Exhibit 10.1


EXCHANGE AGREEMENT


This Exchange Agreement
(this “Agreement”)
is made and entered into as of January 11, 2007, by and between TOWER GROUP, INC., a Delaware
corporation (the “Company”), and CASTLEPOINT MANAGEMENT CORP., a Delaware
corporation (the “Purchaser”).


RECITALS


WHEREAS, the
Purchaser currently owns 40,000 shares of Series A Preferred Stock of the
Company.


WHEREAS, the
Company has authorized the issuance of up to an aggregate of 40,000 shares of
its Series A-1 Preferred Stock (the “Shares”) to the Purchaser in exchange for
the shares of Series A Preferred Stock of the Company owned by the Purchaser;
and


WHEREAS, the
Purchaser and the Company desire that the Company shall exchange the Shares for
such shares of Series A Preferred Stock on the terms and conditions set forth
herein;


AGREEMENT


NOW, THEREFORE,
in consideration of the foregoing recitals and the mutual promises,
representations, warranties, and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:


1.                                                                                      CERTAIN DEFINITIONS.


For all purposes
of this Agreement, the following terms shall have the respective meanings set
forth in this Article 1 (such definitions to be equally applicable to both the
singular and plural forms of the terms herein defined):


“8-K Filing” has
the meaning ascribed to such term in Section 6.3.


“2005 Annual
Report” has the meaning ascribed to such term in Section 4.6(a).


“Action” means any
legal, administrative, arbitration or other similar suit, inquiry, notice of
violation, investigation, proceeding, claim, or action.


“Affiliate” means
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities Act.


“Agreement” has
the meaning ascribed to such term in the Recitals.


“Applicable Law”
means any federal, state, local or foreign statute, law, ordinance, rule,
regulation, order, writ, injunction, judgment, decree, directive, principle of
common law or interpretation of any of the foregoing by a Governmental
Authority applicable to a Person or any such Person’s subsidiaries, properties,
assets, officers, directors, employees or agents.









 



“Bylaws” has the
meaning ascribed to such term in Section 4.4.


“Certificate of
Designations” has the meaning ascribed to such term in Section 2.1.


“Certificate of
Incorporation” has the meaning ascribed to such term in Section 2.1.


“Closing” has the
meaning ascribed to such term in Section 3.1.


“Closing Date” has
the meaning ascribed to such term in Section 3.1.


“Common Stock” has
the meaning ascribed to such term in Section 2.1.


“Contracts” shall
mean all written agreements, contracts, commitments and undertakings,
indentures, notes, bonds, loans, instruments, treaties, leases, mortgages and
other binding arrangements.


“Conversion Shares”
has the meaning ascribed to such term in Section 2.1.


“Disclosure Schedule”
has the meaning ascribed to such term in the preamble to Article 4.


“Domiciliary
Regulators” means the Governmental Authorities responsible for regulating
insurance companies in the Insurance Companies’ respective states of domicile.


“DTC” has the meaning
ascribed to such term in Section 7.1.


“DTC Transfer
Conditions” has the meaning ascribed to such term in Section 7.1.


“Encumbrance”
means any lien, pledge, security interest, easement or encumbrance of any kind
or nature whatsoever, and any agreement to give or grant or permit any of the
foregoing; provided that this
definition of “Encumbrance” shall not include: (i) liens for current Taxes and
assessments not yet due and payable, including, without limitation, liens for
non-delinquent ad valorem Taxes, non-delinquent statutory liens arising other
than by reason of any default on the part of the Company or the Subsidiaries
and liens for Taxes being contested by the Company in good faith, (ii) such
liens, minor imperfections of title or easements on real property, leasehold
estates or personal property as do not in any material respect detract from the
value thereof and do not in any material respect interfere with the present use
of the property subject thereto, (iii) materialmen’s, mechanics’, workmen’s,
repairmen’s, employees’, carriers’, warehousemen’s and other like liens arising
in the ordinary course of business or relating to any construction, rebuilding
or repair of any property leased, so long as the obligations to which such
liens relate are not delinquent and also so long as any such lien does not
materially impair the value of such leased property, (iv) any such lien,
pledge, security interest, easement or encumbrance arising solely as a result
of any action taken by Purchaser or any of its Affiliates and (v) any
limitation or restriction imposed upon the transfer of the Securities by any
registration provision of the Securities Act of 1933, as amended, or any
applicable state securities law regulating the disposition of the Securities.


“Exchange Act” has
the meaning ascribed to such term in Section 4.6.



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“GAAP” has the
meaning ascribed to such term in Section 4.6.


“Global Select
Market” has the meaning ascribed to such term in Section 4.13.


“Governmental
Authority” means any nation or government, any state or other political
subdivision thereof, any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government or any
self-regulatory agency, commissioner or authority.


 “Indemnities” has the meaning ascribed to such
term in Section 9.11.


“Indemnified
Liabilities” has the meaning ascribed to such term in Section 9.11.


“Insurance Company”
means any Subsidiary that is engaged in the business of issuing insurance
policies.


“Insurance
Contract” means any insurance policy, annuity contract, or guaranteed
investment contract entered into with a customer whether directly or by
reinsurance.


 “Investigation” means any governmental or
regulatory investigation.


“Lock-Up Period”
has the meaning ascribed to such term in Section 7.5.


“Material Adverse
Effect” has the meaning ascribed to such term in Section 4.1.


“Non-Domiciliary
Regulators” means the Governmental Authorities responsible for regulating
insurance companies outside of the Insurance Companies’ respective states of
domicile.


“Permits” means
all licenses, permits, orders, consents, approvals, registrations,
authorizations, qualifications and filings with and under all Applicable Laws
and Governmental Authorities and all industry or other non-governmental
self-regulatory organizations.


“Person” means any
individual, corporation, company, partnership (limited or general), joint
venture, limited liability company, association, trust, a government, any
department or agency thereof or any other entity.


“Press Release”
has the meaning ascribed to such term in Section 6.3.


“Purchaser” has
the meaning ascribed to such term in the Recitals.


 “Registration Rights Agreement” has the
meaning ascribed to such term in Section 3.2.


