Exhibit 10.32


 


EXECUTION COPY


 




 





PARENT GUARANTEE AGREEMENT


 


by and between


 


CASTLEPOINT HOLDINGS, LTD.


 


and


 


WILMINGTON TRUST COMPANY


 


Dated as of December 1, 2006




 





 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS AND INTERPRETATION

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Definitions and Interpretation

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Powers and Duties of the Guarantee Trustee

  	
  6

  
	
  Section 2.2

  	
  Certain Rights of the Guarantee Trustee

  	
  8

  
	
  Section 2.3

  	
  Not Responsible for Recitals or Issuance of
  Guarantee

  	
  9

  
	
  Section 2.4

  	
  Events of Default; Waiver

  	
  9

  
	
  Section 2.5

  	
  Events of Default; Notice

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  GUARANTEE TRUSTEE

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Guarantee Trustee; Eligibility

  	
  10

  
	
  Section 3.2

  	
  Appointment, Removal and Resignation of the
  Guarantee Trustee

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  GUARANTEE

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Guarantee

  	
  11

  
	
  Section 4.2

  	
  Waiver of Notice and Demand

  	
  12

  
	
  Section 4.3

  	
  Obligations Not Affected

  	
  13

  
	
  Section 4.4

  	
  Rights of Holders

  	
  14

  
	
  Section 4.5

  	
  Guarantee of Payment

  	
  14

  
	
  Section 4.6

  	
  Subrogation

  	
  14

  
	
  Section 4.7

  	
  Independent Obligations

  	
  14

  
	
  Section 4.8

  	
  Enforcement by a Beneficiary

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  LIMITATION OF TRANSACTIONS; RANKING

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Limitation of Transactions

  	
  15

  
	
  Section 5.2

  	
  Ranking

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  TERMINATION

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Termination

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  INDEMNIFICATION

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Exculpation

  	
  17

  
	
  Section 7.2

  	
  Indemnification

  	
  17

  
	
  Section 7.3

  	
  Compensation; Reimbursement of Expenses

  	
  18

  



 


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  ARTICLE VIII

  	
  MISCELLANEOUS

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Successors and Assigns

  	
  19

  
	
  Section 8.2

  	
  Company May Consolidate, etc., on Certain
  Terms

  	
  19

  
	
  Section 8.3

  	
  Amendments

  	
  19

  
	
  Section 8.4

  	
  Notices

  	
  20

  
	
  Section 8.5

  	
  Benefit

  	
  20

  
	
  Section 8.6

  	
  Governing Law

  	
  21

  
	
  Section 8.7

  	
  Counterparts

  	
  21

  
	
  Section 8.8

  	
  Separability

  	
  22

  



 


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PARENT GUARANTEE AGREEMENT


 


This PARENT GUARANTEE AGREEMENT (this “Guarantee”), dated as of
December 1, 2006, is executed and delivered by CastlePoint Holdings, Ltd., a
[PARENT STATE] corporation (the “Guarantor”), and Wilmington Trust Company, a
banking corporation, organized under the laws of the State of Delaware, (the “Guarantee
Trustee”), for the benefit of the Holders (as defined herein) from time to time
of the Debentures (as defined herein) of CastlePoint Management Corp., a
Delaware corporation and a wholly owned subsidiary of the Guarantor (the “Company”),
and the Capital Securities (as defined herein) of CastlePoint Management
Statutory Trust I, a Delaware statutory trust (the “Issuer”).


 


WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the “Declaration”),
dated as of the date hereof among Wilmington Trust Company, not in its
individual capacity but solely as institutional trustee, the administrators of
the Issuer named therein, the Company, as sponsor of the Issuer, and the
holders from time to time of undivided beneficial interests in the assets of
the Issuer, the Issuer is issuing on the date hereof those undivided beneficial
interests, having an aggregate liquidation amount of $50,000,000 (the “Capital
Securities”);


 


WHEREAS, pursuant to a guarantee (the “Company Guarantee”) dated the
date hereof executed and delivered by the Company and the guarantee trustee
named therein for the benefit of the holders from time to time of the Capital
Securities, the Company has agreed to make certain payments with respect to the
Capital Securities and to make certain other payments with respect to
obligations and liabilities of the Issuer;


 


WHEREAS, pursuant to an indenture of trust (the “Indenture”) dated as
of the date hereof between the Company and Wilmington Trust Company, not in its
individual capacity but solely as trustee, the Company is issuing on the date
hereof $51,547,000 aggregate principal amount of Floating Rate Junior
Subordinated Deferrable Interest Debentures (the “Debentures”);


 


WHEREAS, the Issuer desires to issue the Capital Securities and to use
the proceeds thereof to purchase the Debentures; and


 


WHEREAS, as incentive for the Holders of the Debentures to purchase the
Debentures from the Company and for the Holders of the Capital Securities to
purchase the Capital Securities from the Issuer, the Guarantor desires
irrevocably and unconditionally to agree, to the extent set forth in this Guarantee,
to pay to the Holders of Capital Securities the Guarantee Payments (as defined
herein).


 


NOW, THEREFORE, in consideration of the purchase of the Debentures by
each Debenture Holder and of the Capital Securities by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee for the benefit
of the Holders.


 

















 


ARTICLE I


 


DEFINITIONS AND INTERPRETATION


 


Section
1.1            Definitions and
Interpretation.


 


In this Guarantee, unless the context otherwise requires:


 


(a)           capitalized terms
used in this Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;


 


(b)           a term defined
anywhere in this Guarantee has the same meaning throughout;


 


(c)           all references to “the
Guarantee” or “this Guarantee” are to this Guarantee as modified, supplemented
or amended from time to time;


 


(d)           all references in
this Guarantee to “Articles” or “Sections” are to Articles or Sections of this
Guarantee, unless otherwise specified;


 


(e)           terms defined in the
Declaration as at the date of execution of this Guarantee have the same
meanings when used in this Guarantee, unless otherwise defined in this
Guarantee or unless the context otherwise requires; and


 


(f)            a reference to the
singular includes the plural and vice versa.


 


“Additional Amount” has the meaning set forth in Section 4.1(b).


