Document:

exv4w3

Exhibit
4.3

JPMorgan Chase Bank, National Association

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

	 	 	 

	 

	 	September 14, 2010

	To:	 	Tower Group, Inc.

120 Broadway, 31st Floor

New York, NY 10271

Attention: Treasurer

Telephone No.: (212) 655-2000

Facsimile No.: (212) 655-2199

	Re:	 	Base Call Option Transaction

     The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and
conditions of the call option transaction entered into between JPMorgan Chase Bank, National
Association, London Branch (“Dealer”) and Tower Group, Inc. (“Counterparty”) as of the Trade Date
specified below (the “Transaction”). This letter agreement constitutes a “Confirmation” as
referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any
previous agreements and serve as the final documentation for the Transaction.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.
(“ISDA”) are incorporated into this Confirmation. In the event of any inconsistency between the
Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms
used herein are based on terms that are defined in the Offering Memorandum dated September 14, 2010
(the “Offering Memorandum”) relating to the 5.00% Convertible Senior Notes due September 15, 2014
(as originally issued by Counterparty, the “Convertible Notes” and each USD 1,000 principal amount
of Convertible Notes, a “Convertible Note”) issued by Counterparty in an aggregate initial
principal amount of USD 135,000,000 (as increased by up to an aggregate principal amount of USD
15,000,000 if and to the extent that the Initial Purchasers (as defined herein) exercise their
option to purchase additional Convertible Notes pursuant to the Purchase Agreement (as defined
herein)) pursuant to an Indenture to be dated September 20, 2010 between Counterparty and U.S. Bank
National Association, as trustee (the “Indenture”). In the event of any inconsistency between the
terms defined in the Offering Memorandum, the Indenture and this Confirmation, this Confirmation
shall govern. The parties acknowledge that this Confirmation is entered into on the date hereof
with the understanding that (i) definitions set forth in the Indenture which are also defined
herein by reference to the Indenture and (ii) sections of the Indenture that are referred to herein
will conform to the descriptions thereof in the Offering Memorandum. If any such definitions in
the Indenture or any such sections of the Indenture differ from the descriptions thereof in the
Offering Memorandum, the descriptions thereof in the Offering Memorandum will govern for purposes
of this Confirmation. The parties further acknowledge that the Indenture section numbers used
herein are based on the draft of the Indenture last reviewed by Dealer as of the date of this
Confirmation, and if any such section numbers are changed in the Indenture as executed, the parties
will amend this Confirmation in good faith to preserve the intent of the parties. Subject to the
foregoing, references to the Indenture herein are references to the Indenture as in effect on the
date of its execution, and if the Indenture is amended following such date, any such amendment will
be disregarded for purposes of this Confirmation unless the parties agree otherwise in writing.

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association

Main Office 1111 Polaris Parkway, Columbus, Ohio 43271

Registered as a branch in England & Wales branch No. BR000746

Registered Branch Office 125 London Wall, London EC2Y 5AJ

Authorised and regulated by the Financial Services Authority

 

 

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as
to the terms of the Transaction to which this Confirmation relates. This Confirmation shall
supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master
Agreement (the “Agreement”) as if Dealer and Counterparty had executed an agreement in such form
(but without any Schedule except for the election of the laws of the State of New York as the
governing law (without reference to choice of law doctrine)) on the Trade Date. In the event of
any inconsistency between provisions of the Agreement and this Confirmation, this Confirmation will
prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby
agree that no transaction other than the Transaction to which this Confirmation relates shall be
governed by the Agreement.

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

	 	 	 	 	 	 	 

	 	 	General Terms.	 	 
	 	 	 	 	 	 	 

	 	 	 	 	Trade Date:	 	September 14, 2010

	 	 	 	 	 	 	 

	 	 	 	 	Effective Date:	 	The third Exchange Business Day immediately prior to the Premium Payment Date

	 	 	 	 	 	 	 

	 	 	 	 	Option Style:	 	“Modified American”, as described under “Procedures for Exercise” below

	 	 	 	 	 	 	 

	 	 	 	 	Option Type:	 	Call

	 	 	 	 	 	 	 

	 	 	 	 	Buyer:	 	Counterparty

	 	 	 	 	 	 	 

	 	 	 	 	Seller:	 	Dealer

	 	 	 	 	 	 	 

	 	 	 	 	Shares:	 	The common stock of Counterparty, par value USD 0.01 per share (Exchange symbol “TWGP”).

	 	 	 	 	 	 	 

	 	 	 	 	Number of Options:	 	135,000. For the avoidance of doubt, the Number of Options shall be
reduced by any Options exercised by Counterparty. In no event will the Number of
Options be less than zero.

	 	 	 	 	 	 	 

	 	 	 	 	Applicable Percentage:	 	50%

	 	 	 	 	 	 	 

	 	 	 	 	Option Entitlement:	 	A number equal to the product of the Applicable Percentage and 36.3782.

	 	 	 	 	 	 	 

	 	 	 	 	Strike Price:	 	USD 27.4890

	 	 	 	 	 	 	 

	 	 	 	 	Premium:	 	USD 6,885,000.00

	 	 	 	 	 	 	 

	 	 	 	 	Premium Payment Date:	 	September 20, 2010

	 	 	 	 	 	 	 

	 	 	 	 	Exchange:	 	The NASDAQ Global Select Market

	 	 	 	 	 	 	 

	 	 	 	 	Related Exchange(s):	 	All Exchanges

	 	 	 	 	 	 	 

	 	 	 	 	Excluded Provisions:	 	Section 14.03 and Section 14.04(h) of the Indenture.

	 	 	 	 	 	 	 

	 	 	Procedures for Exercise.	 	 

2

 

	 	 	 	 	 	 	 

	 	 	 	 	Conversion Date:	 	With respect to any conversion of a Convertible Note, the date on which
the Holder (as such term is defined in the Indenture) of such Convertible Note
satisfies all of the requirements for conversion thereof as set forth in Section
14.02(b) of the Indenture.

	 	 	 	 	 	 	 

	 	 	 	 	Free Convertibility Date:	 	March 15, 2014

	 	 	 	 	 	 	 

	 	 	 	 	Expiration Time:	 	The Valuation Time

	 	 	 	 	 	 	 

	 	 	 	 	Expiration Date:	 	September 15, 2014, subject to earlier exercise.

	 	 	 	 	 	 	 

	 	 	 	 	Multiple Exercise:	 	Applicable, as described under “Automatic Exercise” below.

	 	 	 	 	 	 	 

	 	 	 	 	Automatic Exercise:	 	Notwithstanding Section 3.4 of the Equity Definitions, on each
Conversion Date, a number of Options equal to the number of Convertible Notes in
denominations of USD 1,000 as to which such Conversion Date has occurred shall be
deemed to be automatically exercised; provided that such Options shall be exercised
or deemed exercised only if Counterparty has provided a Notice of Exercise to
Dealer in accordance with “Notice of Exercise” below.

	 	 	 	 	 	 	 

	 	 	 	 	 	 	Notwithstanding the foregoing, in no event shall
the number of Options that are exercised or
deemed exercised hereunder exceed the Number of
Options.

	 	 	 	 	 	 	 

	 	 	 	 	Notice of Exercise:	 	Notwithstanding anything to the contrary in the Equity Definitions
or under “Automatic Exercise” above, in order to exercise any Options, Counterparty
must notify Dealer in writing before 5:00 p.m. (New York City time) on the
Scheduled Valid Day immediately preceding the scheduled first day of the Settlement
Averaging Period for the Options being exercised of (i) the number of such Options,
(ii) the scheduled first day of the Settlement Averaging Period and the scheduled
Settlement Date, (iii) the Relevant Settlement Method for such Options, and (iv) if
the Relevant Settlement Method for such Options is not Net Share Settlement,
Settlement in Shares or Settlement in Cash (each as defined below), the fixed
amount of cash per Convertible Note that Counterparty has elected to deliver to
Holders (as such term is defined in the Indenture) of the related Convertible Notes
(the “Specified Cash Amount”), and such notice shall also include the information,
representations, acknowledgements and agreements required pursuant to “Settlement
Method Election Conditions” below; provided that in respect of any Options relating
to Convertible Notes with a Conversion Date occurring on or after the Free
Convertibility Date, (A) such notice may be given on or prior to the second
Scheduled Valid Day immediately preceding the Expiration Date and need only specify
the information required in clause (i) above, and (B) if the Relevant Settlement
Method for such Options is not Net Share Settlement, Dealer shall have received a

3

 

	 	 	 	 	 	 	 

	 	 	 	 	 	 	separate notice (the “Notice of Final Settlement
Method”) in respect of all such Convertible Notes
before 5:00 p.m. (New York City time) on or prior
to the Free Convertibility Date specifying the
information required in clauses (iii) and (iv)
above, as well as the information,
representations, acknowledgements and agreements
required pursuant to “Settlement Method Election
Conditions” below.

	 	 	 	 	 	 	 

	 	 	 	 	Valuation Time:	 	At the close of trading of the regular trading session on the Exchange;
provided that if the principal trading session is extended, the Calculation Agent
shall determine the Valuation Time in its reasonable discretion.

	 	 	 	 	 	 	 

	 	 	 	 	Market Disruption Event:	 	Section 6.3(a) of the Equity Definitions is hereby replaced in
its entirety by the following:

	 	 	 	 	 	 	 

	 	 	 	 	 	 	“‘Market Disruption Event’ means, in respect of a
Share, (i) a failure by the primary United States
national or regional securities exchange or
market on which the Shares are listed or admitted
for trading to open for trading during its
regular trading session or (ii) the occurrence or
existence prior to 1:00 p.m. (New York City time)
on any Scheduled Valid Day for the Shares for
more than one half-hour period in the aggregate
during regular trading hours of any suspension or
limitation imposed on trading (by reason of
movements in price exceeding limits permitted by
the relevant stock exchange or otherwise) in the
Shares or in any options or futures contracts
relating to the Shares.”

	 	 	 	 	 	 	 

	 	 	Settlement Terms.	 	 
	 	 	 	 	 	 	 

	 	 	 	 	Settlement Method:	 	For any Option, Net Share Settlement; provided that if the Relevant
Settlement Method set forth below for such Option is not Net Share Settlement, then
the Settlement Method for such Option shall be such Relevant Settlement Method, but
only if the Settlement Method Election Conditions have been satisfied and
Counterparty shall have notified Dealer of the Relevant Settlement Method in the
Notice of Exercise or Notice of Final Settlement Method, as applicable, for such
Option.

	 	 	 	 	 	 	 

	 	 	 	 	Relevant Settlement Method:	 	In respect of any Option, subject to the Settlement Method
Election Conditions:

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(i) if Counterparty has elected to settle its
conversion obligations in respect of the related
Convertible Note (A) entirely in Shares pursuant
to Section 14.02(v) of the Indenture (together
with cash in lieu of fractional Shares) (such
settlement method, “Settlement in Shares”), (B)
in a combination of cash and Shares pursuant to
Section 14.02(a)(vii) of the Indenture with a
Specified Cash Amount less than USD 1,000 (such
settlement method, “Low Cash Combination
Settlement”), or (C) in a combination of cash and
Shares pursuant to Section

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	 	 	 	 	 	 	14.02(a)(vii) of the Indenture with a Specified
Cash Amount equal to USD 1,000 (such settlement
method, “Par Cash Combination Settlement”), then,
in each case, the Relevant Settlement Method for
such Option shall be Net Share Settlement;

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(ii) if Counterparty has elected to settle its
conversion obligations in respect of the related
Convertible Note in a combination of cash and
Shares pursuant to Section 14.02(a)(vii) of the
Indenture with a Specified Cash Amount greater
than USD 1,000, then the Relevant Settlement
Method for such Option shall be Combination
Settlement; and

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(iii) if Counterparty has elected to settle its
conversion obligations in respect of the related
Convertible Note entirely in cash pursuant to
Section 14.02(a)(vi) of the Indenture (such
settlement method, “Settlement in Cash”), then
the Relevant Settlement Method for such Option
shall be Cash Settlement.

	 	 	 	 	 	 	 

	 	 	 	 	Settlement Method Election Conditions:	 	For any Relevant Settlement Method other than Net
Share Settlement, such Relevant Settlement Method shall apply to an Option only if
the Notice of Exercise or Notice of Final Settlement Method, as applicable,
contains:

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(i) a representation that, on the date of such
Notice of Exercise or Notice of Final Settlement
Method, as applicable, Counterparty is not in
possession of any material non-public information
with respect to Counterparty or the Shares;

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(ii) a representation that Counterparty is
electing the settlement method for the related
Convertible Note and such Relevant Settlement
Method in good faith and not as part of a plan or
scheme to evade the prohibitions of Rule 10b-5
under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”);

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(iii) a representation that Counterparty has not
entered into or altered any hedging transaction
relating to the Shares corresponding to or
offsetting the Transaction;

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(iv) a representation that Counterparty is not
electing the settlement method for the related
Convertible Note and such Relevant Settlement
Method to create actual or apparent trading
activity in the Shares (or any security
convertible into or exchangeable for the Shares)
or to raise or depress or otherwise manipulate
the price of the Shares (or any security
convertible into or exchangeable for the Shares);
and

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(v) an acknowledgment by Counterparty that (A)
any transaction by Dealer following
Counterparty’s election of the settlement method
for the related Convertible Note and such
Relevant Settlement Method shall be made at

5

 

	 	 	 	 	 	 	 

	 	 	 	 	 	 	Dealer’s sole discretion and for Dealer’s own
account and (B) Counterparty does not have, and
shall not attempt to exercise, any influence over
how, when, whether or at what price to effect
such transactions, including, without limitation,
the price paid or received per Share pursuant to
such transactions, or whether such transactions
are made on any securities exchange or privately.

	 	 	 	 	 	 	 

	 	 	 	 	Net Share Settlement:	 	If Net Share Settlement is applicable to any Option
exercised or deemed exercised hereunder, Dealer will deliver to Counterparty, on
the relevant Settlement Date for each such Option, a number of Shares (the “Net
Share Settlement Amount”) equal to the sum, for each Valid Day during the
Settlement Averaging Period for each such Option, of (i) the Daily Option Value for
such Valid Day, divided by (ii) the Relevant Price on such Valid Day, divided by
(iii) the number of Valid Days in the Settlement Averaging Period; provided that,
except in the case of Par Cash Combination Settlement, in no event shall the Net
Share Settlement Amount for any Option exceed a number of Shares equal to the
Applicable Limit for such Option divided by the Applicable Limit Price on the
Settlement Date for such Option.

	 	 	 	 	 	 	 

	 	 	 	 	 	 	Dealer will deliver cash in lieu of any
fractional Shares to be delivered with respect to
any Net Share Settlement Share Amount valued at
the Relevant Price for the last Valid Day of the
Settlement Averaging Period.