“Regulation D” has
the meaning ascribed to such term in the Recitals.


 “Required Minimum” means, as of any date, 125%
of the maximum aggregate number of shares of Common Stock then issuable in the
future pursuant to the Transaction Documents, including any Conversion Shares
issuable upon the exchange of all Shares, ignoring any 



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exchange, conversion or
exercise limits set forth therein, determined on the basis of the Exchange Rate
(as defined in the Certificate of Designation), in each case as in effect on
the Trading Day immediately prior to the date of determination.


“Rule 144” means
Rule 144 promulgated by the SEC pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC having substantially the same effect as such Rule.


“SEC” has the
meaning ascribed to such term in Section 4.3(b).


“SEC Reports” has
the meaning ascribed to such term in Section 4.6.


“Securities Act”
has the meaning ascribed to such term in Section 4.6.


“Security” and “Securities”
have the meaning ascribed to such terms in Section 2.1.


“Select SEC
Reports” has the meaning ascribed to such term in Section 4.6.


“Shares” has the
meaning ascribed to such term in the Recitals.


“Subsidiaries” has
the meaning ascribed to such term in Section 4.1.


“Tax” means (i)
all federal, state, local and foreign taxes, charges, fees, imposts, levies and
other assessments, including, without limitation, all income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation, property and estimated
taxes, all taxes which are required to be withheld, customs duties, fees,
assessments and charges of any kind whatsoever, (ii) all interest, penalties,
fines, additions to tax  and additional
amounts imposed by any Taxing Authority in connection with any item described
in clause (i), and (iii) any transferee liability in respect of any items
described in clauses (i) or (ii) payable by reason of contract, assumption,
transferee liability, operation of law, Treasury Regulation Section 1.1502-6(a)
(or any predecessor or successor thereof of any analogous or similar provision
under law) or otherwise.


“Taxing Authority”
means the Internal Revenue Service or any other Governmental Authority
responsible for the administration of any Tax.


“Trading Day”
means a day on which the Common Stock is traded on the Global Select Market.


 “Transaction Documents” has the meaning
ascribed to such term in Section 3.2.


2.                                                                                      AGREEMENT TO SELL AND PURCHASE.


2.1                                                                               Authorization
of Shares.  The Company has
authorized (a) the issuance to Purchaser of the Shares and (b) the
issuance of such shares of its common stock, par value $0.01 per share (the “Common
Stock”) to be issued upon conversion of the Shares (the 



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“Conversion Shares”).  The Shares and the Conversion Shares are
collectively referenced herein as the “Securities” and each of them may
individually be referred to herein as a “Security.”  The Securities have the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Certificate
of Incorporation of the Company (the “Certificate of Incorporation”) and the
Certificate of Designations of the Series A-1 Preferred Stock attached hereto
as Exhibit A (the “Certificate of Designations”).


2.2                                                                               Exchange.  Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined), the Company and the Purchaser hereby
agree to exchange the Shares for the shares of Series A Preferred Stock of the
Company held by the Purchaser.


3.                                                                                      CLOSING, DELIVERY AND PAYMENT.


3.1                                                                               Closing.  Subject to the satisfaction (or waiver) of
the conditions set forth in Article 8 hereof, the closing of the sale and
purchase of the Shares (the “Closing”) shall take place at 10:00 a.m., New York City time,
on the date hereof, at the offices of the Company, 120 Broadway, New York, New
York 10271 or at such other time or place as the Company and the Purchaser
shall mutually agree (such date is hereinafter referred to as the “Closing Date”).


3.2                                                                               Delivery.  At the Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchaser a certificate representing
the Shares, against delivery by the Purchaser of the certificate or certificates
representing 40,000 shares of Series A Preferred Stock of the Company, duly
endorsed for transfer and accompanied by such instruments of transfer as the
Company shall reasonably request, free and clear of all liens, claims, charges,
pledges, encumbrances and security interests of any kind or nature
whatsosever.  This Agreement, the
Registration Rights Agreement dated as of December 4, 2006 between the Company
and the Purchaser (as assignee of CastlePoint Reinsurance Company, Ltd.) (the “Registration
Rights Agreement”) and the Certificate of Designations are collectively
referred to herein as the “Transaction Documents.”


3.3                                                                               Registration Rights Agreement.  The Company and the Purchaser agree that the
Shares and the Conversion Shares shall constitute “Registrable Securities” as
such term is defined in the Registration Rights Agreement.


3.4                                                                               Fees and Expenses.  Subject to Section 3.3 or as otherwise set
forth herein or the Registration Rights Agreement, the Company and the
Purchaser shall each be responsible for the fees and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.


4.                                                                                      REPRESENTATIONS AND WARRANTIES OF
THE COMPANY.


Except as set
forth under the corresponding section of the disclosure schedule delivered to
the Purchaser concurrently herewith (the “Disclosure Schedule”), the Company
hereby represents and warrants as of the date hereof to Purchaser as follows:



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4.1                                                                               Organization,
Good Standing and Qualification.  The
Company and each of its direct and indirect subsidiaries (collectively, the “Subsidiaries”)
is a corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated, and has all requisite
corporate power and authority to own and operate its properties and assets, to
carry on its business as presently conducted 
The Company and each of its Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in all jurisdictions
in which the nature of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so would not have or reasonably be expected to have a
Material Adverse Effect.  For purposes of
this Agreement, “Material Adverse Effect” means any effect which, individually
or in the aggregate with all other effects, reasonably would be expected to be
materially adverse to (i) the legality, validity or enforceability any of the
Transaction Documents or the Securities, (ii) the ability of the Company to
perform on a timely basis its obligations under this Agreement or any of the
other Transaction Documents or (iii) the business, operations, assets,
properties, prospects, reputation, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole.