 


“Additional Junior Indebtedness” means, without duplication and
other than the Guarantee Payments, (a) any indebtedness, liabilities or
obligations of the Guarantor, or any Subsidiary of the Guarantor, under debt
securities (or guarantees in respect of debt securities) initially issued on or
after the date of this Guarantee to any trust, or a trustee of a trust,
partnership or other entity affiliated with the Guarantor that is, directly or
indirectly, a finance subsidiary (as such term is defined in Rule 3a-5 under
the Investment Company Act of 1940) or other financing vehicle of the Guarantor
or any Subsidiary of the Guarantor in connection with the issuance by that
entity of preferred securities, (b) other securities that are issued either
junior and subordinate to or on a pari passu
basis with the Guarantee Payments or (c) any guarantees of the Guarantor
in respect of the equity or other securities of any entity referred to in
clause (a).


 


“Affiliate” has the same meaning as given to that term in
Rule 405 of the Securities Act of 1933, as amended, or any successor rule
thereunder.


 


“Authorized Agent” has the meaning set forth in Section 8.6.


 


“Beneficiaries” means any Person to whom the Company, under the
terms of this Guarantee,  is obligated to
pay any sum or hereafter becomes indebted or liable.


 


“Capital Securities” has the meaning set forth in the recitals to
this Guarantee.


 


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“Common Securities” means the common securities issued by the
Issuer to the Company pursuant to the Declaration.


 


“Company” means CastlePoint Management Corp. and each of its
successors and assigns.


 


“Company Guarantee” means the guarantee dated the date hereof
executed and delivered by the Company and the guarantee trustee named therein
for the benefit of the holders from time to time of the Capital Securities.


 


“Corporate Trust Office” means the office of the Guarantee
Trustee at which the corporate trust business of the Guarantee Trustee shall,
at any particular time, be principally administered, which office at the date
of execution of this Guarantee is located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890.


 


“Covered Person” means any Holder of Debentures or Capital
Securities.


 


“Debentures” means the debt securities of the Company designated
the Floating Rate Junior Subordinated Deferrable Interest Debentures due 2034
held by the Institutional Trustee (as defined in the Declaration) of the
Issuer.


 


“Declaration” has the meaning set forth in the recitals.


 


“Declaration Event of Default” means an “Event of Default” as
defined in the Declaration.


 


“Event of Default” has the meaning set forth in Section 2.4(a).


 


“Foreign Jurisdiction” has the meaning set forth in Section
4.1(b).


 


“Foreign Taxes” has the meaning set forth in Section 4.1(b).


 


“Guarantee Payments” means the following payments or
distributions, without duplication, to the extent not paid or made by the
Company:  (i) with respect to the
Debentures, any payment that the Company is obligated to make under the
Debentures and/or the Indenture; and (ii) with respect to the Capital
Securities, any payments that the Company is obligated to make with respect to
the Company Guarantee.


 


“Guarantee Trustee” means Wilmington Trust Company, until a
Successor Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Guarantee and thereafter means each
such Successor Guarantee Trustee.


 


“Guarantor” means CastlePoint Holdings, Ltd. and each of its
successors and assigns.


 


“Holder” means (i) any holder, as registered on the books and
records of the Indenture Trustee, of any Debenture or (ii) any holder, as
registered on the books and records of the Issuer, of any Capital Securities; provided,
however, that, in determining whether the Holders


 


3

















 


of the requisite percentage of Debentures and Capital Securities have
given any request, notice, consent or waiver hereunder, “Holder” shall not
include the Guarantor or any Affiliate of the Guarantor.


 


“Indemnified Person” means the Guarantee Trustee, any Affiliate
of the Guarantee Trustee, or any officers, directors, shareholders, members,
partners, employees, representatives, nominees, custodians or agents of the
Guarantee Trustee.


 


“Indenture” means the Indenture dated as of the date hereof
between the Company and Wilmington Trust Company, not in its individual
capacity but solely as trustee, and any indenture supplemental thereto pursuant
to which the Debentures are to be issued to the institutional trustee of the
Issuer.


 


“Indenture Trustee” means Wilmington Trust Company, in its capacity
as trustee under the Indenture, and its permitted successors and assigns.


 


“Issuer” has the meaning set forth in the opening paragraph to
this Guarantee.


 


“Liquidation Distribution” has the meaning set forth in the
definition of “Guarantee Payments” herein.


 


“Majority in liquidation amount of the Capital Securities” means
Holder(s) of outstanding Capital Securities, voting together as a class, but
separately from the holders of Common Securities, of more than 50% of the
aggregate liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Capital
Securities then outstanding.


 


“Majority of principal amount of the Debentures” means Holder(s)
of outstanding Debentures, voting together as a class, of more than 50% of the
aggregate principal amount of all Debentures then outstanding.


 


“Majority of the Holders of Debentures and Capital Securities”
means Majority in liquidation amount of the Capital Securities and Majority of
principal amount of the Debentures.


 


“New York Court” has the meaning set forth in Section 8.6.


 


“Officer’s Certificate” means, with respect to any Person, a
certificate signed by one Authorized Officer of such Person. Any Officer’s
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Guarantee shall include:


 


(a)           a
statement that the officer signing the Officer’s Certificate has read the covenant
or condition and the definitions relating thereto;


 


(b)           a
brief statement of the nature and scope of the examination or investigation
undertaken by the officer in rendering the Officer’s Certificate;


 


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(c)           a
statement that the officer has made such examination or investigation as, in
such officer’s opinion, is necessary to enable such officer to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and


 


(d)           a
statement as to whether, in the opinion of the officer, such condition or
covenant has been complied with.


 


“Optional Redemption Price” has the meaning set forth in the
Indenture.


 


“Person” means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.


 


“Responsible Officer” means, with respect to the Guarantee
Trustee, any officer within the Corporate Trust Office of the Guarantee Trustee
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of the Guarantee Trustee customarily performing
functions similar to those performed by any of the above designated officers
and also, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer’s knowledge of
and familiarity with the particular subject.


