Document:

Exhibit 10.1

 

AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT

 

THIS AMENDED AND RESTATED SHAREHOLDERS’
AGREEMENT (the “Agreement”)
of Flagstone Reinsurance Holdings Limited, a Bermuda exempted company (the “Company”)
is made and entered into as of November 15,
2006, by and among the Company and the investors listed on Exhibit A
hereto (the “Shareholders”).

 

SUMMARY

 

The Company has filed a Registration Statement on Form S-1,  Registration No. 333-138182 (the “Registration Statement”), with the
U.S. Securities and Exchange Commission under the U.S. Securities Act of 1933,
as amended (the “Securities Act”)
to register an underwritten initial public offering of its common shares.

 

The Company and the Shareholders are parties to a Shareholders’
Agreement dated as of December 20,
2005, as amended by Amendment No. 1 thereto dated as of February 1,
2006 (the “Shareholders’ Agreement”), and
the Company and the Shareholders propose to amend and restate and replace the
Shareholders’ Agreement in its entirety with this Agreement, effective
simultaneously with the closing of the initial public offering contemplated by
the Registration Statement (the “Effective Time”).

 

The Company and the Shareholders therefore agree, effective as of the
Effective Time, that the Shareholders’ Agreement is hereby amended and restated
as follows:

 

ARTICLE I

 

DEFINITIONS

 

In this Agreement, the following terms have the following meanings:

 

“Act” means
the Companies Act, 1981 of Bermuda, as amended.

 

“Affiliate”
means, with respect to any Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such Person. 
For the purpose of this definition, the term “control” (including, with
correlative meaning, the terms “controlling,” “controlled by,” and “under
common control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.

 

“Board” means
the board of directors of the Company from time to time duly appointed or
elected in accordance with the Bye-Laws.

 

“Bye-Laws”
means the bye-laws of the Company, as amended from time to time.

 

 

“Code” means
the U.S. Internal Revenue Code of 1986, as amended.

 

“Confidential Information”,
as to each Shareholder, means all information as to the practice, business
dealings or affairs of the Company, its Affiliates or their respective
customers and clients which may come to the knowledge of such Shareholder by
reason of his status as a Shareholder or as a director, officer or employee of
the Company or any of its Affiliates; provided, however,
that Confidential Information shall not include information which the
Shareholder possessed prior to entering into this Agreement or that is or
becomes publicly available other than by a breach by such Shareholder of this
Agreement.

 

“Effective Time”
has the meaning set forth in the Summary of this Agreement.

 

“Equity Securities”
means any shares of the share capital of the Company, any securities
convertible into or exchangeable for shares of the share capital of the
Company, and any options, warrants, and other rights to purchase or otherwise
acquire from the Company shares of such share capital, or securities
convertible into or exchangeable for shares of such share capital.

 

 “Flagstone”
means Flagstone Reinsurance Limited, a Bermuda exempted company and a
Subsidiary of the Company.

 

“Memorandum of Association” means
the Memorandum of Association of the Company, as amended from time to time.

 

“Person”
means any individual or entity.

 

“Register” and “Registration” mean registration
under the Securities Act of an offering of securities.

 

“Registrable Securities” shall
mean all shares of Equity Securities held by a Shareholder party to this
Agreement unless (i) they have been effectively registered under Section 5
of the Securities Act and disposed of pursuant to such an effective
registration statement, or (ii) all of such shares may be freely sold and
transferred during a three-month period pursuant to Rule 144 under the
Securities Act (excluding Rule 144(k)) or any successor rule.

 

“Registration Expenses” shall
mean all expenses incurred by the Company in complying with Article IV (“Registration”)
of this Agreement, including, without limitation, all federal and state
registration, qualification and filing fees and expenses, printing, messenger
and delivery expenses, fees and disbursements of counsel and accountants for
the Company, Blue Sky fees and expenses (which fees and expenses shall be
deemed to include all fees and expenses of the Company arising out of filings
required by, and all other costs and expenses incident to compliance with, state
securities laws, rules and regulations), application and filing fees and
expenses in connection with securities exchanges and the expense of any special
audits or comfort letters incident to or required by any such registration.

 

“Registration Statement”
has the meaning set forth in the Summary of this Agreement.

 

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“Representatives” means
the Representatives of the Underwriters named in Schedule A to the
Underwriting Agreement executed in connection with the initial public offering
of the Company’s common shares.

 

“Securities Act”
has the meaning set forth in the Summary of this Agreement.

 

“Shareholders’ Agreement”
has the meaning set forth in the Summary of this Agreement.

 

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

 

“Subsidiary”
means any entity of which a majority of the Voting Power in electing the board
of directors or equivalent body are, at the time as of which any determination
is being made, owned by the Company, either directly or indirectly through
Subsidiaries.

 

 “transfer”
means, with respect to the Shares, to sell, assign,
give, pledge, charge, encumber, create a trust over, or otherwise dispose of,
either voluntarily or involuntarily and with or without consideration, the
Shares or any voting rights or other interest therein.

 

“Underwriting Agreement”
means the agreement among the Company and the Representatives relating to the
initial public offering of the Company’s Shares.

 

“Voting Shares”
of any entity means the shares of share capital of the entity or other equity
interests of the entity entitled to vote for the election of directors of such
entity or comparable governing body of such entity.

 

“Voting Power”
of any Person means the total number of votes which may be cast by the
Shareholders of the total number of outstanding Voting Shares of such Person.

 

ARTICLE II

 

MATTERS RELATING TO THE SHAREHOLDERS

 

2.1          Unanimous Shareholder Approval.  In addition to any vote of the Shareholders
required by the Act or the Bye-Laws, none
of the actions listed below shall be taken by the Company without approval by
the Board and the holders of all of the Shares then in issue:

 

(a)           amending the voting rights of the Shares; or

 

(b)           amending the
dividend rights of the Shares.

 

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ARTICLE III

 

MARKET STAND-OFF

 

3.1          Lock-Up Agreement

 

Each Shareholder agrees to (i) execute and deliver the lock-up
letter agreement (the “Lock-Up Agreement”)
in substantially the form attached hereto as Exhibit B in
accordance with the terms of the Underwriting Agreement and (ii) unless
otherwise consented to in writing by the Company and the other Shareholders,
abide by the terms of the Lock-Up Agreement for the period specified therein
(the “Lock-Up Period”).

 

ARTICLE IV

 

REGISTRATION

 

4.1          Demand Registrations.

 

(a)           Requests
for Registration.  On or after
the day following the last day of the Lock-Up Period, the holders of
Registrable Securities representing at least ten million Common Shares of the
Company, which number of Common Shares is subject to adjustment in the sole
discretion of Board in the event of a share split, consolidation or similar
event, may request registration under the Securities Act of all or any portion
of such Registrable Securities (the “Initial
Demand Registration”). 
Following the Initial Demand Registration, the holders of Registrable
Securities representing at least five million Common Shares of the Company,
which number of Common Shares is subject to adjustment in the sole discretion
of Board in the event of a share split, consolidation or similar event, may
request registration under the Securities Act of all or any portion of such
Registrable Securities (each a “Subsequent
Demand Registration”; together with the Initial Demand
Registration, the “Demand Registrations”).  Each request for a Demand Registration shall
specify the approximate number of Registrable Securities requested to be
registered.  Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all holders of Registrable Securities and, subject to
paragraph (c) below, will include in such registration, in addition to the
Registrable Securities that are requested to be registered pursuant hereto, all
other Registrable Securities with respect to which the Company has received
written requests for inclusion therein within 15 days after the receipt of the
Company’s notice.

 

(b)           Long Form Registrations.  The holders of Registrable Securities shall
be entitled to request no more than five Demand Registrations pursuant to this
Section, up to three of which may be requested within the period beginning the
day after the last day of the Lock-Up Period and ending twenty four months
thereafter.  All Demand Registrations
shall be underwritten registrations.

 

(c)           Marketing Limitation in Demand
Registrations. 
The Company will not include in any Demand Registration any securities
which are not Registrable Securities without

 

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the prior written consent of
the holders of a majority of the Registrable Securities included in such
registration.  In the event the managing
underwriter(s) of a Demand Registration advise the Shareholders seeking registration
of Registrable Securities pursuant to this Section in writing that market
factors (including, without limitation, the aggregate number of shares of
Common Shares requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of Shares to be offered to the
public, the managing underwriter(s) may reduce the number of Registrable
Securities requested to be included in such registration to the number that in
the opinion of such managing underwriter(s) (expressed in writing) can be sold
without adverse effect.  Any such
reduction in the number of Registrable Securities to be included in a
registration shall be effected with respect to the Shareholders pro rata in
proportion to the total number of Registrable Securities owned by each
Shareholder at the time of such registration.

 

(d)           Restrictions on Demand
Registrations. 
The Company may postpone, for up to three months (from the date of the request),
the filing or the effectiveness of a registration statement for a Demand
Registration if there exists at such time material nonpublic information
relating to the Company that the Company’s Board believes (in good faith)
should not be publicly disclosed, or if an underwritten public offering is
contemplated in which Registrable Securities would be included; provided, however, that in such event, the holders of
Registrable Securities initially requesting such Demand Registration will be
entitled to withdraw such request and, if such request is withdrawn, such
Demand Registration shall be treated as if it had never been made in the first
instance, and the Company will pay all Registration Expenses in connection with
such registration.  The Company may delay
a Demand Registration hereunder only once in any 12-month period.

 

(e)           Selection of Underwriters.  The holders of a majority of the Registrable
Securities initially requested to be included in a Demand Registration will
have the right to select the investment bankers and managing underwriter(s) to
administer the offering under such Demand Registration, subject to the Company’s
approval, which will not be unreasonably withheld.

