordance with the
 terms of the Operative Documents. For example, the obligations of the Company
 (a) will be subject to the laws from time to time in effect relating to
 bankruptcy, insolvency, liquidation, possessory liens, rights of set off,
 reorganisation, amalgamation, moratorium or any other laws or legal
 procedures, whether of a similar nature or otherwise, generally affecting the
 rights of creditors; (b) will be subject to statutory limitation of the time
 within which proceedings may be brought; (c) will be subject to general
 principles of equity and, as such, specific performance and injunctive
 relief, being equitable remedies, may not be available where damages are
 considered to be an adequate remedy; (d) may not be given effect to by a
 Bermuda court to the extent they are to be performed in a jurisdiction
 outside Bermuda and such performance would be illegal under the laws of that
 jurisdiction; (e) may not be given effect to by a Bermuda court, whether or
 not it is applying the Foreign Laws, if and to the extent they constitute the
 payment of an amount which is in the nature of a penalty and not in the
 nature of liquidated damages. 

 

A-II-4

	
  

 	
  

 
	
 5.

 	
 Notwithstanding
 any contractual submission to the jurisdiction of specific courts, a Bermuda
 court has inherent discretion to stay or allow proceedings in the Bermuda
 courts. 

 
	
  

 	
  

 
	
 6.

 	
 We express
 no opinion as to the enforceability of any provision contained in the
 Operative Documents which provides for the payment of a specified rate of
 interest on the amount of a judgment after the date of judgment or which
 purports to fetter the statutory powers of the Company. 

 
	
  

 	
  

 
	
 7.

 	
 We have made
 no investigation of and express no opinion in relation to the laws of any
 jurisdiction other than Bermuda. This opinion is to be governed by and
 construed in accordance with the laws of Bermuda and is limited to and is
 given on the basis of the current law and practice in Bermuda. 

 
	
  

 	
  

 
	
 8.

 	
 This opinion
 is solely for your benefit and is not to be relied upon for any purpose other
 than the matters referred to in this opinion or by any other person nor
 quoted or referred to in any public document nor filed with any governmental
 agency or person, without our prior written consent, except as may be
 required by law or regulatory authority. Further, this opinion speaks as of
 its date and is strictly limited to the matters stated herein and we assume
 no obligation to review or update this opinion if applicable law or the
 existing circumstances should change. 

 

Yours
faithfully, 

ATTRIDE-STIRLING
& WOLONIECKI  

A-II-5

ANNEX A-III

          Pursuant
to Section 2(b)(iii) of the Purchase Agreement, the Company shall provide an
Officer’s Certificate, in substantially the following form:

FLAGSTONE REINSURANCE HOLDINGS LIMITED

CERTIFICATE

          I, Anthony
M. Philip, a Barrister and Attorney of the Supreme Court of Bermuda, and being
the duly elected, qualified and acting Secretary of Flagstone Reinsurance
Holdings Limited, a Bermuda company (the -Company”), do hereby
certify pursuant to Section 2(b) (iii) of the Note Purchase Agreement (“Note
Purchase Agreement”) between the Company and Merrill Lynch International as set
out below. Terms used in this certificate shall, unless the context otherwise
requires, have the meanings respectively ascribed thereto in the Note Purchase
Agreement.

	
  

 	
  

 
	
  

 	
 (i) Each of the Company and its subsidiaries, Flagstone Reinsurance
 Limited (“FRL”) and Mont Fort Re Ltd (“MFRL”) (“FRL and MFRL collectively
 referred to in this certificate as the “Significant Subsidiaries”) has full
 corporate power and authority to own or lease its properties and to conduct
 its business as such business is currently conducted in all material
 respects;

 
	
  

 	
  

 
	
  

 	
 (ii) All outstanding shares of the Significant Subsidiaries have been
 duly authorized and validly issued, and are fully paid and nonassessable and
 owned of record and beneficially, directly or indirectly, by the Company;

 
	
  

 	
  

 
	
  

 	
 (iii) The issuance of the Securities is not subject to any
 contractual preemptive rights known to me;

 
	
  

 	
  

 
	
  

 	
 (iv) To the best of my knowledge, there is no action, suit or
 proceeding before or by any government, governmental authority, arbitrator or
 court, domestic or foreign, now pending or threatened against or affecting
 the Company or any Significant Subsidiary that could adversely affect the
 consummation of the transactions contemplated by the Operative Documents or
 could have a Material Adverse Effect;.