 


“Senior Indebtedness” means, with respect to the Guarantor,
(i) the principal, premium, if any, and interest in respect of
(A) indebtedness of the Guarantor for money borrowed and
(B) indebtedness evidenced by securities, debentures, notes, bonds or
other similar instruments issued by the Guarantor; (ii) all capital lease
obligations of the Guarantor; (iii) all obligations of the Guarantor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Guarantor and all obligations of the Guarantor under
any title retention agreement; (iv) all obligations of the Guarantor for
the reimbursement of any letter of credit, any banker’s acceptance, any
security purchase facility, any repurchase agreement or similar arrangement,
any interest rate swap, any other hedging arrangement, any obligation under
options or any similar credit or other transaction; (v) all obligations of
the type referred to in clauses (i) through (iv) above of other Persons
for the payment of which the Guarantor is responsible or liable as obligor,
guarantor or otherwise; and (vi) all obligations of the type referred to
in clauses (i) through (v) above of other Persons secured by any lien on
any property or asset of the Guarantor (whether or not such obligation is
assumed by the Guarantor), whether incurred on or prior to the date of this
Indenture or thereafter incurred. Notwithstanding the foregoing, “Senior
Indebtedness” shall not include (1) any Additional Junior Indebtedness,
(2) trade accounts payable of the Guarantor arising in the ordinary course
of business (such trade accounts payable being pari
passu in right of payment to the Guarantee Payments), or (3)
obligations with respect to which (a) in the instrument creating or evidencing
the same or pursuant to which the same is outstanding, it is provided that such
obligations are pari passu,
junior or otherwise not superior in right of payment to the Guarantee Payments
and (b) the Guarantor, prior to the issuance thereof, has, if required,
notified the relevant state insurance regulatory agency. Senior Indebtedness
shall continue to be Senior Indebtedness and be entitled to the subordination
provisions irrespective of any amendment, modification or waiver of any term of
such Senior Indebtedness.


 


5

















 


“Special Event” has the meaning set forth in the Indenture.


 


“Special Redemption Price” has the meaning set forth in the
Indenture.


 


“Subsidiary” means with respect to any Person, (i) any
corporation at least a majority of the outstanding voting stock of which is
owned, directly or indirectly, by such Person or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries, (ii) any
general partnership, joint venture or similar entity, at least a majority of
the outstanding partnership or similar interests of which shall at the time be
owned by such Person, or by one or more of its Subsidiaries, or by such Person
and one or more of its Subsidiaries and (iii) any limited partnership of which
such Person or any of its Subsidiaries is a general partner. For the purposes
of this definition, “voting stock” means shares, interests, participations or
other equivalents in the equity interest (however designated) in such Person
having ordinary voting power for the election of a majority of the directors
(or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.


 


“Successor Guarantee Trustee” means a successor Guarantee
Trustee possessing the qualifications to act as Guarantee Trustee under
Section 3.1.


 


ARTICLE II


 


POWERS, DUTIES AND RIGHTS OF THE

GUARANTEE TRUSTEE


 


Section
2.1            Powers and Duties of the
Guarantee Trustee.


 


(a)           This Guarantee shall be held by the
Guarantee Trustee for the benefit of the Holders of the Debentures and the
Holders of the Capital Securities, and the Guarantee Trustee shall not transfer
this Guarantee to any Person except a Holder of Debentures or Capital
Securities exercising his or her rights pursuant to Section 4.4(b) or to a
Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee
of its appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee shall automatically vest in any Successor
Guarantee Trustee, and such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to the appointment of such Successor Guarantee Trustee.


 


(b)           If an Event of Default actually known
to a Responsible Officer of the Guarantee Trustee has occurred and is
continuing, the Guarantee Trustee shall enforce this Guarantee for the benefit
of the Holders of the Debentures and/or the Holders of the Capital Securities.


 


(c)           The Guarantee Trustee, before the
occurrence of any Event of Default and after the curing or waiving of all
Events of Default that may have occurred, shall undertake to perform only such
duties as are specifically set forth in this Guarantee, and no implied
covenants shall be read into this Guarantee against the Guarantee Trustee. In
case an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.4) and is actually known to a Responsible Officer of
the Guarantee Trustee, the Guarantee Trustee shall exercise such of the rights
and powers vested in it by this Guarantee, and use the same degree of care and
skill in its


 


6

















 


exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.


 


(d)           No provision of this Guarantee shall
be construed to relieve the Guarantee Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:


 


(i)            prior to the
occurrence of any Event of Default and after the curing or waiving of all such
Events of Default that may have occurred:


 


(A)          the duties and
obligations of the Guarantee Trustee shall be determined solely by the express
provisions of this Guarantee, and the Guarantee Trustee shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Guarantee, and no implied covenants or obligations shall be
read into this Guarantee against the Guarantee Trustee; and


 


(B)           in the absence of
bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Guarantee Trustee and conforming to the requirements of this Guarantee; but in
the case of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Guarantee;


 


(ii)           the Guarantee
Trustee shall not be liable for any error of judgment made in good faith by a
Responsible Officer of the Guarantee Trustee, unless it shall be proved that
such Responsible Officer of the Guarantee Trustee or the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;


 


(iii)          the Guarantee
Trustee shall not be liable with respect to any action taken or omitted to be
taken by it in good faith in accordance with the written direction of the
Holders of not less than a Majority in liquidation amount of the Capital
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee, or relating to the exercise
of any trust or power conferred upon the Guarantee Trustee under this Guarantee;
and


 


(iv)          no provision of this
Guarantee shall require the Guarantee Trustee to expend or risk its own funds
or otherwise incur personal financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers, if the Guarantee
Trustee shall have reasonable grounds for believing that the repayment of such
funds is not reasonably assured to it under the terms of this Guarantee or
security and indemnity, reasonably satisfactory to the Guarantee Trustee,
against such risk or liability is not reasonably assured to it.


 


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Section
2.2            Certain Rights of the
Guarantee Trustee.


 


(a)           Subject to the provisions of Section
2.1:


 


(i)            The Guarantee
Trustee may conclusively rely, and shall be fully protected in acting or
refraining from acting upon, any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document believed
by it to be genuine and to have been signed, sent or presented by the proper
party or parties.


 


(ii)           Any direction or
act of the Guarantor contemplated by this Guarantee shall be sufficiently
evidenced by an Officer’s Certificate.


 


(iii)          Whenever, in the
administration of this Guarantee, the Guarantee Trustee shall deem it desirable
that a matter be proved or established before taking, suffering or omitting any
action hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part, request
and conclusively rely upon an Officer’s Certificate of the Guarantor which,
upon receipt of such request, shall be promptly delivered by the Guarantor.