 

4.2          Piggyback Registration.

 

(a)           Notice.  Subject to the terms of this Agreement, in
the event the Company chooses at any time no less than three months following the Effective Time
to Register any of its Common Shares on a form that is suitable for a
Registration involving Registrable Securities, the Company will: (i) promptly
give each Shareholder written notice (the “Company Notice”) thereof, and
(ii) include in such Registration (and any related qualification under
Blue Sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request delivered to the
Company by any Shareholder within 15 days after delivery of the Company Notice.

 

(b)           Underwriting in Piggyback
Registration. 
If the Company Notice relates to an underwritten public offering, the
Company shall so advise the Shareholders in the Company Notice.  In such event the right of any Shareholder to
Registration shall be conditioned upon the inclusion of such Shareholder’s
Registrable Securities in such underwritten public

 

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offering to the extent provided
in this Section.  All Shareholders
proposing to distribute their securities through such underwriting shall
(together with the Company and any other Shareholders participating in such offering)
enter into an underwriting agreement for such offering.  The Company shall select the underwriter(s).

 

(c)           Marketing Limitation in Piggyback
Registration. 
In the event the managing underwriter(s) of a Piggyback Registration
advise the Shareholders seeking registration of Registrable Securities pursuant
to this Section in writing that market factors (including, without
limitation, the aggregate number of shares of Common Shares requested to be
Registered, the general condition of the market, and the status of the persons
proposing to sell securities pursuant to the Registration) require a limitation
of the number of shares to be offered to the public, the managing
underwriter(s) may reduce the number of Registrable Securities to be Registered
by the Shareholders to the number that in the opinion of such managing
underwriter(s) (expressed in writing) can be sold without adverse effect; provided, however, that the managing underwriter(s) shall in
no event reduce the number of Registrable Securities to be registered by the Shareholders
to less than 25% of the aggregate number of Shares to be offered in such
offering.  Any such reduction in the
number of Registrable Securities to be included in such Registration shall be
effected with respect to the Shareholders pro rata in proportion to the total
number of Common Shares owned by each Shareholder at the time of such
registration.

 

(d)           Withdrawal in Piggyback
Registration. 
If any Shareholder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
underwriter delivered at least 7 business days prior to the effective date of
the Registration Statement as disclosed to such Shareholder by the Company.

 

4.3          Blue Sky.  In the event of any Registration of Registrable
Securities pursuant to this Article, the Company shall use commercially
reasonable efforts to qualify the securities covered by the Registration
Statement under the Blue Sky laws of such jurisdictions as shall be reasonably
appropriate for the distribution of such securities; provided, however, that
the Company shall not be required to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions..

 

4.4          Indemnities.  In the event of any Registration of Registrable
Securities pursuant to this Article:

 

(a)           Indemnity by the Company.  The Company will indemnify and hold harmless,
to the fullest extent permitted by law (including the Act), any Shareholder and
any underwriter for such Shareholder, and each person, if any, who controls the
Shareholder or such underwriter, from and against any and all losses, damages,
claims, liabilities, joint or several, costs and expenses (including any
amounts paid in any settlement effected with the Company’s consent) to which the
Shareholder or any such underwriter or controlling person may become subject
under applicable law or otherwise, insofar as such losses, damages, claims,
liabilities (or actions or proceedings in respect thereof), costs or expenses
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
included in the prospectus, as amended or supplemented, or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make

 

6

 

the statements
therein, in the light of the circumstances in which they are made, not
misleading, and the Company will reimburse the Shareholder, such underwriter
and each such controlling person of the Shareholder or the underwriter,
promptly upon demand, for any reasonable legal or any other expenses incurred
by them in connection with investigating, preparing to defend or defending
against or appearing as a third-party witness in connection with such loss,
claim, damage, liability, action or proceeding; provided, however, that the
Company will not be liable to any such Shareholder, underwriter or controlling
person in any such case to the extent that any such loss, damage, liability,
cost or expense arises out of or is based solely upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished in writing by such Shareholder, such underwriter or
such controlling persons in writing specifically for inclusion therein;
provided, further, that this indemnity shall not be deemed to relieve any
underwriter of any of its due diligence obligations; provided, further, that
the indemnity agreement contained in this subsection shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or action
if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the selling Shareholder, the underwriter
or any controlling person of the selling Shareholder or the underwriter, and
regardless of any sale in connection with such offering by the selling
Shareholder.  Such indemnity shall
survive the transfer of securities by a selling Shareholder.

 

(b)           Indemnity by the Selling
Shareholders. 
Each Shareholder participating in a registration hereunder will,
severally and not jointly, indemnify and hold harmless the Company, any
underwriter for the Company, and each person, if any, who controls the Company
or such underwriter, from and against any and all losses, damages, claims,
liabilities, costs or expenses (including any amounts paid in any settlement
effected with the selling Shareholder’s consent) to which the Company or any
such controlling person and/or any such underwriter may become subject under
applicable law or otherwise, insofar as such losses, damages, claims, liabilities
(or actions or proceedings in respect thereof), costs or expenses arise out of
or are based solely on (i) any untrue or alleged untrue statement of any
material fact contained in the registration statement or included in the
prospectus, as amended or supplemented, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, and each such Shareholder will
reimburse the Company, any underwriter and each such controlling person of the
Company or any underwriter, promptly upon demand, for any reasonable legal or
other expenses incurred by them in connection with investigating, preparing to
defend or defending against or appearing as a third-party witness in connection
with such loss, claim, damage, liability, action or proceeding; provided,
however, that the indemnity in this subsection (b) is limited in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in strict
conformity with written information furnished by such Shareholder specifically
for inclusion therein.  The foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus at the time the registration statement becomes effective or
in the final prospectus, such indemnity agreement shall not inure to the
benefit of the Company or any underwriter, or any of their

 

7

 

controlling
persons, if a copy of the final prospectus was not furnished to the person or
entity asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act; provided, further, that this
indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations; provided, further, that the indemnity agreement
contained in this subsection shall not apply to amounts paid in settlement
of any such claim, loss, damage, liability or action if such settlement is
effected without the consent of the Shareholders, as the case may be, which
consent shall not be unreasonably withheld. In no event shall the liability of
a Shareholder exceed the gross proceeds (net of underwriting discounts and
commissions) from the offering received by such Shareholder.

 

(c)           Indemnity Procedures.  Promptly after receipt by an indemnified
party of notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party, promptly notify the
indemnifying party of the commencement thereof; but the omission to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than hereunder. 
In case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the indemnifying
party shall have the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party; provided however, that if the defendants in any action include both the
indemnified party and the indemnifying party and there is a conflict of
interests which would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or parties shall have
the right to select one separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties.  After notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expense subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have
employed counsel in accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action and within 15 days
after written notice of the indemnified party’s intention to employ separate
counsel pursuant to the previous sentence, or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.  No
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.  The indemnifying party shall give the
indemnified party at least 20 days (or such shorter period as shall reasonably
be required under the circumstances) notice of any proposed settlement,
together with true and correct copies of any proposed settlement.

 

(d)           Insufficiency of Indemnities.  If the indemnification provided for in this Section is
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) then each indemnifying party shall contribute to the aggregate
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect the relative benefits received by the Company

 

8

 

on the one
hand and the Shareholders on the other from the offering.  If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and the Shareholders on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations.  The relative
benefits received by the Company on the one hand and the Shareholders on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting Registration Expenses) received by the
Company bears to the total net proceeds from the offering received by the
Shareholders.  The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Shareholders on the other and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.  The Company and
the Shareholders agree that it would not be just and equitable if contributions
pursuant to this Section were determined by pro rata allocation (even if
the Shareholders were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to above in this Section.  The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim.  Notwithstanding the provisions
of this Section, (i) no Shareholder shall be required to contribute any
amount in excess of the gross proceeds of the offering to such Shareholder, net
of underwriting discounts or commissions and (ii) 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.  The Shareholders’ obligations in this Section to
contribute are several in proportion to their respective underwriting
obligations and not joint.

 

4.5          Obligations of the Company.  Whenever required under this Agreement to
effect the registration of any Registrable Securities pursuant to this Article,
the Company shall as promptly as practicable:

 

(a)           Registration Statement.  Prepare and file with the SEC, and if
appropriate, with the Registrar of Companies in Bermuda, a registration
statement with respect to such Registrable Securities and use commercially
reasonable efforts to cause such registration statement to become effective,
and, upon the request of the Shareholders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
for a period of up to ninety days or, if sooner, until the distribution
contemplated in such registration statement has been completed.

 

(b)           Amendments.  Prepare and file with the SEC, and if
appropriate, with the Registrar of Companies in Bermuda, such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of

 

9

 

all
Registrable Securities covered by such registration statement.

 

(c)           Prospectus.  Furnish to the Shareholders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable Securities
owned by them.

 

(d)           Underwriting Agreement.  In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter(s) of
such offering.  Each Shareholder
participating in such underwriting shall also enter into and perform its
obligations under such an underwriting agreement.  If permitted by the managing underwriter(s),
the Shareholders may, at their option, require that any or all of the
conditions precedent to the obligations of the underwriters under such
underwriting agreement be conditions precedent to the obligations of such
Shareholders.  If permitted by the
managing underwriter(s), the Shareholders shall not be required to make any
representations or warranties to or agreement with the Company or the
underwriters other than the representations, warranties or agreements regarding
the Shareholders, the Shareholders’ right title and interest in the Registrable
Securities and the Shareholders’ intended method of distribution or any other
representations or warranties required by law.

 

(e)           Prospectus Notice.  Promptly notify each Shareholder of
Registrable Securities covered by such registration statement at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act and/or the Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing and the Company
agrees to prepare and furnish to the Shareholders a post-effective amendment to
the registration statement or supplement to the prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities, the
prospectus will not contain an untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances underlying
such statements.

 

(f)            Listing.  Cause all Registrable Securities registered
pursuant to this Agreement to be listed on each securities exchange or approved
for quotation on the New York Stock Exchange (“NYSE”) or such other automated quotation system on which
similar securities issued by the Company are then listed or quoted.