4.2                                                                               Authorization;
Binding Obligations.  (i) The Company
has the requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction Documents, to issue and sell the Securities
in accordance with the terms thereof and to carry out the provisions of this
Agreement and the other Transaction Documents, and (ii) all corporate action on
the part of the Company, its officers, directors and stockholders necessary for
the authorization, execution and delivery of this Agreement and each of the
other Transaction Documents, the performance of all obligations of the Company
hereunder and thereunder and the authorization, sale, issuance and delivery of
the Shares pursuant hereto and the Conversion Shares pursuant to the
Certificate of Incorporation and the Certificate of Designations has been
taken.  Assuming that this Agreement and
the Registration Rights Agreement have been duly authorized, executed and
delivered by the Purchaser and constitute valid and binding obligations of the
Purchaser, this Agreement is, and the other Transaction Documents will be at
the Closing, valid and binding obligations of the Company enforceable in
accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights, (b) general
principles of equity that restrict the availability of equitable remedies, and
(c) to the extent that the enforceability of the indemnification
provisions in the Registration Rights Agreement may be limited by Applicable
Law.


4.3                                                                               Capitalization;
Voting Rights.


(a)                                                                                  The
authorized capital stock of the Company consists of 40 million shares of Common
Stock and two million shares of preferred stock, par value $0.01 per share (“Preferred
Stock”), of which 40,000 shares are (or upon filing of the Certificate of
Designation, will be) designated as Series A Preferred Stock.  As of November 1, 2006, 19,982,038 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
issued and outstanding.


(b)                                                                                  Except
as provided in the Company’s filings with the United States Securities and
Exchange Commission (the “SEC”), and except for the Securities,



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there are no
outstanding options, warrants, scrip, rights (including conversion,
anti-dilution or preemptive rights and rights of first refusal or similar
rights), or contracts, commitments, understandings or agreements of any kind by
which the Company or any of its Subsidiaries is or may become bound to issue
any of its securities, nor are any such issuances, contracts, commitments,
understandings or arrangements contemplated.


(c)                                                                                  All
issued and outstanding shares of capital stock of the Company (i) have
been duly authorized and validly issued and are fully paid and nonassessable,
and (ii) were issued in compliance with all applicable state and federal
laws concerning the issuance of securities.


(d)                                                                                  The
Company does not have any shareholder rights plan, “poison pill” or other
anti-takeover plans or similar arrangements.


(e)                                                                                  Except
as set forth in the Company’s filings with the SEC, there are no proxy,
stockholder agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.


(f)                                                                                    The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by Applicable Law) to receive dividends and
distributions on, all shares of capital stock of its Subsidiaries as owned by
the Company or any such Subsidiary.


(g)                                                                                 The
rights, preferences, privileges and restrictions of the Securities are as
stated in the Certificate of Incorporation and the Certificate of
Designations.  The Securities are duly
authorized and when issued in compliance with the provisions of this Agreement,
the Certificate of Designations and the Certificate of Incorporation, (i) the
Securities will be validly issued, fully paid and non-assessable, and will be
free of any liens, taxes, claims or other Encumbrances and (ii) will not be subject to
preemptive rights, rights of first refusal or other similar rights of
stockholders of the Company or any other person provided, however, that the Shares and the Conversion Shares
may be subject to restrictions on transfer under the Registration Rights
Agreement, state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.  As of the Closing Date, the Company shall
have reserved from its duly authorized capital stock a number of shares of
Common Stock for issuance of the Conversion Shares at least equal to the
Required Minimum on the date hereof.


4.4                                                                               Compliance
with Other Instruments; Absence of Conflicts.  Neither the Company nor any of its
Subsidiaries is in violation or default of, and the execution, delivery, and
performance of and compliance with this Agreement and the other Transaction
Documents by the Company, and, assuming the accuracy of the warranties and
representations of the Purchaser herein, the issuance and sale of the Shares
pursuant hereto and of the Conversion Shares pursuant to the Certificate of
Incorporation and the Certificate of Designations, will not, with or without
the passage of time or giving of notice, result in any violation of, or be in
conflict with or constitute a default under, (i) any term of the Certificate of
Incorporation or the Company’s bylaws as in effect on the date hereof (the “Bylaws”)
or the Subsidiaries’



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organizational
documents, (ii) any provision of any Contract to which the Company or any of
its Subsidiaries is party or by which it or any of them or any of its or their
respective properties is bound or affected, or (iii) any Applicable Law to
which the Company or any of its Subsidiaries is subject  (including United States federal and state
securities laws, rules and regulations and rules and regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, other than, in the case of clauses (ii) and
(iii), any such violation, default, conflict that would not, individually or in
the aggregate, have a Material Adverse Effect. 
The execution, delivery, and performance by the Company of and
compliance by the Company with this Agreement and the other Transaction Documents,
and the issuance and sale of the Shares pursuant hereto and of the Conversion
Shares pursuant to the Certificate of Incorporation and the Certificate of
Designations, will not, with or without the passage of time or giving of
notice, result in the creation of any Encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any Permit
applicable to the Company or any of its Subsidiaries or any of its or their
assets or properties, other than any such Encumbrances, charges, suspensions,
revocations, impairments, forfeitures or nonrenewals that would not,
individually or in the aggregate, have a Material Adverse Effect.


4.5                                                                               Consents.                                          No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained by the Company and no registrations or declarations are
required to be filed by the Company in connection with the execution and
delivery of this Agreement or the issuance of the Shares or the Conversion Shares,
except such as have been duly and validly obtained or filed, or with respect to
any filings that must be made after the Closing, as will be filed in a timely
manner.


4.6                                                                               SEC Reports; Financial Statements.  The Company has filed in a timely manner (within
applicable extension periods) all documents that the Company was required to
file with the SEC under the Securities Act of 1933, as amended (the “Securities
Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
preceding the date of this Agreement (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, the “SEC
Reports”).  The SEC Reports complied in all
material respects with the applicable requirements of the Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC as
of their respective filing dates, and the information contained therein as of
the date thereof did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  Except as disclosed on
Section 4.6 of the Disclosure Schedule, none of the statements made in any such
SEC Reports is, or has been, required to be amended or updated under Applicable
Law (except for such statements as have been amended or updated in subsequent
filings made prior to the date hereof). 
As of their respective dates, the financial statements of the Company
included in the SEC Reports complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of the
SEC applicable with respect thereto. 
Such financial statements have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”), consistently applied, during
the periods involved (except as may be otherwise 



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indicated in such
financial statements or the notes thereto or, in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).  Except as set forth in the most recent
financial statements of the Company included in the Select SEC Reports, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of such
financial statements and (ii) liabilities incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. 
For purposes of this Agreement, “Select SEC Reports” means the Company’s
(A) Proxy Statement for its 2006 Annual Meeting, (B) Annual Report on Form 10-K/A
for the fiscal year ended December 31, 2005 (the “2005 Annual Report”), (C)
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2006,
June 30, 2006, September 30, 2006 and (D) Current Reports on Form 8-K filed
since September 30, 2006.