 


(iv)          The Guarantee
Trustee shall have no duty to see to any recording, filing or registration of
any instrument (or any re-recording, refiling or re-registration thereof).


 


(v)           The Guarantee
Trustee may consult with counsel of its selection, and the advice or opinion of
such counsel with respect to legal matters shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice or
opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates
and may include any of its employees. The Guarantee Trustee shall have the
right at any time to seek instructions concerning the administration of this
Guarantee from any court of competent jurisdiction.


 


(vi)          The Guarantee
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by this Guarantee at the request or direction of any Holder,
unless such Holder shall have provided to the Guarantee Trustee such security
and indemnity, reasonably satisfactory to the Guarantee Trustee, against the
costs, expenses (including attorneys’ fees and expenses and the expenses of the
Guarantee Trustee’s agents, nominees or custodians) and liabilities that might
be incurred by it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee; provided,
however, that nothing contained in this Section 2.2(a)(vi) shall relieve
the Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this Guarantee.


 


(vii)         The Guarantee
Trustee shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Guarantee Trustee,
in its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit.


 


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(viii)        The Guarantee
Trustee may execute any of the trusts or powers hereunder or perform any duties
hereunder either directly or by or through agents, nominees, custodians or
attorneys, and the Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed with
due care by it hereunder.


 


(ix)           Any action taken by
the Guarantee Trustee or its agents hereunder shall bind the Holders of the
Debentures and the Holders of the Capital Securities, and the signature of the
Guarantee Trustee or its agents alone shall be sufficient and effective to
perform any such action. No third party shall be required to inquire as to the
authority of the Guarantee Trustee to so act or as to its compliance with any
of the terms and provisions of this Guarantee, both of which shall be
conclusively evidenced by the Guarantee Trustee’s or its agent’s taking such
action.


 


(x)            Whenever in the
administration of this Guarantee the Guarantee Trustee shall deem it desirable
to receive instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Guarantee Trustee (i) may request
instructions from a Majority of the Holders of Debentures and Capital Securities,
(ii) may refrain from enforcing such remedy or right or taking such other
action until such instructions are received, and (iii) shall be protected
in conclusively relying on or acting in accordance with such instructions.


 


(xi)           The Guarantee Trustee
shall not be liable for any action taken, suffered, or omitted to be taken by
it in good faith, without negligence, and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Guarantee.


 


(b)           No provision of this Guarantee shall
be deemed to impose any duty or obligation on the Guarantee Trustee to perform
any act or acts or exercise any right, power, duty or obligation conferred or
imposed on it, in any jurisdiction in which it shall be illegal or in which the
Guarantee Trustee shall be unqualified or incompetent in accordance with
applicable law to perform any such act or acts or to exercise any such right,
power, duty or obligation. No permissive power or authority available to the
Guarantee Trustee shall be construed to be a duty.


 


Section
2.3            Not Responsible for
Recitals or Issuance of Guarantee.


 


The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representation as to the validity or sufficiency of this Guarantee.


 


Section
2.4            Events of Default;
Waiver.


 


(a)           An Event of Default under this
Guarantee will occur upon the failure of the Guarantor to perform any of its
payment or other obligations hereunder.


 


(b)           A Majority of the Holders of
Debentures and Capital Securities may, voting or consenting as a class, on
behalf of the Holders of all of the Debentures and the Capital Securities,


 


9

















 


waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and shall be deemed to have been cured, for every purpose of this Guarantee,
but no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon.


 


Section
2.5            Events of Default;
Notice.


 


(a)           The Guarantee Trustee shall, within
90 days after the occurrence of an Event of Default, transmit by mail, first
class postage prepaid, to the Holders of the Debentures and the Capital
Securities and the Guarantor, notices of all Events of Default actually known
to a Responsible Officer of the Guarantee Trustee, unless such defaults have
been cured before the giving of such notice, provided, however,
that the Guarantee Trustee shall be protected in withholding such notice if and
so long as a Responsible Officer of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Debentures and the Holders of the Capital Securities.


 


(b)           The Guarantee Trustee shall not be
deemed to have knowledge of any Event of Default unless the Guarantee Trustee
shall have received written notice from the Guarantor or a Holder of the
Capital Securities (except in the case of a payment default), or a Responsible
Officer of the Guarantee Trustee charged with the administration of this
Guarantee shall have obtained actual knowledge thereof.


 


ARTICLE III


 


GUARANTEE TRUSTEE


 


Section
3.1            Guarantee Trustee;
Eligibility.


 


(a)           There shall at all times be a
Guarantee Trustee which shall:


 


(i)            not be an Affiliate
of the Guarantor, and


 


(ii)           be a banking
corporation or national association organized and doing business under the laws
of the United States of America or any State or Territory thereof or of the
District of Columbia, or Person authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
fifty million U.S. dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of Columbia authority. If
such corporation or national association publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this Section
3.1(a)(ii), the combined capital and surplus of such corporation or national
association shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published.


 


(b)           If at any time the Guarantee Trustee
shall cease to be eligible to so act under Section 3.1(a), the Guarantee
Trustee shall immediately resign in the manner and with the effect set forth in
Section 3.2(c).


 


10

















 


(c)           If the Guarantee Trustee has or shall
acquire any “conflicting interest” within the meaning of Section 310(b) of the
Trust Indenture Act, the Guarantee Trustee shall either eliminate such interest
or resign to the extent and in the manner provided by, and subject to this
Guarantee.


 


Section
3.2            Appointment, Removal and
Resignation of the Guarantee Trustee.


 


(a)           Subject to Section 3.2(b), the
Guarantee Trustee may be appointed or removed without cause at any time by the
Guarantor except during an Event of Default.


 


(b)           The Guarantee Trustee shall not be
removed in accordance with Section 3.2(a) until a Successor Guarantee Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Guarantee Trustee and delivered to the Guarantor.


 


(c)           The Guarantee Trustee appointed to
office shall hold office until a Successor Guarantee Trustee shall have been
appointed or until its removal or resignation. The Guarantee Trustee may resign
from office (without need for prior or subsequent accounting) by an instrument
in writing executed by the Guarantee Trustee and delivered to the Guarantor,
which resignation shall not take effect until a Successor Guarantee Trustee has
been appointed and has accepted such appointment by an instrument in writing
executed by such Successor Guarantee Trustee and delivered to the Guarantor and
the resigning Guarantee Trustee.