 

(g)           Transfer Agent and Registrar.  Provide a transfer agent and registrar for
all Registrable Securities registered pursuant to this Agreement and a CUSIP
number for all such Registrable Securities, in each case not later than the effective
date of such registration.

 

(h)           Legal Opinions and Accountants’
Letters. 
Furnish, at the request of any Shareholder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a registration

 

10

 

pursuant to
this Agreement, if such securities are being sold through underwriters, or, if
such securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Shareholders requesting registration of Registrable Securities and (ii) a
letter dated such date and a bring-down letter dated the closing date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Shareholders requesting registration of Registrable
Securities.

 

(i)            Stop Orders.  Notify a Shareholder the shares of which are
registered in the offering when the Registration Statement covering such
Shareholder’s Registrable Securities becomes effective, upon the issuance of
any stop order by the SEC, or of the receipt of any notification of the
suspension of qualification under state securities or Blue Sky laws, the
Company hereby agreeing to use commercially reasonable efforts to obtain the
withdrawal of any stop order or suspension of qualification.

 

(j)            Earnings Statement Pursuant to Section 11(a).  Otherwise use commercially reasonable efforts
to comply with all applicable rules of the SEC, and make available to the
Shareholders, as soon as reasonably practicable, an earnings statement covering
a period of at least 12 months, but not more than 18 months, beginning with the
first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the SEC thereunder.

 

4.6          Public Information.  At any time and from time to time after the
earlier of the close of business on such date as (a) a registration
statement filed by the Company under the Securities Act becomes effective, (b) the
Company registers a class of securities under Section 12 of the United
States Securities Exchange Act of 1934, as amended, or any federal statute or
code which is a successor thereto (the “Exchange Act”), or (c) the
Company issues an offering circular meeting the requirements of Regulation A
under the Securities Act, the Company shall undertake to make publicly
available and available to the Shareholders pursuant to Rule 144, such
information as is necessary to enable the Shareholders to make sales of
Registrable Securities pursuant to Rule 144.  The Company shall comply with the current
public information requirements of Rule 144 and shall furnish thereafter
to any Shareholder upon request, a written statement executed by the Company as
to the steps it has taken to so comply.

 

4.7          Information Furnished by
Shareholders. 
It shall be a condition precedent of the Company’s obligations under
this Agreement that each Shareholder of Registrable Securities included in any
Registration furnish to the Company such information regarding such Shareholder
and the distribution proposed by such Shareholder or Shareholders as the
Company may reasonably request or as may be required by the Securities Act.

 

4.8          Registration Expenses.  Subject to compliance
with the Act, the Company will pay all Registration Expenses in connection with
Registrations effected pursuant to this Article.

 

11

 

ARTICLE V

 

REPRESENTATIONS,
WARRANTIES AND COVENANTS OF SHAREHOLDERS

 

Each
Shareholder represents and warrants to each other Shareholder and the Company
as follows:

 

5.1          Information.  Each
Shareholder will make information concerning such Shareholder and such
Shareholder’s Affiliates which the Company may reasonably request to comply
with the requirements of NYSE and/or governmental authorities available to the
Company, NYSE and/or appropriate governmental authorities and will make all
necessary filings and acquire all necessary consents required by the Company,
NYSE and/or appropriate governmental authorities.

 

5.2          Protection of the Company’s
Employees.  Each
Shareholder undertakes with each other Shareholder and with the Company that he
will not:

 

(a)           At any time incite any employee of the
Company or Flagstone to terminate a contract of employment with the Company or
Flagstone or seek to interfere, or interfere, with the relationship between the
Company or Flagstone and any of its employees, or

 

(b)           Employ any employee of the Company or
Flagstone during the term of such employment or for a period of six months
thereafter, or at any time when he is a participant in the PSU Plan of the
Company.

 

5.3          Protection of the Company’s
Confidential Information.  Each
Shareholder undertakes with each other Shareholder and with the Company that he
will not at any time:

 

(a)           reveal Confidential Information to any third
party who is not a Shareholder or an employee of the Company; provided, however, that each Shareholder may reveal such
information to its legal and financial advisers, and its beneficial owners who
are subject to confidentiality arrangements with it, or as may be required by law or by any
regulatory authority, or

 

(b)           remove from the Company any Confidential
Information or interfere in any way with the ability of the Company to use any
such Confidential Information.

 

ARTICLE VI

 

MISCELLANEOUS

 

6.1          Share Certificate Legends.  Prior to the Effective Time, the Company
shall

 

12

 

cause all
share certificates representing Common Shares to bear an appropriate legend
referring to the fact that the Shares were sold without registration under the
Securities Act and are subject to this Agreement; provided, however, that such legend shall be omitted from
any share certificate representing Common Shares that have been duly
transferred without registration in accordance with Rule 144.

 

6.2          PFIC and RPII.  The Company shall use its best efforts to (a) avoid
being deemed a “passive foreign investment company” under the Code and (b) avoid
any situation in which the Shareholders would be required to include “related
person insurance income” of the Company under the Code.

 

6.3          Financial Statements.    Prior
to the Effective Time, Company will provide to each Shareholder (i) an
unaudited quarterly financial report no later than 45 days from the end of the
first three fiscal quarters of each year and (ii) an audited annual
financial report no later than 120 days from the end of the Company’s fiscal
year, in each case prepared in accordance with United States Generally Accepted
Accounting Principles.

 

6.4          Entire Agreement; Amendments.  This Agreement and the schedules to this
Agreement and the documents referred to in this Agreement and to be delivered
pursuant to this Agreement constitute the entire agreement among the parties
pertaining to the subject matter of this Agreement, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, with respect to the subject matter of this
Agreement, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter of this Agreement,
except as specifically set forth herein or therein.  This Agreement may be amended from time to
time upon the written consent of the Company, which may be authorized by the
approval of nine Directors; provided, however, that any amendment to this Agreement that
materially affects any Shareholder in a manner that is disparate from other
Shareholders shall require such Shareholder’s approval;  provided,
further, that any amendment to Section 2.1 shall require the
approval of all Shares then in issue.

 

6.5          Expenses.  Except as otherwise provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay the fees and expenses of
their respective counsel, investment bankers, financial advisors, accountants
and other experts and the other expenses incident to the negotiation and preparation
of this Agreement and the consummation of the transactions contemplated hereby.

 

6.6          Governing Law.  This Agreement shall be governed by and
construed and interpreted in accordance with the laws of the State of New York.

 

6.7          Jurisdiction.

 

(a)           Dispute Resolution.  Except as otherwise
specifically provided in this Agreement, in the event of any dispute,
controversy or claim arising out of or related to this Agreement or a breach
hereof, whether based in contract, tort, or statute, including its

 

13

 

interpretation,
scope, formation, performance or termination (“Dispute”), the parties shall settle such Dispute in
accordance with the following:

 

(i)            Discussions.  The parties shall first use their best
efforts to settle the Dispute by consulting and negotiating with each other in
good faith to reach a just and equitable solution satisfactory to all parties;

 

(ii)           Litigation.  If the Dispute is not resolved through
friendly discussions within 60 days of the date of the Dispute, the Dispute
shall be finally resolved by litigation in New York County in Federal District
Court or, absent Federal jurisdiction, in New York State Supreme Court, and the
parties hereby consent to the personal jurisdiction of any such court.

 

(b)           Consent to Service.  In connection with any litigation involving
any Dispute, the parties agree to accept service of process by mail to the
Notice addresses set forth in this Agreement.

 

6.8          Assignment.  This Agreement and each Shareholder’s rights
and obligations hereunder may be assigned only to one or more persons who
become the record holders of Shares transferred by such Shareholder; provided,
however, that in any or all of such cases such assigning party nonetheless
shall remain responsible for the performance of all of its obligations
hereunder.  Subject to the preceding
sentence, this Agreement shall be binding upon the parties hereto and their
respective successors and assigns.

 

6.9          Notices.  All communications, notices and disclosures
required or permitted by this Agreement shall be in writing and shall be deemed
to have been given when delivered personally or by messenger or by overnight
delivery service, or when received via telecopy or other electronic
transmission, in all cases addressed to the Person for whom it is intended at
his address set forth below or to such other address as a Party shall have
designated by notice in writing to the other Party in the manner provided by
this Section.

 

 

	
  If to the Company:

  	
  Flagstone Reinsurance Holdings Limited

  
	
   

  	
  23 Church Street

  
	
   

  	
  Hamilton HM11

  
	
   

  	
  Bermuda

  
	
   

  	
  Attention: Todd White

  
	
   

  	
  Facsimile: (441) 296-9879

  
	
   

  	
   

  
	
   

  	
   

  
	
  with a copy to:

  	
  Carter Ledyard & Milburn LLP

  
	
   

  	
  2 Wall Street

  
	
   

  	
  New York, New York 10005

  
	
   

  	
  Attention: Robert A.
  McTamaney, Esq.

  
	
   

  	
  Facsimile: (212) 732-3232

  

 

14

 

If to a Shareholder, to the address of such Shareholder as it shall
appear on the records of the Company.

 

6.10        Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.

 

6.11        Severability.  Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction..

 

6.12        No Third Parties; No Reliance.  Except as specifically set forth or referred
to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any Person, other than the parties hereto
and their permitted successors or assigns, any rights or remedies under or by reason
of this Agreement.  No third party is
entitled to rely on any of the representations, warranties and agreements
contained in this Agreement, and the parties assume no liability to any third
party because of any reliance on the representations, warranties and agreements
of the parties contained in this Agreement.

 

6.13        Exhibits and Schedules; Construction
of Certain Provisions.  The exhibits and schedules referred to in
this Agreement shall be construed with and as an integral part of this
Agreement to the same extent as if they had been set forth in their entirety
herein.

 

6.14        Headings.  The Article and Section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement. They do not
define, limit, extend or describe the scope of this Agreement or the intent of
any provision of this Agreement.