	 	 	 	 	 	 	 

	 	 	 	 	Combination Settlement:	 	If Combination Settlement is applicable to any Option exercised
or deemed exercised hereunder, Dealer will deliver to Counterparty, on the relevant
Settlement Date for each such Option:

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(i) an amount of cash (the “Combination
Settlement Cash Amount”) equal to the sum, for
each Valid Day during the Settlement Averaging
Period for such Option, of (A) an amount (the
“Daily Combination Settlement Cash Amount”) equal
to the lesser of (1) the product of (x) the
Applicable Percentage and (y) the Specified Cash
Amount minus USD 1,000 and (2) the Daily Option
Value, divided by (B) the number of Valid Days in
the Settlement Averaging Period; provided that if
the calculation in clause (A) above results in
zero or a negative number for any Valid Day, the
Daily Combination Settlement Cash Amount for such
Valid Day shall be deemed to be zero; and

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(ii) a number of Shares (the “Combination
Settlement Share Amount”) equal to the sum, for
each Valid Day during the Settlement Averaging
Period for such Option, of a number of Shares for
such Valid Day (the “Daily Combination Settlement
Share Amount”) equal to (A) the Daily Option
Value on such Valid Day minus the Daily
Combination Settlement Cash Amount for such Valid
Day, divided by (B) the Relevant Price on such

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	 	 	 	 	 	 	Valid Day, divided by (C) the number of Valid
Days in the Settlement Averaging Period; provided
that if the calculation in clause (A) above
results in zero or a negative number for any
Valid Day, the Daily Combination Settlement Share
Amount for such Valid Day shall be deemed to be
zero.

	 	 	 	 	 	 	 

	 	 	 	 	 	 	Dealer will deliver cash in lieu of any
fractional Shares to be delivered with respect to
any Combination Settlement Share Amount valued at
the Relevant Price for the last Valid Day of the
Settlement Averaging Period.

	 	 	 	 	 	 	 

	 	 	 	 	Cash Settlement:	 	If Cash Settlement is applicable to any Option exercised or
deemed exercised hereunder, in lieu of Section 8.1 of the Equity Definitions,
Dealer will pay to Counterparty, on the relevant Settlement Date for each such
Option, an amount of cash (the “Cash Settlement Amount”) equal to the sum, for each
Valid Day during the Settlement Averaging Period for such Option, of (i) the Daily
Option Value for such Valid Day, divided by (ii) the number of Valid Days in the
Settlement Averaging Period.

	 	 	 	 	 	 	 

	 	 	 	 	Daily Option Value:	 	For any Valid Day, an amount equal to (i) the Option
Entitlement on such Valid Day, multiplied by (ii) the Relevant Price on such Valid
Day less the Strike Price on such Valid Day; provided that if the calculation
contained in clause (ii) above results in a negative number, the Daily Option Value
for such Valid Day shall be deemed to be zero. In no event will the Daily Option
Value be less than zero.

	 	 	 	 	 	 	 

	 	 	 	 	Applicable Limit:	 	For any Option, an amount of cash equal to the Applicable Percentage
multiplied by the excess of (i) the aggregate of (A) the amount of cash, if any,
delivered to the Holder of the related Convertible Note upon conversion of such
Convertible Note and (B) the number of Shares, if any, delivered to the Holder of
the related Convertible Note upon conversion of such Convertible Note multiplied by
the Applicable Limit Price on the Settlement Date for such Option, over (ii) USD
1,000.

	 	 	 	 	 	 	 

	 	 	 	 	Applicable Limit Price:	 	On any day, the opening price as displayed under the heading
“Op” on Bloomberg page TWGP.UQ <equity> (or its equivalent successor if such
page is not available).

	 	 	 	 	 	 	 

	 	 	 	 	Valid Day:	 	A day on which (i) there is no Market Disruption Event and (ii)
trading in the Shares generally occurs on the Exchange or, if the Shares are not
then listed on the Exchange, on the principal other United States national or
regional securities exchange on which the Shares are then listed or, if the Shares
are not then listed on a United States national or regional securities exchange, on
the principal other market on which the Shares are then listed or admitted for
trading. If the Shares are not so listed or admitted for trading, “Valid Day” means
a Business Day.

7

 

	 	 	 	 	 	 	 

	 	 	 	 	Scheduled Valid Day:	 	A day that is scheduled to be a Valid Day on the principal United
States national or regional securities exchange or market on which the Shares are
listed or admitted for trading. If the Shares are not so listed or admitted for
trading, “Scheduled Valid Day” means a Business Day.

	 	 	 	 	 	 	 

	 	 	 	 	Business Day:	 	Any day other than a Saturday, a Sunday or a day on which the Federal
Reserve Bank of New York is authorized or required by law or executive order to
close or be closed.

	 	 	 	 	 	 	 

	 	 	 	 	Relevant Price:	 	On any Valid Day, the per Share volume-weighted average price as
displayed under the heading “Bloomberg VWAP” on Bloomberg page TWGP.UQ
<equity> AQR (or its equivalent successor if such page is not available) in
respect of the period from the scheduled open of trading until the scheduled close
of trading of the primary trading session on such Valid Day (or if such
volume-weighted average price is unavailable, the market value of one Share on such
Valid Day, as determined by the Calculation Agent using a volume-weighted average
method). The Relevant Price will be determined without regard to after hours
trading or any other trading outside of the regular trading session trading hours.

	 	 	 	 	 	 	 

	 	 	 	 	Settlement Averaging Period:	 	For any Option and regardless of the Settlement Method
applicable to such Option:

	 	 	 	 	 	 	 

	 	 	 	 	 	 	 (i)      if the related Conversion Date occurs prior
to the Free Convertibility Date, the 40
consecutive Valid Days commencing on, and
including, the third Valid Day following
such Conversion Date; provided that if the
Notice of Exercise for such Option specifies
that Settlement in Shares or Low Cash
Combination Settlement applies to the
related Convertible Note, the Settlement
Averaging Period shall be the 80 consecutive
Valid Day period commencing on, and
including, the second Valid Day immediately
following such Conversion Date; or

	 	 	 	 	 	 	 

	 	 	 	 	 	 	(ii)      if the related Conversion Date occurs on or
following the Free Convertibility Date, the
40 consecutive Valid Days commencing on, and
including, the 42nd Scheduled
Valid Day immediately prior to the
Expiration Date; provided that if the Notice
of Exercise or Notice of Final Settlement
Method, as applicable, for such Option
specifies that Settlement in Shares or Low
Cash Combination Settlement applies to the
related Convertible Note, the Settlement
Averaging Period shall be the 80 consecutive
Valid Days commencing on, and including, the
82nd Scheduled Valid Day
immediately prior to the Expiration Date.

8

 

	 	 	 	 	 	 	 

	 	 	 	 	Settlement Date:	 	For any Option, the third Business Day immediately following the last
Valid Day of the Settlement Averaging Period for such Option.

	 	 	 	 	 	 	 

	 	 	 	 	Settlement Currency:	 	USD

	 	 	 	 	 	 	 

	 	 	 	 	Other Applicable Provisions:	 	The provisions of Sections 9.1(c), 9.8, 9.9,
9.11, 9.12 and 10.5 of the Equity Definitions will be applicable, except that all
references in such provisions to “Physically-settled” shall be read as references
to “Share Settled”. “Share Settled” in relation to any Option means that Net Share
Settlement or Combination Settlement is applicable to that Option.

	 	 	 	 	 	 	 

	 	 	 	 	Representation and Agreement:	 	Notwithstanding Section 9.11 of the Equity Definitions,
the parties acknowledge that any Shares delivered to Counterparty shall be, upon
delivery, subject to restrictions and limitations arising from Counterparty’s
status as issuer of the Shares under applicable securities laws.

3. Additional Terms applicable to the Transaction.

	 	 	 	 	 	 	 

	   Adjustments applicable to the Transaction:	 	 
	 	 	 	 	 	 	 

	 	 	 	 	Potential Adjustment Events:	 	Notwithstanding Section 11.2(e) of the Equity Definitions,
a “Potential Adjustment Event” means an occurrence of any event or condition, as
set forth in any Dilution Adjustment Provision, that would result in an adjustment
to the Conversion Rate (as defined in the Indenture) of the Convertible Notes.

	 	 	 	 	 	 	 

	 	 	 	 	Method of Adjustment:	 	Calculation Agent Adjustment, which means that, notwithstanding
Section 11.2(c) of the Equity Definitions, upon any Potential Adjustment Event that
results in an adjustment to the Conversion Rate (as defined in the Indenture) of
the Convertible Notes, the Calculation Agent shall make a corresponding adjustment
to any one or more of the Strike Price, Number of Options, Option Entitlement and
any other variable relevant to the exercise, settlement or payment for the
Transaction; provided that, notwithstanding the foregoing, if the Calculation Agent
in good faith disagrees with any adjustment to the Convertible Notes that involves
an exercise of discretion by Counterparty or its board of directors (including,
without limitation, pursuant to Section 14.05 of the Indenture or in connection
with any proportional adjustment or the determination of the fair value of any
securities, property, rights or other assets), then in each such case, the
Calculation Agent will determine the adjustment to be made to any one or more of
the Strike Price, Number of Options, Option Entitlement and any other variable
relevant to the exercise, settlement or payment for the Transaction in a
commercially reasonable manner; provided, further, that, notwithstanding the
foregoing, if any Potential

9

 

	 	 	 	 	 	 	 

	 	 	 	 	 	 	Adjustment Event occurs during the Settlement
Averaging Period but no adjustment was made to
any Convertible Note under the Indenture because
the relevant Holder (as such term is defined in
the Indenture) was deemed to be a record owner of
the underlying Shares on the related Conversion
Date, then the Calculation Agent shall make an
adjustment, as determined by it, to the terms
hereof in order to account for such Potential
Adjustment Event.

	 	 	 	 	 	 	 

	 	 	 	 	Dilution Adjustment Provisions:	 	Section 14.04(a), (b), (c), (d) and (e) and Section
14.05 of the Indenture.

	 	 	 	 	 	 	 

	 	 	Extraordinary Events applicable to the Transaction:	 	 
	 	 	 	 	 	 	 

	 	 	 	 	Merger Events:	 	Applicable; provided that notwithstanding Section 12.1(b) of the Equity
Definitions, a “Merger Event” means the occurrence of any event or condition set
forth in the definition of “Merger Event” in Section 14.07(a) of the Indenture.

	 	 	 	 	 	 	 

	 	 	 	 	Tender Offers:	 	Applicable; provided that notwithstanding Section 12.1(d) of the Equity
Definitions, a “Tender Offer” means the occurrence of any event or condition set
forth in Section 14.04(e) of the Indenture.

	 	 	 	 	 	 	 

	 	 	 	 	Consequence of Merger Events / Tender Offers:	 	Notwithstanding Section 12.2 and Section 12.3 of the Equity Definitions,
upon the occurrence of a Merger Event or a Tender Offer, the Calculation Agent
shall make a corresponding adjustment in respect of any adjustment under the
Indenture to any one or more of the nature of the Shares (in the case of a Merger
Event), Strike Price, Number of Options, Option Entitlement and any other variable
relevant to the exercise, settlement or payment for the Transaction; provided,
however, that such adjustment shall be made without regard to any adjustment to the
Conversion Rate pursuant to any Excluded Provision; provided further that if, with
respect to a Merger Event or a Tender Offer, (i) the consideration for the Shares
includes (or, at the option of a holder of Shares, may include) shares of an entity
or person not organized under the laws of the United States, any State thereof or
the District of Columbia or (ii) the Counterparty to the Transaction following such
Merger Event or Tender Offer, will not be the Issuer following such Merger Event or
Tender Offer, then Cancellation and Payment (Calculation Agent Determination) shall
apply.

	 	 	 	 	 	 	 

	 	 	 	 	Nationalization, Insolvency or Delisting:	 	Cancellation and Payment (Calculation Agent
Determination); provided that, in addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the
Exchange is located in the United States and the Shares are not immediately
re-listed, re-traded or re-quoted on

10

 

	 	 	 	 	 	 	 

	 	 	 	 	 	 	any of the New York Stock Exchange, The NASDAQ
Global Select Market or The NASDAQ Global Market
(or their respective successors); if the Shares
are immediately re-listed, re-traded or re-quoted
on any of the New York Stock Exchange, The NASDAQ
Global Select Market or The NASDAQ Global Market
(or their respective successors), such exchange
or quotation system shall thereafter be deemed to
be the Exchange.

	 	 	 	 	 	 	 

	 	 	Additional Disruption Events:	 	 
	 	 	 	 	 	 	 

	 	 	 	 	Change in Law:	 	Applicable; provided that Section 12.9(a)(ii)(X) of the Equity
Definitions is hereby amended by replacing the word “Shares” with the phrase
“Hedge Positions.”

	 	 	 	 	 	 	 

	 	 	 	 	Failure to Deliver:	 	Not Applicable

	 	 	 	 	 	 	 

	 	 	 	 	Hedging Disruption:	 	Applicable; provided that Section 12.9(b)(iii) of the Equity
Definitions is hereby amended by inserting in the third line thereof, after
the words “to terminate the Transaction”, the words “or a portion of the
Transaction affected by such Hedging Disruption”.

	 	 	 	 	 	 	 	 	 

	 	 	Hedging Party:	 	For all applicable Additional Disruption Events, Dealer.
	 
	 	 	 	 	 	 	 	 
	 	 	Determining Party:	 	For all applicable Extraordinary Events, Dealer.
	 
	 	 	 	 	 	 	 	 
	 	 	Non-Reliance:	 	Applicable
	 
	 	 	 	 	 	 	 	 
	 	 	Agreements and Acknowledgements	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Regarding Hedging Activities:	 	Applicable
	 
	 	 	 	 	 	 	 	 
	 	 	Additional Acknowledgments:	 	Applicable
	 
	 	 	 	 	 	 	 	 
	4. 	 	 Calculation Agent. 	 	Dealer
	 
	 	 	 	 	 	 	 	 
	5. 	 	Account Details.	 	 

	 	 	 	 	 	 	 

	 	 	(a)	 	Account for payments to Counterparty:
	 
	 	 	 	 	 	 
	 
	 	 	 	Bank:	 	State Street Trust Bank
	 
	 	 	 	ABA#:	 	011000028
	 
	 	 	 	Acct No.:	 	00153577
	 
	 	 	 	Beneficiary:	 	Tower Group Inc./4RAX
	 
	 	 	 	Ref:	 	Tower Group Inc./4RAX
	 
	 	 	 	 	 	 
	 	 	 	 	Account for delivery of Shares to Counterparty:
	 
	 	 	 	 	 	 
	 	 	 	 	To be provided by Counterparty.
	 
	 	 	 	 	 	 
	 	 	(b)	 	Account for payments to Dealer:
	 
	 	 	 	 	 	 
	 
	 	 	 	Bank:	 	JPMorgan Chase Bank, N.A.
	 
	 	 	 	ABA#:	 	021000021
	 
	 	 	 	Acct No.:	 	099997979
	 
	 	 	 	Beneficiary:	 	JPMorgan Chase Bank, N.A. New York
	 
	 	 	 	Ref:	 	Derivatives

11

 

	 	 	 	 	 	 	 

	 	 	 	 	Account for delivery of Shares from Dealer:
	 
	 	 	 	 	 	 
	 	 	 	 	DTC 0060

6. Offices.

	 	 	 	 	 	 	 

	(a)	 	 	 	The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a Multibranch Party.
	 