 


(d)           If no Successor Guarantee Trustee
shall have been appointed and accepted appointment as provided in this
Section 3.2 within 60 days after delivery of an instrument of removal
or resignation, the Guarantee Trustee resigning or being removed may petition
any court of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Guarantee Trustee.


 


(e)           No Guarantee Trustee shall be liable
for the acts or omissions to act of any Successor Guarantee Trustee.


 


(f)            Upon termination of this Guarantee
or removal or resignation of the Guarantee Trustee pursuant to this Section
3.2, the Guarantor shall pay to the Guarantee Trustee all amounts owing to the
Guarantee Trustee under Sections 7.2 and 7.3 accrued to the date of such
termination, removal or resignation.


 


ARTICLE IV


 


GUARANTEE


 


Section
4.1            Guarantee.


 


(a)           The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders of the Debentures or the
Capital Securities, as the case may be, the Guarantee Payments (without
duplication of amounts theretofore paid by the Company), as and when due,
regardless of any defense (except the defense of payment by the Company), right
of set-off or counterclaim that


 


11

















 


the Company may have or assert. The Guarantor’s
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Guarantor to the Holders of the Debentures or the
Capital Securities, as the case may be, or by causing the Company to pay such
amounts to the Holders of the Debentures or the Capital Securities, as the case
may be.


 


(b)           All Guarantee Payments made from time
to time with respect to this Guarantee shall be in U.S. dollars and shall be payable
free and clear of, and without deduction or withholding for, or on account of,
any and all present or future taxes, duties, assessments, levies and other
governmental charges of any nature whatsoever now or hereafter imposed, levied,
collected, withheld or assessed by or on behalf of any jurisdiction from which
such payments are made, or any territory or political subdivision thereof,
unless such deduction or withholding is required by law (“Foreign Taxes”). If
by operation of law or otherwise, Foreign Taxes are required to be deducted or
withheld from any amounts payable to a Holder, the Guarantor agrees to pay such
additional amounts to each Holder (the “Additional Amounts”) as may be
necessary to ensure that the net amount actually received by the Holder, after
deduction of any Foreign Taxes imposed with respect to the payment of such
Additional Amounts, shall equal the amount the Holder would have received if
Foreign Taxes had been deducted or withheld from such payment; provided,
however, that no Additional Amounts shall be so payable for or on
account of:


 


(i)            any Foreign Taxes
which would not have been imposed but for the fact that any Holder:


 


(A)          had a present or
former personal or business connection with any jurisdiction from which
payments are made, or any territory or political subdivision thereof (a “Foreign
Jurisdiction”) other than the mere ownership of, or receipt of payment under,
the Debentures or Capital Securities;


 


(B)           presented such
Debentures or Capital Securities for payment in any Foreign Jurisdiction unless
such Debentures or Capital Securities could not have been presented for payment
elsewhere; or


 


(C)           presented a
Debenture or Capital Security for payment more than fifteen (15) days after the
date on which such payment became due and payable or the date on which payment
thereof is duly provided for, whichever occurs later;


 


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


 


(iii)          any Foreign Taxes
which are payable otherwise than by withholding or deduction.


 


Section
4.2            Waiver of Notice and
Demand.


 


The Guarantor hereby waives notice of acceptance of this Guarantee and
of any liability to which it applies or may apply, presentment, demand for
payment, any right to require a proceeding first against the Company or any
other Person before proceeding against the


 


12

















 


Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.


 


Section
4.3            Obligations Not
Affected.


 


The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:


 


(a)           the release or waiver, by operation
of law or otherwise, of the performance or observance by the Company of any
express or implied agreement, covenant, term or condition relating to the
Debentures or the Capital Securities to be performed or observed by the
Company;


 


(b)           the extension of time for the payment
by the Company of all or any portion of the interest (or Additional Interest
(as defined in the Indenture)), principal (or premium), Optional Redemption
Price, Special Redemption Price or any other sums payable under the terms of
the Debentures or the extension of time for the performance of any other
obligation under, arising out of or in connection with, the Debentures (other
than an extension of time for payment of interest (or Additional Interest),
principal (or premium), Optional Redemption Price, Special Redemption Price or
other sum payable that results from the extension of any interest payment
period on the Debentures or any extension of the maturity date of the
Debentures permitted by the Indenture);


 


(c)           the extension of time for the payment
by the Issuer of all or any portion of the Distributions, Optional Redemption
Price, Special Redemption Price, Liquidation Distribution or any other sums
payable under the terms of the Capital Securities or the extension of time for
the performance of any other obligation under, arising out of or in connection
with, the Capital Securities (other than an extension of time for payment of
Distributions, Optional Redemption Price, Special Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures or any extension of the maturity date
of the Debentures permitted by the Indenture);


 


(d)           any failure, omission, delay or lack
of diligence on the part of the Holders to enforce, assert or exercise any
right, privilege, power or remedy conferred on the Holders pursuant to the
terms of the Debentures or the Capital Securities, or any action on the part of
the Company or Issuer granting indulgence or extension of any kind;


 


(e)           the voluntary or involuntary
liquidation, dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, the Company or the Issuer or any of the assets of the
Company or the Issuer;


 


(f)            any invalidity of, or defect or
deficiency in, the Debentures or the Capital Securities;


 


(g)           the settlement or compromise of any
obligation guaranteed hereby or hereby incurred; or


 


13

















 


(h)           any other circumstance whatsoever
that might otherwise constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 4.3 that the obligations of
the Guarantor hereunder shall be absolute and unconditional under any and all
circumstances.


 


There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.


 


Section
4.4            Rights of Holders.


 


(a)           The Majority of the Holders of
Debentures and Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of this Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under this Guarantee; provided,
however, that (subject to Section 2.1) the Guarantee Trustee shall
have the right to decline to follow any such direction if the Guarantee Trustee
being advised by counsel determines that the action or proceeding so directed
may not lawfully be taken or if the Guarantee Trustee in good faith by its
board of directors or trustees, executive committees or a trust committee of
directors or trustees and/or Responsible Officers shall determine that the
action or proceedings so directed would involve the Guarantee Trustee in
personal liability.