4.7                                                                               Absence
of Certain Changes; No Material Adverse Effect.  Except as set forth in the Select SEC
Reports, since December 31, 2005, there has been no event or occurrence which
has had or would reasonably be expected to have a Material Adverse Effect.  The Company has not taken any steps, and does
not currently expect to take any steps, to seek protection pursuant to any
bankruptcy or receivership law, nor does the Company or any of its Subsidiaries
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings with respect to the Company or any of its
Subsidiaries.


4.8                                                                               Filings.      Except as set forth in the
Select SEC Reports or in Section 4.8 of the Disclosure Schedule, since January
1, 2004, (i) the Company and the Subsidiaries have filed all material reports,
statements, documents, registrations, filings and submissions required to be
filed with any Governmental Authority, and all such reports, statements,
documents, registrations, filing and submissions complied in all material
respects with Applicable Law in effect when filed, and (ii) no material
deficiencies have been asserted in writing by, nor have any material comments
been received from, nor any material penalties imposed by, any such Governmental
Authorities with respect to such reports, statements, documents, registrations,
filings or submissions.


4.9                                                                               Permits.                                                 The
Company and its Subsidiaries have all Permits in each of the jurisdictions in
which the Company and the Subsidiaries conduct or operate their respective
businesses as now being conducted, and all such Permits are in full force and
effect, with such exceptions which singularly and in the aggregate have not and
would not reasonably be expected to have a Material Adverse Effect, and the Company
believes it or its Subsidiaries can obtain, without undue burden or expense,
any similar authority for the conduct of their respective businesses as planned
to be conducted.  The Company and the
Subsidiaries are, and at all times since January 1, 2004 have been, in
compliance in all material respects with the terms of the Permits.  No event has occurred or circumstance exists
that (with or without the giving of notice or lapse of time or both) (1)
constitutes or would reasonably be expected to result in, directly or
indirectly, a violation of, or a failure to comply with any Permit, or (2) has
resulted or 



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would reasonably
be expected to result, directly or indirectly, in the revocation, withdrawal,
suspension, cancellation, or termination of, or any modification to, any
Permit, except for such violations or failures to comply or revocations,
withdrawals, suspensions, cancellations, terminations or modifications that
would not reasonably be expected to have a Material Adverse Effect.  The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents will not
result in any revocation, cancellation, suspension or nonrenewal of any such
material Permit.


4.10                                                                        Litigation.


(a)                                                                                  Except
as disclosed in the Select SEC Reports and other than Actions arising in the
ordinary course of business from or related to the obligations of the Company
under any Insurance Contract or similar contract written, assumed or reinsured
by the Company, there are no pending or, to the knowledge of the Company,
threatened Actions against and to the knowledge of the Company, no pending or
threatened Investigations of, the Company, any Subsidiary or any of their
properties or assets challenging the validity or propriety of, or that have the
effect of preventing, delaying, making illegal or otherwise interfering with
any of the transactions contemplated by this Agreement or the other Transaction
Documents.


(b)                                                                                  As
of the date of this Agreement, there are no pending Actions or, to the
knowledge of the Company, threatened material Actions against, and to the
knowledge of the Company, no pending or threatened Investigations of, any
current or former officer or director of any of the Company or the Subsidiaries
in his or her capacity as an officer or director of any of the Company or the
Subsidiaries.


4.11                                                                        Registration
Rights.  Except as required pursuant
to the Registration Rights Agreement and except as disclosed in the SEC
Reports, the Company is presently not under any obligation, and has not granted
any rights, to register under the Securities Act, any of the Company’s
presently outstanding securities or any of its securities that may hereafter be
issued.


4.12                                                                        Broker’s
Fees.  No agent, broker, investment
banker, person or firm acting on behalf of or under the authority of the
Company is or will be entitled to any fee or commission from the Purchaser
directly or indirectly in connection with the transactions contemplated herein.


4.13                                                                        Listing
and Maintenance Requirements.  The
Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration.  The Common Stock is currently listed for
trading on the Nasdaq Global Select Market (the “Global Select Market”).  The Company has not received notice from the
Global Select Market on which the Common Stock is or has been listed or quoted
to the effect that the Company is not in compliance with the listing or
maintenance requirements of the Global Select Market. The Company is, and has
no reason to believe that it will not continue to be, in compliance with all
such listing and maintenance requirements. 
Prior to the conversion of the Shares, the Company shall secure the


 



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listing of the
Conversion Shares on the Global Select Market and on each other national
securities exchange, automated quotation system or over-the-counter market upon
which the shares of Common Stock are then listed (subject to official notice of
issuance).  The issuance and delivery of
the Shares pursuant hereto and the Conversion Shares pursuant to the
Certificate of Incorporation and the Certificate of Designations will not
constitute a change of control under the rules of the Global Select Market.


4.14                        Anti-Takeover
Provisions.  The
Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under its Certificate of Incorporation
or the laws of the state of its incorporation (including §203 of the Delaware
General Corporation Law) which is or could become applicable to Purchaser as a
result of the transactions contemplated by this Agreement, including, without
limitation, the Company’s issuance of the Securities and Purchaser’s ownership
of the Securities.


4.15                        Private
Placement.  Assuming
the accuracy of the Purchaser’s representations and warranties set forth in
Section 5.3, no registration under the Securities Act or any state securities
laws is required for the offer and sale of the Securities by the Company to
Purchaser as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Global Select
Market or any state securities laws.


