Document:

EXHIBIT 10.05

                     FIXED/FLOATING RATE JUNIOR SUBORDINATED

                          DEFERRABLE INTEREST DEBENTURE

                               [FACE OF SECURITY]

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS  AMENDED  (THE  "SECURITIES  ACT"),  ANY STATE  SECURITIES  LAWS OR ANY OTHER
APPLICABLE   SECURITIES   LAW.   NEITHER  THIS  SECURITY  NOR  ANY  INTEREST  OR
PARTICIPATION  HEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED,
ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE ABSENCE OF SUCH  REGISTRATION  OR
UNLESS SUCH  TRANSACTION  IS EXEMPT  FROM,  OR NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE
HOLDER OF THIS  SECURITY  BY ITS  ACCEPTANCE  HEREOF  AGREES  TO OFFER,  SELL OR
OTHERWISE  TRANSFER THIS SECURITY ONLY (A) TO Tower Group, Inc. (THE "COMPANY"),
(B) PURSUANT TO A REGISTRATION  STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER
THE  SECURITIES  ACT, (C) TO A PERSON WHOM THE SELLER  REASONABLY  BELIEVES IS A
QUALIFIED  INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A SO LONG AS THIS  SECURITY IS ELIGIBLE  FOR RESALE  PURSUANT TO RULE 144A IN
ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S.  PERSON IN AN OFFSHORE  TRANSACTION
IN ACCORDANCE  WITH RULE 903 OR RULE 904 (AS  APPLICABLE)  OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN  INSTITUTIONAL  "ACCREDITED  INVESTOR"  WITHIN THE
MEANING  OF  SUBPARAGRAPH  (A) OF RULE  501  UNDER  THE  SECURITIES  ACT THAT IS
ACQUIRING  THIS  SECURITY  FOR ITS OWN  ACCOUNT,  OR FOR THE  ACCOUNT OF SUCH AN
INSTITUTIONAL  ACCREDITED INVESTOR,  FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION  WITH, ANY  DISTRIBUTION  IN VIOLATION OF
THE SECURITIES  ACT, OR (F) PURSUANT TO ANY OTHER  AVAILABLE  EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT
PRIOR TO ANY SUCH OFFER,  SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION
OF  COUNSEL,  CERTIFICATION  AND/OR  OTHER  INFORMATION  SATISFACTORY  TO  IT IN
ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.
HEDGING  TRANSACTIONS  INVOLVING  THIS  SECURITY MAY NOT BE CONDUCTED  UNLESS IN
COMPLIANCE WITH THE SECURITIES ACT.

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

<PAGE>

         THIS  SECURITY  WILL BE ISSUED  AND MAY BE  TRANSFERRED  ONLY IN BLOCKS
HAVING AN AGGREGATE  PRINCIPAL AMOUNT OF NOT LESS THAN $100,000.00 AND MULTIPLES
OF $1,000.00 IN EXCESS  THEREOF.  ANY  ATTEMPTED  TRANSFER OF THIS SECURITY IN A
BLOCK HAVING AN AGGREGATE  PRINCIPAL  AMOUNT OF LESS THAN  $100,000.00  SHALL BE
DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

         THE  HOLDER  OF THIS  SECURITY  AGREES  THAT IT WILL  COMPLY  WITH  THE
FOREGOING RESTRICTIONS.

         THIS  SECURITY  IS IN  REGISTERED  FORM  WITHIN THE MEANING OF TREASURY
REGULATIONS  SECTION  1.871-14(c)(1)(i)  FOR U.S. FEDERAL INCOME AND WITHHOLDING
TAX PURPOSES.

         IN  CONNECTION  WITH ANY  TRANSFER,  THE  HOLDER  WILL  DELIVER  TO THE
REGISTRAR AND TRANSFER AGENT SUCH  CERTIFICATES AND OTHER  INFORMATION AS MAY BE
REQUIRED  BY THE  INDENTURE  TO  CONFIRM  THAT THE  TRANSFER  COMPLIES  WITH THE
FOREGOING RESTRICTIONS.

<PAGE>

      FIXED/FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE

                                       OF

                                TOWER GROUP, INC.

                                DECEMBER 15, 2004

         Tower Group,  Inc., a corporation duly organized and existing under the
laws of Delaware (the "Company,"  which term includes any successor Person under
the Indenture  hereinafter  referred to), for value received  promises to pay to
Wilmington  Trust  Company,  not  in  its  individual  capacity  but  solely  as
Institutional  Trustee for Tower Group  Statutory  Trust III (the  "Holder")  or
registered assigns, the principal sum of thirteen million four hundred and three
thousand dollars ($13,403,000) on December 15, 2034, and to pay interest on said
principal sum from December 15, 2004, or from the most recent  Interest  Payment
Date (as defined  herein) to which  interest has been paid or duly provided for,
quarterly (subject to deferral as set forth herein) in arrears on March 15, June
15,  September  15 and December 15 of each year or if such day is not a Business
Day, then the next succeeding Business Day (each such date, an "Interest Payment
Date"), commencing on the Interest Payment Date in March 2005, at an annual rate
equal to 7.40%  beginning on (and  including) the date of original  issuance and
ending on (but  excluding) the Interest  Payment Date in December 2009 and at an
annual rate for each successive Distribution Period beginning on (and including)
the Interest Payment Date in December 2009, and each succeeding Interest Payment
Date, and ending on (but  excluding) the next succeeding  Interest  Payment Date
(each a "Distribution Period"),  equal to 3-Month LIBOR, determined as described
below,  plus 3.40% (the "Coupon Rate"),  applied to the principal amount hereof,
until the principal  hereof is paid or duly  provided for or made  available for
payment, and on any overdue principal and (without duplication and to the extent
that  payment of such  interest  is  enforceable  under  applicable  law) on any
overdue installment of interest (including  Additional Interest) at the Interest
Rate in effect for each applicable period,  compounded quarterly, from the dates
such  amounts are due until they are paid or made  available  for  payment.  The
amount of interest  payable (i) for any  Distribution  Period  commencing  on or
after the date of original  issuance  but before the  Interest  Payment  Date in
December  2009 will be computed on the basis of a 360-day year of twelve  30-day
months, and (ii) for the Distribution Period commencing on or after the Interest
Payment Date in December 2009 and each  succeeding  Distribution  Period will be
computed on the basis of the actual  number of days in the  Distribution  Period
concerned  divided by 360. The interest  installment so payable,  and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in the
Indenture,  be paid to the Person in whose name this  Debenture  (or one or more
Predecessor  Securities)  is  registered at the close of business on the regular
record date for such interest installment,  which shall be fifteen days prior to
the day on which the relevant  Interest  Payment Date occurs.  Any such interest
installment not so punctually paid or duly provided for shall forthwith cease to
be  payable  to the Holder on such  regular  record  date and may be paid to the
Person in whose name this Debenture (or one or more  Predecessor  Securities) is
registered at the close of business on a special record date.