 

6.15        Counterparts; Execution by Facsimile.  This Agreement and any consents required
hereunder may be executed in one or more counterparts, and by any Shareholder
on separate counterparts, each of which as so executed and delivered shall be
deemed an original, but all of which together shall constitute one and the same
instrument, and it shall not be necessary in making proof of this Agreement as
to any Shareholder hereto to produce or account for more than one such
counterpart executed and delivered by such Shareholder.  The exchange of copies of this Agreement and
of signature pages by facsimile transmission shall constitute effective
execution and delivery of this Agreement as to the Shareholders and may be used
in lieu of the original Agreement for all purposes.  Signatures of the parties transmitted by
facsimile shall be deemed to be their original signatures for all purposes.

 

6.16        Binding Provisions.  Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, their heirs, personal representatives, successors and permitted
assigns.

 

6.17        Severability.  If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full

 

15

 

force and
effect. Any provision of this Agreement held invalid or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.

 

6.18        Conflict.  In the event that any provision of this
Agreement conflicts with any provision of the Memorandum of Association or the
Bye-Laws of the Company, the terms of this Agreement shall prevail, and each
Shareholder shall vote all of the Shares that it holds of record, and shall
take all actions necessary, to ensure at all times that the Memorandum of
Association and the Bye-Laws of the Company do not conflict with any provision
of this Agreement.

 

6.19        Term.  If the Effective Time shall not have occurred
on or before the first anniversary of this Agreement, this Agreement shall
terminate without becoming effective and shall have no effect on the
Shareholders’ Agreement.  This Agreement
shall terminate at such time as no Registrable Securities remain in issue.

 

****************************

 

[Remainder of Page Intentionally
Left Blank - Signature Page Follows]

 

16

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

 

	
   

  	
  FLAGSTONE REINSURANCE HOLDINGS

  	
   

  
	
   

  	
  LIMITED

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

[separate signature page for
each Shareholder follows]

 

17

 

FLAGSTONE REINSURANCE HOLDINGS LIMITED

 

AMENDED AND RESTATED SHAREHOLDERS’ AGREEMENT
SIGNATURE PAGE

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

 

	
  For Corporate, Partnership, Trust,

  Employee Benefit Plan or Other

  Entity Shareholder:

  	
   

  	
  For Individual Shareholders:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Print Name of Entity)

  	
   

  	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  (Print Name:)

  	
   

  	
   

  
	
  (Signature)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  (Print Name:)

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature of Joint Shareholder, if any)

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print Name of Joint Shareholder:)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
								

 

 

Exhibit A

 

Shareholders

 

 

Exhibit B

 

Form of Lock-Up Agreement

 

(attached)

 

 

LEHMAN BROTHERS INC.

CITIGROUP GLOBAL MARKETS INC.

As Representatives of the Several Underwriters,

 

c/o Lehman Brothers Inc.

745 Seventh Avenue

New York, NY 10019

 

Citigroup Global Markets Inc.

388 Greenwich Street

New York, NY 10013

 

[  ], 2006

 

Ladies and Gentlemen:

 

As an inducement to execute the Underwriting Agreement, pursuant to
which an offering will be made that is intended to result in the establishment
of a public market for the common shares (the “Securities”) of Flagstone
Reinsurance Holdings Limited, a Bermuda company, and any successor (by merger
or otherwise) thereto, (the “Company”), the undersigned hereby agrees that
during the period specified in the following paragraph (the “Lock-Up Period”), the undersigned will
not, directly or indirectly (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device that is designed to, or
could be expected to, result in the disposition by any person at any time in
the future of) any shares of Securities or securities convertible into or
exchangeable for Securities, or sell, grant options, rights or warrants with
respect to any shares of Securities or securities convertible into or
exchangeable for Securities, (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Securities, whether any such
transaction described in clause (1) or (2) is to be settled by
delivery of Securities or other securities, in cash or otherwise, (3) make
any demand for or exercise any right or cause to be filed a registration
statement, including any amendments thereto, with respect to the registration
of any shares of Securities or securities convertible into or exercisable or
exchangeable for Securities or any other securities of the Company or (4) publicly
disclose the intention to do any of the foregoing.

 

The Lock-Up Period will commence on the date of this Lock-Up Agreement
and continue and include the date 180 days after the public offering date set
forth on the final prospectus used to sell the Securities (the “Public Offering Date”) pursuant to the
Underwriting Agreement; however, if

 

(1) during the last 17 days of the
initial Lock-Up Period, the Company releases earnings results or material news
or a material event relating to the Company occurs, or

 

 

(2) prior to the expiration of the
initial Lock-Up Period, the Company announces that it will release earnings
results during the 16-day period beginning on the last day of the initial Lock-Up
Period,

 

then in each case the Lock-Up Period will be extended until the
expiration of the 18-day period beginning on the date of release of the
earnings results or the occurrence of the material news or material event, as
applicable, unless the Representatives waive, in writing, such extension.

 

The undersigned hereby acknowledges and agrees that written notice of
any extension of the Lock-Up Period pursuant to the previous paragraph will be
delivered by the Representatives to the Company (in accordance with Section 12
of the Underwriting Agreement) and that any such notice properly delivered will
be deemed to have been given to, and received by, the undersigned.  The undersigned further agrees that, prior to
engaging in any transaction or taking any other action that is subject to the
terms of this Lock-Up Agreement during the period from the date of this Lock-Up
Agreement, up to and including the 34th day following the expiration
of the initial Lock-Up Period, it will give notice thereof to the Company and
will not consummate such transaction or take any such action unless it has
received written confirmation from the Company that the Lock-Up Period (as may
have been extended pursuant to the previous paragraph) has expired.

 

Any Securities received upon exercise of options granted to the
undersigned will also be subject to this Agreement.  Any Securities acquired by the undersigned in
the open market will not be subject to this Agreement.  A transfer of Securities to an affiliate,
family member or trust may be made, provided the transferee agrees to be bound
in writing by the terms of this Agreement prior to such transfer, and no filing
by any party (donor, donee, transferor or transferee) under the Exchange Act
shall be required or shall be voluntarily made in connection with such
transfer.

 

In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.

 

 

This Agreement shall be binding on the undersigned and the successors,
heirs, personal representatives and assigns of the undersigned.  This Agreement shall lapse and become null
and void if the Public Offering Date shall not have occurred on or before            ,
2006.  This agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.

 

	
   

  	
  Very truly yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [Name of shareholder]Exhibit
10.2

 

INVESTMENT MANAGEMENT AGREEMENT

 

This Investment
Management Agreement (“Agreement”) is entered into this 6th day of
January, 2006, between Flagstone Reinsurance Limited, a Bermuda exempted
company (“Company”) and Pacific Investment Management Company LLC, a Delaware
limited liability company (“Manager”), with reference to the following facts:

 

WHEREAS, the Company has
an investment portfolio consisting of certain securities which, together with
all additions, substitutions and changes, is referred to in this Agreement as
the “Account;” and

 

WHEREAS, the Company
desires to retain the Manager as its investment counsel and to grant to the
Manager the authority to manage the Account and the Manager is agreeable to
managing the Account, upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, it is
agreed as follows:

 

1.                                       Retention
as Manager

 

The Company hereby
retains the Manager to provide investment management services with respect to
the Account’s assets described in Exhibit “A” attached hereto and those
other assets which may from time to time be transferred to the Manager’s
control upon the terms and conditions set forth herein, and the Manager hereby
accepts the retention and agrees to provide such investment management services.
So long as the source of the underlying assets remains that of the Company,
Exhibit A may be amended by the parties to add one or more accounts under the
terms of this Agreement (collectively, the “Accounts”).

 

2.                                       Assets
Transferred to the Accounts

 

The Company will
determine what assets will be transferred to or from the Accounts from time to
time. The Company shall notify the Manager, in writing, of its determinations
in this regard.

 

3.                                       Management
of Assets

 

The Manager shall manage
all assets held in the Accounts. For this purpose, and subject only to the
specific limitations made part of this Agreement from time to time, the Manager
shall have full investment authority and discretion and may purchase, sell,
generally deal in or exchange assets (including securities, shares of open-end
investment companies and other property relating to the Accounts) for the
Accounts as it shall determine; however, the Manager shall not act as custodian
of the assets held in the Accounts.

 

Section I:

 

x                                  Yes, futures and options
authority has been granted in accordance with Appendix A, and Appendix A
is hereby incorporated into this Agreement (defined terms used therein shall
have their respective meanings set forth herein).

 

or

 

o                                    No,
futures and options authority has not been granted.

 

 

Section II:

 

o                                    Yes, In-Kind
Securities will be transferred into the Account in accordance with Appendix
B, and Appendix B is hereby incorporated into this Agreement (defined terms
used therein shall have their respective meanings set forth herein).

 

or

 

x                                  No,
the Accounts will be funded solely with cash.

 

The Manager further shall
have authority to instruct the custodian to: 
(i) pay cash for securities and other property delivered the custodian
for the Accounts, (ii) deliver securities and other property against payment
for such Accounts, and (iii) transfer assets and funds to such brokerage
accounts as the Manager may designate for collateral or margin purposes. The
Manager shall not have the authority to cause the Company to deliver securities
and other property, or pay cash to the Manager other than payment of the
management fee provided for in this Agreement.

 

The Company agrees that
Manager shall be solely responsible for voting all proxies related to assets in
the Accounts. The Manager shall maintain a record of how the Manager voted and
such record shall be available to the Company upon its request. It is further
understood that Manager need not and is not required to accept any direction
concerning the voting of proxies from the Company. The right of Manager to vote
proxies shall continue until the earlier of the termination of the Agreement or
such time as the Company specifically revokes Manager’s authority to vote
proxies and specifically reserves such right to the Company or to another.