4.16                        No
General Solicitation or Integrated Offering.  Neither the Company nor any distributor
participating on the Company’s behalf in the transactions contemplated hereby
(if any) nor any Person acting for the Company, or any such distributor, has
conducted any “general solicitation” (as such term is defined in Regulation D)
or general advertising with respect to any of the Securities being offered
hereby.  Neither the Company nor any of
its Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act, which result of such integration
would require registration under the Securities Act, or that would be
integrated with the offer or sale of the Securities for the purpose of the
rules and regulations of the Global Select Market or any applicable stockholder
approval provisions.


5.                                                                                      REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER.


The Purchaser hereby
represents and warrants to the Company as follows (provided that such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):


5.1                          Organization
and Good Standing.  The
Purchaser is duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.  The
Purchaser has all requisite corporate power and authority to own and operate
its properties and assets, to carry on its business as presently conducted, to
execute and deliver this Agreement and



 11
 






 



the Registration
Rights Agreement and to carry out the provisions of this Agreement and the
Registration Rights Agreement.


5.2                          Requisite
Power and Authority. 
All corporate action on the part of the Purchaser, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement and the Registration Rights Agreement and the
performance of all obligations of the Purchaser hereunder and thereunder has
been taken.  Assuming that this Agreement
and the Registration Rights Agreement have been duly authorized, executed and
delivered by the Company and constitute valid and binding obligations of the
Company, this Agreement is, and the Registration Rights Agreement will be at
the Closing, valid and binding obligations of the Purchaser enforceable in
accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights, (b) general
principles of equity that restrict the availability of equitable remedies, and
(c) to the extent that the enforceability of the indemnification
provisions in the Registration Rights Agreement may be limited by applicable
laws.


5.3                          Investment
Representations.  The
Purchaser understands that neither the Shares nor the Conversion Shares have
been registered under the Securities Act or under any state or non-U.S.
securities law.  The Purchaser also
understands that the Shares are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part upon the
Purchaser’s representations contained in this Agreement.  The Purchaser hereby represents and warrants
as follows:


(a)                           The
Purchaser Bears Economic Risk.  The Purchaser is knowledgeable, sophisticated
and experienced in making, and is qualified to make decisions with respect to
investments in shares presenting an investment decision like that involved in
the purchase of the Shares capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own
interests.  The Purchaser understands
that it must bear the economic risk of this investment indefinitely unless the
Shares (or the Conversion Shares) are transferred in a transaction that is
registered pursuant to the Securities Act or exempt from registration.  The Purchaser understands that the Company
has no present intention of registering the Shares or the Conversion Shares
except as provided in the Registration Rights Agreement.  The Purchaser also understands that there is
no assurance that any exemption from registration under the Securities Act will
be available for any proposed transfer of the Shares or the Conversion Shares
and that, even if available, such exemption may not allow the Purchaser to
transfer all or any portion of the Shares or the Conversion Shares under the
circumstances, in the amounts or at the times the Purchaser might propose.


(b)                           Acquisition
for Own Account.  The
Purchaser is acquiring the Shares and the Conversion Shares for the Purchaser’s
own account for investment only, and not with a view towards their
distribution.


(c)                           Accredited
Investor.  The
Purchaser represents that it is an institutional “accredited investor” within
the meaning of Regulation D under the Securities Act.



 12
 






 



(d)                           Company
Information.  The
Purchaser has received and read the SEC Reports and has had an opportunity to
discuss the Company’s business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity
to review the Company’s operations and facilities.  The Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.  The Purchaser has, in connection with the
decisions to purchase the Shares, relied only upon the SEC Reports and the
representations and warranties of the Company set forth in the Transaction
Documents.


(e)                           No
Action Outside the United States.  The
Purchaser acknowledges that the Company has taken no action or will take any
action in any jurisdiction outside the United States to permit an offering of
the Shares or the Conversion Shares, or possession or distribution of offering
materials in connection with the issuance of the Shares or the Conversion
Shares, in any jurisdiction outside the United States where legal action by the
Company for that purpose is required. 
The Purchaser will comply with all applicable laws and regulations in
each jurisdiction outside the United States in which it purchases, offers,
sells or delivers Shares or Conversion Shares or has in its possession or
distributes any offering material, in each case at its own expense.


5.4                          Transfer
Restrictions.  The
Purchaser acknowledges and agrees that the Shares and, if issued, the
Conversion Shares are subject to restrictions on transfer as set forth herein
and in the Registration Rights Agreement.


5.5                          Covering
Short Positions.  The
Purchaser will not use the Shares or the Conversion Shares to cover any short
position in the Common Stock if doing so would be in violation of applicable
securities laws.


5.6                          No
Legal, Tax or Investment Advice.  The Purchaser understands that nothing in the
SEC Reports, this Agreement, the Registration Rights Agreement or any other
materials presented to the Purchaser in connection with the purchase and sale
of the Shares constitutes legal, tax or investment advice.  The Purchaser has consulted such legal, tax
and investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Shares.


5.7                          Ownership of Company Stock.  None of the Purchaser or the Purchaser’s
subsidiaries beneficially owns (as such term is defined for purposes of Section
13(d) of the Exchange Act) any shares of the Common Stock of the Company or any
other class or series of the Company’s capital stock.


5.8                          Broker’s Fees.  No agent, broker, investment banker, person
or firm acting on behalf of or under the authority of the Purchaser is or will
be entitled to any fee or commission from the Company directly or indirectly in
connection with the transactions contemplated herein.


5.9                          Title to Shares of Series A Preferred
Stock.  The Purchaser
has, and immediately prior to the Closing will have, legal and valid title to
40,000 shares of Series A Preferred Stock of the Company free and clear of all
liens, claims, charges, pledges,



 13
 






 



encumbrances and
security interests of any kind or nature whatsoever.  At the Closing the Company will acquire legal
and valid title to such shares of Series A Preferred Stock of the Company, in
each case free and clear of all liens, claims, charges, encumbrances and
security interests of any kind or nature whatsoever, provided that no
representation is made as to any of the foregoing resulting from any action or
omission by the Company.


6.                             COVENANTS.


6.1                          Best
Efforts.  The parties
shall use their respective best efforts timely to satisfy each of the
conditions described in Sections 8.1 and 8.2 of this Agreement.