         Capitalized terms used and not defined in this Debenture shall have the
meanings  assigned in the Indenture dated as of the date of original issuance of
this Debenture between the Trustee and the Company.
<PAGE>

         "3-Month  LIBOR" as used  herein,  means the London  interbank  offered
interest rate for three-month U.S. dollar deposits  determined by the Trustee in
the following  order of priority:  (i) the rate  (expressed as a percentage  per
annum) for U.S. dollar  deposits  having a three-month  maturity that appears on
Telerate Page 3750 as of 11:00 a.m.  (London time) on the related  Determination
Date  ("Telerate  Page 3750" means the display  designated as "Page 3750" on the
Dow Jones  Telerate  Service or such other page as may replace Page 3750 on that
service or such other  service or  services as may be  nominated  by the British
Bankers'  Association  as the  information  vendor for the purpose of displaying
London  interbank  offered rates for U.S.  dollar  deposits);  (ii) if such rate
cannot be identified on the related Determination Date, the Trustee will request
the  principal  London  offices of four  leading  banks in the London  interbank
market to provide such banks' offered  quotations  (expressed as percentages per
annum) to prime banks in the London  interbank  market for U.S.  dollar deposits
having  a  three-month   maturity  as  of  11:00  a.m.  (London  time)  on  such
Determination Date. If at least two quotations are provided,  3-Month LIBOR will
be the  arithmetic  mean of such  quotations;  (iii)  if  fewer  than  two  such
quotations  are  provided as  requested  in clause (ii) above,  the Trustee will
request four major New York City banks to provide such banks' offered quotations
(expressed as percentages per annum) to leading European banks for loans in U.S.
dollars as of 11:00 a.m. (London time) on such  Determination  Date. If at least
two such  quotations are provided,  3-Month LIBOR will be the arithmetic mean of
such  quotations;  and (iv) if fewer than two such  quotations  are  provided as
requested  in  clause  (iii)  above,  3-Month  LIBOR  will  be a  3-Month  LIBOR
determined with respect to the Distribution  Period  immediately  preceding such
current  Distribution  Period.  If the rate for U.S.  dollar  deposits  having a
three-month  maturity that  initially  appears on Telerate Page 3750 as of 11:00
a.m.  (London  time) on the  related  Determination  Date is  superseded  on the
Telerate  Page 3750 by a  corrected  rate by 12:00  noon  (London  time) on such
Determination  Date, then the corrected rate as so substituted on the applicable
page will be the applicable 3-Month LIBOR for such  Determination  Date. As used
herein,  "Determination  Date"  means the date that is two London  Banking  Days
(i.e.,  a  business  day in which  dealings  in  deposits  in U.S.  dollars  are
transacted in the London  interbank  market)  preceding the  commencement of the
relevant Distribution Period.

         "Interest  Rate" means for the period  beginning on (and including) the
date of original  issuance and ending on (but  excluding)  the Interest  Payment
Date in  December  2009 the rate per  annum of 7.40%  and for each  Distribution
Period thereafter, the Coupon Rate.

         The Interest Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be modified
by United States law.

         All percentages  resulting from any calculations on the Debentures will
be rounded, if necessary,  to the nearest one hundred-thousandth of a percentage
point,  with five  one-millionths  of a percentage  point rounded  upward (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655), and all dollar
amounts  used in or  resulting  from such  calculation  will be  rounded  to the
nearest cent (with one-half cent being rounded upward)).

         The principal of and interest on this Debenture shall be payable at the
office or agency of the Trustee (or other paying agent appointed by the Company)
maintained  for that  purpose in any coin or  currency  of the United  States of
America  that at the time of payment is legal  tender for  payment of public and
private debts; PROVIDED,  HOWEVER, that payment of interest may be made by check
mailed to the registered holder at such address as shall appear in the Debenture
Register if a request for a wire  transfer by such holder has not been  received
by the Company or by wire transfer to an account appropriately designated by the
holder  hereof.  Notwithstanding  the  foregoing,  so long as the holder of this
Debenture  is the  Institutional  Trustee,  the payment of the  principal of and
interest on this Debenture will be made in immediately  available  funds at such
place and to such account as may be designated by the Trustee.
<PAGE>