	 	 	 	 	 	 
	(b)	 	 	 	The Office of Dealer for the Transaction is: London
	 
	 	 	 	 	 	 
	 	 	 	 	JPMorgan Chase Bank, National Association
	 	 	 	 	London Branch
	 	 	 	 	P.O. Box 161
	 	 	 	 	60 Victoria Embankment
	 	 	 	 	London EC4Y 0JP
	 	 	 	 	England

7. Notices.

	 	 	 	 	 	 	 

	(a)	 	 	 	Address for notices or communications to Counterparty:
	 
	 	 	 	 	 	 
	 	 	 	 	Tower Group, Inc.
	 	 	 	 	120 Broadway, 31st Floor
	 	 	 	 	New York, NY 10271
	 
	 	 	 	Attention:	 	Treasurer
	 
	 	 	 	Telephone No.:	 	(212) 655-2000
	 
	 	 	 	Facsimile No.:	 	(212) 655-2199
	 
	 	 	 	 	 	 
	(b)	 	 	 	Address for notices or communications to Dealer:
	 
	 	 	 	 	 	 
	 	 	 	 	JPMorgan Chase Bank, National Association
	 	 	 	 	4 New York Plaza, Floor 18
	 	 	 	 	New York, NY 10004-2413
	 
	 	 	 	Attention:	 	Mariusz Kwasnik
	 
	 	 	 	Title:	 	Operations Analyst, EDG Corporate Marketing
	 
	 	 	 	Telephone No:	 	(212) 623-7223
	 
	 	 	 	Facsimile No:	 	(212) 623-7719

8. Representations and Warranties of Counterparty.

	 	 	Each of the representations and warranties of Counterparty set forth in Section 3 of the
Purchase Agreement (the “Purchase Agreement”), dated as of September 14, 2010, between
Counterparty and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as representatives of the Initial Purchasers party thereto (the “Initial
Purchasers”), are true and correct and are hereby deemed to be repeated to Dealer as if set
forth herein. Counterparty hereby further represents and warrants to Dealer on the date
hereof and on and as of the Premium Payment Date that:

	 	(a)	 	Counterparty is duly organized and validly existing and in good standing under
the laws of its jurisdiction of incorporation.

12

 

	 	(b)	 	Counterparty has the corporate power and authority to execute and
deliver this Confirmation and to perform its obligations hereunder; and all action
required to be taken for the due and proper authorization, execution and delivery by
it of this Confirmation and the consummation by it of the transactions contemplated
hereby has been duly and validly taken.
	 
	 	(c)	 	This Confirmation has been duly authorized by Counterparty and, when duly
executed and delivered in accordance with its terms by each of the parties hereto, will
constitute a valid and legally binding agreement of Counterparty enforceable against
Counterparty in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally
or by equitable principles relating to enforceability.
	 
	 	(d)	 	The execution, delivery and performance by Counterparty of this Confirmation
and the consummation of the transactions contemplated hereby will not (i) conflict with
or result in a breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of Counterparty or any of its subsidiaries
pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which Counterparty or any of its subsidiaries is a party or by which
Counterparty or any of its subsidiaries is bound or to which any of the property or
assets of Counterparty or any of its subsidiaries is subject, (ii) result in any
violation of the provisions of the charter or by-laws or similar organizational
documents of Counterparty or any of its subsidiaries or (iii) result in the violation
of any law or statute or any judgment, order, rule or regulation of any court or
arbitrator or governmental or regulatory authority applicable to Counterparty or any of
its subsidiaries; except, in the case of clauses (i) and (iii) above, for any such
conflict, breach, default or violation that would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the business,
properties, management, financial position, stockholders’ equity, results of operations
or prospects of Counterparty and its subsidiaries taken as a whole or on the
performance by Counterparty of its obligations under this Confirmation (“Material
Adverse Effect”).
	 
	 	(e)	 	No consent, approval, authorization, order, registration or qualification of or
with any court or arbitrator or governmental or regulatory authority is required for
the execution, delivery and performance by Counterparty of this Confirmation and the
consummation of the transactions contemplated hereby, except for (i) such consents,
approvals, authorizations, orders and registrations or qualifications as may be
required under applicable state securities laws or (ii) where the failure to obtain or
make any such consents, approvals, authorizations, orders and registrations or
qualifications would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, provided that such failure to obtain or make any such
consents, approvals, authorizations, orders and registrations or qualifications does
not prevent Counterparty from performing its obligations under this Confirmation.
	 
	 	(f)	 	Counterparty is not and, after giving effect to the transactions contemplated
hereby, will not be required to register as an “investment company” or an entity
“controlled” by an “investment company” within the meaning of the Investment Company
Act of 1940, as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder.
	 
	 	(g)	 	Counterparty is an “eligible contract participant” (as such term is defined in
Section 1a(12) of the Commodity Exchange Act, as amended, other than a person that is
an eligible contract participant under Section 1a(12)(C) of the Commodity Exchange
Act).
	 
	 	(h)	 	Counterparty and each of its affiliates is not, on the date hereof, in
possession of any material non-public information with respect to Counterparty or the
Shares.

	9.	 	Other Provisions.

	 	(a)	 	Opinions. Counterparty shall deliver to Dealer an opinion of counsel,
dated as of the Trade Date, with respect to the matters set forth in Sections 8(a)
through (e) of this Confirmation. Delivery of

13

 

	 	 	 	such opinion to Dealer shall be a condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect
to each obligation of Dealer under Section 2(a)(i) of the Agreement.
	 
	 	(b)	 	Repurchase Notices. Counterparty shall, on any day on which
Counterparty effects any repurchase of Shares, promptly give Dealer a written notice of
such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the
number of outstanding Shares as determined on such day is (i) less than 40.1 million
(in the case of the first such notice) or (ii) thereafter more than 2.7 million less
than the number of Shares included in the immediately preceding Repurchase Notice.
Counterparty agrees to indemnify and hold harmless Dealer and its affiliates and their
respective officers, directors, employees, affiliates, advisors, agents and controlling
persons (each, an “Indemnified Person”) from and against any and all losses (including
losses relating to Dealer’s hedging activities as a consequence of becoming, or of the
risk of becoming, a Section 16 “insider”, including without limitation, any forbearance
from hedging activities or cessation of hedging activities and any losses in connection
therewith with respect to the Transaction), claims, damages, judgments, liabilities and
expenses (including reasonable attorney’s fees), joint or several, which an Indemnified
Person may become subject to, as a result of Counterparty’s failure to provide Dealer
with a Repurchase Notice on the day and in the manner specified in this paragraph, and
to reimburse, within 30 days, upon written request, each of such Indemnified Persons
for any reasonable legal or other expenses incurred in connection with investigating,
preparing for, providing testimony or other evidence in connection with or defending
any of the foregoing. If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against the
Indemnified Person as a result of Counterparty’s failure to provide Dealer with a
Repurchase Notice in accordance with this paragraph, such Indemnified Person shall
promptly notify Counterparty in writing, and Counterparty, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified
Person to represent the Indemnified Person and any others Counterparty may designate in
such proceeding and shall pay the reasonable out-of-pocket fees and expenses of such
counsel related to such proceeding. Counterparty shall not be liable for any
settlement of any proceeding contemplated by this paragraph that is effected without
its written consent, but if settled with such consent or if there be a final judgment
for the plaintiff, Counterparty agrees to indemnify any Indemnified Person from and
against any loss or liability by reason of such settlement or judgment. Counterparty
shall not, without the prior written consent of the Indemnified Person, effect any
settlement of any pending or threatened proceeding contemplated by this paragraph that
is in respect of which any Indemnified Person is a party and indemnity has been sought
hereunder by such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the subject
matter of such proceeding on terms reasonably satisfactory to such Indemnified Person.
If the indemnification provided for in this paragraph is unavailable to an Indemnified
Person or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then Counterparty hereunder, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages or liabilities. The
remedies provided for in this paragraph (b) are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any Indemnified Person at law or
in equity. The indemnity and contribution agreements contained in this paragraph shall
remain operative and in full force and effect regardless of the termination of the
Transaction.
	 
	 	(c)	 	Regulation M. Counterparty is not on the Trade Date engaged in a
distribution, as such term is used in Regulation M under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), of any securities of Counterparty, other than a
distribution meeting the requirements of the exception set forth in Rules 101(b)(10)
and 102(b)(7) of Regulation M. Counterparty shall not,
until the second Scheduled Trading Day immediately following the Effective Date,
engage in any such distribution.
	 
	 	(d)	 	No Manipulation. Counterparty is not entering into the Transaction to
create actual or apparent trading activity in the Shares (or any security convertible
into or exchangeable for the Shares) or to

14

 

	 	 	 	raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares)
in violation of the Exchange Act.
	 
	 	(e)	 	Transfer or Assignment.

	 	(i)	 	Counterparty shall have the right to transfer or assign its
rights and obligations hereunder with respect to all, but not less than all, of
the Options hereunder (such Options, the “Transfer Options”); provided that
such transfer or assignment shall be subject to reasonable conditions that
Dealer may impose, including but not limited, to the following conditions:

	 	(A)	 	With respect to any Transfer Options,
Counterparty shall not be released from its notice and indemnification
obligations pursuant to Section 9(b) or any obligations under Section
9(n) or 9(s) of this Confirmation;
	 
	 	(B)	 	Any Transfer Options shall only be transferred
or assigned to a third party that is a United States person (as defined
in the Internal Revenue Code of 1986, as amended);
	 
	 	(C)	 	Such transfer or assignment shall be effected
on terms, including any reasonable undertakings by such third party
(including, but not limited to, an undertaking with respect to
compliance with applicable securities laws in a manner that, in the
reasonable judgment of Dealer, will not expose Dealer to material risks
under applicable securities laws) and execution of any documentation
and delivery of legal opinions with respect to securities laws and
other matters by such third party and Counterparty, as are requested
and reasonably satisfactory to Dealer;
	 
	 	(D)	 	Dealer will not, as a result of such transfer
and assignment, be required to pay the transferee on any payment date
an amount under Section 2(d)(i)(4) of the Agreement greater than an
amount that Dealer would have been required to pay to Counterparty in
the absence of such transfer and assignment;
	 
	 	(E)	 	An Event of Default, Potential Event of Default
or Termination Event will not occur as a result of such transfer and
assignment;
	 
	 	(F)	 	Without limiting the generality of clause (B),
Counterparty shall cause the transferee to make such Payee Tax
Representations and to provide such tax documentation as may be
reasonably requested by Dealer to permit Dealer to determine that
results described in clauses (D) and (E) will not occur upon or after
such transfer and assignment; and
	 
	 	(G)	 	Counterparty shall be responsible for all
reasonable costs and expenses, including reasonable counsel fees,
incurred by Dealer in connection with such transfer or assignment.

	 	(ii)	 	Dealer may, without Counterparty’s consent, transfer or assign
all or any part of its rights or obligations under the Transaction at any time
to any affiliate of Dealer (A) that has a rating for its long term, unsecured
and unsubordinated indebtedness that is equal to or better than the best of
Dealer’s credit rating and the credit rating of any guarantor of Dealer’s
obligations hereunder, in each case, at the time of the transfer or assignment,
or (B) whose obligations hereunder will be guaranteed, pursuant to the terms of
a customary guarantee in a form used by Dealer generally for similar transactions, by
Dealer or any parent of Dealer that has a credit rating that is equal to or
better than the best of Dealer’s credit rating and the credit rating of any
guarantor of Dealer’s obligations hereunder, in each case, at the time of
the transfer or assignment; provided that any such transfer or assignment
shall be subject to the conditions that (I) following such transfer or

15

 

	 	 	 	assignment, the terms and conditions of the Agreement as so transferred or
assigned (the “Transferred Agreement”) shall be substantially the same as
the terms and conditions of the Agreement immediately prior to such transfer
or assignment, (II) Counterparty will not be required to pay to the
transferee an amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) of the Transferred Agreement greater than the amount in respect
of which Counterparty would have been required to pay to Dealer under
Section 2(d)(i)(4) in the absence of the transfer, (III) Counterparty will
not receive any payment under the Transferred Agreement from which an amount
is required to be withheld or deducted for or on account of a Tax with
respect to which no additional amount is required to be paid by the
transferee under Section 2(d)(i)(4) of the Transferred Agreement (other than
by reason of Section 2(d)(i)(4)(A) or (B) thereof), (IV) neither an Event of
Default with respect to which Dealer is the Defaulting Party nor a
Termination Event with respect to which Dealer is the sole Affected Party
shall have occurred and be continuing at the time of the transfer, and
neither an Event of Default nor a Termination Event shall occur as a result
of the transfer, (V) each of Dealer and the transferee is a dealer in
“notional principal contracts” within the meaning of Section
1.446-3(c)(4)(iii) of the U.S. Treasury Regulations and in other
derivatives, and (VI) Dealer has used its good faith efforts to provide
prior notice to Counterparty of such transfer and the proposed date of such
transfer, and Dealer shall provide written notice to Counterparty reasonably
promptly following such transfer. In addition, if at any time (A) the
Section 16 Percentage exceeds 7.5%, (B) the Option Equity Percentage exceeds
14.5%, or (C) the Share Amount exceeds the Applicable Share Limit (if any
applies) (any such condition described in clauses (A), (B) or (C), an
“Excess Ownership Position”), Dealer may, without Counterparty’s consent,
transfer or assign all or any part of its rights or obligations under the
Transaction to any third party who is a dealer in “notional principal
contracts” within the meaning of Section 1.446-3(c)(4)(iii) of the U.S.
Treasury Regulations and in other derivatives, and with a rating for its
long term, unsecured and unsubordinated indebtedness equal to or better than
the lesser of (x) the credit rating of Dealer at the time of the transfer
and (y) A- by Standard and Poor’s Rating Group, Inc. or its successor
(“S&P”), or A3 by Moody’s Investor Service, Inc. (“Moody’s”) or, if either
S&P or Moody’s ceases to rate such debt, at least an equivalent rating or
better by a substitute rating agency mutually agreed by Counterparty and
Dealer. If at any time an Excess Ownership Position exists, Dealer may
designate any Exchange Business Day as an Early Termination Date with
respect to all or a portion of the Transaction (the “Terminated Portion”)
such that following such termination no Excess Ownership Position exists;
provided that Dealer may only designate an Early Termination Date pursuant
to this Section 9(e)(ii) if Dealer has used its good faith efforts to notify
Counterparty of such Excess Ownership Position, and Dealer is unable, acting
in good faith and after using its commercially reasonable efforts, to effect
a transfer or assignment of Options to a third party in accordance with this
Section 9(e)(ii) on pricing terms reasonably acceptable to Dealer and within
a time period reasonably acceptable Dealer such that no Excess Ownership
Position exists. In the event that Dealer so designates an Early
Termination Date with respect to a Terminated Portion, a payment shall be
made pursuant to Section 6 of the Agreement as if (1) an Early Termination
Date had been designated in respect of a Transaction having terms identical
to the Transaction and a Number of Options equal to the number of Options
underlying the Terminated Portion, (2) Counterparty were the sole Affected
Party with respect to such partial termination and (3) the Terminated
Portion were the sole Affected Transaction (and, for the avoidance of doubt,
the provisions of Section 9(l) shall apply to any amount that is payable by
Dealer to Counterparty pursuant to this sentence as if Counterparty was not
the Affected Party). The “Section 16 Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the number of Shares that Dealer
and each person subject to aggregation of Shares with Dealer under Section
13 or Section 16 of the Exchange Act and rules promulgated thereunder
directly or indirectly beneficially own (as defined under Section 13 or
Section 16 of the Exchange Act and rules promulgated thereunder)

16

 

	 	 	 	and (B) the denominator of which is the number of Shares outstanding. The “Option
Equity Percentage” as of any day is the fraction, expressed as a percentage,
(A) the numerator of which is the sum of (1) the product of the Number of
Options and the Option Entitlement and (2) the aggregate number of Shares
underlying any other call option transaction sold by Dealer to Counterparty,
and (B) the denominator of which is the number of Shares outstanding. The
“Share Amount” as of any day is the number of Shares that Dealer and any
person whose ownership position would be aggregated with that of Dealer
(Dealer or any such person, a “Dealer Person”) under any insurance or other
law, rule, regulation, regulatory order or organizational documents or
contracts of Counterparty that are, in each case, applicable to ownership of
Shares (“Applicable Restrictions”), owns, beneficially owns, constructively
owns, controls, holds the power to vote or otherwise meets a relevant
definition of ownership under any Applicable Restriction, as determined by
Dealer in its reasonable discretion. The “Applicable Share Limit” means a
number of Shares equal to (A) the minimum number of Shares that could give
rise to reporting or registration obligations or other requirements
(including obtaining prior approval from any person or entity) of a Dealer
Person, or could result in an adverse effect on a Dealer Person, under any
Applicable Restriction, as determined by Dealer in its reasonable
discretion, minus (B) 1% of the number of Shares outstanding.
	 