6.2                          [Reserved]


6.3                          Press
Release; Form 8-K; Publicity. The Company may issue on or
before the next business day following the date hereof a press release (the “Press
Release”) announcing the entry into the transactions contemplated hereby and
shall within two days following the date hereof file a Current Report on Form
8-K with the SEC concerning this Agreement and the transactions contemplated
hereby (the “8-K Filing”).  The Company
and the Purchaser shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor the Purchaser shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with
respect to any press release of the Purchaser, or without the prior consent of
the Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication.


6.4                          Reservation
of Shares.  The Company
shall, if applicable: (i) in the time and manner required by the Global Select
Market, but in any event prior to the conversion of the Shares into Common
Stock, prepare and file with the Global Select Market an additional shares
listing application covering a number of shares of Common Stock at least equal
to the Required Minimum on the date of such application, (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing on
the Global Select Market as soon as possible thereafter, (iii) provide to the
Purchaser evidence of such listing, and (iv) from and after the conversion of
the Shares into Common  Stock, maintain
the listing of such Common Stock on the Global Select Market.


6.5                          No
Integrated Offerings. 
The Company shall not make any offers or sales of any security (other than
the Securities) under circumstances that would require registration of the
Securities being offered or sold hereunder under the Securities Act or cause
this offering of the Securities to be integrated with any other offering of
securities by the Company for purposes of any stockholder approval provision
applicable to the Company or its securities.


6.6                          Legal
Compliance.  The
Company shall conduct its business and the business of its Subsidiaries in
compliance with all Applicable Laws, except where the failure to do so would
not have a Material Adverse Effect.



 14
 






 



6.7                          Information.  So long as Purchaser (or any of its
Affiliates) beneficially owns any of the Securities, the Company shall furnish
to Purchaser the information the Company must deliver to any holder or to any
prospective transferee of Securities in order to permit the sale or other
transfer of such Securities pursuant to Rule 144A of the SEC or any similar
rule then in effect.  The Company shall
keep at its principal executive office a true copy of this Agreement (as at the
time in effect), and cause the same to be available for inspection at such
office during normal business hours by any holder of Securities or any
prospective transferee of Securities designated by a holder thereof.


6.8                          Pledge
of Securities.  The
Company acknowledges and agrees that the Securities may be pledged by Purchaser
in connection with a bona fide margin agreement or other loan or financing
arrangement that is secured by the Securities. 
The pledge of Securities shall not be deemed to be a transfer, sale or
assignment of the Securities hereunder, and if Purchaser effects a pledge of
Securities, it shall not be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document. 
The Company shall execute and deliver such documentation as a pledgee of
the Securities may reasonably request in connection with a pledge of the
Securities to such pledgee by Purchaser.


6.9                          Investment
Company Act.  The
Company shall conduct its business in a manner so that it will not be required
to register as an investment company under the Investment Company Act.


7.                             SECURITIES TRANSFER
MATTERS.


7.1                          Conversion
and Exercise.  Upon
conversion of the Shares by any person, (i) if the DTC Transfer Conditions (as
defined below) are satisfied, the Company shall cause its transfer agent to
electronically transmit all Conversion Shares by crediting the account of such
person or its nominee with the Depository Trust Company (“DTC”) through its
Deposit Withdrawal Agent Commission system; or (ii) if the DTC Transfer
Conditions are not satisfied, the Company shall issue and deliver, or instruct
its transfer agent to issue and deliver, certificates (subject to the legend and
other applicable provisions hereof and the Certificate of Designation),
registered in the name of such person its nominee, physical certificates
representing the Conversion Shares.  Even
if the DTC Transfer Conditions are satisfied, any person effecting a conversion
of Shares may instruct the Company to deliver to such person or its nominee
physical certificates representing the Conversion Shares, in lieu of delivering
such shares by way of DTC Transfer.  For
purposes of this Agreement, “DTC Transfer Conditions” means that (A) the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer program and (B) the certificates for the Conversion Shares required to
be delivered do not bear a legend and the person effecting such conversion or
exercise is not then required to return such certificate for the placement of a
legend thereon.


7.2                          Transfer
or Resale.  Purchaser
understands that (i) except as provided in the Registration Rights Agreement,
the sale or resale of the Securities have not been and are not being registered
under the Securities Act or any state securities laws, and the Securities may
not be transferred unless (A) the transfer is made pursuant to and as set forth
in an effective registration statement under the Securities Act covering the
Securities; or (B) Purchaser



 15
 






 



shall have
delivered to the Company an opinion of counsel reasonably satisfactory to the
Company (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; or (C) sold or transferred to an affiliate of
Purchaser that agrees to be bound by this Article 7; and (ii) neither the
Company nor any other person is under any obligation to register such
Securities under the Securities Act or any state securities laws (other than
pursuant to the terms of the Registration Rights Agreement).  Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement, provided such pledge is consistent with Applicable Laws.


7.3                          Legends.  Purchaser understands that the Shares and,
until such time as the Conversion Shares have been registered under the
Securities Act (including registration pursuant to Rule 416 thereunder) as
contemplated by the Registration Rights Agreement or otherwise may be sold by
such Purchaser under Rule 144, the Certificates for the Conversion Shares may
bear a restrictive legend in substantially the following form:


THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR IN ANY OTHER JURISDICTION.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED,
SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.


The Company shall,
immediately prior to a registration statement covering the Securities
(including, without limitation, the Registration Statement contemplated by the
Registration Rights Agreement) being declared effective, deliver to its
transfer agent an opinion letter of counsel, opining that at any time such
registration statement is effective, the transfer agent may issue, in connection
with the issuance of the Conversion Shares, certificates representing such
Conversion Shares without the restrictive legend above, provided such
Conversion Shares are to be sold pursuant to the prospectus contained in such
registration statement.  Upon receipt of
such opinion, the Company shall cause the transfer agent to confirm, for the
benefit of the holders, that no further opinion of counsel is required at the
time of transfer in order to issue such shares without such restrictive legend.