         So long as no Event of Default  has  occurred  and is  continuing,  the
Company shall have the right, from time to time, and without causing an Event of
Default,  to defer  payments of  interest on the  Debentures  by  extending  the
interest  payment  period  on the  Debentures  at any time and from time to time
during the term of the Debentures,  for up to 20 consecutive  quarterly  periods
(each such extended  interest  payment period,  an "Extension  Period"),  during
which Extension Period no interest (including  Additional Interest) shall be due
and  payable  (except  any  Additional  Sums  that may be due and  payable).  No
Extension Period may end on a date other than an Interest  Payment Date.  During
an Extension  Period,  interest will continue to accrue on the  Debentures,  and
interest  on such  accrued  interest  will accrue at an annual rate equal to the
Interest Rate in effect for such Extension Period, compounded quarterly from the
date such interest would have been payable were it not for the Extension Period,
to the extent permitted by law (such interest  referred to herein as "Additional
Interest").  At the end of any such  Extension  Period the Company shall pay all
interest then accrued and unpaid on the  Debentures  (together  with  Additional
Interest thereon); PROVIDED, HOWEVER, that no Extension Period may extend beyond
the Maturity Date;  PROVIDED  FURTHER,  HOWEVER,  that during any such Extension
Period,  the Company shall not and shall not permit any Affiliate of the Company
controlled  by the Company to engage in any of the  activities  or  transactions
described  on  the  reverse  side  hereof  and in the  Indenture.  Prior  to the
termination of any Extension Period, the Company may further extend such period,
provided  that  such  period   together  with  all  such  previous  and  further
consecutive  extensions  thereof  shall  not  exceed  20  consecutive  quarterly
periods,  or extend  beyond  the  Maturity  Date.  Upon the  termination  of any
Extension  Period and upon the payment of all accrued  and unpaid  interest  and
Additional Interest, the Company may commence a new Extension Period, subject to
the foregoing requirements.  No interest or Additional Interest shall be due and
payable  during  an  Extension  Period,  except  at the end  thereof,  but  each
installment of interest that would otherwise have been due and payable during an
Extension Period shall bear Additional  Interest to the extent permitted by law.
The Company  must give the Trustee  notice of its election to begin or extend an
Extension  Period at least 5 Business Days prior to the regular  record date (as
such term is used in Section 2.8 of the  Indenture)  immediately  preceding  the
Interest  Payment Date with respect to which  interest on the  Debentures  would
have been  payable  except  for the  election  to begin or  extend an  Extension
Period.  The Trustee shall give notice of the Company's  election to begin a new
Extension Period to the holder of the Debentures.

         The indebtedness evidenced by this Debenture is, to the extent provided
in the  Indenture,  subordinate  and  junior  in right of  payment  to the prior
payment in full of all Senior Indebtedness, and this Debenture is issued subject
to the  provisions of the Indenture  with respect  thereto.  Each holder of this
Debenture,  by  accepting  the  same,  (a)  agrees to and shall be bound by such
provisions,  (b) authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or  appropriate to acknowledge or effectuate the
subordination   so   provided   and  (c)   appoints   the  Trustee  his  or  her
attorney-in-fact  for any and all such purposes.  Each holder hereof,  by his or
her  acceptance  hereof,  hereby  waives  all  notice of the  acceptance  of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness,  whether now outstanding or hereafter incurred,  and waives
reliance by each such holder upon said provisions.
<PAGE>

         This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
certificate of  authentication  hereon shall have been signed by or on behalf of
the Trustee.

         The  provisions  of this  Debenture  are  continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.

<PAGE>

         IN WITNESS WHEREOF, the Company has duly executed this certificate.

                            Tower Group, Inc.

                            By:     /s/ Francis M. Colalucci
                               ----------------------------------------------
                                 Name:  Francis M. Colalucci
                                 Title:  Senior Vice President and CFO

                          CERTIFICATE OF AUTHENTICATION

         This  is one  of the  Debentures  referred  to in the  within-mentioned
Indenture.

                            WILMINGTON TRUST COMPANY, as Trustee

                            By:     C. Slaybaugh
                               -----------------------------------------------
                                 Authorized Officer

<PAGE>

                             [REVERSE OF DEBENTURE]

         This Debenture is one of the  fixed/floating  rate junior  subordinated
deferrable interest debentures of the Company,  all issued or to be issued under
and pursuant to the Indenture  dated as of December 15, 2004 (the  "Indenture"),
duly  executed  and  delivered  between the Company  and the  Trustee,  to which
Indenture reference is hereby made for a description of the rights,  limitations
of rights,  obligations,  duties and immunities  thereunder of the Trustee,  the
Company  and the  holders  of the  Debentures.  The  Debentures  are  limited in
aggregate principal amount as specified in the Indenture.

         Upon the  occurrence and  continuation  of a Special Event prior to the
Interest  Payment  Date in December  2009,  the Company  shall have the right to
redeem the Debentures in whole,  but not in part, at any Interest  Payment Date,
within 120 days following the  occurrence of such Special Event,  at the Special
Redemption Price.

         In addition, the Company shall have the right to redeem the Debentures,
in whole or in  part,  but in all  cases in a  principal  amount  with  integral
multiples of  $1,000.00,  on any Interest  Payment Date on or after the Interest
Payment Date in December 2009, at the Optional Redemption Price.

         Prior to 10:00 a.m. New York City time on the Optional  Redemption Date
or Special  Redemption  Date, as  applicable,  the Company will deposit with the
Trustee  or with one or more  paying  agents an amount  of money  sufficient  to
redeem on the  Optional  Redemption  Date or the  Special  Redemption  Date,  as
applicable,  all the  Debentures  so called for  redemption  at the  appropriate
Optional Redemption Price or Special Redemption Price.

         If all,  or less than  all,  the  Debentures  are to be  redeemed,  the
Company  will  give the  Trustee  notice  not less than 45 nor more than 60 days
prior to the Optional Redemption Date or Special Redemption Date, as applicable,
as to the  aggregate  principal  amount of  Debentures  to be  redeemed  and the
Trustee  shall  select,  in such manner as in its sole  discretion it shall deem
appropriate and fair, the Debentures or portions thereof (in integral  multiples
of $1,000.00) to be redeemed.

         Notwithstanding  the  foregoing,  any  redemption  of Debentures by the
Company  shall be subject  to the  receipt  of any and all  required  regulatory
approvals.