	 	(iii)	 	Notwithstanding any other provision in this Confirmation to
the contrary requiring or allowing Dealer to purchase, sell, receive or deliver
any Shares or other securities, or make or receive any payment in cash, to or
from Counterparty, Dealer may designate any of its affiliates to purchase,
sell, receive or deliver such Shares or other securities, or to make or receive
such payment in cash, and otherwise to perform Dealer’s obligations in respect
of the Transaction and any such designee may assume such obligations. Dealer
shall be discharged of its obligations to Counterparty only to the extent of
any such performance.

	 	(f)	 	Staggered Settlement. If upon advice of counsel with respect to
applicable legal and regulatory requirements, including any requirements relating to
Dealer’s hedging activities hereunder, Dealer reasonably determines that it would not
be practicable or advisable to deliver, or to acquire Shares to deliver, any or all of
the Shares to be delivered by Dealer on the Settlement Date for the Transaction, Dealer
may, by notice to Counterparty on or prior to any Settlement Date (a “Nominal
Settlement Date”), elect to deliver the Shares on two or more dates (each, a “Staggered
Settlement Date”) as follows:

	 	(i)	 	in such notice, Dealer will specify to Counterparty the related
Staggered Settlement Dates (the first of which will be such Nominal Settlement
Date and the last of which will be no later than the twentieth (20th) Exchange
Business Day following such Nominal Settlement Date) and the number of Shares
that it will deliver on each Staggered Settlement Date;
	 
	 	(ii)	 	the aggregate number of Shares that Dealer will deliver to
Counterparty hereunder on all such Staggered Settlement Dates will equal the
number of Shares that Dealer would otherwise be required to deliver on such
Nominal Settlement Date; and
	 
	 	(iii)	 	if the Net Share Settlement terms set forth above were to
apply on the Nominal Settlement Date, then the Net Share Settlement terms will
apply on each Staggered Settlement Date, except that the Net Shares will be
allocated among such Staggered Settlement Dates as specified by Dealer in the
notice referred to in clause (i) above.

	 	(g)	 	Role of Agent. Each party agrees and acknowledges that (i) J.P. Morgan
Securities LLC, an affiliate of JPMorgan (“JPMS”), has acted solely as agent and not as
principal with respect to the Transaction and (ii) JPMS has no obligation or liability,
by way of guaranty, endorsement or otherwise, in any manner in respect of the
Transaction (including, if applicable, in respect of the

17

 

	 	 	 	settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect
thereof) for performance of such other party’s obligations under the Transaction.
	 
	 	(h)	 	Dividends. If at any time during the period from and including the
Effective Date, to but excluding the Expiration Date, (i) an ex-dividend date for a
regular quarterly cash dividend occurs with respect to the Shares (an “Ex-Dividend
Date”), and that dividend is less than the Regular Dividend on a per Share basis or
(ii) if no Ex-Dividend Date for a regular quarterly cash dividend occurs with respect
to the Shares in any quarterly dividend period of Counterparty, then the Calculation
Agent will make a corresponding adjustment to any one or more of the Strike Price,
Number of Options, Option Entitlement and/or any other variable relevant to the
exercise, settlement or payment for the Transaction to preserve the fair value of the
Options to Dealer after taking into account such dividend or lack thereof. “Regular
Dividend” shall mean USD 0.125 per Share per quarter. Upon any adjustment to the
Initial Dividend Threshold (as defined in the Indenture) for the Convertible Notes
pursuant to the Indenture, the Calculation Agent will make a corresponding adjustment
to the Regular Dividend for the Transaction.
	 
	 	(i)	 	Additional Termination Events. Notwithstanding anything to the
contrary in this Confirmation if an event of default with respect to Counterparty
occurs under the terms of the Convertible Notes as set forth in Section 6.01 of the
Indenture and results in the Convertible Notes becoming due and payable pursuant to the
terms of the Indenture before they would otherwise have been due and payable, then the
occurrence of such event shall constitute an Additional Termination Event applicable to
the Transaction and, with respect to such Additional Termination Event, (A)
Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall
be the sole Affected Transaction and (C) Dealer shall be the party entitled to
designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
	 
	 	(j)	 	Amendments to Equity Definitions.

	 	(i)	 	Section 12.6(a)(ii) of the Equity Definitions is hereby amended
by (1) deleting from the fourth line thereof the word “or” after the word
“official” and inserting a comma therefor, and (2) deleting the semi-colon at
the end of subsection (B) thereof and inserting the following words therefor
“or (C) at Dealer’s option, the occurrence of any of the events specified in
Section 5(a)(vii)(1) through (9) of the ISDA Master Agreement with respect to
that Issuer.”
	 
	 	(ii)	 	Section 12.9(b)(i) of the Equity Definitions is hereby amended
by (1) replacing “either party may elect” with “Dealer may elect” and (2)
replacing “notice to the other party” with “notice to Counterparty” in the
first sentence of such section.

	 	(k)	 	No Setoff. Neither party shall have the right to set off any
obligation that it may have to the other party under the Transaction against any
obligation such other party may have to it, whether arising under the Agreement, this
Confirmation or any other agreement between the parties hereto, by operation of law or
otherwise.
	 
	 	(l)	 	Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If in respect of the Transaction, an amount is payable by
Dealer to Counterparty (i) pursuant to Section 12.7 or Section 12.9 of the Equity
Definitions or (ii) pursuant to Section 6(d)(ii) of the Agreement (any such amount, a
“Payment Obligation”), Counterparty may request Dealer to satisfy the Payment
Obligation by the Share Termination Alternative (as defined below) (except that
Counterparty shall not have the right to make such an election in the event of (I) a
Nationalization, Insolvency, Merger Event or Tender Offer, in each case, in which the
consideration to be paid to holders of Shares consists solely of cash, (II) a Merger
Event or Tender Offer that is within Counterparty’s control, or (III) an Event of Default in which
Counterparty is the Defaulting Party or a Termination Event in which Counterparty is
the Affected Party, other than an Event of Default of the type described in Section
5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a Termination Event of the
type described in Section 5(b) of the Agreement in each

18

 

	 	 	 	case that resulted from an event or events outside Counterparty’s control) and shall give irrevocable
telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day,
no later than 12:00 p.m. (New York City time) on the Merger Date, the Tender Offer
Date, the Announcement Date (in the case of Nationalization, Insolvency or
Delisting), the Early Termination Date or date of cancellation, as applicable;
provided that if Counterparty does not validly request Dealer to satisfy the Payment
Obligation by the Share Termination Alternative, Dealer shall have the right, in its
sole discretion, to satisfy its Payment Obligation by the Share Termination
Alternative, notwithstanding Counterparty’s election to the contrary.

	 	 	 	 	 

	 

	 	Share Termination Alternative:
	 	If the Share Termination Alternative
is applicable in respect of any Payment Obligation, Dealer shall deliver to
Counterparty the Share Termination Delivery Property on, or within a
commercially reasonable period of time after, the date when the Payment
Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the
Equity Definitions or Section 6(d)(ii) and 6(e) of the Agreement, as applicable
(the “Share Termination Payment Date”), in satisfaction of the Payment
Obligation in the manner reasonably requested by Counterparty free of payment.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Property:
	 	A number of Share Termination
Delivery Units, as calculated by the Calculation Agent, equal to the Payment
Obligation divided by the Share Termination Unit Price. The Calculation Agent
shall adjust the Share Termination Delivery Property by replacing any
fractional portion of a security therein with an amount of cash equal to the
value of such fractional security based on the values used to calculate the
Share Termination Unit Price.
	 
	 	 	 	 
	 

	 	Share Termination Unit Price:
	 	The value to Dealer of property
contained in one Share Termination Delivery Unit, as determined by the
Calculation Agent in its discretion by commercially reasonable means and
notified by the Calculation Agent to Dealer at the time of notification of the
Payment Obligation. For the avoidance of doubt, the parties agree that in
determining the Share Termination Delivery Unit Price the Calculation Agent may
consider the purchase price paid in connection with the purchase of Share
Termination Delivery Property.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Unit:
	 	One Share or, if a Merger Event has
occurred and a corresponding adjustment to the Transaction has been made, a
unit consisting of the number or amount of each type of property received by a
holder of one Share (without consideration of any requirement to pay cash or
other consideration in lieu of fractional amounts of any securities) in such
Merger Event, as determined by the Calculation Agent.
	 
	 	 	 	 
	 

	 	Failure to Deliver:
	 	Applicable

19

 

	 	 	 	 	 

	 

	 	Other applicable provisions:
	 	If Share Termination Alternative is
applicable, the provisions of Sections 9.8, 9.9, 9.11, 9.12 and 10.5 (as
modified above) of the Equity Definitions will be applicable, except that all
references in such provisions to “Physically-settled” shall be read as
references to “Share Termination Settled” and all references to “Shares” shall
be read as references to “Share Termination Delivery Units”. “Share
Termination Settled” in relation to the Transaction means that the Share
Termination Alternative is applicable to the Transaction.

	 	(m)	 	Waiver of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect of any
suit, action or proceeding relating to the Transaction. Each party (i) certifies that
no representative, agent or attorney of either party has represented, expressly or
otherwise, that such other party would not, in the event of such a suit, action or
proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the
other party have been induced to enter into the Transaction, as applicable, by, among
other things, the mutual waivers and certifications provided herein.
	 
	 	(n)	 	Registration. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Dealer, the Shares (“Hedge Shares”) acquired by Dealer for the
purpose of hedging its obligations pursuant to the Transaction cannot be sold in the
public market by Dealer without registration under the Securities Act of 1933, as
amended (the “Securities Act”), Counterparty shall, at its election, either (i) in
order to allow Dealer to sell the Hedge Shares in a registered offering, use
commercially reasonable efforts to make available to Dealer an effective registration
statement under the Securities Act and enter into an agreement, in customary form and
in substance reasonably satisfactory to Dealer, substantially in the form of an
underwriting agreement for a registered secondary offering; provided, however, that if
Dealer, in its sole reasonable discretion, is not satisfied with access to due
diligence materials, the results of its due diligence investigation, or the procedures
and documentation for the registered offering referred to above, then clause (ii) or
clause (iii) of this paragraph shall apply at the election of Counterparty, (ii) in
order to allow Dealer to sell the Hedge Shares in a private placement, enter into a
private placement agreement substantially similar to private placement purchase
agreements customary for private placements of equity securities, in form and in
substance reasonably satisfactory to Dealer (in which case, the Calculation Agent shall
make any adjustments to the terms of the Transaction that are necessary, in its
reasonable judgment, to compensate Dealer for any discount from the public market price
of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii)
purchase the Hedge Shares from Dealer at the Relevant Price on such Exchange Business
Days, and in the amounts, requested by Dealer.
	 
	 	(o)	 	Tax Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees, representatives, or
other agents may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the Transaction and all materials of any kind
(including opinions or other tax analyses) that are provided to Counterparty relating
to such tax treatment and tax structure.
	 
	 	(p)	 	Right to Extend. Dealer may postpone or add, in whole or in part, any
Valid Day or Valid Days during the Settlement Averaging Period or any other date of
valuation, payment or delivery by Dealer, with respect to some or all of the Options
hereunder, if Dealer determines, in its commercially reasonable judgment, that such
action is reasonably necessary or appropriate to preserve Dealer’s hedging or hedge
unwind activity hereunder in light of existing liquidity conditions or to enable Dealer
to effect purchases of Shares in connection with its hedging, hedge unwind or
settlement activity hereunder in a manner that would, if Dealer were Counterparty or an
affiliated purchaser of Counterparty, be in compliance with applicable legal,
regulatory or self-regulatory requirements, or with related policies and procedures
applicable to Dealer.

20

 

	 	(q)	 	Status of Claims in Bankruptcy. Dealer acknowledges and agrees that
this Confirmation is not intended to convey to Dealer rights against Counterparty with
respect to the Transaction that are senior to the claims of common stockholders of
Counterparty in any United States bankruptcy proceedings of Counterparty; provided that
nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue
remedies in the event of a breach by Counterparty of its obligations and agreements
with respect to the Transaction; provided, further, that nothing herein shall limit or
shall be deemed to limit Dealer’s rights in respect of any transactions other than the
Transaction.
	 
	 	(r)	 	Securities Contract; Swap Agreement. The parties hereto intend for (i)
the Transaction to be a “securities contract” and a “swap agreement” as defined in the
Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the
parties hereto to be entitled to the protections afforded by, among other Sections,
Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code,
(ii) a party’s right to liquidate the Transaction and to exercise any other remedies
upon the occurrence of any Event of Default under the Agreement with respect to the
other party to constitute a “contractual right” as described in the Bankruptcy Code,
and (iii) each payment and delivery of cash, securities or other property hereunder to
constitute a “margin payment” or “settlement payment” and a “transfer” as defined in
the Bankruptcy Code.
	 
	 	(s)	 	Notice of Certain Other Events. Counterparty covenants and agrees that:

	 	(i)	 	promptly following the public announcement of the results of
any election by the holders of Shares with respect to the consideration due
upon consummation of any consolidation, merger and binding share exchange to
which Counterparty is a party, or any sale of all or substantially all of
Counterparty’s assets, in each case pursuant to which the Shares will be
converted into cash, securities or other property, Counterparty shall give
Dealer written notice of the types and amounts of consideration that holders of
Shares have elected to receive upon consummation of such transaction or event
(the date of such notification, the “Consideration Notification Date”);
provided that in no event shall the Consideration Notification Date be later
than the date on which such transaction or event is consummated; and
	 
	 	(ii)	 	promptly following any adjustment to the Convertible Notes in
connection with any Potential Adjustment Event, Merger Event or Tender Offer,
Counterparty shall give Dealer written notice of the details of such
adjustment.

	 	(t)	 	Early Unwind. In the event the sale of the “Initial Securities” (as
defined in the Purchase Agreement) is not consummated with the Initial Purchasers for
any reason, or Counterparty fails to deliver to Dealer opinions of counsel as required
pursuant to Section 9(a), in each case by 5:00 p.m. (New York City time) on the Premium
Payment Date, or such later date as agreed upon by the parties (the Premium Payment
Date or such later date, the “Early Unwind Date”), the Transaction shall automatically
terminate (the “Early Unwind”) on the Early Unwind Date and (i) the Transaction and all
of the respective rights and obligations of Dealer and Counterparty under the
Transaction shall be cancelled and terminated and (ii) each party shall be released and
discharged by the other party from and agrees not to make any claim against the other
party with respect to any obligations or liabilities of the other party arising out of
and to be performed in connection with the Transaction either prior to or after the
Early Unwind Date; provided that Counterparty shall purchase from Dealer on the Early
Unwind Date all Shares purchased by Dealer or one or more of its affiliates in
connection with the Transaction at the then prevailing market price. Each of Dealer
and Counterparty represent and acknowledge to the other that, subject to the proviso
included in this Section 9(t), upon an Early Unwind, all obligations with respect to
the Transaction shall be deemed fully and finally discharged.
	 
