Document:

Exhibit 10.31

STOCK PURCHASE AGREEMENT

BY AND BETWEEN

TOWER GROUP, INC.

AND

CASTLEPOINT MANAGEMENT CORP.

Dated as of October 30 , 2006

 

 

STOCK
PURCHASE AGREEMENT

This
Agreement is entered into as of October 30, 2006, by and between Tower Group,
Inc. (the “Seller”), a Delaware corporation, and CastlePoint Management Corp.,
a Delaware corporation (the “Buyer”). The Seller and the Buyer are referred to
collectively herein as the “Parties.”

WHEREAS,
the Seller owns all of the issued and outstanding shares of the common capital
stock of Tower Indemnity Company of America, a New York property and casualty
insurance company (“TICA”).

WHEREAS,
this Agreement contemplates a transaction in which the Buyer will purchase from
the Seller, and the Seller will sell to the Buyer, all of the issued and
outstanding shares of the common voting capital stock of TICA.

NOW,
THEREFORE, in consideration of the premises and the mutual promises herein
made, and in consideration of the representations, warranties, and covenants
herein contained, and for other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the Parties agree as
follows:

ARTICLE
I            DEFINITIONS

“Acceptable
Financial Assets” means only the following kinds of assets which shall be
valued at their Market Value: (i) cash and Cash Equivalents; (ii) assets upon
which the Buyer and the Seller specifically agree; and (iii) existing deposits
of cash, securities or other assets with state insurance departments listed on
Schedule 4.1(q)(5), other than those specifically indicated on such schedule as
objected to by the Buyer.

 “Affiliate” has the meaning set forth
in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

“Affiliated
Group” means any affiliated group within the meaning of Code § 1504(a).

“Business
Day” means any day other than a Saturday, Sunday, a day on which banking
institutions in the State of New York are permitted or obligated by law to be
closed or a day on which the New York Stock Exchange is closed for trading.

“Buyer”
has the meaning set forth in the preface above.

“Cash
Equivalent” shall mean United States Treasury obligations or senior
corporate debt obligations issued by entities rated “AAA” or its equivalent by
one or more nationally recognized rating organizations, in each case having a
remaining duration to maturity of less than six (6) months.

“Claim
Notice” shall have the meaning set forth in Section 10.03 below.

“Closing” has the meaning set forth in
Section 2.02 below.

 

 

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

“Confidential
Information” means any information concerning the businesses and affairs of
TICA, the Seller and its Subsidiaries that is not already generally available
to the public.

“Deposit”
has the meaning set forth in Section 4.1(s)(5) below.

 “GAAP” means United States generally
accepted accounting principles as in effect from time to time.

“Hart-Scott-Rodino
Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.

“Income
Tax” means any federal, state, local, or foreign income tax, including any
interest, penalty, or addition thereto, whether disputed or not.

“Income
Tax Return” means any return, declaration, report, claim for refund, or
information return or statement relating to Income Taxes, including any
schedule or attachment thereto.

“Indemnified
Party” has the meaning set forth in Section 10.03 below.

“Indemnitor”
has the meaning set forth in Section 10.03 below.

“Information”
shall have the meaning set forth in Article 14 below.

“Loss”
means, with respect to any Person, all claims, losses, liabilities, damages,
deficiencies, obligations, costs or expenses, penalties and reasonable
attorneys’ fees and disbursements incurred by such Person.

“Market
Value” means the closing price for each security or investment held by TICA
as published in the Wall Street Journal
or in a mutually acceptable alternative public source on a particular date.

“Ordinary
Course of Business” means the ordinary course of business consistent with
past custom and practice (including with respect to quantity and frequency).

“Party” has the meaning set
forth in the preface above.

“Person”
means an individual, a partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).

“Policies”
has the meaning set forth in § 4.01(s)(2) below.

“Purchase
Price” has the meaning set forth in Section 2.01 below.

“Related Transactions” means the
Transactions as provided in Article 3 hereof, if any.