         In case an Event of Default shall have occurred and be continuing, upon
demand of the Trustee,  the principal of all of the Debentures  shall become due
and  payable  in the  manner,  with the effect  and  subject  to the  conditions
provided in the Indenture.

         The  Indenture  contains  provisions  permitting  the  Company  and the
Trustee,  with the  consent  of the  holders  of not  less  than a  majority  in
aggregate principal amount of the Debentures at the time outstanding, to execute
supplemental  indentures for the purpose of adding any provisions to or changing
in any manner or  eliminating  any of the provisions of this Indenture or of any
supplemental  indenture  or of modifying in any manner the rights of the holders
of the Debentures;  PROVIDED, HOWEVER, that no such supplemental indenture shall
without  the  consent of the  holders of each  Debenture  then  outstanding  and
affected  thereby (i) change the fixed maturity of any Debenture,  or reduce the
principal  amount thereof or any premium  thereon,  or reduce the rate or extend
the time of  payment  of  interest  thereon,  or reduce  any  amount  payable on
redemption  thereof or make the  principal  thereof or any  interest  or premium
thereon  payable  in any  coin or  currency  other  than  that  provided  in the
Debentures,  or impair or affect the right of any  Securityholder  to  institute
suit for payment thereof or impair the right of repayment, if any, at the option
of the holder, or (ii) reduce the aforesaid percentage of Debentures the holders
of which are required to consent to any such supplemental indenture.
<PAGE>

         The Indenture  also  contains  provisions  permitting  the holders of a
majority in aggregate principal amount of the Debentures at the time outstanding
on behalf of the  holders  of all of the  Debentures  to waive  (or  modify  any
previously  granted  waiver of) any past  default or Event of  Default,  and its
consequences,  except an Event of Default (a)  specified in Sections  5.1(a) and
(b), (b) in respect of covenants or provisions  hereof or of the Indenture which
cannot  be  modified  or  amended  without  the  consent  of the  holder of each
Debenture affected,  or (c) in respect of the covenants contained in Section 3.9
of the  Indenture;  PROVIDED,  HOWEVER,  that if the  Debentures are held by the
Trust or a trustee of the Trust,  such  waiver or  modification  to such  waiver
shall not be effective until the holders of a majority in Liquidation  Amount of
the Trust Securities shall have consented to such waiver or modification to such
waiver, PROVIDED, FURTHER, that if the consent of the holder of each outstanding
Debenture is required,  such waiver shall not be effective  until each holder of
the Trust Securities shall have consented to such waiver.  Upon any such waiver,
the default  covered thereby shall be deemed to be cured for all purposes of the
Indenture and the Company,  the Trustee and the holders of the Debentures  shall
be restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any  subsequent or other default or Event of Default
or impair any right consequent thereon. Whenever any default or Event of Default
hereunder shall have been waived as permitted by the Indenture,  said default or
Event of Default shall for all purposes of the  Debentures  and the Indenture be
deemed to have been cured and to be not continuing.

         No reference herein to the Indenture and no provision of this Debenture
or of the Indenture  shall alter or impair the obligation of the Company,  which
is absolute and unconditional,  to pay the principal of and premium, if any, and
interest, including Additional Interest, on this Debenture at the time and place
and at the rate and in the money herein prescribed.

         The Company has agreed that if Debentures  are initially  issued to the
Trust or a  trustee  of such  Trust in  connection  with the  issuance  of Trust
Securities by the Trust (regardless of whether Debentures continue to be held by
such  Trust) and (i) there shall have  occurred  and be  continuing  an Event of
Default, (ii) the Company shall be in default with respect to its payment of any
obligations under the Capital Securities  Guarantee,  or (iii) the Company shall
have  given  notice  of its  election  to  defer  payments  of  interest  on the
Debentures by extending the interest  payment period as provided herein and such
Extension  Period,  or any  extension  thereof,  shall be  continuing,  then the
Company shall not, and shall not permit any Affiliate of the Company  controlled

<PAGE>

by the Company  to, (x) declare or pay any  dividends  or  distributions  on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
the  Company's  or such  Affiliates'  capital  stock  (other  than  payments  of
dividends or  distributions  to the Company or a  Subsidiary  of the Company) or
make any  guarantee  payments  with  respect  to the  foregoing  or (y) make any
payment of principal of or interest or premium, if any, on or repay,  repurchase
or redeem any debt  securities  of the Company or any  Affiliate  of the Company
controlled by the Company that rank PARI PASSU in all respects with or junior in
interest to the  Debentures  (other  than,  with  respect to clauses (x) and (y)
above, (1) repurchases,  redemptions or other  acquisitions of shares of capital
stock of the Company or any  Subsidiary  of the Company in  connection  with any
employment  contract,  benefit plan or other similar arrangement with or for the
benefit  of one or  more  employees,  officers,  directors  or  consultants,  in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection  with  the  issuance  of  capital  stock  of the  Company  or of such
Subsidiary  (or  securities  convertible  into or  exercisable  for such capital
stock) as consideration in an acquisition  transaction entered into prior to the
applicable  Extension  Period,  (2) as a result of any exchange or conversion of
any class or series of the  Company's  capital  stock (or any capital stock of a
Subsidiary  of the  Company)  for any class or series of the  Company's  capital
stock (or in the case of a  Subsidiary  of the  Company,  any class or series of
such  Subsidiary's  capital  stock) or of any  class or series of the  Company's
indebtedness  for any class or series of the Company's  capital stock (or in the
case of indebtedness  of a Subsidiary of the Company,  of any class or series of
such  Subsidiary's  indebtedness  or any class or  series  of such  Subsidiary's
capital  stock),  (3) the  purchase  of  fractional  interests  in shares of the
Company's  capital  stock (or the capital  stock of a Subsidiary of the Company)
pursuant to the  conversion or exchange  provisions of such capital stock or the
security  being  converted or exchanged,  (4) any  declaration  of a dividend in
connection with any stockholders'  rights plan, or the issuance of rights, stock
or other  property  under any  stockholders'  rights plan, or the  redemption or
repurchase of rights  pursuant  thereto,  (5) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon  exercise of such  warrants,  options or other  rights is the same stock as
that on which the  dividend  is being paid or ranks PARI PASSU with or junior to
such  stock  and any  cash  payments  in lieu of  fractional  shares  issued  in
connection therewith, or (6) payments under the Capital Securities Guarantee).