	 	(u)	 	Payment by Counterparty. In the event that (i) an Early Termination
Date occurs or is designated with respect to the Transaction as a result of a
Termination Event or an Event of Default (other than an Event of Default arising under
Section 5(a)(ii) or 5(a)(iv) of the Agreement) and, as a result, Counterparty owes to
Dealer an amount calculated under Section 6(e) of the Agreement, or

21

 

	 	(ii)	 	Counterparty owes to Dealer, pursuant to Section 12.7 or Section 12.9 of the Equity Definitions, an
amount calculated under Section 12.8 of the Equity Definitions, such amount shall be
deemed to be zero.

22

 

     Please confirm that the foregoing correctly sets forth the terms of our agreement by executing
this Confirmation and returning it to EDG Confirmation Group, J.P. Morgan Securities LLC, 277 Park
Avenue, 11th Floor, New York, NY 10172-3401, or by fax to (212) 622 8519. 

Very truly yours,

	 	 	 	 	 
	 	J.P. Morgan Securities LLC, as agent for

JPMorgan Chase Bank, National
Association

 	 
	 	By:  	/s/ Santosh Sreenivasan
 	 
	 	 	Authorized Signatory 	 
	 	 	Name: Santosh Sreenivasan 	 
	 

	 	 	 	 	 
	 	Accepted and confirmed

as of the Trade Date:

Tower Group, Inc.

 	 
	 	By:  	/s/ William E. Hitselberger
 	 
	 	 	Authorized Signatory 	 
	 	 	Name: William E. Hitselberger 	 
	 

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association

Main Office 1111 Polaris Parkway, Columbus, Ohio 43271

Registered as a branch in England & Wales branch No. BR000746

Registered Branch Office 125 London Wall, London EC2Y 5AJ

Authorised and regulated by the Financial Services Authorityexv4w4

Exhibit
4.4

Bank of America, N.A.

c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated

One Bryant Park

New York, NY 10036

Attn: John Servidio

Telephone: 646-855-8900

Facsimile: 704-208-2869

September 15, 2010

	To:  	 	Tower Group, Inc.

120 Broadway, 31st Floor

New York, NY 10271

Attention: Treasurer

Telephone No.: (212) 655-2000

Facsimile No.: (212) 655-2199

	Re:  	 	Additional Call Option Transaction

(Transaction Reference Number: NY-108282542)

     The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and
conditions of the call option transaction entered into between Bank of America, N.A. (“Dealer”) and
Tower Group, Inc. (“Counterparty”) as of the Trade Date specified below (the “Transaction”). This
letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified
below. This Confirmation shall replace any previous agreements and serve as the final
documentation for the Transaction.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc.
(“ISDA”) are incorporated into this Confirmation. In the event of any inconsistency between the
Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms
used herein are based on terms that are defined in the Offering Memorandum dated September 14, 2010
(the “Offering Memorandum”) relating to the 5.00% Convertible Senior Notes due September 15, 2014
(as originally issued by Counterparty, the “Convertible Notes” and each USD 1,000 principal amount
of Convertible Notes, a “Convertible Note”) issued by Counterparty in an aggregate initial
principal amount of USD 135,000,000 (as increased by up to an aggregate principal amount of USD
15,000,000 if and to the extent that the Initial Purchasers (as defined herein) exercise their
option to purchase additional Convertible Notes pursuant to the Purchase Agreement (as defined
herein)) pursuant to an Indenture to be dated September 20, 2010 between Counterparty and U.S. Bank
National Association, as trustee (the “Indenture”). In the event of any inconsistency between the
terms defined in the Offering Memorandum, the Indenture and this Confirmation, this Confirmation
shall govern. The parties acknowledge that this Confirmation is entered into on the date hereof
with the understanding that (i) definitions set forth in the Indenture which are also defined
herein by reference to the Indenture and (ii) sections of the Indenture that are referred to herein
will conform to the descriptions thereof in the Offering Memorandum. If any such definitions in
the Indenture or any such sections of the Indenture differ from the descriptions thereof in the
Offering Memorandum, the descriptions thereof in the Offering Memorandum will govern for purposes
of this Confirmation. The parties further acknowledge that the Indenture section numbers used
herein are based on the draft of the Indenture last reviewed by Dealer as of the date of this
Confirmation, and if any such section numbers are changed in the Indenture as executed, the parties
will amend this Confirmation in good faith to preserve the intent of the parties. Subject to the
foregoing, references to the Indenture herein are references to the Indenture as in effect on the
date of its execution, and if the Indenture is amended following such date, any such amendment will
be disregarded for purposes of this Confirmation unless the parties agree otherwise in writing.

 

 

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as
to the terms of the Transaction to which this Confirmation relates. This Confirmation shall
supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master
Agreement (the “Agreement”) as if Dealer and Counterparty had executed an agreement in such form
(but without any Schedule except for the election of the laws of the State of New York as the
governing law (without reference to choice of law doctrine)) on the Trade Date. In the event of
any inconsistency between provisions of the Agreement and this Confirmation, this Confirmation will
prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby
agree that no transaction other than the Transaction to which this Confirmation relates shall be
governed by the Agreement.

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

     General Terms.

	 	 	 	 	 

	Trade Date:

	 	September 15, 2010

	 
	 	 	 	 
	Effective Date:

	 	The third Exchange Business Day immediately prior to the Premium Payment Date

	 
	 	 	 	 
	Option Style:

	 	“Modified American”, as described under “Procedures for Exercise” below

	 
	 	 	 	 
	Option Type:

	 	Call

	 
	 	 	 	 
	Buyer:

	 	Counterparty

	 
	 	 	 	 
	Seller:

	 	Dealer

	 
	 	 	 	 
	Shares:

	 	The common stock of Counterparty, par value USD 0.01 per share (Exchange symbol
“TWGP”).

	 
	 	 	 	 
	Number of Options:

	 	15,000. For the avoidance of doubt, the Number of Options shall be
reduced by any Options exercised by Counterparty. In no event will the Number of Options be less than zero.

	 
	 	 	 	 
	Applicable Percentage:

	 	50%	 	 
	 
	 	 	 	 
	Option Entitlement:

	 	A number equal to the product of the Applicable Percentage and
36.3782.

	 
	 	 	 	 
	Strike Price:

	 	USD 27.4890

	 
	 	 	 	 
	Premium:

	 	USD 765,000.00

	 
	 	 	 	 
	Premium Payment Date:

	 	September 20, 2010

	 
	 	 	 	 
	Exchange:

	 	The NASDAQ Global Select Market

	 
	 	 	 	 
	Related Exchange(s):

	 	All Exchanges

	 
	 	 	 	 
	Excluded Provisions:

	 	Section 14.03 and Section 14.04(h) of the Indenture.

2

 

Procedures for Exercise.

	 	 	 

	Conversion Date:

	 	With respect to any conversion of a Convertible Note, the date on which
the Holder (as such term is defined in the Indenture) of such Convertible Note
satisfies all of the requirements for conversion thereof as set forth in Section 14.02(b) of the Indenture.
	 
	 	 
	Free Convertibility Date:

	 	March 15, 2014
	 
	 	 
	Expiration Time: 

	 	The Valuation Time
	 
	 	 
	Expiration Date:

	 	September 15, 2014, subject to earlier exercise.
	 
	 	 
	Multiple Exercise:

	 	Applicable, as described under “Automatic Exercise” below.
	 
	 	 
	Automatic Exercise:

	 	Notwithstanding Section 3.4 of the Equity Definitions, on each
Conversion Date, a number of Options equal to (i) the number of Convertible Notes
in denominations of USD 1,000 as to which such Conversion Date has occurred minus
(ii) the number of Options that are or are deemed to be automatically exercised on
such Conversion Date under the Base Call Option Transaction Confirmation letter
agreement dated September 14, 2010 between Dealer and Counterparty (the “Base Call
Option Confirmation”), shall be deemed to be automatically exercised; provided that
such Options shall be exercised or deemed exercised only if Counterparty has
provided a Notice of Exercise to Dealer in accordance with “Notice of Exercise”
below.
	 
	 	 
	 

	 	Notwithstanding the foregoing, in no event shall
the number of Options that are exercised or
deemed exercised hereunder exceed the Number of
Options.
	 
	 	 
	Notice of Exercise:

	 	Notwithstanding anything to the contrary in the Equity Definitions
or under “Automatic Exercise” above, in order to exercise any Options, Counterparty
must notify Dealer in writing before 5:00 p.m. (New York City time) on the
Scheduled Valid Day immediately preceding the scheduled first day of the Settlement
Averaging Period for the Options being exercised of (i) the number of such Options,
(ii) the scheduled first day of the Settlement Averaging Period and the scheduled
Settlement Date, (iii) the Relevant Settlement Method for such Options, and (iv) if
the Relevant Settlement Method for such Options is not Net Share Settlement,
Settlement in Shares or Settlement in Cash (each as defined below), the fixed
amount of cash per Convertible Note that Counterparty has elected to deliver to
Holders (as such term is defined in the Indenture) of the related Convertible Notes
(the “Specified Cash Amount”), and such notice shall also include the information,
representations, acknowledgements and agreements required pursuant to “Settlement
Method Election Conditions” below; provided that in respect of any Options relating to

3

 

	 	 	 

	 

	 	Convertible Notes with a Conversion Date occurring on or after the Free
Convertibility Date, (A) such notice may be given on or prior to the second
Scheduled Valid Day immediately preceding the Expiration Date and need only specify
the information required in clause (i) above, and (B) if the Relevant Settlement
Method for such Options is not Net Share Settlement, Dealer shall have received a
separate notice (the “Notice of Final Settlement
Method”) in respect of all such Convertible Notes
before 5:00 p.m. (New York City time) on or prior
to the Free Convertibility Date specifying the
information required in clauses (iii) and (iv)
above, as well as the information,
representations, acknowledgements and agreements
required pursuant to “Settlement Method Election
Conditions” below.
	 
	 	 
	Valuation Time:

	 	At the close of trading of the regular trading session on the Exchange;
provided that if the principal trading session is extended, the Calculation Agent
shall determine the Valuation Time in its reasonable discretion.
	 
	 	 
	Market Disruption Event:

	 	Section 6.3(a) of the Equity Definitions is hereby replaced in
its entirety by the following:
	 
	 

	 	“‘Market Disruption Event’ means, in respect of a
Share, (i) a failure by the primary United States
national or regional securities exchange or
market on which the Shares are listed or admitted
for trading to open for trading during its
regular trading session or (ii) the occurrence or
existence prior to 1:00 p.m. (New York City time)
on any Scheduled Valid Day for the Shares for
more than one half-hour period in the aggregate
during regular trading hours of any suspension or
limitation imposed on trading (by reason of
movements in price exceeding limits permitted by
the relevant stock exchange or otherwise) in the
Shares or in any options or futures contracts
relating to the Shares.”

Settlement Terms.

	 	 	 

	Settlement Method:

	 	For any Option, Net Share Settlement; provided that if the Relevant
Settlement Method set forth below for such Option is not Net Share Settlement, then
the Settlement Method for such Option shall be such Relevant Settlement Method, but
only if the Settlement Method Election Conditions have been satisfied and
Counterparty shall have notified Dealer of the Relevant Settlement Method in the
Notice of Exercise or Notice of Final Settlement Method, as applicable, for such
Option.
	 
	Relevant Settlement Method:

	 	In respect of any Option, subject to the Settlement Method
Election Conditions:
	 
	 

	 	(i) if Counterparty has elected to settle its
conversion obligations in respect of the related
Convertible Note (A)

4

 

	 	 	 

	 

	 	entirely in Shares pursuant
to Section 14.02(v) of the Indenture (together
with cash in lieu of fractional Shares) (such
settlement method, “Settlement in Shares”), (B)
in a combination of cash and Shares pursuant to
Section 14.02(a)(vii) of the Indenture with a
Specified Cash Amount less than USD 1,000 (such
settlement method, “Low Cash Combination
Settlement”), or (C) in a combination of cash and
Shares pursuant to Section 14.02(a)(vii) of the
Indenture with a Specified Cash Amount equal to
USD 1,000 (such settlement method, “Par Cash
Combination Settlement”), then, in each
case, the Relevant Settlement Method for such
Option shall be Net Share Settlement;
	 
	 	 
	 

	 	(ii) if Counterparty has elected to settle its
conversion obligations in respect of the related
Convertible Note in a combination of cash and
Shares pursuant to Section 14.02(a)(vii) of the
Indenture with a Specified Cash Amount greater
than USD 1,000, then the Relevant Settlement
Method for such Option shall be Combination
Settlement; and
	 
	 	 
	 

	 	(iii) if Counterparty has elected to settle its
conversion obligations in respect of the related
Convertible Note entirely in cash pursuant to
Section 14.02(a)(vi) of the Indenture (such
settlement method, “Settlement in Cash”), then
the Relevant Settlement Method for such Option
shall be Cash Settlement.
	 
	 	 
	Settlement Method Election Conditions:

	 	For any Relevant Settlement Method other than Net
Share Settlement, such Relevant Settlement Method shall apply to an Option only if
the Notice of Exercise or Notice of Final Settlement Method, as applicable, contains:
	 
	 	 
	 

	 	(i) a representation that, on the date of such
Notice of Exercise or Notice of Final Settlement
Method, as applicable, Counterparty is not in
possession of any material non-public information
with respect to Counterparty or the Shares;
	 
	 	 
	 

	 	(ii) a representation that Counterparty is
electing the settlement method for the related
Convertible Note and such Relevant Settlement
Method in good faith and not as part of a plan or
scheme to evade the prohibitions of Rule 10b-5
under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”);
	 
	 	 
	 

	 	(iii) a representation that Counterparty has not
entered into or altered any hedging transaction
relating to the Shares corresponding to or
offsetting the Transaction;
	 
	 	 
	 

	 	(iv) a representation that Counterparty is not
electing the settlement method for the related
Convertible Note and such Relevant Settlement
Method to create actual or apparent trading
activity in the Shares (or any security

5

 

	 	 	 

	 

	 	convertible into or exchangeable for the Shares)
or to raise or depress or otherwise manipulate
the price of the Shares (or any security
convertible into or exchangeable for the Shares);
and
	 
	 	 
	 

	 	(v) an acknowledgment by Counterparty that (A)
any transaction by Dealer following
Counterparty’s election of the settlement method
for the related Convertible Note and such
Relevant Settlement Method shall be made at
Dealer’s sole discretion and for Dealer’s own
account and (B) Counterparty does not have, and
shall not attempt to exercise, any influence over
how, when, whether or at what price to effect
such transactions, including, without limitation,
the price paid or received per Share pursuant to
such transactions, or whether such transactions
are made on any securities exchange or privately.
	 
	 	 
	Net Share Settlement:

	 	If Net Share Settlement is applicable to any Option
exercised or deemed exercised hereunder, Dealer will deliver to Counterparty, on
the relevant Settlement Date for each such Option, a number of Shares (the “Net
Share Settlement Amount”) equal to the sum, for each Valid Day during the
Settlement Averaging Period for each such Option, of (i) the Daily Option Value for
such Valid Day, divided by (ii) the Relevant Price on such Valid Day, divided by
(iii) the number of Valid Days in the Settlement Averaging Period; provided that,
except in the case of Par Cash Combination Settlement, in no event shall the Net
Share Settlement Amount for any Option exceed a number of Shares equal to the
Applicable Limit for such Option divided by the Applicable Limit Price on the
Settlement Date for such Option.
	 
	 	 
	 

	 	Dealer will deliver cash in lieu of any
fractional Shares to be delivered with respect to
any Net Share Settlement Share Amount valued at
the Relevant Price for the last Valid Day of the
Settlement Averaging Period.
	 