 
	
  

 	
  

 
	
  

 	
 (v) The Company is registered under the Bermuda Companies Act 1981
 (“Companies Act”) as an exempted company and the objects set out in its Memorandum
 of Association permit it amongst other things to hold shares in insurance
 companies; FRL is registered under the Companies Act as an exempted company
 and licensed under the Bermuda Insurance Act 1978 (“Insurance Act”) and MFRL
 is registered under the Companies Act as an exempted company, licensed under
 the Insurance Act and registered as a segregated accounts company under the
 Segregated Accounts Companies Act 2000 and the capital reserves accounts of
 the Company and its Significant Subsidiaries are in compliance with all
 applicable regulatory authorities with jurisdiction over such entities;

 

A-III-1

	
  

 	
  

 
	
  

 	
 (vi) Neither the Company nor any Significant Subsidiaries of the
 Company is in breach or violation of, or default under, with or without
 notice or lapse of time or both, its memorandum of association, bye-laws or
 other governing documents or instruments; the execution, delivery and
 performance of the Operative Documents by the Company and the consummation by
 the Company of the transactions contemplated by the Operative Documents will
 not conflict with, or result in a breach of any of the terms or provisions
 of, or constitute a default (or an event which, with notice or lapse of time
 or both, would constitute a default) under, or result in the creation or
 imposition of any lien, charge and encumbrance upon any assets or properties
 of the Company or any Significant Subsidiary under any agreement, indenture,
 mortgage or instrument that the Company or any Significant Subsidiary of the
 Company is a party to or by which it may be bound or to which any of its
 assets or properties may be subject

 
	
  

 	
  

 
	
  

 	
 (vii) To the best of my knowledge, neither the Company nor any of its
 “Affiliates” (as defined in Rule 501(b) of Regulation D under the Securities
 Act (“Regulation D”) has directly or indirectly (except for actions made by
 any recipient of this certificate, as to which the Company makes no
 representation), made offers or sales of any security, or solicited offers to
 buy any security, under circumstances that would require the registration of
 any of the Securities being issued pursuant to this transaction under the
 Securities Act, engaged in any form of general solicitation or general
 advertising (within the meaning of Regulation D) in connection with any offer
 or sale of any of the Securities, or engaged, nor will engage, in any
 “directed selling efforts” within the meaning of Regulation S under the
 Securities Act with respect to the Securities.

 

                    IN
WITNESS WHEREOF, the undersigned has executed this certificate as of this ______ day of August, 2006.

	
  

 	
  

 	
  

 
	
  

 	

 

 
	
  

 	
  

 	
  

 
	
  

 	
 Name:

 	
 Anthony M.
 Philip

 
	
  

 	
 Title:

 	
 Secretary

 

A-III-2

ANNEX B

          Pursuant
to Section 2(c) of the Note Purchase Agreement, Sidley Austin LLP, special tax
counsel for the Company, shall deliver an opinion to the effect that:

	
  

 	
  

 
	
  

 	
                     for
 United States federal income tax purposes. the Securities will constitute
 indebtedness of the Company.

 

          In rendering
such opinions, such counsel may (A) state that its opinion is limited to the
federal laws of the United States and (B)rely on matters or statements of
fact, to the extent such counsel deems appropriate, as set forth on
certificates of responsible officers of the Company and public officials.