 

4.                                       Investment
Guidelines

 

The Company shall supply
the Manager with such information as the Manager shall reasonably require
concerning the Accounts’ tax position, liquidity requirements and other
information useful in developing investment objectives. The investment
guidelines agreed to by Manager and the Company as of the date of this
Agreement are set forth on Exhibit “B” hereto. Manager is authorized on
behalf of the Accounts to enter into agreements and execute any documents
required to make investments pursuant to the investment guidelines attached as
Exhibit B hereto, as such exhibit may be amended from time to time. The Company
has reviewed the investment guidelines and restrictions to ensure that they
comply with its legal restrictions and internal organizational documents, and
agrees to update the guidelines as necessary.

 

The guidelines may be
changed by the written agreement of the parties. The Manager shall be entitled
to rely upon oral and written clarifications, supplements and modifications to
the investment guidelines from the Company. Reasonable interpretations of the
Investment Guidelines made in good faith by the Manager shall be binding upon
the parties. The Manager shall use its best efforts in managing the Accounts to
attain such objectives. The Company understands and agrees that the Manager
does not guarantee or represent that any investment objectives will be
achieved.

 

5.                                       Title
and use of Custodian Bank

 

Title to all investments
shall be held in the name of the Company, provided that for convenience in
buying, selling and exchanging securities (stocks, bonds, commercial paper,
etc.), title to such securities may be held in the name of the Account’s
custodian bank, or its nominee, which bank shall be selected by the Company. Neither
the Manager nor any parent, subsidiary or 

 

2

 

related firm shall take
custody or possession of or handle any cash, securities, mortgages or deeds of
trust, or other indicia of ownership of the Accounts’ investments, or otherwise
act as custodian of such investments. All cash and the indicia of ownership of
all other investments shall be held by the Accounts’ custodian bank. The
Manager shall not be liable for any act or omission of such custodian bank.

 

The Company shall
instruct the Accounts’ custodian bank to (a) periodically advise the Manager as
to the amount of cash or cash equivalents available for investment in the
Accounts; (b) carry out all investment transactions as may be directed, in
writing, by the Manager; and (c) confirm all completed transactions, in
writing, to the Manager.

 

The custodian bank shall
collect the interest and dividends on the Accounts’ investments in its custody
and the Manager shall have no responsibility in this regard.

 

6.                                       Use
of Securities Broker

 

Neither the Manager nor
any parent, subsidiary or affiliated firm shall act as a securities broker with
respect to any purchases or sales of securities which may be made on behalf of
the Accounts, provided that, subject to applicable legal and regulatory
restrictions, this limitation shall not prevent the Manager from utilizing the
services of a securities broker which is a parent or subsidiary provided such
broker provides best execution. Unless otherwise directed by the Company in
writing, the Manager may utilize the service of whatever independent securities
brokerage firm or firms it deems appropriate to the extent that such firms are
competitive with respect to price of services and execution.

 

The Manager shall not be
liable for any act or omission of any securities brokerage firm or firms
designated by the Company or chosen with reasonable care.

 

The Manager shall
maintain a log of all transactions placed through all securities brokerage
firms, including the name of the firm, a description of each transaction
(including the amount and the securities involved), the date of each
transaction, and the amount of fees or commissions paid.

 

7.                                       Access
to Records and Documents

 

All records and documents
relating to the Accounts’ investments directed by the Manager shall be made
available for inspection or audit by the Company or by a qualified public
accountant acting on its behalf, at the Manager’s business offices at any time
during normal business hours upon reasonable prior notice.

 

8.                                       Reports
by Manager

 

The Manager shall make
such written quarterly and annual reports concerning its investment management
activities as may be requested by the Company. The Company will rely on the
Custodian or a third party service provider for valuation, tax and accounting
services. The Manager provides valuation information for information purposes
only.

 

3

 

9.                                       Attendance
at Meetings

 

A representative of the
Manager shall personally meet with the Company’s representatives to explain the
investment management activities, and any reports related thereto, as may
reasonably be requested by the Company.

 

10.                                 Aggregation
of Orders

 

Provided the investment
objectives of the Accounts are adhered to, the Company agrees that the Manager
may aggregate sales and purchase orders of securities, commodities and other
investments held in the Accounts with similar orders being made simultaneously
for other accounts managed by the Manager or with accounts of the affiliates of
Manager, if in the Manager’s reasonable judgment such aggregation shall result
in an overall economic benefit to the Accounts taking into consideration the
advantageous selling or purchase price, brokerage commission and other expenses.
The Company acknowledges that the determination of such economic benefit to the
Accounts by the Manager represents the Manager’s evaluation that the Accounts
are benefited by relatively better purchase or sales prices, lower commission
expenses and beneficial timing of transactions or a combination of these and
other factors.

 

11.                                 Unrelated
Transactions

 

The Manager shall devote
such part of its time as is reasonably needed for the services contemplated
under this Agreement; provided, however, that this Agreement shall not prevent
the Manager from rendering similar services to other persons, trusts,
corporations or other entities. Nothing in this Agreement shall limit or
restrict the Manager or any of its officers, affiliates or employees from, as
permitted by law, buying, selling or trading in any securities for its own or
their own accounts. The Company acknowledges that the Manager and its officers,
affiliates and employees, and the Manager’s other clients may as permitted by
law at any time have, acquire, increase, decrease, or dispose of positions in
investments which are at the same time being acquired for or disposed of from
the Accounts. As permitted by law, the Manager shall have no obligation to
acquire for the Accounts a position in any investment which the Manager, its
officers, affiliates or employees may acquire for its or their own accounts or
for the account of another client, if in the sole discretion of the Manager, it
is not feasible or desirable to acquire a position in such investment for the
Accounts.

 

12.                                 Fees

 

For the services
specified in this Agreement, the Company agrees to pay fees as set forth in Exhibit
“C” hereto and made a part hereof, for each calendar quarter during the
term hereof commencing on January      2006, and continuing
thereafter for each such calendar quarter based on a statement for such fees
submitted to the Company, and the Company agrees to remit payment promptly.

 

13.                                 Assignment

 

In accordance with
Sections 205(a)(2) and 205(a)(3) of the Investment Advisers Act of 1940, no assignment
of this Agreement shall be made by the Manager without the consent of the
Company.

 

4

 

The Manager may delegate investment management and other
responsibilities to its affiliates, including PIMCO Europe Ltd, PIMCO Japan
Ltd, PIMCO Australia Pty Ltd, Dresdnerbank Investment Management
Kapitalanlagegesellschaft GmbH, and PIMCO Asia Pte Ltd. Additionally, the
Manager will have the ability to delegate back office services to State Street
Investment Manager Solutions, LLC. In all such cases, the Manager will be
responsible as if the Manager provided the services directly. Information may
be shared between such companies as necessary to accomplish the purposes of
this agreement. No additional fees shall be imposed for such services except as
otherwise agreed.

 

14.                                 Notices

 

Any written notice
required by or pertaining to this Agreement shall be personally delivered to
the party for whom it is intended, at the address stated below, or shall be
sent to such party by prepaid first class mail or facsimile.

 

	
  If to the Company:

  	
   

  	
  Flagstone Reinsurance
  Limited

  Crawford House

  23 Church Street

  Hamilton HM 11

  Bermuda

  Fax: 441-296- 9879

  Attention: Todd White

  
	
   

  	
   

  	
   

  
	
  If to the Manager:

  	
   

  	
  Pacific Investment
  Management Company LLC

  840 Newport Center Drive

  Newport Beach, CA 92660

  Fax: 949-720-1376

  Attention: Chief Legal Officer

  cc: Scott Millimet

  

 

15.                                 Term

 

This Agreement shall be
effective as of the date hereof, and shall continue on a month-to-month basis
thereafter until terminated. Either party may terminate this Agreement at the
end of a particular month by giving thirty (30) days’ advance notice to the
other party. Notwithstanding the foregoing, the Company may terminate the
authority of the Manager to manage the Accounts at any time, such termination
to be effective as of the effective date of notice thereof to the Manager, but
the Manager shall be entitled to the fees payable hereunder for the time it
takes to complete then-open transactions, but in any event no more than thirty
(30) days.

 

16.                                 Liability

 

The Manager shall not be
liable to the Company for the acts or omissions of any other fiduciary or other
person respecting the Accounts or for anything done or omitted by the Manager
under the terms of this Agreement if the Manager shall have acted in good faith
and shall have exercised the degree of prudence, competence and expertise
customarily exhibited by managers of institutional portfolios. Nothing in this
Agreement shall in any way constitute a waiver or limitation of any rights
which may not be so limited or waived in accordance with applicable law. Without

 

5

 

limiting the generality of the foregoing, the Manager will not be
liable for any indirect, special, incidental or consequential damages.

 

The Manager is expressly
authorized to rely upon any and all instructions, approvals and notices given
on behalf of the Company by any one or more of those persons designated as
representatives of the Company whose names, titles and specimen signatures
appear in Exhibit “D” attached hereto. The Company may amend such
Exhibit D from time to time by written notice to the Manager. The Manager shall
continue to rely upon these instructions until notified by the Company to the
contrary.

 

The Manager shall not be
deemed to have breached this agreement or the investment guidelines in
connection with fluctuations arising from market movements and other events
outside the control of the Manager.

 

17.                                 Confidential
Information

 

The Manager shall
maintain the strictest confidence regarding the business affairs of the
Accounts. Written reports furnished by the Manager to the Company shall be
treated by the Company and the Manager as confidential and for the exclusive
use and benefit of the Company except as disclosure may be required by
applicable law.

 

18.                                 Representations
and Agreements of the Company

 

The Company represents to
the Manager that the Company has all necessary power and authority to execute,
deliver and perform this Agreement and all transactions contemplated hereby,
and such execution, delivery and performance will not violate any applicable
law, rule, regulation, governing document (e.g.,
Certificate of Incorporation or Bylaws), contract or other material agreement
binding upon the Company. If Appendix A and/or Appendix B are applicable, the
Company makes the acknowledgments, representations and warranties as are set
forth therein.

 

19.                                 Delivery
of Part II of Form ADV

 

Concurrently with the
execution of this Agreement, the Manager is delivering to the Company a copy of
Part II of its Form ADV, as revised, on file with the Securities and Exchange
Commission. The Company acknowledges receipt of such copy.