 


(b)           Any Holder of Debentures or Capital
Securities may institute a legal proceeding directly against the Guarantor to
enforce the Guarantee Trustee’s rights under this Guarantee, without first
instituting a legal proceeding against the Company, the Issuer, the Guarantee
Trustee or any other Person. The Guarantor waives any right or remedy to
require that any such action be brought first against the Company or the
Issuer, the Guarantee Trustee or any other Person before so proceeding directly
against the Guarantor.


 


Section
4.5            Guarantee of Payment.


 


This Guarantee creates a guarantee of payment and not of collection.


 


Section
4.6            Subrogation.


 


The Guarantor shall be subrogated to all (if any) rights of the Holders
of the Debentures and the Capital Securities against the Company in respect of
any amounts paid to such Holders by the Guarantor under this Guarantee; provided,
however, that the Guarantor shall not (except to the extent required by
applicable provisions of law) be entitled to enforce or exercise any right that
it may acquire by way of subrogation or any indemnity, reimbursement or other
agreement, in all cases as a result of payment under this Guarantee, if, after
giving effect to any such payment, any amounts are due and unpaid under this
Guarantee. If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.


 


Section
4.7            Independent Obligations.


 


The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Company with respect to the Debentures and of the
obligations of the Issuer


 


14

















 


with respect to the Capital Securities and that the Guarantor shall be
liable as principal and as debtor hereunder to make Guarantee Payments pursuant
to the terms of this Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 4.3 hereof.


 


Section
4.8            Enforcement by a
Beneficiary.


 


A Beneficiary may enforce the obligations of the Guarantor contained in
Section 4.1 directly against the Guarantor and the Guarantor waives any right
or remedy to require that any action be brought against the Issuer or any other
Person or entity before proceeding against the Guarantor. The Guarantor shall
be subrogated to all rights (if any) of any Beneficiary against the Issuer in
respect of any amounts paid to the Beneficiaries by the Guarantor under this
Guarantee; provided, however, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any rights that it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of
payment under this Guarantee, if at the time of any such payment, and after
giving effect to such payment, any amounts are due and unpaid under this
Guarantee.


 


ARTICLE V


 


LIMITATION
OF TRANSACTIONS; RANKING


 


Section
5.1            Limitation of
Transactions.


 


So long as any Debentures or Capital Securities remain outstanding, if
(a) there shall have occurred and be continuing an Event of Default or a
Declaration Event of Default or (b) the dollar amount of the Guarantor’s and
the subsidiaries’ gross written premiums on a consolidated basis from insurance
policies in any calendar year fails to exceed 51% of the Guarantor’s and the
subsidiaries’ gross written premiums on a consolidated basis from insurance
policies in the previous calendar year; (c) the Guarantor and its subsidiaries
on a consolidated basis sell more than 51% of its rights to renew insurance
policies in any single transaction or series of related transactions; (d) any
Significant Subsidiary (as defined in Section 1-02(w) of Regulation S-X to
the Securities Act (the “Significant Subsidiaries”)) of the Guarantor which is
rated by A.M. Best Company, Inc. (x) receives a rating from A.M. Best Company
Inc. of B- or lower; or (y) submits a request to withdraw its rating by A.M
Best Company, Inc.; (e) the Company shall be in default with respect to
its payment of any obligations under the Capital Securities Guarantee; or
(f) the Company shall have selected an Extension Period as provided in the
Declaration and such period, or any extension thereof, shall have commenced and
be continuing, then the Guarantor shall not and shall not permit any Subsidiary
to (x) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Guarantor’s or such Subsidiary’s capital stock (other than payments of
dividends or distributions to the Company or the Guarantor or any Subsidiary
thereof) or make any guarantee payments with respect to the foregoing;
(y) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company or the Guarantor
or any Subsidiary thereof that rank pari
passu in all respects with or junior in interest to the Debentures;
or (z) enter into, amend or modify any contract with a shareholder owning more
than 10% of the outstanding shares of the common stock of the


 


15

















 


Guarantor that could require cash payments by the Guarantor to such
shareholder, other than with Tower Group, Inc. or any of its wholly-owned
subsidiaries, that could require cash payments by the Sponsor to such
shareholder (other than, with respect to clauses (x) and (y) above,
(i) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company or the Guarantor or any Subsidiary thereof in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of one or more employees, officers, directors or consultants,
in connection with a dividend reinvestment or stockholder stock purchase plan
or in connection with the issuance of capital stock of the Company or the
Guarantor, or of such Subsidiary, as the case may be (or securities convertible
into or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the occurrence of the Event of Default,
Declaration Event of Default or selection of an Extension Period by the
Company, as applicable, (ii) as a result of any exchange or conversion of
any class or series of the Company’s or the Guarantor’s capital stock (or any
capital stock of a Subsidiary of the Company or the Guarantor) for any class or
series of the Company’s or the Guarantor’s capital stock, as the case may be
(or in the case of a Subsidiary of the Company or Guarantor, any class or
series of such Subsidiary’s capital stock), or of any class or series of the
Company’s or the Guarantor’s indebtedness for any class or series of the
Company or the Guarantor’s capital stock, as the case may be (or in the case of
indebtedness of a Subsidiary of the Company or Guarantor, of any class or
series of such Subsidiary’s indebtedness for any class or series of such
Subsidiary’s capital stock), (iii) the purchase of fractional interests in
shares of the Company’s or the Guarantor’s capital stock (or the capital stock
of a Subsidiary of the Guarantor) pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) any declaration of a dividend in connection with any stockholders’
rights plan, or the issuance of rights, stock or other property under any
stockholders’ rights plan, or the redemption or repurchase of rights pursuant
thereto, (v) any dividend in the form of stock, warrants, options or other
rights where the dividend stock or the stock issuable upon exercise of such
warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu
with or junior to such stock and any cash payments in lieu of fractional shares
issued in connection therewith, or (vi) payments under this Guarantee).


 


Section
5.2            Ranking.