         The  Debentures  are issuable  only in  registered,  certificated  form
without coupons and in minimum  denominations of $100,000.00 and any multiple of
$1,000.00 in excess  thereof.  As provided in the  Indenture  and subject to the
transfer  restrictions  and  limitations as may be contained  herein and therein
from time to time,  this Debenture is  transferable  by the holder hereof on the
Debenture  Register of the Company.  Upon due  presentment  for  registration of
transfer  of any  Debenture  at the  Principal  Office of the  Trustee or at any
office or agency of the  Company  maintained  for such  purpose as  provided  in
Section 3.2 of the  Indenture,  the Company  shall  execute,  the Company or the
Trustee  shall  register  and the  Trustee  or the  Authenticating  Agent  shall
authenticate  and make  available for delivery in the name of the  transferee or
transferees  a  new  Debenture  for  a  like  aggregate  principal  amount.  All
Debentures  presented  for  registration  of transfer or for exchange or payment
shall (if so required by the Company or the Trustee or the Authenticating Agent)
be duly endorsed by, or be accompanied by a written instrument or instruments of
transfer  in  form   satisfactory  to,  the  Company  and  the  Trustee  or  the
Authenticating Agent duly executed by the holder or his attorney duly authorized
in writing.  No service charge shall be made for any exchange or registration of
transfer of Debentures,  but the Company or the Trustee may require payment of a
sum  sufficient to cover any tax, fee or other  governmental  charge that may be
imposed in connection therewith.
<PAGE>

         Prior to due presentment for registration of transfer of any Debenture,
the Company,  the Trustee,  any  Authenticating  Agent,  any paying  agent,  any
transfer  agent and any  Debenture  registrar  may deem the Person in whose name
such Debenture  shall be registered  upon the Debenture  Register to be, and may
treat  him as,  the  absolute  owner  of such  Debenture  (whether  or not  such
Debenture  shall be  overdue)  for the  purpose  of  receiving  payment of or on
account of the principal of, premium, if any, and interest on such Debenture and
for all  other  purposes;  and  neither  the  Company  nor the  Trustee  nor any
Authenticating  Agent  nor any  paying  agent  nor any  transfer  agent  nor any
Debenture  registrar  shall be affected by any notice to the contrary.  All such
payments  so made to any holder  for the time  being or upon his order  shall be
valid,  and, to the extent of the sum or sums so paid,  effectual to satisfy and
discharge the liability for moneys payable upon any such Debenture.

         The  Debentures  are in registered  form within the meaning of Treasury
Regulations  Section  1.871-14(c)(1)(i)  for U.S. federal income and withholding
tax purposes.

         No recourse for the payment of the principal of or premium,  if any, or
interest  on any  Debenture,  or for any claim  based  thereon or  otherwise  in
respect  thereof,  and no  recourse  under or upon any  obligation,  covenant or
agreement of the Company in the Indenture or in any supplemental  indenture,  or
in  any  such  Debenture,  or  because  of  the  creation  of  any  indebtedness
represented  thereby,  shall  be  had  against  any  incorporator,  stockholder,
employee,  officer or director, as such, past, present or future, of the Company
or of any  successor  Person of the  Company,  either  directly  or through  the
Company  or any  successor  Person  of the  Company,  whether  by  virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise,  it being expressly  understood that all such liability is
hereby  expressly  waived and released as a condition of, and as a consideration
for, the execution of the Indenture and the issue of the Debentures.

         PURSUANT TO SECTION 5-1401 OF THE GENERAL  OBLIGATIONS LAW OF THE STATE
OF NEW YORK, THE INDENTURE AND THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.EXHIBIT 10.06
                          CAPITAL SECURITY CERTIFICATE

                               [FACE OF SECURITY]

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS  AMENDED  (THE  "SECURITIES  ACT"),  ANY STATE  SECURITIES  LAWS OR ANY OTHER
APPLICABLE   SECURITIES   LAW.   NEITHER  THIS  SECURITY  NOR  ANY  INTEREST  OR
PARTICIPATION  HEREIN MAY BE REOFFERED,  SOLD, ASSIGNED,  TRANSFERRED,  PLEDGED,
ENCUMBERED  OR  OTHERWISE  DISPOSED  OF IN THE ABSENCE OF SUCH  REGISTRATION  OR
UNLESS SUCH  TRANSACTION  IS EXEMPT  FROM,  OR NOT SUBJECT TO, THE  REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE
HOLDER OF THIS  SECURITY  BY ITS  ACCEPTANCE  HEREOF  AGREES  TO OFFER,  SELL OR
OTHERWISE  TRANSFER  THIS  SECURITY  ONLY (A) TO THE  SPONSOR OR THE TRUST,  (B)
PURSUANT TO A REGISTRATION  STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES  ACT,  (C) TO A  PERSON  WHOM THE  SELLER  REASONABLY  BELIEVES  IS A
QUALIFIED  INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A SO LONG AS THIS  SECURITY IS ELIGIBLE  FOR RESALE  PURSUANT TO RULE 144A IN
ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S.  PERSON IN AN OFFSHORE  TRANSACTION
IN ACCORDANCE  WITH RULE 903 OR RULE 904 (AS  APPLICABLE)  OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN  INSTITUTIONAL  "ACCREDITED  INVESTOR"  WITHIN THE
MEANING  OF  SUBPARAGRAPH  (A) OF RULE  501  UNDER  THE  SECURITIES  ACT THAT IS
ACQUIRING THIS CAPITAL SECURITY FOR ITS OWN ACCOUNT,  OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL  ACCREDITED  INVESTOR,  FOR INVESTMENT  PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION  WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES  ACT,  SUBJECT TO THE SPONSOR'S AND
THE  TRUST'S  RIGHT  PRIOR TO ANY SUCH  OFFER,  SALE OR  TRANSFER TO REQUIRE THE
DELIVERY  OF AN OPINION  OF  COUNSEL,  CERTIFICATION  AND/OR  OTHER  INFORMATION
SATISFACTORY  TO EACH  OF  THEM IN  ACCORDANCE  WITH  THE  DECLARATION  (DEFINED
HEREIN), A COPY OF WHICH MAY BE OBTAINED FROM THE SPONSOR OR THE TRUST.  HEDGING
TRANSACTIONS  INVOLVING THIS SECURITY MAY NOT BE CONDUCTED  UNLESS IN COMPLIANCE
WITH THE SECURITIES ACT.