	 	 
	Combination Settlement:

	 	If Combination Settlement is applicable to any Option exercised
or deemed exercised hereunder, Dealer will deliver to Counterparty, on the relevant
Settlement Date for each such Option:
	 
	 	 
	 

	 	(i) an amount of cash (the “Combination
Settlement Cash Amount”) equal to the sum, for
each Valid Day during the Settlement Averaging
Period for such Option, of (A) an amount (the
“Daily Combination Settlement Cash Amount”) equal
to the lesser of (1) the product of (x) the
Applicable Percentage and (y) the Specified Cash
Amount minus USD 1,000 and (2) the Daily Option
Value, divided by (B) the number of Valid Days in
the Settlement Averaging Period; provided that if
the calculation in clause (A) above results in
zero or a negative number for any Valid Day, the Daily

6

 

	 	 	 

	 

	 	Combination Settlement Cash Amount for such
Valid Day shall be deemed to be zero; and
	 
	 	 
	 

	 	(ii) a number of Shares (the “Combination
Settlement Share Amount”) equal to the sum, for
each Valid Day during the Settlement Averaging
Period for such Option, of a number of Shares for
such Valid Day (the “Daily Combination Settlement
Share Amount”) equal to (A) the Daily Option
Value on such Valid Day minus the Daily
Combination Settlement Cash Amount for such Valid
Day, divided by (B) the Relevant Price on such
Valid Day, divided by (C) the number of Valid
Days in the Settlement Averaging Period; provided
that if the calculation in clause (A) above
results in zero or a negative number for any
Valid Day, the Daily Combination Settlement Share
Amount for such Valid Day shall be deemed to be
zero.
	 
	 	 
	 

	 	Dealer will deliver cash in lieu of any
fractional Shares to be delivered with respect to
any Combination Settlement Share Amount valued at
the Relevant Price for the last Valid Day of the
Settlement Averaging Period.
	 
	 	 
	Cash Settlement:

	 	If Cash Settlement is applicable to any Option exercised or
deemed exercised hereunder, in lieu of Section 8.1 of the Equity Definitions,
Dealer will pay to Counterparty, on the relevant Settlement Date for each such
Option, an amount of cash (the “Cash Settlement Amount”) equal to the sum, for each
Valid Day during the Settlement Averaging Period for such Option, of (i) the Daily
Option Value for such Valid Day, divided by (ii) the number of Valid Days in the
Settlement Averaging Period.
	 
	 	 
	Daily Option Value:

	 	For any Valid Day, an amount equal to (i) the Option
Entitlement on such Valid Day, multiplied by (ii) the Relevant Price on such Valid
Day less the Strike Price on such Valid Day; provided that if the calculation
contained in clause (ii) above results in a negative number, the Daily Option Value
for such Valid Day shall be deemed to be zero. In no event will the Daily Option
Value be less than zero.
	 
	 	 
	Applicable Limit:

	 	For any Option, an amount of cash equal to the Applicable Percentage
multiplied by the excess of (i) the aggregate of (A) the amount of cash, if any,
delivered to the Holder of the related Convertible Note upon conversion of such
Convertible Note and (B) the number of Shares, if any, delivered to the Holder of
the related Convertible Note upon conversion of such Convertible Note multiplied by
the Applicable Limit Price on the Settlement Date for such Option, over (ii)
USD 1,000.
	 
	 	 
	Applicable Limit Price:

	 	On any day, the opening price as displayed under the heading
“Op” on Bloomberg page TWGP.UQ <equity> (or its equivalent successor if such
page is not available).

7

 

	 	 	 	 	 

	Valid Day:
	 	A day on which (i) there is no Market Disruption Event and (ii)
trading in the Shares generally occurs on the Exchange or, if the Shares are not
then listed on the Exchange, on the principal other United States national or
regional securities exchange on which the Shares are then listed or, if the Shares
are not then listed on a United States national or regional securities exchange, on
the principal other market on which the Shares are then listed or admitted for
trading. If the Shares are not so listed or admitted for trading, “Valid Day” means
a Business Day.
	 
	 	 	 	 
	Scheduled Valid Day:
	 	A day that is scheduled to be a Valid Day on the principal United
States national or regional securities exchange or market on which the Shares are
listed or admitted for trading. If the Shares are not so listed or admitted for
trading, “Scheduled Valid Day” means a Business Day.
	 
	 	 	 	 
	Business Day:
	 	Any day other than a Saturday, a Sunday or a day on which the Federal
Reserve Bank of New York is authorized or required by law or executive order to
close or be closed.
	 
	 	 	 	 
	Relevant Price:
	 	On any Valid Day, the per Share volume-weighted average price as
displayed under the heading “Bloomberg VWAP” on Bloomberg page TWGP.UQ
<equity> AQR (or its equivalent successor if such page is not available) in
respect of the period from the scheduled open of trading until the scheduled close
of trading of the primary trading session on such Valid Day (or if such
volume-weighted average price is unavailable, the market value of one Share on such
Valid Day, as determined by the Calculation Agent using a volume-weighted average
method). The Relevant Price will be determined without regard to after hours
trading or any other trading outside of the regular trading session trading hours.
	 
	 	 	 	 
	Settlement Averaging Period:
	 	For any Option and regardless of the Settlement Method
applicable to such Option:
	 
	 	 	 	 
	 

	 	(i)
	 	if the related Conversion Date occurs prior
to the Free Convertibility Date, the 40
consecutive Valid Days commencing on, and
including, the third Valid Day following
such Conversion Date; provided that if the
Notice of Exercise for such Option specifies
that Settlement in Shares or Low Cash
Combination Settlement applies to the
related Convertible Note, the Settlement
Averaging Period shall be the 80 consecutive
Valid Day period commencing on, and
including, the second Valid Day immediately
following such Conversion Date; or
	 
	 	 	 	 
	 

	 	(ii)
	 	if the related Conversion Date occurs on or
following the Free Convertibility Date, the
40 consecutive Valid Days commencing on, and

8

 

	 	 	 	 	 

	 

	 	 	including, the 42nd Scheduled
Valid Day immediately prior to the
Expiration Date; provided that if the Notice
of Exercise or Notice of Final Settlement
Method, as applicable, for such Option
specifies that Settlement in Shares or Low
Cash Combination Settlement applies to the
related Convertible Note, the Settlement
Averaging Period shall be the 80 consecutive
Valid Days commencing on, and including, the
82nd Scheduled Valid Day
immediately prior to the Expiration Date.
	 
	 	 	 	 
	Settlement Date:
	 	For any Option, the third Business Day immediately following the last
Valid Day of the Settlement Averaging Period for such Option.
	 
	 	 	 	 
	Settlement Currency:
	 	USD
	 
	 	 	 	 
	Other Applicable Provisions:
	 	The provisions of Sections 9.1(c), 9.8, 9.9,
9.11, 9.12 and 10.5 of the Equity Definitions will be applicable, except that all
references in such provisions to “Physically-settled” shall be read as references
to “Share Settled”. “Share Settled” in relation to any Option means that Net Share
Settlement or Combination Settlement is applicable to that Option.
	 
	 	 	 	 
	Representation and Agreement:
	 	Notwithstanding Section 9.11 of the Equity Definitions,
the parties acknowledge that any Shares delivered to Counterparty shall be, upon
delivery, subject to restrictions and limitations arising from Counterparty’s
status as issuer of the Shares under applicable securities laws.

3. Additional Terms applicable to the Transaction.

     Adjustments applicable to the Transaction:

	 	 	 

	Potential Adjustment Events:

	 	Notwithstanding Section 11.2(e) of the Equity Definitions,
a “Potential Adjustment Event” means an occurrence of any event or condition, as
set forth in any Dilution Adjustment Provision, that would result in an adjustment
to the Conversion Rate (as defined in the Indenture) of the Convertible Notes.
	 
	Method of Adjustment:

	 	Calculation Agent Adjustment, which means that, notwithstanding
Section 11.2(c) of the Equity Definitions, upon any Potential Adjustment Event that
results in an adjustment to the Conversion Rate (as defined in the Indenture) of
the Convertible Notes, the Calculation Agent shall make a corresponding adjustment
to any one or more of the Strike Price, Number of Options, Option Entitlement and
any other variable relevant to the exercise, settlement or payment for the
Transaction; provided that, notwithstanding the foregoing, if the Calculation Agent
in good faith disagrees with any

9

 

	 	 	 

	 

	 	adjustment to the Convertible Notes that involves
an exercise of discretion by Counterparty or its board of directors (including,
without limitation, pursuant to Section 14.05 of the Indenture or in connection
with any proportional adjustment or the determination of the fair value of any
securities, property, rights or other assets), then in each such case, the
Calculation Agent will determine the adjustment to be made to any one or more of
the Strike Price, Number of Options, Option Entitlement and any other variable
relevant to the exercise, settlement or payment for the Transaction in a
commercially reasonable manner; provided, further, that, notwithstanding the
foregoing, if any Potential Adjustment Event occurs during the Settlement Averaging
Period but no adjustment was made to any Convertible Note under the Indenture
because the relevant Holder (as such term is defined in the Indenture) was deemed
to be a record owner of the underlying Shares on the related Conversion Date, then
the Calculation Agent shall make an adjustment, as determined by it, to the terms
hereof in order to account for such Potential Adjustment Event.
	 
	Dilution Adjustment Provisions:

	 	Section 14.04(a), (b), (c), (d) and (e) and Section
14.05 of the Indenture.

Extraordinary Events applicable to the Transaction:

	 	 	 

	Merger Events:

	 	Applicable; provided that notwithstanding Section 12.1(b) of the Equity
Definitions, a “Merger Event” means the
occurrence of any event or condition set forth in
the definition of “Merger Event” in Section
14.07(a) of the Indenture.
	 
	Tender Offers:

	 	Applicable; provided that notwithstanding Section 12.1(d) of the Equity
Definitions, a “Tender Offer” means the occurrence of any event or condition set
forth in Section 14.04(e) of the Indenture.
	 
	Consequence of Merger Events /Tender
Offers:

	 	Notwithstanding Section 12.2 and Section 12.3 of the Equity Definitions,
upon the occurrence of a Merger Event or a Tender Offer, the Calculation Agent
shall make a corresponding adjustment in respect of any adjustment under the
Indenture to any one or more of the nature of the Shares (in the case of a Merger
Event), Strike Price, Number of Options, Option Entitlement and any other variable
relevant to the exercise, settlement or payment for the Transaction; provided,
however, that such adjustment shall be made without regard to any adjustment to the
Conversion Rate pursuant to any Excluded Provision; provided further that if, with
respect to a Merger Event or a Tender Offer, (i) the consideration for the Shares
includes (or, at the option of a holder of Shares, may include) shares of an entity or person not

10

 

	 	 	 

	 

	 	organized under the laws of the United States, any State thereof or
the District of Columbia or (ii) the Counterparty to the Transaction following such
Merger Event or Tender Offer, will not be the Issuer following such Merger Event or
Tender Offer, then Cancellation and Payment (Calculation Agent Determination) shall
apply.
	 
	 	 
	Nationalization, Insolvency or Delisting:

	 	Cancellation and Payment (Calculation Agent
Determination); provided that, in addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the
Exchange is located in the United States and the Shares are not immediately
re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ
Global Select Market or The NASDAQ Global Market (or their respective successors);
if the Shares are immediately re-listed, re-traded or re-quoted on any of the New
York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market
(or their respective successors), such exchange or quotation system shall
thereafter be deemed to be the Exchange.
	 
	 	 
	Additional Disruption Events:

	 	 
	 
	 	 
	Change in Law:

	 	Applicable; provided that Section 12.9(a)(ii)(X) of the Equity
Definitions is hereby amended by replacing the word “Shares” with the phrase
“Hedge Positions.”
	 
	 	 
	Failure to Deliver:

	 	Not Applicable
	 
	 	 
	Hedging Disruption:

	 	Applicable; provided that Section 12.9(b)(iii) of the Equity
Definitions is hereby amended by inserting in the third line thereof, after
the words “to terminate the
Transaction”, the words “or a portion of the Transaction affected by such Hedging Disruption”.
	 
	 	 
	Hedging Party:

	 	For all applicable Additional Disruption Events, Dealer.
	 
	 	 
	Determining Party:

	 	For all applicable Extraordinary Events, Dealer.
	 
	 	 
	Non-Reliance:

	 	Applicable
	 
	 	 
	Agreements and Acknowledgements
Regarding Hedging Activities: 

	 	Applicable
	 
	 	 
	Additional Acknowledgments: 

	 	Applicable
	 
	4. Calculation Agent. 
	 	Dealer
	 
	5. Account Details.
	 	 

               (a) Account for payments to Counterparty:

Bank:  State Street Trust Bank

ABA#:  011000028

	 	 	 	Acct No.: 00153577

Beneficiary: Tower Group Inc./4RAX

Ref: Tower Group Inc./4RAX

11

 

			
	 
	 	

	 
	 	 	 	Account for delivery of Shares to Counterparty:
	 
	 	 	 	To be provided by Counterparty.
	 
	 	(b)	 	Account for payments to Dealer:
	 
	 	 	 	Bank of America, N.A.

New York, NY

SWIFT: BOFAUS3N

Bank Routing: 026-009-593

Account Name: Bank of America

Account No. : 0012334-61892
	 
	 	 	 	Account for delivery of Shares from Dealer:
	 
	 	 	 	DTC 0773

Acct Name: Bank of America NA

Acct #: 116-00777

	6.	 	Offices.

	 	(a)	 	The Office of Counterparty for the Transaction is: Inapplicable, Counterparty
is not a Multibranch Party.
	 
	 	(b)	 	The Office of Dealer for the Transaction is: New York
	 
	 	 	 	Bank of America, N.A.

c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated

Bank of America Tower at One Bryant Park

New York, NY 10036

	7.	 	Notices.

	 	(a)	 	Address for notices or communications to Counterparty:
	 
	 	 	 	Tower Group, Inc.

120 Broadway, 31st Floor

New York, NY 10271

Attention: Treasurer

Telephone No.: (212) 655-2000

Facsimile No.: (212) 655-2199
	 
	 	(b)	 	Address for notices or communications to Dealer:
	 
	 	 	 	Bank of America, N.A.

c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated

Bank of America Tower at One Bryant Park

New York, NY 10036

Attn: John Servidio

Telephone: 646-855-7127

Facsimile: 704-208-2869

12

 

			
	 
	 	

	8.	 	Representations and Warranties of Counterparty.

	 	 	Each of the representations and warranties of Counterparty set forth in Section 3 of the
Purchase Agreement (the “Purchase Agreement”), dated as of September 14, 2010, between
Counterparty and J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as representatives of the Initial Purchasers party thereto (the “Initial
Purchasers”), are true and correct and are hereby deemed to be repeated to Dealer as if set
forth herein. Counterparty hereby further represents and warrants to Dealer on the date
hereof and on and as of the Premium Payment Date that:

	 	(a)	 	Counterparty is duly organized and validly existing and in good standing under
the laws of its jurisdiction of incorporation.
	 
	 	(b)	 	Counterparty has the corporate power and authority to execute and deliver this
Confirmation and to perform its obligations hereunder; and all action required to be
taken for the due and proper authorization, execution and delivery by it of this
Confirmation and the consummation by it of the transactions contemplated hereby has
been duly and validly taken.
	 
	 	(c)	 	This Confirmation has been duly authorized by Counterparty and, when duly
executed and delivered in accordance with its terms by each of the parties hereto, will
constitute a valid and legally binding agreement of Counterparty enforceable against
Counterparty in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally
or by equitable principles relating to enforceability.
	 