 

20.                                 Special
Termination Rights

 

Notwithstanding anything
in Section 15 to the contrary, the Company may terminate this Agreement without
penalty within five (5) business days of its execution of this Agreement by
giving written notice to such effect to the Manager within such five (5)
business day period.

 

21.                                 Miscellaneous

 

The Company agrees that
it shall promptly notify the Manager (i) of any changes regarding the
information about itself in this Agreement, or (ii) if any of the Company’s
representations or warranties in Section 18 hereof are no longer true or
completely accurate.

 

6

 

This Agreement may be
amended at any time but only by the mutual agreement of the parties, in
writing.

 

This Agreement shall be
construed and interpreted in accordance with the laws of the State of California.

 

This Agreement
constitutes the entire agreement between the parties and supersedes in their
entirety all prior agreements between the parties relating to the subject
matter hereof.

 

This Agreement may be
executed in counterparts, each of which shall be considered to be an original.

 

EXECUTED on the date
first above written.

 

	
  PACIFIC INVESTMENT MANAGEMENT COMPANY LLC

  
	
   

  
	
   

  	
   

  
	
  By:

  	
    /s/ WENDY
  W. CUPPS

  	
   

  
	
  Name:

  	
  Wendy W. Cupps

  
	
  Title:

  	
  Managing Director

  
	
   

  
	
   

  
	
  FLAGSTONE REINSURANCE LIMITED

  
	
   

  
	
   

  
	
  By:

  	
    /s/ MARK
  BYRNE

  	
   

  
	
  Name:

  	
  Mark Byrne

  
	
  Title:

  	
  Chairman

  
				

 

7

 

APPENDIX A

 

CONFIRMATION
OF AUTHORITY

 

Flagstone
Reinsurance Limited (“Company”) gives Pacific Investment Management Company LLC
(the “Manager”) (including its affiliates for purposes of this Confirmation of
Authority) authority to negotiate, execute, buy and sell the instruments and
conduct the transactions included in the Company’s Investment Guidelines agreed
by Company and Manager, (collectively
“Transactions”) for the Capital Funds
Portfolio (Manager’s Account #2629).

 

The
undersigned represents that he or she is authorized to act for the Company in
entering into this Confirmation of Authority and in giving authority to Manager
to act in connection with the matters discussed herein. The undersigned also
represents that the Company is, and the Manager is authorized to (1) enter into
agreements effecting the Transactions (including electronic trading agreements,
give-up agreements, and related agreements) (2) acknowledge receipt of brokers’
risk disclosure statements, electronic trading disclosure statements, and
similar disclosures, (3) direct the deposit of margin incidental to
Transactions, including the transfer of money, securities or other property,
and (4) deliver or accept delivery of commodities underlying Transactions in
accordance with Transactions terms, and (5) otherwise perform on Company’s
behalf all of the obligations contemplated under the Transactions.

 

The
Manager may enter into Transactions in the same manner and with the same effect
as the Company could do. Brokers, dealers
or banks are hereby authorized to follow the instructions of the Manager
concerning these Transactions, and Company understands that a copy of this
Confirmation of Authority may be provided to brokers, dealers or banks with
whom Transactions are executed on Company’s behalf and such brokers,
dealers or banks may rely conclusively upon this Confirmation of Authority and
any instruction, representation or other document furnished to such broker,
dealer or bank, or action taken, by Manager in connection with the
Transactions, as though the same had been given or made by Company.

 

Company
hereby expressly acknowledges and agrees that it has received, read and
understood (i) the “Risk Disclosure Statement for Futures and Options,” and
(ii) the Electronic Trading and Order Routing Systems Disclosure Statement.

 

The
Company acknowledges receipt of Manager’s Disclosure Document dated June 1,
2005, on file with the U.S. Commodity Futures Trading Commission. This
authorization covers Transactions in the United States, United Kingdom, Japan,
Australia, and other countries the Manager believes appropriate. This
authorization will remain in full force and effect until terminated in writing,
will inure to the benefit of the Manager, brokers, dealers, or banks and their
successors, and will bind the Company, its successors and assigns.

 

Executed
this 6th day of January, 2006.

 

	
  Agreed
  by Company by Flagstone Reinsurance Limited 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature:

  	
  /s/
  MARK BYRNE

  	
   

  	
   

  	
  Signature:

  	
  /s/ TODD
  WHITE

  
	
  Name:

  	
  Mark
  Byrne

  	
   

  	
   

  	
  Name:

  	
  Todd
  White

  
	
   

  	
  Director

  	
   

  	
   

  	
   

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
  Agreed:
  Pacific Investment Management Company LLC

  	
   

  	
   

  
	
   

  
	
   

  
	
  Signature:

  	
  /s/ WENDY
  W. CUPPS

  	
   

  
	
  Title:

  	
  Managing
  Director

  	
   

  
							

 

 

APPENDIX B

 

Not applicable.

 

 

EXHIBIT A

 

ACCOUNT ASSETS

 

Flagstone Reinsurance Limited

 

January 6, 2006

 

	
  Account Name

  	
   

  	
  Funding
  Amount

  	
   

  	
  Guidelines

  	
   

  	
  Fee
  Schedule

  	
   

  	
  Manager’s

  Account #

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Policyholders Funds Portfolio

  	
   

  	
  $264 million

  	
   

  	
  Exhibit B-1

  	
   

  	
  Exhibit C-1

  	
   

  	
  2628

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital Funds Portfolio

  	
   

  	
  $211 million

  	
   

  	
  Exhibit B-2

  	
   

  	
  Exhibit C-2

  	
   

  	
  2629

  	
   

  

 

 

EXHIBIT B-1

 

INVESTMENT GUIDELINES AND
GLOSSARY

 

FLAGSTONE
REINSURANCE LIMITED

POLICYHOLDERS FUNDS PORTFOLIO

(Manager’s Account #2628)

 

January 6, 2006

 

The Manager will have
full discretion within the guidelines to invest in fixed income and related
securities. Unless otherwise stated below, the following guidelines will be applied
at the time of purchase.

 

	
  Performance
  Benchmarks

  	
   

  	
   

  
	
  a.               Passive
  Indices

  	
   

  	
  Lehman U.S. Aggregate Index adjusted monthly for a
  duration of 2.50 years through a barbell of Lehman U.S. Aggregate and one
  week Libor 

  
	
  b.              Manager
  Universe

  	
   

  	
  Second quartile
  minimum

  
	
  c.               Measurement
  Period

  	
   

  	
  3 - 5 years
  minimum

  
	
   

  	
   

  	
   

  
	
  Portfolio
  Duration Range

  	
   

  	
  1.75 - 3.25 years

  
	
   

  	
   

  	
   

  
	
  Maximum Legal
  Maturity per Investment

  	
   

  	
  35 years

  

 

CREDIT QUALITY MINIMUMS

 

The Manager will apply
quality ratings using middle of Moody’s, S&P and Fitch. If an issue is not
rated by one of these rating agencies, then the Manager will determine a rating.

 

	
  Minimum Average
  Portfolio Quality:

  	
   

  	
  AA- Rating

  
	
  Minimum Issue Quality:

  	
   

  	
  Baa3; max 5% below A-

  
	
  Minimum Commercial
  Paper Quality:

  	
   

  	
  A2/P2

  

 

Should an issue be
downgraded below these minimums, the Manager will determine the appropriate
action (sell or hold) based on the perceived risk and expected return.

 

Portfolio is managed to
the above parameters on an ongoing basis, unless specifically referring to a
parameter pertaining “at purchase.”

 

Credit quality and
concentration issues apply at purchase.

 

TRANSACTION TYPES

 

Purchases and sales may
be transacted for regular or deferred/forward settlement. Hedging and spread
strategies may include the use of short sales. Reverse repurchase agreements
(taxable clients only) and securities lending are permitted.

 

	
  Transactions
  Types Explicitly Prohibited:

  	
  None

  

 

 

ASSET TYPES AND INVESTMENT VEHICLES

 

The Manager will have
discretion to invest in a broad array of public and private asset classes and
investment vehicles including but not limited to:

 

•                         Money
Market Instruments

•                         U.S.
Treasury and Agency Notes and Bonds

•                         Municipal
Bonds

•                         Corporate
Securities

•                         Bank
Loans

•                         Yankee
and Euro Bonds

•                         Mortgage-Backed
Securities (including CMOs and REMICs)

•                         Asset-Backed
Securities

•                         Preferred
Stock

•                         Convertible
Securities

•                         Private
Placements (Including 144As)

•                         Non-Leveraged
Structured Notes

•                         Interest
Rate Swaps

 

Asset
Types/Vehicles Explicitly Prohibited:

 

•                         Non-U.S.
Dollar-denominated Securities

•                         Mortgage
Derivatives

•                         Futures

•                         Options,
Caps and Floors

•                         Credit
Default Swaps (Buy Protection and Sell Protection)

 

CONCENTRATION LIMITS

 

The Manager will limit
the concentrations within the portfolio to the following:

 

	
  Issue:

  	
   

  	
  5

  	
  %

  
	
  Issuer:

  	
   

  	
  5

  	
  %

  
	
  Below A-:

  	
   

  	
  5

  	
  %

  
	
  Below BBB:

  	
   

  	
  0

  	
  %

  
	
  Non-U.S. Dollar Denominated:

  	
   

  	
  0

  	
  %

  
	
  Private Placements (excluding
  securities

  	
   

  	
   

  	
   

  
	
  eligible for
  resale under Rule 144a:)

  	
   

  	
  10

  	
  %

  
	
  Convertible Securities:

  	
   

  	
  5

  	
  %

  
	
  Net Foreign Currency Exposure:

  	
   

  	
  0

  	
  %

  

 

Issue and issuer limits
exclude sovereign debt of OECD governments and U.S. agencies. Manager generally
uses the World Bank’s definition for emerging markets, which is based on a GNP
per capita calculation. Subsidiary and parent companies are considered separate
corporate issuers. Specific mortgage pools and trusts are considered separate
issuers, and each tranche within a CMO is considered a separate issue. The
non-U.S. dollar-denominated limit excludes money market securities and money
market futures.