The legend set
forth above shall be removed and the Company shall issue a certificate without
such legend to the holder of any Security upon which it is stamped, if, unless
otherwise required by state securities laws, (i) the sale of such Security is
registered under the Securities Act (including registration pursuant to Rule
416 thereunder) or (ii) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or transfer of such
Security may be made without registration under the Securities Act.  If the holder of any Security is an affiliate
of the Company, the legend on any such Security shall not be so removed.  In the event



 16
 






 



the above legend is
removed from any Security and thereafter the effectiveness of a registration
statement covering such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance written notice to Purchaser the Company may require
that the above legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or under Rule 144 and Purchaser
shall cooperate in the replacement of such legend.  Such legend shall thereafter be removed when
such Security may again be sold pursuant to an effective registration statement
or under Rule 144.


7.4                          Transfer
Agent Instruction. 
Upon compliance by Purchaser with the provisions of this Article 7 with
respect to the transfer of any Securities, the Company shall permit the
transfer of such Securities and, in the case of the transfer of Conversion
Shares, promptly instruct its transfer agent to issue one or more certificates
(or effect a DTC Transfer) in such name and in such denominations as specified
by Purchaser.  The Company shall not give
any instructions to its transfer agent with respect to the Securities, other
than any permissible or required instructions provided in this Article 7, and
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement.


7.5                          Lock-Up
Period.  During the
period from the date hereof until 180 days from November 13, 2006 (the “Lock-Up
Period”), the Purchaser will not (a) directly or indirectly, offer, sell,
agree to offer or sell, solicit offers to purchase, grant any call option or
purchase any put option with respect to, pledge, borrow or otherwise dispose of
any Registrable Security, as defined in the Registration Rights Agreement,
(b) establish or increase any “put equivalent position” or liquidate or
decrease any “call equivalent position” with respect to any Registrable
Security (in each case within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder), or (c) otherwise enter
into any swap, derivative or other transaction or arrangement that transfers to
another, in whole or in part, any of the economic consequence of ownership of a
Registrable Security, whether or not such transaction is to be settled by
delivery of Registrable Securities, other securities, cash or other
consideration.


8.                             CONDITIONS TO CLOSING.


8.1                          Conditions
to the Purchaser’s Obligations to Purchase the Shares.  The Purchaser’s obligations to purchase the
Shares at the Closing are subject to the satisfaction or waiver on or prior to
the Closing Date of the following conditions:


(a)                           Representations
and Warranties True; Performance of Obligations.  The representations and warranties made by
the Company in Article 4 shall be true and correct in all material
respects as of the Closing Date, with the same force and effect as if they had
been made on and as of said date, and the Company shall have performed,
satisfied and complied with all obligations, covenants and conditions herein
required to be performed, satisfied or complied with by it on or prior to the
Closing.


(b)                           Legal Investment.  On the Closing Date, the sale and issuance of the Shares and the proposed issuance of the
Conversion Shares shall be legally permitted by all laws and regulations to which the Purchaser and
the Company are subject.



 17
 






 



(c)                           Consents,
Permits, Waivers and Approvals.  The Company and the Purchaser shall have
obtained any and all consents, permits, waivers and approvals necessary or
appropriate for consummation of the transactions contemplated by this Agreement
and the other Transaction Documents and such consents, permits, waivers and
approvals shall be in full force and effect.


(d)                           Compliance
Certificate.  The
Company shall have delivered to the Purchaser a Compliance Certificate,
executed by the Senior Vice President and CFO of the Company, dated the Closing
Date to the effect that the conditions specified in subsections (a) and (c) (as
it pertains to the Company) of this Section 8.1 have been satisfied,
except that such Compliance Certificate shall not be required if the Closing
Date is the date hereof or the Business Day immediately following the date
hereof.


(e)                           Listing.  The
Common Stock shall be authorized for quotation and listed on the Global Select
Market and trading in the Common Stock (or on the Global Select Market
generally) shall not have been suspended by the SEC or the Global Select
Market.


(f)                            Certificate of Designations.  The Certificate of Designations,
substantially in the form attached hereto as Exhibit A, shall have been approved and adopted by the
Company.


8.2                          Conditions
to Obligations of the Company to Issue and Sell the Shares.  The Company’s obligation to issue and sell
the Shares to the Purchaser at the Closing is subject to the satisfaction or
waiver of the following conditions:


(a)                           Representations and Warranties True.  The representations and warranties in Article
5 made by the Purchaser shall be true and correct in all material respects as
of the Closing Date, with the same force and effect as if they had been made on
and as of said date, and the Purchaser shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to the
Closing.


(b)                           Consents,
Permits, Waivers and Approvals.  The Company and the Purchaser shall have
obtained any and all consents, permits, waivers and approvals necessary or
appropriate for consummation of the transactions contemplated by this Agreement
and the other Transaction Documents and such consents, permits, waivers and
approvals shall be in full force and effect.


(c)                           Compliance
Certificate.  The
Purchaser shall have delivered to the Company a Compliance Certificate,
executed by an executive officer of the Purchaser, dated the Closing Date to
the effect that the conditions specified in subsections (a) and (b) (as it
pertains to the Purchaser) of this Section 8.2 have been satisfied, except
that such Compliance Certificate shall not be required if the Closing Date is
the date hereof or the Business Day immediately following the date hereof.



 18
 






 



9.                             MISCELLANEOUS.


9.1                          Governing
Law.  This Agreement
shall be governed by and construed under the laws of the State of
Delaware.  The parties agree that any
action brought by either party under or in relation to this Agreement,
including without limitation to interpret or enforce any provision of this
Agreement, shall be brought in, and each party agrees to and does hereby submit
to the jurisdiction and venue of, any state or federal court located in the
County of New Castle, State of Delaware. 
The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding in such forum.  The Company further agrees that service of process
upon the Company mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or
proceeding.  Nothing herein shall affect
the right of Purchaser to serve process in any other manner permitted by
law.  The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.


9.2                          Successors
and Assigns.  The Purchaser
may assign its right to purchase the Shares to any one or more direct or
indirect majority-owned subsidiaries; provided that no such assignment shall
relieve the Purchaser of its obligations hereunder to the extent that the
assignee fails to fulfill the same.  Upon
any such permitted assignment, the references in this Agreement to the
Purchaser shall also apply to any such assignee unless the context otherwise
requires.  Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of and be
binding upon the parties hereto and their respective successors, assigns,
heirs, executors and administrators; provided, however,
that prior to the receipt by the Company of adequate written notice of the
transfer of any Shares specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such Shares
in its records as the absolute owner and holder of such Shares for all
purposes.