	 	(d)	 	The execution, delivery and performance by Counterparty of this Confirmation
and the consummation of the transactions contemplated hereby will not (i) conflict with
or result in a breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of Counterparty or any of its subsidiaries
pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which Counterparty or any of its subsidiaries is a party or by which
Counterparty or any of its subsidiaries is bound or to which any of the property or
assets of Counterparty or any of its subsidiaries is subject, (ii) result in any
violation of the provisions of the charter or by-laws or similar organizational
documents of Counterparty or any of its subsidiaries or (iii) result in the violation
of any law or statute or any judgment, order, rule or regulation of any court or
arbitrator or governmental or regulatory authority applicable to Counterparty or any of
its subsidiaries; except, in the case of clauses (i) and (iii) above, for any such
conflict, breach, default or violation that would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the business,
properties, management, financial position, stockholders’ equity, results of operations
or prospects of Counterparty and its subsidiaries taken as a whole or on the
performance by Counterparty of its obligations under this Confirmation (“Material
Adverse Effect”).
	 
	 	(e)	 	No consent, approval, authorization, order, registration or qualification of or
with any court or arbitrator or governmental or regulatory authority is required for
the execution, delivery and performance by Counterparty of this Confirmation and the
consummation of the transactions contemplated hereby, except for (i) such consents,
approvals, authorizations, orders and registrations or qualifications as may be
required under applicable state securities laws or (ii) where the failure to obtain or
make any such consents, approvals, authorizations, orders and registrations or
qualifications would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, provided that such failure to obtain or make any such
consents, approvals, authorizations, orders and registrations or qualifications does
not prevent Counterparty from performing its obligations under this Confirmation.
	 
	 	(f)	 	Counterparty is not and, after giving effect to the transactions contemplated
hereby, will not be required to register as an “investment company” or an entity
“controlled” by an “investment

13

 

			
	 
	 	

	 	 	 	company” within the meaning of the Investment Company Act of 1940, as amended, and
the rules and regulations of the Securities and Exchange Commission thereunder.
	 
	 	(g)	 	Counterparty is an “eligible contract participant” (as such term is defined in
Section 1a(12) of the Commodity Exchange Act, as amended, other than a person that is
an eligible contract participant under Section 1a(12)(C) of the Commodity Exchange
Act).
	 
	 	(h)	 	Counterparty and each of its affiliates is not, on the date hereof, in
possession of any material non-public information with respect to Counterparty or the
Shares.

	9.	 	Other Provisions.

	 	(a)	 	Opinions. Counterparty shall deliver to Dealer an opinion of counsel,
dated as of the Trade Date, with respect to the matters set forth in Sections 8(a)
through (e) of this Confirmation. Delivery of such opinion to Dealer shall be a
condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect
to each obligation of Dealer under Section 2(a)(i) of the Agreement.
	 
	 	(b)	 	Repurchase Notices. Counterparty shall, on any day on which
Counterparty effects any repurchase of Shares, promptly give Dealer a written notice of
such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the
number of outstanding Shares as determined on such day is (i) less than 40.1 million
(in the case of the first such notice) or (ii) thereafter more than 2.7 million less
than the number of Shares included in the immediately preceding Repurchase Notice.
Counterparty agrees to indemnify and hold harmless Dealer and its affiliates and their
respective officers, directors, employees, affiliates, advisors, agents and controlling
persons (each, an “Indemnified Person”) from and against any and all losses (including
losses relating to Dealer’s hedging activities as a consequence of becoming, or of the
risk of becoming, a Section 16 “insider”, including without limitation, any forbearance
from hedging activities or cessation of hedging activities and any losses in connection
therewith with respect to the Transaction), claims, damages, judgments, liabilities and
expenses (including reasonable attorney’s fees), joint or several, which an Indemnified
Person may become subject to, as a result of Counterparty’s failure to provide Dealer
with a Repurchase Notice on the day and in the manner specified in this paragraph, and
to reimburse, within 30 days, upon written request, each of such Indemnified Persons
for any reasonable legal or other expenses incurred in connection with investigating,
preparing for, providing testimony or other evidence in connection with or defending
any of the foregoing. If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against the
Indemnified Person as a result of Counterparty’s failure to provide Dealer with a
Repurchase Notice in accordance with this paragraph, such Indemnified Person shall
promptly notify Counterparty in writing, and Counterparty, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified
Person to represent the Indemnified Person and any others Counterparty may designate in
such proceeding and shall pay the reasonable out-of-pocket fees and expenses of such
counsel related to such proceeding. Counterparty shall not be liable for any
settlement of any proceeding contemplated by this paragraph that is effected without
its written consent, but if settled with such consent or if there be a final judgment
for the plaintiff, Counterparty agrees to indemnify any Indemnified Person from and
against any loss or liability by reason of such settlement or judgment. Counterparty
shall not, without the prior written consent of the Indemnified Person, effect any
settlement of any pending or threatened proceeding contemplated by this paragraph that
is in respect of which any Indemnified Person is a party and indemnity has been sought
hereunder by such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the subject
matter of such proceeding on terms reasonably satisfactory to such Indemnified Person.
If the indemnification provided for in this paragraph is unavailable to an Indemnified
Person or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then Counterparty hereunder, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses,

14

 

			
	 
	 	

	 	 	 	claims, damages or liabilities. The remedies provided for in this paragraph (b) are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Person at law or in equity. The indemnity and
contribution agreements contained in this paragraph shall remain operative and in
full force and effect regardless of the termination of the Transaction.
	 
	 	(c)	 	Regulation M. Counterparty is not on the Trade Date engaged in a
distribution, as such term is used in Regulation M under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), of any securities of Counterparty, other than a
distribution meeting the requirements of the exception set forth in Rules 101(b)(10)
and 102(b)(7) of Regulation M. Counterparty shall not, until the second Scheduled
Trading Day immediately following the Effective Date, engage in any such distribution.
	 
	 	(d)	 	No Manipulation. Counterparty is not entering into the Transaction to
create actual or apparent trading activity in the Shares (or any security convertible
into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the
price of the Shares (or any security convertible into or exchangeable for the Shares)
in violation of the Exchange Act.
	 
	 	(e)	 	Transfer or Assignment.

	 	(i)	 	Counterparty shall have the right to transfer or assign its
rights and obligations hereunder with respect to all, but not less than all, of
the Options hereunder (such Options, the “Transfer Options”); provided that
such transfer or assignment shall be subject to reasonable conditions that
Dealer may impose, including but not limited, to the following conditions:

	 	(A)	 	With respect to any Transfer Options,
Counterparty shall not be released from its notice and indemnification
obligations pursuant to Section 9(b) or any obligations under Section
9(n) or 9(s) of this Confirmation;
	 
	 	(B)	 	Any Transfer Options shall only be transferred
or assigned to a third party that is a United States person (as defined
in the Internal Revenue Code of 1986, as amended);
	 
	 	(C)	 	Such transfer or assignment shall be effected
on terms, including any reasonable undertakings by such third party
(including, but not limited to, an undertaking with respect to
compliance with applicable securities laws in a manner that, in the
reasonable judgment of Dealer, will not expose Dealer to material risks
under applicable securities laws) and execution of any documentation
and delivery of legal opinions with respect to securities laws and
other matters by such third party and Counterparty, as are requested
and reasonably satisfactory to Dealer;
	 
	 	(D)	 	Dealer will not, as a result of such transfer
and assignment, be required to pay the transferee on any payment date
an amount under Section 2(d)(i)(4) of the Agreement greater than an
amount that Dealer would have been required to pay to Counterparty in
the absence of such transfer and assignment;
	 
	 	(E)	 	An Event of Default, Potential Event of Default
or Termination Event will not occur as a result of such transfer and
assignment;
	 
	 	(F)	 	Without limiting the generality of clause (B),
Counterparty shall cause the transferee to make such Payee Tax
Representations and to provide such tax documentation as may be
reasonably requested by Dealer to permit Dealer to

15

 

			
	 
	 	

	 	 	 	determine that results described in clauses (D) and (E) will not
occur upon or after such transfer and assignment; and
	 
	 	(G)	 	Counterparty shall be responsible for all
reasonable costs and expenses, including reasonable counsel fees,
incurred by Dealer in connection with such transfer or assignment.

	 	(ii)	 	Dealer may, without Counterparty’s consent, transfer or assign
all or any part of its rights or obligations under the Transaction at any time
to any affiliate of Dealer (A) that has a rating for its long term, unsecured
and unsubordinated indebtedness that is equal to or better than the best of
Dealer’s credit rating and the credit rating of any guarantor of Dealer’s
obligations hereunder, in each case, at the time of the transfer or assignment,
or (B) whose obligations hereunder will be guaranteed, pursuant to the terms of
a customary guarantee in a form used by Dealer generally for similar
transactions, by Dealer or any parent of Dealer that has a credit rating that
is equal to or better than the best of Dealer’s credit rating and the credit
rating of any guarantor of Dealer’s obligations hereunder, in each case, at the
time of the transfer or assignment; provided that any such transfer or
assignment shall be subject to the conditions that (I) following such transfer
or assignment, the terms and conditions of the Agreement as so transferred or
assigned (the “Transferred Agreement”) shall be substantially the same as the
terms and conditions of the Agreement immediately prior to such transfer or
assignment, (II) Counterparty will not be required to pay to the transferee an
amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) of the
Transferred Agreement greater than the amount in respect of which Counterparty
would have been required to pay to Dealer under Section 2(d)(i)(4) in the
absence of the transfer, (III) Counterparty will not receive any payment under
the Transferred Agreement from which an amount is required to be withheld or
deducted for or on account of a Tax with respect to which no additional amount
is required to be paid by the transferee under Section 2(d)(i)(4) of the
Transferred Agreement (other than by reason of Section 2(d)(i)(4)(A) or (B)
thereof), (IV) neither an Event of Default with respect to which Dealer is the
Defaulting Party nor a Termination Event with respect to which Dealer is the
sole Affected Party shall have occurred and be continuing at the time of the
transfer, and neither an Event of Default nor a Termination Event shall occur
as a result of the transfer, (V) each of Dealer and the transferee is a dealer
in “notional principal contracts” within the meaning of Section
1.446-3(c)(4)(iii) of the U.S. Treasury Regulations and in other derivatives,
and (VI) Dealer has used its good faith efforts to provide prior notice to
Counterparty of such transfer and the proposed date of such transfer, and
Dealer shall provide written notice to Counterparty reasonably promptly
following such transfer. In addition, if at any time (A) the Section 16
Percentage exceeds 7.5%, (B) the Option Equity Percentage exceeds 14.5%, or (C)
the Share Amount exceeds the Applicable Share Limit (if any applies) (any such
condition described in clauses (A), (B) or (C), an “Excess Ownership
Position”), Dealer may, without Counterparty’s consent, transfer or assign all
or any part of its rights or obligations under the Transaction to any third
party who is a dealer in “notional principal contracts” within the meaning of
Section 1.446-3(c)(4)(iii) of the U.S. Treasury Regulations and in other
derivatives, and with a rating for its long term, unsecured and unsubordinated
indebtedness equal to or better than the lesser of (x) the credit rating of
Dealer at the time of the transfer and (y) A- by Standard and Poor’s Rating
Group, Inc. or its successor (“S&P”), or A3 by Moody’s Investor Service, Inc.
(“Moody’s”) or, if either S&P or Moody’s ceases to rate such debt, at least an
equivalent rating or better by a substitute rating agency mutually agreed by
Counterparty and Dealer. If at any time an Excess Ownership Position exists,
Dealer may designate any Exchange Business Day as an Early Termination Date
with respect to all or a portion of the Transaction (the “Terminated Portion”)
such that following such termination no Excess Ownership Position exists;
provided that Dealer may only designate an Early Termination Date

16

 

			
	 
	 	

	 	 	 	pursuant to this Section 9(e)(ii) if Dealer has used its good faith efforts
to notify Counterparty of such Excess Ownership Position, and Dealer is
unable, acting in good faith and after using its commercially reasonable
efforts, to effect a transfer or assignment of Options to a third party in
accordance with this Section 9(e)(ii) on pricing terms reasonably acceptable
to Dealer and within a time period reasonably acceptable Dealer such that no
Excess Ownership Position exists. In the event that Dealer so designates an
Early Termination Date with respect to a Terminated Portion, a payment shall
be made pursuant to Section 6 of the Agreement as if (1) an Early
Termination Date had been designated in respect of a Transaction having
terms identical to the Transaction and a Number of Options equal to the
number of Options underlying the Terminated Portion, (2) Counterparty were
the sole Affected Party with respect to such partial termination and (3) the
Terminated Portion were the sole Affected Transaction (and, for the
avoidance of doubt, the provisions of Section 9(l) shall apply to any amount
that is payable by Dealer to Counterparty pursuant to this sentence as if
Counterparty was not the Affected Party). The “Section 16 Percentage” as
of any day is the fraction, expressed as a percentage, (A) the numerator of
which is the number of Shares that Dealer and each person subject to
aggregation of Shares with Dealer under Section 13 or Section 16 of the
Exchange Act and rules promulgated thereunder directly or indirectly
beneficially own (as defined under Section 13 or Section 16 of the Exchange
Act and rules promulgated thereunder) and (B) the denominator of which is
the number of Shares outstanding. The “Option Equity Percentage” as of any
day is the fraction, expressed as a percentage, (A) the numerator of which
is the sum of (1) the product of the Number of Options and the Option
Entitlement and (2) the aggregate number of Shares underlying any other call
option transaction sold by Dealer to Counterparty, and (B) the denominator
of which is the number of Shares outstanding. The “Share Amount” as of any
day is the number of Shares that Dealer and any person whose ownership
position would be aggregated with that of Dealer (Dealer or any such person,
a “Dealer Person”) under any insurance or other law, rule, regulation,
regulatory order or organizational documents or contracts of Counterparty
that are, in each case, applicable to ownership of Shares (“Applicable
Restrictions”), owns, beneficially owns, constructively owns, controls,
holds the power to vote or otherwise meets a relevant definition of
ownership under any Applicable Restriction, as determined by Dealer in its
reasonable discretion. The “Applicable Share Limit” means a number of
Shares equal to (A) the minimum number of Shares that could give rise to
reporting or registration obligations or other requirements (including
obtaining prior approval from any person or entity) of a Dealer Person, or
could result in an adverse effect on a Dealer Person, under any Applicable
Restriction, as determined by Dealer in its reasonable discretion, minus (B)
1% of the number of Shares outstanding.
	 
	 	(iii)	 	Notwithstanding any other provision in this Confirmation to
the contrary requiring or allowing Dealer to purchase, sell, receive or deliver
any Shares or other securities, or make or receive any payment in cash, to or
from Counterparty, Dealer may designate any of its affiliates to purchase,
sell, receive or deliver such Shares or other securities, or to make or receive
such payment in cash, and otherwise to perform Dealer’s obligations in respect
of the Transaction and any such designee may assume such obligations. Dealer
shall be discharged of its obligations to Counterparty only to the extent of
any such performance.