 

2

 

EXHIBIT B-2

 

INVESTMENT GUIDELINES AND
GLOSSARY

 

FLAGSTONE
REINSURANCE LIMITED

CAPITAL FUNDS PORTFOLIO

(Manager’s Account #2629)

 

January 6, 2006

 

The Manager will have
full discretion within the guidelines to invest in fixed income and related
securities. Unless otherwise stated below, the following guidelines will be applied
at the time of purchase.

 

	
  Performance
  Benchmarks

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  a.                  Passive
  Indices

  	
   

  	
  Lehman U.S. Aggregate Index adjusted monthly for a
  duration of 2.50 years through a barbell of Lehman U.S. Aggregate and one
  week Libor 

  
	
  b.                 Manager
  Universe

  	
   

  	
  Second quartile
  minimum 

  
	
  c.                  Measurement
  Period

  	
   

  	
  3 - 5 years
  minimum

  
	
   

  	
   

  	
   

  
	
  Portfolio
  Duration Range

  	
   

  	
  1.75 - 3.25
  years

  
	
   

  	
   

  	
   

  

 

CREDIT QUALITY MINIMUMS

 

The Manager will apply
quality ratings using the higher of Moody’s, S&P or Fitch. If an issue is
not rated by one of these rating agencies, then the Manager will determine a
rating.

 

	
  Minimum Average
  Portfolio Quality:

  	
  AA- Rating

  
	
  Minimum Issue Quality:

  	
  Baa3 Rating; max 5%

  
	
  Minimum Commercial
  Paper Quality:

  	
  A2/P2

  

 

Portfolio is managed to
the above parameters on an ongoing basis, unless specifically referring to a
parameter pertaining “at purchase.”

 

Portfolio is managed to
the above parameters on an ongoing basis, unless specifically referring to a
parameter pertaining “at purchase.”

 

Credit and Concentration
issues apply at purchase.

 

Should an issue be
downgraded below these minimums, the Manager will determine the appropriate
action (sell or hold) based on the perceived risk and expected return.

 

TRANSACTION TYPES

 

Purchases and sales may
be transacted for regular or deferred/forward settlement. Hedging and spread
strategies may include the use of short sales. Reverse repurchase agreements
(taxable clients only) and securities lending are permitted.

 

 

	
  Transactions Types
  Explicitly Prohibited:

  	
  None

  

 

ASSET TYPES AND INVESTMENT VEHICLES

 

The Manager will have
discretion to invest in a broad array of public and private asset classes and
investment vehicles including but not limited to:

 

•                         Money
Market Instruments

•                         U.S.
Treasury and Agency Notes and Bonds

•                         Municipal
Bonds

•                         Corporate
Securities

•                         Event-Linked
Bonds

•                         Bank
Loans

•                         Yankee
and Euro Bonds

•                         Mortgage-Backed
Securities (including CMOs and REMICs)

•                         Mortgage
Derivatives

•                         Asset-Backed
Securities

•                         Preferred
Stock

•                         Convertible
Securities

•                         Non-U.S.
Dollar-denominated Securities  (Minimum
99% hedged at the portfolio and at the security levels)

•                         Private
Placements (Including 144As)

•                         Non-Leveraged
Structured Notes

•                         Futures

•                         Options,
Caps and Floors

•                         Interest
Rate Swaps

 

	
  Asset
  Types/Vehicles Explicitly Prohibited:

  	
   

  	
  Credit Default Swaps

  
	
   

  	
   

  	
  (Buy Protection and
  Sell Protection)

  

 

CONCENTRATION LIMITS

 

The Manager will limit
the concentrations within the portfolio to the following:

 

	
  Issue:

  	
   

  	
  5

  	
  %

  
	
  Issuer:

  	
   

  	
  5

  	
  %

  
	
  Below A-

  	
   

  	
  5

  	
  %

  
	
  Below Baa3

  	
   

  	
  0

  	
  %

  
	
  Non-U.S. Dollar Denominated:

  	
   

  	
  30

  	
  %

  
	
  Private
  Placements (excluding securities

  eligible for resale under Rule 144a):

  	
   

  	
  10

  	
  %

  
	
  Convertible Securities:

  	
   

  	
  5

  	
  %

  
	
  Net Foreign Currency Exposure:

  	
   

  	
  0

  	
  %

  

 

2

 

Issue and issuer limits
exclude sovereign debt of OECD governments and U.S. agencies. Manager generally
uses the World Bank’s definition for emerging markets, which is based on a GNP
per capita calculation. Subsidiary and parent companies are considered separate
corporate issuers. Specific mortgage pools and trusts are considered separate
issuers, and each tranche within a CMO is considered a separate issue. The
non-U.S. dollar-denominated limit excludes money market securities and money
market futures. Foreign currency positions may be held without owning
securities denominated in such currencies, and cross hedging is permitted.

 

3

 

GLOSSARY

 

ASSET TYPES AND INVESTMENT VEHICLES

 

1.               Cash
Equivalents: Investment grade securities with a duration less than or equal
to 1 year.

 

2.               Money
Market Instruments:  Securities
maturing in one year or less at the time of issuance. These assets include, but
are not limited to, the following: 
Treasury bills, U.S. government and agency securities, commercial paper
(including 4(2) CP programs), time deposits, bankers acceptances, certificates
of deposits, repurchase agreements, reverse repurchase agreements, bank STIF
accounts and U.S. Money Market Mutual Funds. The above-mentioned security types
may be either U.S. or Eurodollar issues.

 

3.               U.S.
Treasury and Agency Notes and Bonds: 
Issues of the United States government and its agencies.

 

4.               Municipal
Bonds:  Debt obligations of a state
or local government

 

5.               Corporate
Securities:  Securities issued by
domestic or foreign corporations.

 

6.               Private
Placements:  Unregistered securities
including, but not limited to, 144As, 4(2) Commercial Paper, and Bank Loans. True
private placements refer to fixed income investments that are “placed” by a
broker but are not formally underwritten. Unlike true privates, 144A securities
are underwritten by brokers who may commit capital to trade them and many are
issued with registration rights, also known as “to-be-issued” securities.

 

7.               Event-Linked
Bonds:  These securities allow
insurance companies to sell the risk of insured damage from natural disasters
to investors through financial markets. Investors, on the other hand, receive
an attractive rate of interest and ultimately the return of principal for
assuming the risk that a low probability “trigger” event, such as a hurricane,
earthquake or other physical or weather related phenomenon, will not occur.

 

8.               Bank
Loans:  Loans sold by banks or other
lending syndicates. Bank loans are typically comprised of loans to corporations
and tend to be the most senior debt in the corporate debt structure.

 

9.               Yankee/Euro
Bonds:  Yankee bonds are U.S.
dollar-denominated securities issued by non-U.S. issuers or foreign
subsidiaries of U.S. issuers and are predominantly traded in U.S. markets.
Eurobonds are traded in the global marketplace. Issuers of Eurobonds may be
domiciled in or outside of the U.S. Global bonds are a hybrid of Yankee and
Eurodollar bonds. Like Yankee bonds, Global bonds are US dollar denominated and
issued by non-US issuers or foreign subsidiaries of U.S. issuers, though they
are issued and traded in both the U.S. (Yankee) and Euro markets
simultaneously.

 

10.         Mortgage-backed
Securities:  Securities whose source
of repayment is a mortgage or pool of mortgages, or whose repayments are
collateralized by a mortgage or pool of mortgages. Mortgage-backed securities
include, but are not limited to, agency and non-agency pass-throughs and
collateralized mortgage obligations (CMOs and REMICs).

 

11.         Mortgage
Derivatives:  Includes Interest Only
strips (IOs), Principal Only strips (POs), inverse IOs, inverse floating rate
notes, CMO residuals and support bonds.

 

 

12.         Asset-backed
Securities (ABS):  ABS are securities
collateralized by assets other than mortgages. The most common types of ABS are
collateralized by credit card receivables, home equity loans, manufactured
homes and automobile loans and are typically structured as pass throughs or as
structures with multiple bond classes, like a CMO. Credit enhancement can take
the form of over collateralization, a letter of credit, a third party guaranty,
or a senior/subordinated structure.

 

13.         Preferred
Stock:  Fixed-rate and variable-rate
stock that has preference over common stock concerning dividends and
liquidation of the issuer. Included in this category are trust preferred
securities, which are hybrid securities considered equity for regulatory
purposes but considered debt for tax purposes. These securities have structural
characteristics similar to preferred stock except that they are issued through
a trust set up by a financial institution and generally have a fixed maturity
of up to 30 years. Trust preferred securities are typically backed by the
issuing financial institution, and they often rank higher than other preferred
securities in a liquidation scenario.

 

14.         Convertible
Securities:  All securities
convertible into equity.

 

15.         Non-U.S.
Dollar Denominated Securities: 
Securities denominated in a currency other than U.S. dollars. These
securities must conform to the quality, concentration and other characteristics
set forth by the guidelines.

 

16.         Emerging
Market Securities:  PIMCO generally
uses the World Bank definition, which is based on a GNP per capita ratio, to
define emerging market countries. Emerging market debt covers a broad variety
of securities including Brady bonds (typically denominated in U.S. dollars) and
debt denominated in local currency.

 

17.         Un-levered
Structured Notes:  Instruments with
coupons based on an index (e.g., prime rate, 3 month T-bill, long bond) or some
formulaic calculation based on an index. These instruments will not be based on
a formula that magnifies or levers the underlying interest rate.

 

18.         Futures
and Forwards:  Futures and forward
contracts are agreements to buy or sell a specific amount of a financial
instrument for a specific price or yield on a stipulated future or forward date.
Unlike forward contracts, futures are traded on exchanges, which are regulated
by the CFTC. Manager may use futures and forwards whose underlying instrument
is a security or index of an asset type permitted in the guidelines. Manager
may also use currency forwards and futures to hedge non-U.S. currency exposure.