ANNEX C

Officer’s Financial Certificate

          The
undersigned, the [Chairman/Vice Chairman/Chief Executive Officer/President/
Vice President/Chief Financial Officer/Treasurer/Assistant Treasurer], hereby
certifies, pursuant to Section 6(h) of the Note Purchase Agreement, dated as of
August 23, 2006, among Flagstone Reinsurance Holdings Limited (the “Company”)
and Merrill Lynch International, that, as of [date], [20__], the Company, if
applicable, and its Subsidiary Insurance Companies (as defined below) had the following
ratios and balances:

 [For the Company, if
applicable, and each Subsidiary Insurance Company (as defined below) provide:]

 [INSURANCE COMPANY]
As of [Quarterly/Annual
Financial Date], 20_

	
  

 	
  

 	
  

 	
  

 	
  

 
	
 NAIC Risk
 Based Capital Ratio (authorized control level)

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Total
 Policyholders’ Surplus

 	
  

 	
 $

 	
 ______

 	
  

 
	
 Consolidated
 Debt to Total Policyholders’ Surplus

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Total Assets

 	
  

 	
 $

 	
 ______

 	
  

 
	
 NAIC Class 1
 & 2 Rated Investments to Total Fixed Income Investments

 	
  

 	
  

 	
 ______

 	
 %

 
	
 NAIC Class 1
 & 2 Rated Investments to Total Investments

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Return on
 Policyholders’ Surplus

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Net Premiums
 Written

 	
  

 	
 $

 	
 ______

 	
  

 
	
 [For
 Property & Casualty Companies also provide:]

 	
  

 	
  

 	
  

 	
  

 
	
 [Expense
 Ratio]

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Loss and LAE
 Ratio

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Combined
 Ratio

 	
  

 	
  

 	
 ______

 	
 %

 
	
 Net Premiums
 Written (annualized) to Policyholders’ Surplus

 	
  

 	
  

 	
 ______

 	
 %]

 

* A table
describing the quarterly report calculation procedures is provided on page __

D-1

	
  

 	
  

 
	
 The
 following is a complete list as of [Quarterly/Annual Financial Date] of the
 Company’s subsidiaries which conduct insurance or reinsurance business (the
 “Subsidiary Insurance Companies”):

 	
  

 

[List of Subsidiary Insurance Companies]

[FOR FISCAL YEAR END: Attached hereto are the audited consolidated
financial statements (including the balance sheet, income statement and
statement of cash flows, and notes thereto, together with the report of the
independent accountants thereon) of the Company and its consolidated
subsidiaries for the three years ended [date], 20__ (provided, that prior to the
Certificate given with respect to fiscal year ending December 31, 2008, the
Company shall only be required to provide such statement for each year in which
it has been in existence and all required Statutory Financial Statements (as
defined in the Note Purchase Agreement) for the year ended [date], 20__]

[FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated
and consolidating for Significant Subsidiaries and other subsidiaries (if
readily available), financial statements (including the balance sheet and
income statement) of the Company and its consolidated subsidiaries and all
required Statutory Financial Statements (as defined in the Note Purchase
Agreement), if any, for the fiscal quarter ended [date], 20__, to the extent
applicable.]

The financial statements fairly present in all material respects, in
accordance with U.S. generally accepted accounting principles (“GAAP”), the
financial position of the Company and its consolidated subsidiaries, and the
results of operations and changes in financial condition as of the date, and
for the [____ quarter interim] [annual] period ended [date], 20__, and such
financial statements have been prepared in accordance with GAAP consistently
applied throughout the period involved (expect as otherwise noted therein).

The Statutory Financial Statements fairly present in all material
respects in accordance with Applicable Accounting Principles as defined in the
Note Purchase Agreement) the financial position of the subject insurance
company and have been prepared in accordance with Applicable Accounting
Principles.