	 	(f)	 	Staggered Settlement. If upon advice of counsel with respect to
applicable legal and regulatory requirements, including any requirements relating to
Dealer’s hedging activities hereunder, Dealer reasonably determines that it would not
be practicable or advisable to deliver, or to acquire Shares to deliver, any or all of
the Shares to be delivered by Dealer on the Settlement Date for the Transaction, Dealer
may, by notice to Counterparty on or prior to any Settlement Date (a “Nominal
Settlement Date”), elect to deliver the Shares on two or more dates (each, a “Staggered
Settlement Date”) as follows:

17

 

			
	 
	 	

	 	(i)	 	in such notice, Dealer will specify to Counterparty the related
Staggered Settlement Dates (the first of which will be such Nominal Settlement
Date and the last of which will be no later than the twentieth (20th) Exchange
Business Day following such Nominal Settlement Date) and the number of Shares
that it will deliver on each Staggered Settlement Date;
	 
	 	(ii)	 	the aggregate number of Shares that Dealer will deliver to
Counterparty hereunder on all such Staggered Settlement Dates will equal the
number of Shares that Dealer would otherwise be required to deliver on such
Nominal Settlement Date; and
	 
	 	(iii)	 	if the Net Share Settlement terms set forth above were to
apply on the Nominal Settlement Date, then the Net Share Settlement terms will
apply on each Staggered Settlement Date, except that the Net Shares will be
allocated among such Staggered Settlement Dates as specified by Dealer in the
notice referred to in clause (i) above.

	 	(g)	 	[Reserved.]
	 
	 	(h)	 	Dividends. If at any time during the period from and including the
Effective Date, to but excluding the Expiration Date, (i) an ex-dividend date for a
regular quarterly cash dividend occurs with respect to the Shares (an “Ex-Dividend
Date”), and that dividend is less than the Regular Dividend on a per Share basis or
(ii) if no Ex-Dividend Date for a regular quarterly cash dividend occurs with respect
to the Shares in any quarterly dividend period of Counterparty, then the Calculation
Agent will make a corresponding adjustment to any one or more of the Strike Price,
Number of Options, Option Entitlement and/or any other variable relevant to the
exercise, settlement or payment for the Transaction to preserve the fair value of the
Options to Dealer after taking into account such dividend or lack thereof. “Regular
Dividend” shall mean USD 0.125 per Share per quarter. Upon any adjustment to the
Initial Dividend Threshold (as defined in the Indenture) for the Convertible Notes
pursuant to the Indenture, the Calculation Agent will make a corresponding adjustment
to the Regular Dividend for the Transaction.
	 
	 	(i)	 	Additional Termination Events. Notwithstanding anything to the
contrary in this Confirmation if an event of default with respect to Counterparty
occurs under the terms of the Convertible Notes as set forth in Section 6.01 of the
Indenture and results in the Convertible Notes becoming due and payable pursuant to the
terms of the Indenture before they would otherwise have been due and payable, then the
occurrence of such event shall constitute an Additional Termination Event applicable to
the Transaction and, with respect to such Additional Termination Event, (A)
Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall
be the sole Affected Transaction and (C) Dealer shall be the party entitled to
designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
	 
	 	(j)	 	Amendments to Equity Definitions.

	 	(i)	 	Section 12.6(a)(ii) of the Equity Definitions is hereby amended
by (1) deleting from the fourth line thereof the word “or” after the word
“official” and inserting a comma therefor, and (2) deleting the semi-colon at
the end of subsection (B) thereof and inserting the following words therefor
“or (C) at Dealer’s option, the occurrence of any of the events specified in
Section 5(a)(vii)(1) through (9) of the ISDA Master Agreement with respect to
that Issuer.”
	 
	 	(ii)	 	Section 12.9(b)(i) of the Equity Definitions is hereby amended
by (1) replacing “either party may elect” with “Dealer may elect” and (2)
replacing “notice to the other party” with “notice to Counterparty” in the
first sentence of such section.

	 	(k)	 	No Setoff. Neither party shall have the right to set off any
obligation that it may have to the other party under the Transaction against any
obligation such other party may have to it, whether arising

18

 

			
	 
	 	

	 	 	 	under the Agreement, this Confirmation or any other agreement between the parties
hereto, by operation of law or otherwise.
	 
	 	(l)	 	Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If in respect of the Transaction, an amount is payable by
Dealer to Counterparty (i) pursuant to Section 12.7 or Section 12.9 of the Equity
Definitions or (ii) pursuant to Section 6(d)(ii) of the Agreement (any such amount, a
“Payment Obligation”), Counterparty may request Dealer to satisfy the Payment
Obligation by the Share Termination Alternative (as defined below) (except that
Counterparty shall not have the right to make such an election in the event of (I) a
Nationalization, Insolvency, Merger Event or Tender Offer, in each case, in which the
consideration to be paid to holders of Shares consists solely of cash, (II) a Merger
Event or Tender Offer that is within Counterparty’s control, or (III) an Event of
Default in which Counterparty is the Defaulting Party or a Termination Event in which
Counterparty is the Affected Party, other than an Event of Default of the type
described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a
Termination Event of the type described in Section 5(b) of the Agreement in each case
that resulted from an event or events outside Counterparty’s control) and shall give
irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled
Trading Day, no later than 12:00 p.m. (New York City time) on the Merger Date, the
Tender Offer Date, the Announcement Date (in the case of Nationalization, Insolvency or
Delisting), the Early Termination Date or date of cancellation, as applicable; provided
that if Counterparty does not validly request Dealer to satisfy the Payment Obligation
by the Share Termination Alternative, Dealer shall have the right, in its sole
discretion, to satisfy its Payment Obligation by the Share Termination Alternative,
notwithstanding Counterparty’s election to the contrary.

	 	 	 	 	 

	 

	 	Share Termination Alternative:
	 	If the Share Termination Alternative
is applicable in respect of any Payment Obligation, Dealer shall deliver to
Counterparty the Share Termination Delivery Property on, or within a
commercially reasonable period of time after, the date when the Payment
Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the
Equity Definitions or Section 6(d)(ii) and 6(e) of the Agreement, as applicable
(the “Share Termination Payment Date”), in satisfaction of the Payment
Obligation in the manner reasonably requested by Counterparty free of payment.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Property:
	 	A number of Share Termination
Delivery Units, as calculated by the Calculation Agent, equal to the Payment
Obligation divided by the Share Termination Unit Price. The Calculation Agent
shall adjust the Share Termination Delivery Property by replacing any
fractional portion of a security therein with an amount of cash equal to the
value of such fractional security based on the values used to calculate the
Share Termination Unit Price.
	 
	 	 	 	 
	 

	 	Share Termination Unit Price:
	 	The value to Dealer of property
contained in one Share Termination Delivery Unit, as determined by the
Calculation Agent in its discretion by commercially reasonable means and
notified by the Calculation Agent to Dealer at the time of notification of the
Payment Obligation. For the avoidance of doubt, the parties agree that in
determining the Share Termination Delivery Unit

19

 

			
	 
	 	

	 	 	 	 	 

	 

	 	 	 	Price the Calculation Agent may consider the
purchase price paid in connection with the
purchase of Share Termination Delivery
Property.
	 
	 	 	 	 
	 

	 	Share Termination Delivery Unit:
	 	One Share or, if a Merger Event has
occurred and a corresponding adjustment to the Transaction has been made, a
unit consisting of the number or amount of each type of property received by a
holder of one Share (without consideration of any requirement to pay cash or
other consideration in lieu of fractional amounts of any securities) in such
Merger Event, as determined by the Calculation Agent.
	 
	 	 	 	 
	 

	 	Failure to Deliver:
	 	Applicable
	 
	 	 	 	 
	 

	 	Other applicable provisions:
	 	If Share Termination Alternative is
applicable, the provisions of Sections 9.8, 9.9, 9.11, 9.12 and 10.5 (as
modified above) of the Equity Definitions will be applicable, except that all
references in such provisions to “Physically-settled” shall be read as
references to “Share Termination Settled” and all references to “Shares” shall
be read as references to “Share Termination Delivery Units”. “Share
Termination Settled” in relation to the Transaction means that the Share
Termination Alternative is applicable to the Transaction.

	 	(m)	 	Waiver of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect of any
suit, action or proceeding relating to the Transaction. Each party (i) certifies that
no representative, agent or attorney of either party has represented, expressly or
otherwise, that such other party would not, in the event of such a suit, action or
proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the
other party have been induced to enter into the Transaction, as applicable, by, among
other things, the mutual waivers and certifications provided herein.
	 
	 	(n)	 	Registration. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Dealer, the Shares (“Hedge Shares”) acquired by Dealer for the
purpose of hedging its obligations pursuant to the Transaction cannot be sold in the
public market by Dealer without registration under the Securities Act of 1933, as
amended (the “Securities Act”), Counterparty shall, at its election, either (i) in
order to allow Dealer to sell the Hedge Shares in a registered offering, use
commercially reasonable efforts to make available to Dealer an effective registration
statement under the Securities Act and enter into an agreement, in customary form and
in substance reasonably satisfactory to Dealer, substantially in the form of an
underwriting agreement for a registered secondary offering; provided, however, that if
Dealer, in its sole reasonable discretion, is not satisfied with access to due
diligence materials, the results of its due diligence investigation, or the procedures
and documentation for the registered offering referred to above, then clause (ii) or
clause (iii) of this paragraph shall apply at the election of Counterparty, (ii) in
order to allow Dealer to sell the Hedge Shares in a private placement, enter into a
private placement agreement substantially similar to private placement purchase
agreements customary for private placements of equity securities, in form and in
substance reasonably satisfactory to Dealer (in which case, the Calculation Agent shall
make any adjustments to the terms of the Transaction that are necessary, in its
reasonable judgment, to compensate Dealer for any discount from the public market price
of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii)
purchase the Hedge Shares from Dealer at the Relevant Price on such Exchange Business
Days, and in the amounts, requested by Dealer.

20

 

			
	 
	 	

	 	(o)	 	Tax Disclosure. Effective from the date of commencement of discussions
concerning the Transaction, Counterparty and each of its employees, representatives, or
other agents may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the Transaction and all materials of any kind
(including opinions or other tax analyses) that are provided to Counterparty relating
to such tax treatment and tax structure.
	 
	 	(p)	 	Right to Extend. Dealer may postpone or add, in whole or in part, any
Valid Day or Valid Days during the Settlement Averaging Period or any other date of
valuation, payment or delivery by Dealer, with respect to some or all of the Options
hereunder, if Dealer determines, in its commercially reasonable judgment, that such
action is reasonably necessary or appropriate to preserve Dealer’s hedging or hedge
unwind activity hereunder in light of existing liquidity conditions or to enable Dealer
to effect purchases of Shares in connection with its hedging, hedge unwind or
settlement activity hereunder in a manner that would, if Dealer were Counterparty or an
affiliated purchaser of Counterparty, be in compliance with applicable legal,
regulatory or self-regulatory requirements, or with related policies and procedures
applicable to Dealer.
	 
	 	(q)	 	Status of Claims in Bankruptcy. Dealer acknowledges and agrees that
this Confirmation is not intended to convey to Dealer rights against Counterparty with
respect to the Transaction that are senior to the claims of common stockholders of
Counterparty in any United States bankruptcy proceedings of Counterparty; provided that
nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue
remedies in the event of a breach by Counterparty of its obligations and agreements
with respect to the Transaction; provided, further, that nothing herein shall limit or
shall be deemed to limit Dealer’s rights in respect of any transactions other than the
Transaction.
	 
	 	(r)	 	Securities Contract; Swap Agreement. The parties hereto intend for (i)
the Transaction to be a “securities contract” and a “swap agreement” as defined in the
Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the
parties hereto to be entitled to the protections afforded by, among other Sections,
Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code,
(ii) a party’s right to liquidate the Transaction and to exercise any other remedies
upon the occurrence of any Event of Default under the Agreement with respect to the
other party to constitute a “contractual right” as described in the Bankruptcy Code,
and (iii) each payment and delivery of cash, securities or other property hereunder to
constitute a “margin payment” or “settlement payment” and a “transfer” as defined in
the Bankruptcy Code.
	 
	 	(s)	 	Notice of Certain Other Events. Counterparty covenants and agrees that:

	 	(i)	 	promptly following the public announcement of the results of
any election by the holders of Shares with respect to the consideration due
upon consummation of any consolidation, merger and binding share exchange to
which Counterparty is a party, or any sale of all or substantially all of
Counterparty’s assets, in each case pursuant to which the Shares will be
converted into cash, securities or other property, Counterparty shall give
Dealer written notice of the types and amounts of consideration that holders of
Shares have elected to receive upon consummation of such transaction or event
(the date of such notification, the “Consideration Notification Date”);
provided that in no event shall the Consideration Notification Date be later
than the date on which such transaction or event is consummated; and
	 
	 	(ii)	 	promptly following any adjustment to the Convertible Notes in
connection with any Potential Adjustment Event, Merger Event or Tender Offer,
Counterparty shall give Dealer written notice of the details of such
adjustment.

	 	(t)	 	Early Unwind. In the event the sale of the “Option Securities” (as
defined in the Purchase Agreement) is not consummated with the Initial Purchasers for
any reason, or Counterparty fails to deliver to Dealer opinions of counsel as required
pursuant to Section 9(a), in each case by 5:00 p.m. (New York City time) on the Premium
Payment Date, or such later date as agreed upon by

21

 

			
	 
	 	

	 	 	 	the parties (the Premium Payment Date or such later date, the “Early Unwind Date”),
the Transaction shall automatically terminate (the “Early Unwind”) on the Early
Unwind Date and (i) the Transaction and all of the respective rights and obligations
of Dealer and Counterparty under the Transaction shall be cancelled and terminated
and (ii) each party shall be released and discharged by the other party from and
agrees not to make any claim against the other party with respect to any obligations
or liabilities of the other party arising out of and to be performed in connection
with the Transaction either prior to or after the Early Unwind Date; provided that
Counterparty shall purchase from Dealer on the Early Unwind Date all Shares
purchased by Dealer or one or more of its affiliates in connection with the
Transaction at the then prevailing market price. Each of Dealer and Counterparty
represent and acknowledge to the other that, subject to the proviso included in this
Section 9(t), upon an Early Unwind, all obligations with respect to the Transaction
shall be deemed fully and finally discharged.
	 
	 	(u)	 	Payment by Counterparty. In the event that (i) an Early Termination
Date occurs or is designated with respect to the Transaction as a result of a
Termination Event or an Event of Default (other than an Event of Default arising under
Section 5(a)(ii) or 5(a)(iv) of the Agreement) and, as a result, Counterparty owes to
Dealer an amount calculated under Section 6(e) of the Agreement, or (ii) Counterparty
owes to Dealer, pursuant to Section 12.7 or Section 12.9 of the Equity Definitions, an
amount calculated under Section 12.8 of the Equity Definitions, such amount shall be
deemed to be zero.

22

 

			
	 
	 	

     Counterparty hereby agrees (a) to check this Confirmation carefully and immediately upon
receipt so that errors or discrepancies can be promptly identified and rectified and (b) to confirm
that the foregoing (in the exact form provided by Dealer) correctly sets forth the terms of the
agreement between Dealer and Counterparty with respect to the Transaction, by manually signing this
Confirmation or this page hereof as evidence of agreement to such terms and providing the other
information requested herein and immediately returning an executed copy to Chris Hutmaker,
Facsimile No. 212-326-9882.

	 	 	 

	 

	 	Very truly yours,

	 	 	 	 	 
	 	Bank of America, N.A.

 	 
	 	By:  	/s/ Charles Hill 	 
	 	 	Authorized Signatory 	 
	 	 	Name: Charles Hill 	 
	 

Accepted and confirmed

as of the Trade Date:

	 	 	 	 
	Tower Group, Inc.

 	 
	By:  	/s/ William E. Hitselberger
 	 
	 	Authorized Signatory 	 
	 	Name: William E. Hitselberger

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