 

 

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“SAP”
means statutory accounting principles prescribed or permitted by the State of New
York Insurance Department with respect to TICA

“Securities
Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Seller”
has the meaning set forth in the preface above.

“Shares”
means the shares of the common stock of TICA.

“Statutory
Financial Statements” has the meaning set forth in Section 4.01(h) below.

“Tax”
or “Taxes” means all federal, state, local, foreign and other net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments or charges of any
kind whatever, together with any interest and any penalties, additions to tax
or additional amounts with respect thereto.

ARTICLE II           PURCHASE AND SALE OF TARGET SHARES

Section
2.01           Transaction. On and
subject to the terms and conditions of this Agreement, the Buyer agrees to
purchase from Seller, and the Seller agrees to sell to the Buyer, all of the
Shares for the following consideration. The Buyer agrees to pay to the Seller
an amount equal to the sum of (i) the aggregate amount of TICA’s statutory
capital and surplus as of the Closing Date, plus (ii) $225,000 (the
actual cost to Seller) plus (iii) $125,000 representing additional
reasonable costs, legal and otherwise, incurred by Seller in having its
acquisition of TICA approved by the New York and New Jersey Insurance
Departments (the “Purchase Price”). For purposes of calculating the Purchase
Price, TICA’s statutory capital and surplus shall be determined in accordance
with SAP taking into account completion of the Related Transactions, except
that the TICA’s investment assets shall be valued at their Market Value as of
three (3) days prior to the Closing. At the Closing, in exchange for the Seller’s
delivery to the Buyer of the Shares, the Buyer shall pay to the Seller the
Purchase Price by wire transfer of immediately available funds to a bank
account designated by the Seller.

Section
2.02           The Closing. The closing
of the purchase of Shares shall take place at the offices of Seller in New
York, New York, commencing at 9:00 a.m. local time on the fifth Business Day
immediately following the satisfaction or waiver of all conditions precedent
set forth in this Agreement (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as
otherwise agreed by the Seller and the Buyer as they may mutually determine
(the “Closing”).

Section 2.03           Deliveries at the Closing. At
the Closing, (i) TICA or the Seller, as the case may be, will deliver to the
Buyer the various certificates, instruments, and documents referred to in
Article 7 below, (ii) the Buyer will deliver to TICA or the Seller, as the case
may be, the various certificates, instruments, and documents referred to in
Article 8 below, (iii) TICA and the Seller, as the case may be, will deliver to
the Buyer stock certificates representing all of the Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the

 

 

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Buyer will deliver to TICA or the Seller, as the case may
be, the consideration specified in Section 2.01 above.

ARTICLE III          RELATED TRANSACTIONS

Subject to the additional
conditions precedent set forth in Article 5 of this Agreement, the obligation
of the Buyer to consummate the purchase of the Shares is subject to and
conditioned upon completion of the following transactions in form and substance
reasonably satisfactory to the Buyer (hereinafter sometimes collectively
referred to as the “Related Transactions”):

Section
3.01           Absence of Liabilities
The Seller and the Buyer acknowledge and agree that it is their mutual intent
that TICA as the Closing shall have no liabilities or obligations whatsoever,
including policy obligations.

ARTICLE IV          REPRESENTATIONS
AND WARRANTIES CONCERNING THE TRANSACTION

Section
4.01           Representations and
Warranties of the Seller. The Seller represents and warrants to the Buyer
that the statements contained in this Section 4.01 are correct and complete as
of the date of this Agreement and will be correct and complete as of the
Closing (as though made then and as though the date of Closing was substituted
for the date of this Agreement throughout this Section 4.01).

a.                           Organization of the Seller.
The Seller is a business corporation duly organized, validly existing and in
good standing under the laws of Delaware and has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder, to own, hold, sell and transfer the Shares and to consummate the
transactions contemplated hereby.