          IN WITNESS
WHEREOF, the undersigned has executed this Officer’s Financial Certificate as
of this ______ day of __________,
20__.

	
  

 	
  

 	
  

 
	
  

 	
 FLAGSTONE REINSURANCE HOLDINGS LIMITED

 
	
  

 	
  

 	
  

 
	
  

 	
 By:

 	
  

 
	
  

 	

 

 
	
  

 	
 Name:

 	
  

 
	
  

 	
  

 	

 

 

D-2

Definitions for quarterly Officer’s Financial
Certificate

	
  

 	
  

 	
  

 
	
 ITEM

 	
  

 	
 Definition/Formula

 
	

 

 	
  

 	

 

 
	
 NAIC Risk Based Capital Ratio-P&C

 	
  

 	
 Total Adjusted Capital/Authorized Control Level Risk-Based Capital

 
	
 NAIC Risk
 Based Capital Ratio-Life

 	
  

 	
 (Total Adjusted Capital-Asset Valuation Reserve)/Authorized
 Control Level Risk-Based Capital

 
	
 Total
 Capital and Surplus-Life

 	
  

 	
 Common Capital Stock + Preferred Capital Stock +Aggregate Write-Ins
 for other than special surplus funds + Surplus Notes +Gross Paid-In and
 Contributed Surplus + Aggregate Write-Ins for Special Surplus Funds +
 Unassigned Funds (Surplus) – Treasury Stock

 
	
 Total
 Capital and Surplus-P&C

 	
  

 	
 Aggregate Write-Ins for Special Surplus Funds + Common Capital Stock
 + Preferred Capital Stock + Aggregate Write Ins for other than special
 surplus funds + Surplus Notes +Gross Paid-In and Contributed Surplus +
 Unassigned Funds (Surplus) – Treasury Stock

 
	
 Total Class 1 &2
 Rated Investments to Total Fixed Income Investments

 	
  

 	
 (Total Class 1 + Total Class 2 Rated Investments)/Total
 Fixed Income Investments

 
	
 Total Class
 1 & 2 Rated Investments to Total Investments

 	
  

 	
 (Total Class 1 + Total Class 2
 Rated Investments)/Total
 Investments

 
	
 Total Assets

 	
  

 	
 Total Assets

 
	
 Return on
 Policyholders’ Surplus

 	
  

 	
 Net Income/Policyholders’ Surplus

 
	
 Expense
 Ratio

 	
  

 	
 Other Underwriting Expenses Incurred/Net premiums Earned

 
	
 Loss and LAE
 Ratio

 	
  

 	
 (Losses Incurred + Loss Expenses
 Incurred)/Net Premiums Earned

 
	
 Combined
 Ratio

 	
  

 	
 Expense Ratio + Loss and LAE Ratio

 
	
 Net Premiums
 Written (annualized) to Policyholders’ Surplus

 	
  

 	
 Net Premiums Written/Policyholders’ Surplus

 

D-3Exhibit 4.14

AMENDMENT NO. 1 TO NOTE PURCHASE AGREEMENT

          THIS
AMENDMENT NO. 1 (this “Amendment”) is dated as of November 30, 2012, among FLAGSTONE
REINSURANCE HOLDINGS (BERMUDA) LIMITED, a Bermuda exempted company (the “Successor
Company”) and the Noteholders named herein.

W I T N E S S E T H :

          WHEREAS,
Flagstone Reinsurance Holdings Limited, a Bermuda exempted company (the “Predecessor
Company”), and Merrill Lynch International (the “Purchaser”) have
heretofore executed and delivered that certain Note Purchase Agreement, dated
as of August 23, 2006 (including all annexes, exhibits and schedules thereto,
the “Note Purchase Agreement”), pursuant to which the Predecessor
Company issued and sold to the Purchaser €13,000,000 aggregate principal amount
of Floating Rate Deferrable Interest Subordinated Notes due 2036 (the “Securities”);