         THE HOLDER OF THIS  SECURITY  BY ITS  ACCEPTANCE  HEREOF  ALSO  AGREES,
REPRESENTS  AND  WARRANTS  THAT  IT  IS  NOT  AN  EMPLOYEE  BENEFIT,  INDIVIDUAL
RETIREMENT  ACCOUNT  OR  OTHER  PLAN OR  ARRANGEMENT  SUBJECT  TO TITLE I OF THE
EMPLOYEE  RETIREMENT  INCOME  SECURITY  ACT OF 1974,  AS AMENDED  ("ERISA"),  OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH
A "PLAN"),  OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON
OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN ASSETS" OF
ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH

<PAGE>

PURCHASER  OR HOLDER IS  ELIGIBLE  FOR  EXEMPTIVE  RELIEF  AVAILABLE  UNDER U.S.
DEPARTMENT OF LABOR PROHIBITED  TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER  APPLICABLE  EXEMPTION  OR ITS  PURCHASE AND HOLDING OF
THIS  SECURITY IS NOT  PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE
CODE WITH RESPECT TO SUCH  PURCHASE OR HOLDING.  ANY  PURCHASER OR HOLDER OF THE
SECURITIES  OR ANY INTEREST  THEREIN WILL BE DEEMED TO HAVE  REPRESENTED  BY ITS
PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE  BENEFIT PLAN
WITHIN THE MEANING OF SECTION 3(3) OF ERISA,  OR A PLAN TO WHICH SECTION 4975 OF
THE CODE IS  APPLICABLE,  A  TRUSTEE  OR OTHER  PERSON  ACTING  ON  BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF
ANY  EMPLOYEE  BENEFIT  PLAN OR PLAN TO  FINANCE  SUCH  PURCHASE,  OR (ii)  SUCH
PURCHASE WILL NOT RESULT IN A PROHIBITED  TRANSACTION UNDER SECTION 406 OF ERISA
OR  SECTION  4975 OF THE CODE FOR  WHICH  THERE IS NO  APPLICABLE  STATUTORY  OR
ADMINISTRATIVE EXEMPTION.

         THIS  SECURITY  WILL BE ISSUED  AND MAY BE  TRANSFERRED  ONLY IN BLOCKS
HAVING A LIQUIDATION  AMOUNT OF NOT LESS THAN  $100,000.00  (100 SECURITIES) AND
MULTIPLES OF $1,000.00 IN EXCESS THEREOF.  ANY ATTEMPTED  TRANSFER OF SECURITIES
IN A BLOCK HAVING A LIQUIDATION  AMOUNT OF LESS THAN $100,000.00 SHALL BE DEEMED
TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

         THE  HOLDER  OF THIS  SECURITY  AGREES  THAT IT WILL  COMPLY  WITH  THE
FOREGOING RESTRICTIONS.

         THIS  SECURITY  IS IN  REGISTERED  FORM  WITHIN THE MEANING OF TREASURY
REGULATIONS  SECTION  1.871-14(c)(1)(i)  FOR U.S. FEDERAL INCOME AND WITHHOLDING
TAX PURPOSES.

         IN  CONNECTION  WITH ANY  TRANSFER,  THE  HOLDER  WILL  DELIVER  TO THE
REGISTRAR AND TRANSFER AGENT SUCH  CERTIFICATES AND OTHER  INFORMATION AS MAY BE
REQUIRED BY THE  DECLARATION  TO CONFIRM  THAT THE  TRANSFER  COMPLIES  WITH THE
FOREGOING RESTRICTIONS.

<PAGE>

                Certificate Number P-1       13,000 Capital Securities

                                December 15, 2004

          CERTIFICATE EVIDENCING FIXED/FLOATING RATE CAPITAL SECURITIES

                                       OF

                         TOWER GROUP STATUTORY TRUST III

               (liquidation amount $1,000.00 per Capital Security)