b.                          Authorization of Transactions.
The execution, delivery, and compliance with the terms of this Agreement by the
Seller and the performance by the Seller of its obligations hereunder have been
duly and validly authorized by all necessary corporate action on the part of
the Seller. Subject to the governmental consents referred to in Section 5.02
below, this Agreement constitutes a legal, valid, and binding obligation of the
Seller and is enforceable against the Seller in accordance with its terms; provided,
however, that the enforceability of the rights and remedies provided in
this Agreement is subject to any applicable bankruptcy, reorganization,
insolvency, moratorium, or similar laws affecting generally the enforcement of
creditors’ rights and to general principles of equity (whether or not
considered in a court of law or equity), and is subject to the approvals.

c.                           Organization of TICA.
TICA is a corporation duly organized, validly existing and in good standing
under the laws of New York, duly authorized under its charter and under
applicable laws to engage in the business of insurance and to own, operate and
lease its properties.

d.                          Noncontravention.
Neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other

 

 

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                                    restriction of any government, governmental agency, or court
to which the Seller or TICA are subject and any provision of the Seller or TICA
charters or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Seller or TICA is a party or by which it is bound or to which any of its
assets is subject.

e.                           Brokers’ Fees.
The Seller has no liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.

f.                             Shares. The
authorized capital stock of TICA consists solely of 100,000 shares of common
stock, par value $40.00 per share, of which 100,000 shares are issued and
outstanding. All of the Shares are duly authorized, validly issued,
outstanding, fully paid and non-assessable. There are no outstanding
securities, obligations, rights, subscriptions, warrants, options, phantom
stock rights, calls, commitments or demands of any character or (except for
this Agreement) other contracts of any kind that give any Person the right to (i)
purchase or otherwise receive or be issued any shares of capital stock of TICA
or any security or liability of any kind convertible into or exchangeable for
any shares of capital stock of TICA or (ii) receive any benefits or rights
similar to any rights enjoyed by or accruing to a holder of the Shares, or any
rights to participate in the equity, income or election of directors or
officers of TICA. No other classes of stock of TICA exist.

g.                          Title to Shares.
The Seller has good and marketable title to the Shares free and clear of all
Liens and, upon delivery of the Shares to the Buyer pursuant to Section 2.03
hereof, the Buyer will acquire good title thereto, free and clear of any Lien.

h.                          Financial Statements.
The Seller has furnished to the Buyer true and complete copies of the following financial statements:

TICA’s
unaudited statutory financial statements as of and for the quarter ended June
30, 2006 (together with the notes relating thereto, whether or not included
therein) as filed with or submitted to the insurance regulatory authority in
New York on forms prescribed or permitted by such authority (collectively, the “Statutory
Financial Statements”). Each such Statutory Financial Statement complied in
all material respects with all applicable laws, statutes, rules and regulations
when so filed, and all material deficiencies with respect to any such Statutory
Financial Statement have been cured or corrected. Each such Statutory Financial
Statement, including without limitation, each balance sheet and each of the
statements of operations, capital and surplus account and cash flow contained
therein was prepared in accordance with SAP applied on a basis and in a manner
consistent with prior periods except as disclosed in the notes thereto, and
fairly represents the financial condition as of the respective date thereof,
and the results of operations and changes in capital and surplus and cash flow
for and during the respective period covered thereby, of TICA. The Seller has
disclosed to the Buyer all accounting principles or practices used in preparing
the Statutory

 

 

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Financial
Statements for which TICA has requested approval or received permission from
the State of New York Insurance Department.

i.                              Securities and Assets.
TICA has good and valid title to the respective stocks, debentures, notes, and other
securities and assets owned, leased or held by it on the date of this
Agreement.

j.                              Real Property.
TICA does not currently have any ownership interest, security interest,
leasehold interest or other interest of any kind in any real property whatsoever.
Seller has no knowledge of any ownership interest in real property prior to its
acquisition by Seller.