          WHEREAS, on
May 17, 2010, the Predecessor Company changed its place of incorporation from
Bermuda to Luxembourg in a redomestication (the “Redomestication”) and the
Predecessor Company thereby discontinued its existence as a Bermuda exempt
company and continued its existence as Flagstone Reinsurance Holdings, S.A., a
Luxembourg société
anonyme (the “Company”); 

          WHEREAS, as
a result of the Redomestication, the Company succeeded to and possessed all of
the rights, privileges, powers and franchises of the Predecessor Company and
subject to all of the restrictions, disabilities and duties of the Predecessor
Company, including all of the obligations of the Predecessor Company under the
Securities and Note Purchase Agreement;

          WHEREAS, on
the date hereof, the Company will merge with and into the Successor Company,
with the Successor Company as the survivor (the “Merger”) pursuant to
that certain Agreement and Plan of Merger, dated as of August 30, 2012, among the
Company, the Successor Company, Validus Holdings, Ltd., a Bermuda exempted
company, and Validus UPS, Ltd., a Bermuda exempted company (the “Merger
Agreement”);

          WHEREAS, in
connection with the consummation of the transactions contemplated by the Merger
Agreement, the Successor Company will assume all of the obligations of the
Company under the Note Purchase Agreement and the Securities;

          WHEREAS,
Section 11 of the Note Purchase Agreement provides, in part, that the Note
Purchase Agreement, including the Schedules and the Securities, may not be
modified, amended, altered or supplemented, except upon prior written consent
of the Holders of at least a majority of the Outstanding Securities (the “Consent”);

          WHEREAS,
the Successor Company has requested that the Noteholders amend certain
provisions of the Note Purchase Agreement on the terms and conditions set forth
in this Amendment;

          WHEREAS,
the Successor Company, pursuant to Section 12 of Schedule 2 to the Note
Purchase Agreement, has delivered to the Holders, or caused to be delivered to
the Holders on its behalf, an Opinion of Counsel and an Officers’ Certificate,
dated as of the date hereof, stating that the Merger complies with Section 12
of Schedule 2 to the Note Purchase Agreement, as amended hereby, and that all
conditions and covenants provided for in the Note Purchase Agreement, as
amended hereby, relating to the Merger have been complied with; and

          WHEREAS,
all things necessary (a) to ratify the succession under the Note Purchase
Agreement of the Predecessor Company to the Company, (b) to authorize the
assumption by the Successor Company of the Company’s obligations under the Note
Purchase Agreement and (c) to make this Amendment when executed by the parties
hereto a valid and binding amendment of the Note Purchase Agreement have been
done and performed.

          NOW
THEREFORE, in consideration of the foregoing and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto mutually
covenant and agree as follows:

1. Definitions. Capitalized terms used herein and not defined
herein have the meanings ascribed to such terms in the Note Purchase Agreement.

2. Ratification of Company Succession. The Noteholders hereby
ratify the succession under the Note Purchase Agreement of the Predecessor
Company to the Company pursuant to the Redomestication.

3. Successor Company Assumption of Obligations. The Successor
Company hereby expressly assumes, from and after the date hereof, the due and
punctual payment of the principal of and any premium and interest (including
any Additional Interest) on all the Securities and the performance of every
covenant of the Note Purchase Agreement on the part of the Company to be
performed or observed.

4. Successor Company Succession and Substitution. The Successor
Company, from and after the date hereof, by virtue of the aforesaid assumption
and the delivery of this Amendment, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Note Purchase
Agreement, and the Company shall be discharged from all obligations and
covenants under the Note Purchase Agreement and the Securities.

5. Representations and Warranties. The Noteholders hereby
represent and warrant that they collectively hold a majority of the Outstanding
Securities.