 

19.         Options,
Caps and Floors:  An Option gives the
purchaser the right to buy or the seller the obligation to deliver a specified
amount of a financial instrument for a specific price or yield on or before a
specific date in the future. Under an interest rate cap, in exchange for a
premium, one counter-party agrees to make payments to the other should interest
rates exceed a specified “cap.”  Under an
interest rate floor, in exchange for a premium, one counter-party agrees to
make payments to the other should interest rates fall below a specified “floor.”  Options can be traded on exchanges as in the
case of options on futures, or over-the-counter (OTC), through customized
arrangements with a broker counter-party.

 

20.         Swaps:  Swaps are over-the-counter contracts that
allow two counter-parties to exchange liabilities and include, but are not
limited to, interest rate swaps, total return swaps and swaptions. An interest
rate swap allows two counter-parties to exchange their fixed and variable rate
liabilities. A total return swap allows for the exchange of the rate of return
on an index, such as the Lehman Brothers

 

2

 

Aggregate
Index, for a variable interest rate. A swaption gives the purchaser the right
to enter into a specified amount of a swap contract on or before a specified
future date. Manager may use these instruments so long as the underlying
instrument is a security or index of an asset type permitted in the guidelines.

 

21.         Credit
Default Swaps:  Credit default swaps
are a mechanism to either purchase or sell default insurance. As a purchaser of
a credit default swap, the Manager pays a premium to enter into an arrangement
that protects a portfolio holding in the event of a default. As a seller of a
credit default swap, the Manager collects a premium for underwriting default
insurance. Consequently, credit default swaps may be used to obtain credit
default protection or enhance portfolio income.

 

22.         PIMCO
Pooled Funds:  As a means of
obtaining sector exposure in a diversified, cost effective manner, Manager may
use the PIMCO Funds Private Account Portfolio Series of mutual funds,
including, but not limited to, the U.S. Government Sector Portfolio, the
Mortgage Portfolio, the Investment Grade Corporate Portfolio, the International
Portfolio, the High Yield Portfolio, the Emerging Markets Portfolio, and other
funds as they are developed. The client must complete appropriate documentation
before these funds will be used.

 

TRANSACTION TYPES

 

1.               Settlements:  Purchases and sales may be transacted for
regular (standard settlement for cash/spot securities) or deferred/forward
settlement.

 

2.               Spread
Strategies:  Strategies may be used
to gain exposure to expected changes in the yield difference, or spread,
between two positions. These positions may represent securities, positions on
the yield curve, country interest rates, or any number of other alternatives.
Such strategies may be implemented using a variety of instruments including
cash securities, short sales, futures, or other derivatives.

 

3.               Short Sales:  Short sales involve having a negative exposure
to an asset class, security, or market. PIMCO does not use short sales in the
traditional sense. PIMCO generally uses short sales as a part of spread trades,
hedging transactions, or income-enhancing strategies.

 

4.               Reverse
Repurchase Agreements:  The sale of
securities held by the portfolio subject to the agreement to repurchase the
securities at an agreed-upon date or upon demand and at a price reflecting a
market rate of interest.

 

5.               Currency Hedging
Activities:  Foreign currency
exposure will be based on the absolute value of all positions (long and short)
versus the U.S. dollar. For instance, a long 2% position in the Euro combined
with a 2% short position in the Yen would constitute a 4% currency exposure.
Both long and short foreign currency positions may be held without owning
securities denominated in such currencies. Currency hedging requirements will
be met either though partially hedged settled bond exposure or through
unsettled bond positions coupled with a long currency position in the same
currency

 

6.               Securities
Lending:  For the purposes of
achieving income, PIMCO may lend securities to brokers, dealers, and other
financial institutions provided a number of conditions are satisfied, including
that the loan is fully collateralized.

 

3

 

EXHIBIT C-1

 

FEE
SCHEDULE

 

FLAGSTONE
REINSURANCE LIMITED

POLICYHOLDERS FUNDS PORTFOLIO

(Manager’s Account #2628)

 

January 6, 2006

 

Following is the schedule
of annual fees for advice and counseling services performed by Manager with
respect to the domestic Moderate Duration investment portfolio of the client.

 

0.165% on the first $250 million

0.15% thereafter

 

Fees are payable
quarterly in arrears and are computed based on the market value of the Company’s
investment portfolio as reported on the Manager’s statement computed by
averaging the month end market values for each period at the end of the billing
period. Market value for the portfolio will be determined by aggregating the
market value for each asset in the portfolio using the last sale price on the
principal exchange on which the security is listed as reported in the financial
press. If such sale price is not readily available, the market price shall be
determined in good faith by or at the direction of Manager.

 

Fees shall be prorated on
a daily basis when the investment portfolio is under the supervision of Manager
for a portion of any quarter except that in the event services are terminated
in the first three months, no proration shall be made for the first three
months’ fees.

 

The investment portfolio
is comprised of all funds and assets, including cash, cash accruals, additions,
substitutions and alterations which are in the Account.

 

The Company will pay
value added tax, withholding, or similar tax, if any, that may be assessed in
connection with payment of the fee, at the same time management fees are
payable. If income withholding taxes are payable by the Company in connection
with Manager’s fee payments, the Company will pay such additional amount as
needed to hold the Manager harmless against the affect of such taxes.

 

Fees shall be payable in
U.S. dollars.

 

 

EXHIBIT C-2

 

FEE SCHEDULE

 

FLAGSTONE
REINSURANCE LIMITED

CAPITAL FUNDS PORTFOLIO

(Manager’s Account #2629)

 

January 6, 2006

 

Following
is the schedule of annual fees for advice and counseling services performed by
Manager with respect to the Capital Funds Portfolio.

 

The
total fee payable to the Manager by the Company during each one-year period for
portfolio management services shall include a base fee (the “Base Fee”) for
each calendar quarter and an incentive fee (the “Incentive Fee”) for each
Measurement Period (as defined below). Base fees are billed and payable
quarterly in arrears and Incentive Fees are billed and payable annually in arrears,
each based on the average market value (“AMV”) of the Company’s investment
portfolio during the relevant billing period (prorated for any contribution or
withdrawals). AMV shall be calculated by taking the average of the market
values as of the close of business on the last day of each month during the
relevant billing period (prorated for any contribution or withdrawals) as
reported on the Manager’s monthly statement.

 

Market
value for each asset in the portfolio means the last sale price on the principal
exchange on which the security is listed as reported in the financial press. If
such market value is not readily available, the market price shall be
determined in good faith by or at the direction of Manager. The investment
portfolio is comprised of all funds and assets, including cash, cash accruals,
additions, substitutions and alterations which are in the Account.

 

The
Base Fee percentage shall be 0.15% annually. The Base Fee shall be calculated
quarterly according to the following formula:

 

0.0375% x AMV

 

The
Incentive Fee shall be calculated and payable for each Measurement Period (as
defined below) during which the Agreement is in effect. A “Measurement Period”
shall be a twelve (12) month period commencing on the first day of the first
month of the period and ending on the last day of the last month of the period.
The first Measurement Period shall commence on the first day of the month
following the inception of the Account and each subsequent Measurement Period
shall commence on the next anniversary of that date. The Incentive Fee payable
with respect to each Measurement Period shall be computed as follows:

 

a)              The
benchmark index (“Index”) used to calculate the Incentive Fee shall be the
Lehman U.S. Aggregate Index adjusted monthly for a duration of 2.50 years
through a barbell of Lehman U.S. Aggregate and one week Libor.

 

b)             If
the percentage return on the Account during the Measurement Period is not
greater than the percentage return on the Index plus 15 basis points during
that same period, the Incentive Fee for that period shall be zero.

 

 

c)              If
the percentage return on the Account during the Measurement Period is greater
than the percentage return on the Index plus 15 basis points during that same
period, the Incentive Fee for that measurement period shall be calculated
according to the following formula:

 

0.15 x [RM - (RI + .15%)] x AMV

 

d)             For
purposes of the foregoing Fee formula:

 

(i)             RM
shall be equal to the percentage return on the Account (before management fees)
during the Measurement Period; and

 

(ii)          RI
shall be equal to the percentage return on the Index during the Measurement
Period.

 

Fees shall be prorated on
a daily basis when the investment portfolio is under the supervision of Manager
for a portion of any quarter. Notwithstanding the foregoing, should the Account
be terminated before the first Measurement Period elapses fully, the period
from the first day of inception until the date of termination shall be treated
as the first Measurement Period.

 

2

 

EXHIBIT D

 

DESIGNATED REPRESENTATIVES

 

FLAGSTONE
REINSURANCE LIMITED

 

January 6, 2006

 

 

	
  Name/Title
  – Group 1

  	
  Signature

  
	
   

  	
   

  
	
  Mark Byrne –
  Chairman

  	
    /s/
  MARK BYRNE

  	
   

  
	
   

  	
   

  
	
  David Brown –
  CEO

  	
    /s/
  DAVID BROWN

  	
   

  

 

 

	
  Name/Title – Group 2

  	
  Signature

  
	
   

  	
   

  
	
  Tim Calveley –
  CFO

  	
    /s/ TIM
  CALVELEY

  	
   

  
	
   

  	
   

  
	
  Todd White –
  Secretary

  	
    /s/ TODD
  WHITE

  	
   

  
	
   

  	
   

  
	
  Patrick Boisvert
  – Treasurer

  	
    /s/ PATRICK
  BOISVERT

  	
   

  
	
   

  	
   

  
	
  Jason Deane –
  Assistant Treasurer

  	
    /s/ JASON
  DEANE

  	
   

  

 

 

Authorization protocol:

All transfers require two
signatures.

Any transfer over
$200,000 requires at least one signature from Group 1.

Any transfer over
$5,000,000 requires both signatures from Group 1.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]