k.                           Absence of Changes.
Since TICA’s acquisition by Seller on June 29, 2006 the Seller has not caused TICA
to be engaged in business operations and there has not been, occurred, or
arisen any change in, or any event (including without limitation any damage,
destruction, or Loss whether or not covered by insurance), condition, or state
of facts of any character that individually or in the aggregate has or may
reasonably be expected to have a material adverse effect (financial or
otherwise) on TICA.

l.                              No Undisclosed Liabilities.
Except to the extent specifically reflected in the balance sheet included in
the Statutory Financial Statements of TICA (or in the notes relating thereto),
there were and will be no liabilities, indebtedness or obligations of any
nature against, relating to, or affecting TICA as of the respective dates of
such Statutory Financial Statements.

m.                        Liabilities at Closing.
 TICA has no liabilities or obligations
of any nature, whether absolute, accrued, contingent or otherwise or whether
due or to become due, on the Closing, except as reflected in its financial
statements and incurred in the ordinary course of business.

n.                          No Benefit Plans or Employees.
TICA has not adopted, maintained, sponsored or participated in any pension,
welfare, bonus, deferred compensation, incentive compensation, profit sharing,
stock, retirement, 401(k) or other benefit plan or arrangement, or any group
term life insurance, group health insurance or group dental plans, for or
involving any of its officers, directors, employees, consultants, or other
representatives. TICA has no employees, nor does TICA have any contract which
constitutes an employment agreement, severance agreement, consulting agreement
or personal service contract.

o.                          Intercompany Liabilities.
There are no outstanding liabilities or contracts between or among TICA and the
Seller or any other Affiliate of the Seller, except as reflected in its financial
statements and incurred in the ordinary course of business.

p.                          Taxes. Since
June 29, 2006 all Tax returns required to be filed with respect to TICA with
the federal government, with any state or with any other jurisdiction have been
duly and timely filed, and all such Tax returns are true, correct and complete
in all material respects. Since June 29, 2006 TICA (i) has duly and timely paid
(or has caused payment to be made on its behalf pursuant to a consolidated
return) all Taxes, penalties, interest, additions to Tax, and assessments that
are due, or claimed or asserted by any taxing authority to be due,

 

 

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                                    from TICA for the periods covered by such returns or (ii)
has duly and fully provided for such Taxes, in accordance with SAP, in the
books and records of TICA, including without limitation, in TICA’s Statutory
Financial Statements described in Section 4.01(h) hereof. There are no waivers
or agreements by TICA for the extension of time for the assessment of Taxes. None
of the Tax returns and reports relating to TICA required to be filed with the
federal government, with any state or with any other jurisdiction or
governmental authority have been audited by the Internal Revenue Service or
other appropriate governmental agency or closed by applicable statutes of
limitations. With respect to any period of time ending on or prior to the
Closing Date for which Tax returns or reports have not yet been filed, or for
which Taxes are not yet due or owing, TICA has established adequate reserves
for all Tax liabilities as reflected in TICA’s Statutory Financial Statements. To
the best of the Seller’s knowledge, information and belief, on and after the
Closing Date, TICA will have no liability for Taxes for any period ending on or
prior to the Closing Date or resulting from TICA’s withdrawal from any
consolidated Tax return. TICA will file or will cause to be filed all federal,
state and local Tax returns and reports due before Closing and pay (or cause to
be paid pursuant to a consolidated return) all Taxes required to be paid by TICA
pursuant to such returns. All such returns will be true, correct and complete
in all material respects. There are no Liens with respect to Taxes upon any of
the assets or properties of TICA other than statutory Tax Liens for Taxes not
yet due.

q.                          Pending Suits and Proceedings.
Except as set forth in Schedule 4.01(q), there are no actions, suits, claims,
or investigations pending or, to the Seller’s or TICA’s knowledge, threatened,
nor any legal, administrative or arbitration proceedings pending or to its
knowledge threatened, nor is there any outstanding order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal against the
Seller or TICA which (i) would restrain, enjoin, prohibit or in any way impair
the ability of the Seller to consummate any of the transactions contemplated
herein, (ii) could be expected to have a material adverse effect on TICA, or (iii)
could restrict TICA’s conduct of its businesses or require it to take or
refrain from taking any action.