         Tower Group  Statutory  Trust III, a statutory  trust created under the
laws of the State of Delaware (the  "Trust"),  hereby  certifies that Hare & Co.
(the "Holder"),  as the nominee of The Bank of New York, indenture trustee under
the Indenture  dated as of December 15, 2004,  among  Preferred Term  Securities
XVI, Ltd.,  Preferred Term Securities XVI, Inc. and The Bank of New York, is the
registered  owner of  capital  securities  of the Trust  representing  undivided
beneficial  interests in the assets of the Trust,  (liquidation amount $1,000.00
per capital security) (the "Capital Securities"). Subject to the Declaration (as
defined below), the Capital Securities are transferable on the books and records
of the Trust in person or by a duly authorized attorney,  upon surrender of this
Certificate  duly  endorsed  and  in  proper  form  for  transfer.  The  Capital
Securities  represented  hereby are  issued  pursuant  to, and the  designation,
rights, privileges, restrictions,  preferences and other terms and provisions of
the Capital  Securities  shall in all respects be subject to, the  provisions of
the Amended and Restated  Declaration of Trust of the Trust dated as of December
15, 2004,  among Michael H. Lee,  Francis M.  Colalucci and Steven G. Fauth,  as
Administrators,  Wilmington Trust Company, as Delaware Trustee, Wilmington Trust
Company,  as  Institutional  Trustee,  Tower Group,  Inc.,  as Sponsor,  and the
holders from time to time of undivided beneficial interests in the assets of the
Trust,  including the designation of the terms of the Capital  Securities as set
forth in Annex I to such  amended and  restated  declaration  as the same may be
amended from time to time (the "Declaration"). Capitalized terms used herein but
not defined shall have the meaning given them in the Declaration.  The Holder is
entitled  to the  benefits  of the  Guarantee  and the  Indenture  to the extent
provided  therein.  The  Sponsor  will  provide a copy of the  Declaration,  the
Guarantee,  and the Indenture to the Holder without charge upon written  request
to the Sponsor at its principal place of business.

         Upon receipt of this Security,  the Holder is bound by the  Declaration
and is entitled to the benefits thereunder.

         By acceptance of this Security,  the Holder agrees to treat, for United
States  federal  income tax purposes,  the  Debentures as  indebtedness  and the
Capital Securities as evidence of beneficial ownership in the Debentures.

         This  Capital  Security  is  governed  by,  and shall be  construed  in
accordance with, the laws of the State of Delaware, without regard to principles
of conflict of laws.

                       SIGNATURES APPEAR ON FOLLOWING PAGE

<PAGE>

         IN WITNESS WHEREOF, the Trust has duly executed this certificate.

                                         Tower Group STATUTORY TRUST III

                                         By:   /s/  Francis M. Colalucci
                                            --------------------------------
                                              Name:   Francis M. Colalucci
                                              Title:  Administrator

                          CERTIFICATE OF AUTHENTICATION

         This   is  one  of  the   Capital   Securities   referred   to  in  the
within-mentioned Declaration.

                                         WILMINGTON TRUST COMPANY,
                                         as the Institutional Trustee

                                         By:  /s/  C. Slaybaugh
                                            --------------------------------
                                                Authorized Officer

<PAGE>

                          [REVERSE OF CAPITAL SECURITY]

         Distributions  payable on each Capital  Security  will be payable at an
annual rate equal to 7.40%  beginning  on (and  including)  the date of original
issuance and ending on (but  excluding) the  Distribution  Payment Date (defined
herein)  in  December  2009 and at an  annual  rate for each  successive  period
beginning on (and  including)  December 2009, and each  succeeding  Distribution
Payment Date,  commencing on the  Distribution  Payment Date in March 2005,  and
ending on (but  excluding) the next succeeding  Distribution  Payment Date (each
such period,  a "Distribution  Period"),  equal to 3-Month LIBOR,  determined as
described  below,  plus  3.40%  (the  "Coupon  Rate"),  applied  to  the  stated
liquidation  amount of $1,000.00 per Capital Security,  such rate being the rate
of interest payable on the Debentures to be held by the  Institutional  Trustee.
Distributions in arrears will bear interest thereon compounded  quarterly at the
Distribution  Rate  (to the  extent  permitted  by  applicable  law).  The  term
"Distributions"  as used herein includes payments of cash  distributions and any
such compounded  distributions and any Additional Sums payable on the Debentures
unless  otherwise  noted.  A  Distribution  is payable  only to the extent  that
payments are made in respect of the Debentures held by the Institutional Trustee
and to the extent the  Institutional  Trustee has funds available  therefor.  As
used herein, "Determination Date" means the date that is two London Banking Days
(i.e.,  a  business  day in which  dealings  in  deposits  in U.S.  dollars  are
transacted in the London  interbank  market)  preceding the  commencement of the
relevant Distribution Period. The amount of the Distribution payable (i) for any
Distribution  Period  commencing  on or after the date of original  issuance but
before the  Distribution  Payment Date in December  2009 will be computed on the
basis of a 360-day year of twelve 30-day months,  and (ii) for the  Distribution
Period commencing on or after the Distribution Payment Date in December 2009 and
each succeeding Distribution Period will be computed on the Distribution Rate to
the  stated   liquidation   amount   outstanding  at  the  commencement  of  the
Distribution  Period and  multiplying  each such amount by the actual  number of
days in the Distribution Period concerned divided by 360.

         "3-Month  LIBOR" as used  herein,  means the London  interbank  offered
interest rate for three-month  U.S. dollar deposits  determined by the Debenture
Trustee  in the  following  order  of  priority:  (i) the rate  (expressed  as a
percentage per annum) for U.S.  dollar  deposits  having a three-month  maturity
that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related
Determination  Date ("Telerate Page 3750" means the display  designated as "Page
3750" on the Dow Jones  Telerate  Service or such other page as may replace Page
3750 on that  service or such other  service or services as may be  nominated by
the British  Bankers'  Association as the information  vendor for the purpose of
displaying  London interbank  offered rates for U.S. dollar  deposits);  (ii) if
such rate cannot be identified on the related  Determination Date, the Debenture
Trustee will request the principal  London  offices of four leading banks in the
London interbank market to provide such banks' offered quotations  (expressed as
percentages  per annum) to prime banks in the London  interbank  market for U.S.
dollar deposits having a three-month  maturity as of 11:00 a.m. (London time) on
such Determination  Date. If at least two such quotations are provided,  3-Month
LIBOR will be the arithmetic  mean of such  quotations;  (iii) if fewer than two
such  quotations  are provided as requested in clause (ii) above,  the Debenture
Trustee  will  request  four major New York City banks to  provide  such  banks'
offered  quotations  (expressed as  percentages  per annum) to leading  European
banks  for  loans  in U.S.  dollars  as of  11:00  a.m.  (London  time)  on such
Determination Date. If at least two such quotations are provided,  3-Month LIBOR
will be the arithmetic mean of such quotations;  and (iv) if fewer than two such
quotations  are provided as requested in clause (iii) above,  3-Month LIBOR will
be  a  3-Month  LIBOR  determined  with  respect  to  the  Distribution   Period
immediately  preceding such current  Distribution  Period.  If the rate for U.S.
dollar deposits having a three-month maturity that initially appears on Telerate
Page 3750 as of 11:00 a.m.  (London time) on the related  Determination  Date is
superseded on the Telerate  Page 3750 by a corrected  rate by 12:00 noon (London
time) on such  Determination  Date, then the corrected rate as so substituted on
the applicable page will be the applicable  3-Month LIBOR for such Determination
Date.
<PAGE>