6. Amendments to Note Purchase Agreement.

          (a)
Section 11 of the Note Purchase Agreement is hereby amended by deleting such
Section in its entirety and replacing it with the following:

          Section 11. Amendments.
Except as otherwise provided in Section 12 of Schedule 2 to this Note Purchase
Agreement, this Note Purchase Agreement, including the Schedules, and the
Securities, may not be modified, amended, altered or supplemented without the
prior written consent of the Holders of at least a majority of the Outstanding
Securities.

2

          (b) Section
13 of this Note Purchase Agreement is hereby amended by deleting the third and
fourth sentences of such Section, which shall be replaced with the sentence:
“Except as otherwise provided by Section 12 of Schedule 2, none of the rights
or obligations of the Company under this Note Purchase Agreement may be
assigned without the prior written consent of the Holders of at least a
majority of the Outstanding Securities.”

          (c) Section
12(a)(i) of Schedule 2 to the Note Purchase Agreement is hereby amended by (i)
adding “, Luxembourg” after the phrase “the Cayman Islands” and by deleting the
phrase “the successor shall expressly assume by note purchase agreement
substantially and substantively in the same form as this Note Purchase
Agreement”, which shall be replaced with the phrase “the successor shall
expressly assume by an amendment hereto.”

7. Effectiveness and Operativeness. By executing this Amendment,
each of the Noteholders shall be deemed to have delivered their Consent to this
Amendment. This Amendment shall be deemed to have become effective, and the
provisions provided for in this Amendment shall be deemed to have become
operative, immediately upon consummation of the Merger, provided, that:

          (a) the
Noteholders shall have executed one or more counterparts of this Amendment and
shall have received a counterpart of this Amendment executed by the Successor
Company; and

          (b) the
Noteholders shall have received the Officers’ Certificate and Opinion of
Counsel described in the recitals of this Amendment.

8. Ratification. Except as expressly amended hereby, the Note
Purchase Agreement is in all respects ratified and confirmed and all the terms,
conditions and provisions thereof shall remain in full force and effect. This
Amendment shall form a part of the Note Purchase Agreement for all purposes,
and every Holder of Securities heretofore or hereafter authenticated and
delivered shall be bound hereby.

9. Applicable Law. THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW).

10. Counterparts. The parties hereto may sign any number of
copies of this Amendment. Each signed copy shall be an original, but all of
them together represent the same agreement.

11. Effect of Headings. The Section headings herein are for
convenience only and shall not effect the construction thereof.

*   *   *   *   *

3

          IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed as
of the date first above written.

	
  

 	
  

 	
  

 
	
  

 	
 FLAGSTONE REINSURANCE HOLDINGS

 (BERMUDA) LIMITED

 
	
  

 	
  

 
	
  

 	
 By:

 	
    /s/ David A. Brown

 
	
  

 	
  

 	

 

 
	
  

 	
  

 	
 Name: David A. Brown

 
	
  

 	
  

 	
 Title:   Director

 

[Signature Page to Amendment No. 1]

          IN WITNESS
WHEREOF, the parties hereto have caused this Amendment to be duly executed as
of the date first above written.

	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Dekania Europe CDO II, plc, as a Noteholder

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By: Dekania Capital Management, LLC

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 By:

 	
             /s/ Daniel G. Cohen

 
	
  

 	
  

 	
  

 	

 

 
	
  

 	
  

 	
  

 	
 Name: Daniel G. Cohen

 
	
  

 	
  

 	
  

 	
 Title:   President

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Dekania Europe CDO III, plc, as a Noteholder

 
	
  

 	
  

 	
  

 	
  

 
	
  

 	
 By: Cohen & Company Financial, LTD

 
	
  

 	
  

 
	
  

 	
  

 	
 By:

 	
             /s/ Daniel G. Cohen

 
	
  

 	
  

 	
  

 	

 

 
	
  

 	
  

 	
  

 	
 Name: Daniel G. Cohen

 
	
  

 	
  

 	
  

 	
 Title:   Director

 

[Signature Page to Amendment No. 1]

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