r.                             Compliance with Laws.
To the best of seller’s knowledge, TICA has not been and is not in violation
(or with or without notice or lapse of time or both, would be in material
violation) of any term or provision of any law, statute, rule or regulation or
any writ, judgment, decree, injunction, or similar order applicable to TICA or
any of its assets or properties.

s.                           Licenses and Permits.
TICA possesses a license, certificate of authority, permit or other
authorization to transact insurance or reinsurance (a “Certificate of Authority”)
in New York and New Jersey. Schedule 4.1(s) contains a complete list of the lines
of business in each state. The Certificate of Authority for New York is in full
force and effect; the Certificate of Authority for New Jersey is currently
limited. TICA has not breached any provision of, and is not in default of the
terms of, and has not engaged in any activity which would cause revocation or
suspension of, any such Certificate of Authority. Neither the Seller nor TICA
is aware of or have received any notice of any event, inquiry, investigation or
proceeding that would reasonably be expected to result in the suspension,
revocation or additional limitation of any such Certificate of Authority, and
to the knowledge of the Seller and TICA, there is no sustainable basis for any
such suspension, revocation or additional limitation. TICA is not currently the
subject of any investigation, supervision,

 

 

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                                    conservation, rehabilitation, liquidation, receivership,
insolvency or other similar proceeding.

t.                             Forms and Rates. TICA has no
filed and approved policy forms or rates. Except as set forth in Schedule 4.01(t),
to the knowledge of the Seller, TICA is in compliance with all applicable
insurance laws regulating the practices of marketing and selling the insurance
policies it is licensed to issue.

u.                          Guaranty Funds. Since its
acquisition by Seller, TICA has (i) timely paid all guaranty fund assessments
that are due, or claimed or asserted by any insurance regulatory authority to
be due from it, or (ii) provided for all such assessments in its respective
financial statements to the extent necessary to be in conformity in all
material respects with SAP.

v.                          State Deposits. All state deposits are
accurately reflected in the financial statements.

w.                        Reinsurance.
There are no current reinsurance agreements or treaties in effect.

x.                            Contracts.
Schedule 4.01(x) sets forth a list of all known material contracts, agreements
and commitments (including undertakings or commitments to any governmental or
regulatory authority) and all other contracts, agreements and commitments to
which TICA is a party or by which any of its assets or properties are bound or
subject which are in force or under which it may have any liability after
Closing.

y.                          Corporate Records.
The Seller has provided the Buyer with full and complete copies of TICA
certificates of incorporation, bylaws, stock record books and the corporate
minutes and all amendments thereto, all of which are correct and complete in
all material respects and accurately reflect all proceedings of the
shareholders and directors of TICA (and all committees thereof). The stock
record book of TICA contains complete and accurate records of the stock
ownership of TICA and the transfer of shares of its capital stock.

z.                            Consents and Approvals of Governmental Authorities. Except for the consents and approvals listed in Section 5.02
below, no consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required to be
obtained or made by the Seller or TICA in connection with the Seller’s
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein by the Seller.

aa.                     Powers of Attorney.
TICA has not granted any currently effective power of attorney to any person.

bb.                   Bank, Money Market and Brokerage Accounts. Set forth in Schedule 4.01(bb) is a true, correct and
complete list showing the name and address of each banking institution, mutual
fund or stock brokerage firm with which TICA has an account or safe deposit
box, the account numbers or box numbers relating thereto, and the name of each
person authorized to draw thereon or have access thereto. There are no credit
cards issued to any present or past officer, employee or agent of TICA under
which TICA has any current or potential future liability.