9.3                          Entire
Agreement.  This
Agreement, the Disclosure Schedule and the other Transaction Documents and the
other documents delivered pursuant hereto or thereto constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof.


9.4                          Severability.  In the event one or more of the provisions of
this Agreement should, 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 Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.


9.5                          Amendment
and Waiver.  This
Agreement may be amended or modified, and the rights and obligations of the
Company and the Purchaser may be waived, only upon the written consent of the
Company and the holders of at least a majority of the Shares purchased or
agreed to be purchased pursuant to this Agreement.


9.6                          Notices.  All notices or other communications required
or permitted hereunder shall be in writing and shall be deemed effectively
given:  (i) upon personal delivery to the
party to be notified, (ii) upon receipt, if sent by facsimile during
normal business



 19
 






 



hours of the
recipient or, if not sent by facsimile during normal business hours of the
recipient, then on the next business day; (iii) three days after having been
sent, if sent by registered or certified mail, return receipt requested,
postage prepaid; or (iv) one day after deposit with a nationally recognized
overnight courier, if sent by such a courier, specifying next day delivery,
with written verification of receipt. 
Notices to the Company shall be addressed to:


Tower Group, Inc.

120 Broadway, 31st Floor

New York, New York 10271

Attention:  Stephen L. Kibblehouse, Esq.

Fax Number: (646) 514-8612


with a copy to:


LeBoeuf, Lamb, Greene & MacRae LLP

125 West 55th Street

New York, New York 10019

Attention:  Matthew Ricciardi, Esq. 

Fax Number: (212) 424-8500


Notices to the Purchaser shall be addressed to:


CastlePoint Management Corp. 

120 Broadway

New York, New York  10271

Attention:  Roger A. Brown

Fax Number:  (212) 847-9549


9.7                          Titles
and Subtitles.  The
titles of the sections and subsections of the Agreement are for convenience of
reference only and are not to be considered in construing this Agreement.


9.8                          Third
Party Beneficiaries. 
This Agreement is intended for the benefit of the parties hereto and
their respective permitted successors and assigns, and is not for the benefit
of, nor may any provision hereof be enforced by, any other person.


9.9                          Survival.  The representations and warranties of the
Company and the agreements and covenants set forth in Sections 4, 6, 7 and 9
hereof shall survive until the one year anniversary of the Closing
notwithstanding any due diligence investigation conducted by or on behalf of
Purchaser.  Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies Purchaser may have under applicable U.S. federal or
state securities laws.


9.10                        Further
Assurances.  Each party
shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably



 20
 






 



request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.


9.11                        Indemnification.  In consideration of Purchaser’s execution and
delivery of this Agreement and the other Transaction Documents and purchase of
the Securities hereunder, and in addition to all of the Company’s other
obligations under this Agreement and the other Transaction Documents, from and
after the Closing, the Company shall defend, protect, indemnify and hold
harmless Purchaser and all of its officers, directors and employees and any of
the foregoing persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement, collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a
result of, or arising out of, or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in this Agreement,
any other Transaction Document or any other certificate, instrument or document
delivered by the Company at the Closing or (ii) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, any other
Transaction Document or any other certificate, instrument or document delivered
by the Company at the Closing.  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
Applicable Law.  Except as otherwise set
forth herein, the procedures with respect to the rights and obligations under
this Section 9.11 shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.


9.12                        Payment
Set Aside. To the extent that the Company makes a payment or
payments to Purchaser, or the Purchaser makes a payment or payments to the
Company, hereunder or pursuant to any of the other Transaction Documents or
Purchaser or the Company enforces or exercises its respective rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company or
Purchaser, as applicable, a trustee, receiver or any other person under any
Applicable Law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.


9.13                        Joint
Participation in Drafting. 
Each party to this Agreement has participated in the negotiation and
drafting of this Agreement and the other Transaction Documents.  As such, the language used herein and therein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement.


9.14                        Remedies.  No provision of this Agreement or any other
Transaction Document providing for any remedy to Purchaser shall limit any
other remedy



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which would
otherwise be available to Purchaser at law, in equity or otherwise.  Nothing in this Agreement or any other
Transaction Document shall limit any rights Purchaser may have under any
applicable federal or state securities laws with respect to the investment
contemplated hereby.


9.15                        Knowledge.  As used in this Agreement, the term “knowledge”
of any person or entity shall mean and include (i) actual knowledge and (ii)
that knowledge which a reasonably prudent business person could have obtained
in the management of his or her business affairs after making due inquiry and
exercising due diligence which a prudent business person should have made or
exercised, as applicable, with respect thereto.


9.16                        Arms-Length
Transaction.  Each of
the Parties acknowledges and agrees that they are acting on their own behalf
and in the capacity of an arm’s-length purchaser or seller, as applicable.  Each Party further acknowledges and agrees
that it has independently evaluated the merits of the transactions contemplated
by this Agreement and the other Transaction Documents, that it has
independently determined to enter into the transactions contemplated hereby and
thereby, that it is not relying on any advice from or evaluation by any other
person (other than its representatives), and that it is not acting in concert
with any other person in making its purchase of securities hereunder or in
monitoring its investment in the Company.


9.17                        Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. 
Facsimile signatures shall be as effective as original signatures.



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IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement as of the date set forth in the first paragraph hereof.


	
  

  	
  TOWER
  GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Francis M. Colalucci

  	
   

  
	
   

  	
  Name:

  	
  Francis
  M. Colalucci

  
	
   

  	
  Title:

  	
  Senior
  Vice President and CFO

  
	
   

  	
   

  
	
   

  	
   

  
	
  

  	
  CASTLEPOINT
  MANAGEMENT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Joel Weiner

  	
   

  
	
   

  	
  Name:

  	
  Joel
  Weiner

  
	
   

  	
  Title:

  	
  Senior
  Vice President and CFO

  
						



 

















 


Exhibit A


Certificate of Designations