 


This Guarantee will constitute an unsecured obligation of the Guarantor
and will rank subordinate and junior in right of payment to all present and
future Senior Indebtedness of the Guarantor. The right of the Guarantor to
participate in any distribution of assets of any of its Subsidiaries upon any
such Subsidiary’s liquidation or reorganization or otherwise is subject to the
prior claims of creditors of that Subsidiary, except to the extent the
Guarantor may itself be recognized as a creditor of that Subsidiary. Accordingly,
the Guarantor’s obligations under this Guarantee will be effectively
subordinated to all existing and future liabilities of the Guarantor’s Subsidiaries,
and claimants should look only to the assets of the Guarantor for payments
hereunder. This Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Guarantor under any indenture or other
instrument that the Guarantor may enter into in the future or otherwise.


 


16

















 


ARTICLE VI


 


TERMINATION


 


Section
6.1            Termination.


 


This Guarantee shall terminate as to the Capital Securities and the
Debentures (i) upon full payment of (A) the Optional Redemption Price or
Special Redemption Price of all Debentures then outstanding and (B) the
Optional Redemption Price or Special Redemption Price of all Capital Securities
then outstanding or (ii) (A) upon full payment of the amounts payable in
accordance with the Declaration upon dissolution of the Issuer and (B) upon
discharge of the Indenture pursuant to Article XII thereof. This Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder of the Debentures or the Capital Securities must restore
payment of any sums paid under the Debentures or the Capital Securities or
under this Guarantee.


 


ARTICLE VII


 


INDEMNIFICATION


 


Section
7.1            Exculpation.


 


(a)           No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Guarantor or
any Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good faith in
accordance with this Guarantee and in a manner that such Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Indemnified Person by this Guarantee or by law, except that an Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason of
such Indemnified Person’s negligence or willful misconduct with respect to such
acts or omissions.


 


(b)           An Indemnified Person shall be fully
protected in relying in good faith upon the records of the Company, the Issuer
or the Guarantor and upon such information, opinions, reports or statements
presented to the Company, the Issuer or the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other Person’s
professional or expert competence and who, if selected by such Indemnified
Person, has been selected with reasonable care by such Indemnified Person,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which payments to Holders
of Debentures or Distributions to Holders of Capital Securities might properly
be paid.


 


Section
7.2            Indemnification.


 


(a)           The Guarantor agrees to indemnify
each Indemnified Person for, and to hold each Indemnified Person harmless
against, any and all loss, liability, damage, claim or expense incurred without
negligence or willful misconduct on the part of the Indemnified Person, arising
out of or in connection with the acceptance or administration of the trust or
trusts hereunder, including, but not limited to, the costs and expenses
(including reasonable legal fees and


 


17

















 


expenses) of the Indemnified Person defending
itself against, or investigating, any claim or liability in connection with the
exercise or performance of any of the Indemnified Person’s powers or duties
hereunder. The obligation to indemnify as set forth in this Section 7.2
shall survive the resignation or removal of the Guarantee Trustee and the
termination of this Guarantee.


 


(b)           Promptly after receipt by an
Indemnified Person under this Section 7.2 of notice of the commencement of
any action, such Indemnified Person will, if a claim in respect thereof is to be
made against the Guarantor under this Section 7.2, notify the Guarantor in
writing of the commencement thereof; but the failure so to notify the Guarantor
(i) will not relieve the Guarantor from liability under paragraph (a)
above unless and to the extent that the Guarantor did not otherwise learn of
such action and such failure results in the forfeiture by the Guarantor of
substantial rights and defenses and (ii) will not, in any event, relieve
the Guarantor from any obligations to any Indemnified Person other than the
indemnification obligation provided in paragraph (a) above. The Guarantor
shall be entitled to appoint counsel of the Guarantor’s choice at the Guarantor’s
expense to represent the Indemnified Person in any action for which
indemnification is sought (in which case the Guarantor shall not thereafter be
responsible for the fees and expenses of any separate counsel retained by the
Indemnified Person or Persons except as set forth below); provided, however,
that such counsel shall be reasonably satisfactory to the Indemnified Person. Notwithstanding
the Guarantor’s election to appoint counsel to represent the Guarantor in an
action, the Indemnified Person shall have the right to employ separate counsel
(including local counsel), and the Guarantor shall bear the reasonable fees,
costs and expenses of such separate counsel if (i) the use of counsel
chosen by the Guarantor to represent the Indemnified Person would present such
counsel with a conflict of interest, (ii) the actual or potential defendants
in, or targets of, any such action include both the Indemnified Person and the
Guarantor and the Indemnified Person shall have reasonably concluded that there
may be legal defenses available to it and/or other Indemnified Person(s) which
are different from or additional to those available to the Guarantor,
(iii) the Guarantor shall not have employed counsel satisfactory to the
Indemnified Person to represent the Indemnified Person within a reasonable time
after notice of the institution of such action or (iv) the Guarantor shall
authorize the Indemnified Person to employ separate counsel at the expense of
the Guarantor. The Guarantor will not, without the prior written consent of the
Indemnified Persons, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the Indemnified Persons are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each Indemnified Person from all liability
arising out of such claim, action, suit or proceeding.


 


Section
7.3            Compensation;
Reimbursement of Expenses.


 


The Guarantor agrees:


 


(a)           to pay to the Guarantee Trustee from
time to time such compensation for all services rendered by it hereunder as the
parties shall agree to from time to time (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust); and


 


18

















 


(b)           except as otherwise expressly
provided herein, to reimburse the Guarantee Trustee upon request for all
reasonable expenses, disbursements and advances incurred or made by it in
accordance with any provision of this Guarantee (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or willful misconduct.


 


The provisions of this Section 7.3 shall survive the resignation
or removal of the Guarantee Trustee and the termination of this Guarantee.


 


ARTICLE VIII


 


MISCELLANEOUS


 


Section
8.1            Successors and Assigns.


 


All guarantees and agreements contained in this Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Debentures and
the Capital Securities then outstanding. Except in connection with any merger
or consolidation of the Guarantor with or into another entity or any sale,
transfer or lease of the Guarantor’s assets to another entity, in each case, to
the extent permitted under Section 8.2, the Guarantor may not assign its rights
or delegate its obligations under this Guarantee without the prior approval of
the Majority of the Holders of Debentures and Capital Securities.


 


Section
8.2            Company May Consolidate,
etc., on Certain Terms.