         "Interest  Rate" means for the period  beginning on (and including) the
date of original issuance and ending on (but excluding) the Distribution Payment
Date in  December  2009 the rate per  annum of 7.40%  and for each  Distribution
Period thereafter, the Coupon Rate.

         The Interest Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be modified
by United States law.

         All  percentages   resulting  from  any  calculations  on  the  Capital
Securities will be rounded, if necessary,  to the nearest one hundred-thousandth
of a percentage  point,  with five  one-millionths of a percentage point rounded
upward (e.g.,  9.876545% (or .09876545) being rounded to 9.87655% (or .0987655),
and all  dollar  amounts  used in or  resulting  from such  calculation  will be
rounded to the nearest cent (with one-half cent being rounded upward)).

         Except as  otherwise  described  below,  Distributions  on the  Capital
Securities  will be cumulative,  will accrue from the date of original  issuance
and will be payable  quarterly in arrears on March 15, June 15, September 15 and
December  15 of each year or if such day is not a  Business  Day,  then the next
succeeding  Business  Day (each  such  date,  a  "Distribution  Payment  Date"),
commencing on the Distribution  Payment Date in March 2005. The Debenture Issuer
has the  right  under  the  Indenture  to  defer  payments  of  interest  on the
Debentures,  so long as no  Indenture  Event  of  Default  has  occurred  and is
continuing,  by extending the interest  payment  period for up to 20 consecutive
quarterly periods (each an "Extension Period") at any time and from time to time
on the  Debentures,  subject to the  conditions  described  below,  during which
Extension  Period no interest  shall be due and  payable.  During any  Extension
Period, interest will continue to accrue on the Debentures, and interest on such
accrued interest will accrue at an annual rate equal to the Distribution Rate in
effect for each such Extension Period,  compounded  quarterly from the date such
interest  would have been payable were it not for the Extension  Period,  to the
extent  permitted  by law (such  interest  referred  to  herein  as  "Additional
Interest").  No  Extension  Period may end on a date  other than a  Distribution
Payment Date. At the end of any such Extension Period the Debenture Issuer shall
pay all  interest  then  accrued  and unpaid on the  Debentures  (together  with
Additional Interest thereon);  PROVIDED,  HOWEVER,  that no Extension Period may
extend  beyond the Maturity  Date.  Prior to the  termination  of any  Extension
Period, the Debenture Issuer may further extend such period,  provided that such
period  together  with all such  previous  and  further  consecutive  extensions
thereof shall not exceed 20 consecutive  quarterly periods, or extend beyond the
Maturity Date. Upon the termination of any Extension Period and upon the payment
of all accrued and unpaid interest and Additional Interest, the Debenture Issuer
may commence a new Extension Period, subject to the foregoing  requirements.  No
interest or  Additional  Interest  shall be due and payable  during an Extension
Period,  except at the end thereof,  but each installment of interest that would
otherwise  have been due and payable  during such  Extension  Period  shall bear
Additional Interest.  During any Extension Period,  Distributions on the Capital
Securities  shall be deferred for a period  equal to the  Extension  Period.  If

<PAGE>

Distributions are deferred, the Distributions due shall be paid on the date that
the related  Extension Period  terminates,  to Holders of the Securities as they
appear on the books and  records  of the Trust on the  record  date  immediately
preceding such date.  Distributions  on the Securities must be paid on the dates
payable  (after giving  effect to any  Extension  Period) to the extent that the
Trust has funds available for the payment of such  distributions in the Property
Account of the Trust.  The  Trust's  funds  available  for  Distribution  to the
Holders  of the  Securities  will be  limited  to  payments  received  from  the
Debenture  Issuer.  The payment of Distributions out of moneys held by the Trust
is guaranteed by the Guarantor pursuant to the Guarantee.

         The  Capital   Securities  shall  be  redeemable  as  provided  in  the
Declaration.

<PAGE>

                                   ASSIGNMENT

         FOR VALUE RECEIVED,  the undersigned assigns and transfers this Capital
Security Certificate to:

         -------------------------------------------------------------------

         (Insert assignee's social security or tax identification number)

         -------------------------------------------------------------------

         -------------------------------------------------------------------

         -------------------------------------------------------------------

         (Insert address and zip code of assignee) and irrevocably appoints

         -------------------------------------------------------------------

         agent to transfer this Capital Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.

         Date:
              ---------------------------------------

         Signature:
                   ----------------------------------

         (Sign  exactly as your name  appears on the other side of this  Capital
Security Certificate)

Signature Guarantee:(1)

--------
(1)      Signature  must be  guaranteed by an "eligible  guarantor  institution"
         that is a bank,  stockbroker,  savings and loan  association  or credit
         union  meeting  the  requirements  of  the  Security  registrar,  which
         requirements  include  membership or  participation  in the  Securities
         Transfer Agents  Medallion  Program  ("STAMP") or such other "signature
         guarantee  program" as may be determined  by the Security  registrar in
         addition to, or in substitution  for, STAMP, all in accordance with the
         Securities Exchange Act of 1934, as amended.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}]]