 


Nothing contained in this Guarantee shall prevent any consolidation or
merger of the Guarantor with or into any other Person (whether or not
affiliated with the Guarantor) or successive consolidations or mergers in which
the Guarantor or its successor or successors shall be a party or parties, or shall
prevent any sale, conveyance, transfer or other disposition of the property or
capital stock of the Guarantor or its successor or successors as an entirety,
or substantially as an entirety, to any other Person (whether or not affiliated
with the Guarantor, or its successor or successors) authorized to acquire and
operate the same; provided, however, that the Guarantor hereby covenants and
agrees that, upon any such consolidation, merger (where the Guarantor is not
the surviving corporation), sale, conveyance, transfer or other disposition,
the due and punctual payment of the any and all obligations of the Guarantor
under this Guarantee and the performance and observance of all the covenants
and conditions of this Guarantee to be kept or performed by the Guarantor,
shall be expressly assumed in a guarantee satisfactory in form to the Guarantee
Trustee executed and delivered to the Guarantee Trustee by the entity formed by
such consolidation, or into which the Guarantor shall have been merged, or by
the entity which shall have acquired such property or capital stock.


 


Section
8.3            Amendments.


 


Except with respect to any changes that do not adversely affect the
rights of Holders of the Debentures or the Capital Securities in any material
respect (in which case no consent of Holders will be required), this Guarantee
may be amended only with the prior approval of the Majority of the Holders of
Debentures and Capital Securities and the Guarantor.


 


19

















 


The provisions of the Declaration with respect to amendments thereof
apply to the giving of such approval.


 


Section
8.4            Notices.


 


All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by first class mail, as follows:


 


(a)           If given to the Guarantee Trustee, at
the Guarantee Trustee’s mailing address set forth below (or such other address
as the Guarantee Trustee may give notice of to the Holders of Debentures and
the Holders of the Capital Securities and the Guarantor):


 


Wilmington Trust Company

1100 North Market Street

Wilmington, Delaware 19890

Attention:  Corporate Trust
Administration

Telecopy:  302-636-4140


 


(b)           If given to the Guarantor, at the
Guarantor’s mailing address set forth below (or such other address as the
Guarantor may give notice of to the Holders of the Debentures and the Capital
Securities and to the Guarantee Trustee):


 


CastlePoint Holdings, Ltd.

Clarendon House


2 Church Street


Hamilton HM


Bermuda

Attention:  Joel Weiner, Chief Financial
Officer

Telecopy:  441-292-4720


 


(c)           If given to any Holder of the
Debentures and the Capital Securities, at the address set forth on the books
and records of the Indenture Trustee and Issuer, respectively.


 


All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.


 


Section
8.5            Benefit.


 


This Guarantee is solely for the benefit of the Beneficiaries and,
subject to Section 2.1(a), is not separately transferable from the Debentures
and the Capital Securities.


 


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Section
8.6            Governing Law.


 


(a)           PURSUANT TO SECTION 5-1401 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, THIS GUARANTEE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAW PROVISIONS.


 


(b)           The Guarantor agrees that any legal
action, suit or proceeding against it arising out of or related to this
Guarantee may be brought in the United States federal courts located in the
Borough of Manhattan or the courts of the State of New York located in the
Borough of Manhattan (each a “New York Court”) and hereby irrevocably accepts
and submits to the non-exclusive jurisdiction of the aforementioned courts, in
personam, generally and unconditionally, with respect to any suit,
action or proceeding in connection with or arising out of this Guarantee for
itself and its respective properties, assets and revenues. The Guarantor agrees
that a final unappealable judgment in any action or proceeding arising out of
or relating to this Guarantee shall be conclusive and may be enforced in any
other jurisdiction otherwise having jurisdiction over the Guarantor by suit on
the judgment or in any other manner provided by law. The Guarantor irrevocably
waives any immunity to jurisdiction to which it may otherwise be entitled or
become entitled (including immunity to pre-judgment attachment and execution)
in any legal suit, action or proceeding against it arising out of this
Agreement or the transactions contemplated hereby which is instituted in any
New York Court or in any foreign court.


 


(c)           The Guarantor designates and appoints
[CT Corporation System] in New York City as its authorized agent (the  “Authorized Agent”) upon which process may be
served in any such action arising out of or relating to this Guarantee which
may be instituted in any New York Court by the Guarantee Trustee or the
Holders, in accordance with legal procedures prescribed for such courts,
expressly consents to the non-exclusive jurisdiction of any such court in
respect of any such action, and waives any other requirements of or objections
to personal jurisdiction with respect thereto. Such appointment shall be
irrevocable. The Guarantor represents and warrants that its Authorized Agent
has agreed to act as said agent for service of process and the Guarantor agrees
to take any and all action, including the filing of any and all documents and instruments,
that may be necessary to continue such appointment in full force and effect as
aforesaid. Service of process upon the Authorized Agent and written notice of
such service of process to it shall be deemed, in every respect, effective
service of process upon the Guarantor. Nothing herein shall in any way be
deemed to limit the ability of the Guarantee Trustee or the Holders to serve
any such legal process, summons, notices and documents in any other manner
permitted by applicable law or to obtain jurisdiction over the Guarantor or
bring actions, suits or proceedings against the Guarantor in such other
jurisdictions, and in such manner, as may be permitted by applicable law.


 


Section
8.7            Counterparts.


 


This Guarantee may be executed in one or more counterparts, each of
which shall be an original, but all of which taken together shall constitute
one and the same instrument.


 


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Section
8.8            Separability.


 


In case one or more of the provisions contained in this Guarantee shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provisions of this Guarantee, but this Guarantee shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.


 


Signatures appear on the following page


 


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THIS GUARANTEE is executed as of the day and year first above written.


 


	
   

  	
  CASTLEPOINT HOLDINGS, LTD.,
  as

  Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOEL S. WEINER

  
	
   

  	
   

  	
  Name: Joel S. Weiner

  
	
   

  	
   

  	
  Title: Senior Vice President and Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY,
  as

  Guarantee Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ CHRISTOPHER J. SLAYBAUGH

  
	
   

  	
   

  	
  Name: Christopher J. Slaybaugh

  
	
   

  	
   

  	
  Title: Senior Financial Services Officer

  



 


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