 

 

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cc.                     Tax-Sharing or Allocation Agreements. Except as set forth in Schedule 4.01(cc), TICA is not a
party to, nor is it bound by, any Tax indemnity, Tax sharing or Tax allocation
agreements.

dd.                   Tax Elections.
All elections, if any, with respect to Taxes affecting TICA are set forth in
Schedule 4.01(dd).

ee.                     Disclosure.
To the best of Seller’s knowledge, no material representation or warranty by
the Seller contained in this Agreement nor any exhibit, schedule, statement,
certificate or other instrument furnished or to be furnished by or on behalf of
the Seller to the Buyer or its representatives in connection herewith or
pursuant hereto contains or will contain any untrue statement of a material
fact, or omits or will omit to state any material fact required to make any
statement contained herein or therein not materially misleading.

Section
4.02           Representations  and
Warranties  of  the  Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this Section 4.02 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4.02).

a.                           Organization of the Buyer.
The Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.

b.                          Authorization of Transaction.
The execution, delivery, and compliance with the terms of this Agreement by the
Buyer and the performance by the Buyer of its obligations hereunder have been
duly and validly authorized by all necessary corporate action on the part of
the Buyer. This Agreement constitutes a legal, valid, and binding obligation of
the Buyer and is enforceable against the Buyer in accordance with its terms: provided,
however, that the enforceability of the rights and remedies provided in
this Agreement is subject to any applicable bankruptcy, reorganization,
insolvency, moratorium, or similar laws affecting generally the enforcement of
creditors’ rights and to general principles of equity (whether or not
considered in a court of law or equity).

c.                           Noncontravention.
Neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject.

d.                          Brokers’ Fees.
The Buyer has no liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement for which the Seller could become liable or obligated.

 

 

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e.                           Investment.
The Buyer is acquiring the Shares for its own account for investment only, with
no present intention of reselling or otherwise disposing of all or any portion
of the Shares in a manner which would constitute a violation of the federal or
applicable state securities laws and regulations.

ARTICLE V           PRE-CLOSING COVENANTS

The Parties agree as follows
with respect to the period between the execution of this Agreement and the
Closing.

Section
5.01           General. Each of the
Parties will use its reasonable best efforts to take all action and to do all
things necessary, proper, or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Articles 7
and 8 below).

Section
5.02           Notices and Consents.
Each of the Parties will give any notices to, make any filings with, and use
its reasonable best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in Article 2 and Article 3 above. The Seller and TICA shall
reasonably assist the Buyer, at the Buyer’s expense, in its preparation and
filing of any required applications to acquire TICA. The Buyer will (i) take
all commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all commercially reasonable efforts to
obtain as promptly as practicable, all consents, approvals, authorizations, and
clearances required of the Buyer to consummate the transactions contemplated
hereby, (ii) provide such other information and communications as may
reasonably be requested in connection therewith, and (iii) cooperate with the
Seller in obtaining, as promptly as practicable, all approvals, consents,
authorizations, and clearances required of the Seller to consummate the transactions
contemplated hereby

Section
5.03           Operation of Business.
The Seller will cause TICA to operate its businesses so as not to incur any new
material liabilities, except as expressly contemplated herein.

Section 5.04           Full
Access. The Seller and
TICA will permit representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of TICA, to all premises, properties, personnel, books,
records (including tax records), contracts, and documents of or pertaining to TICA.
The Buyer will treat and hold as confidential any Confidential Information it
receives from any of the Seller and TICA in the course of the reviews
contemplated by this Section 5.04, will not use any of the Confidential
Information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, will return to the Seller and TICA all
tangible embodiments (and all copies) of the Confidential Information which are
in its possession.

Section
5.05           Notice and Cure.

a.                           The Seller will notify the Buyer promptly in writing of, and
contemporaneously will provide the Buyer with true and complete copies of any
and all information or documents relating to, and will use commercially reasonable
efforts to cure before the Closing, any event, transaction, or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of the Seller under this Agreement to be breached, or

 

 

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                                    that renders or will render untrue any representation or
warranty of the Seller contained in this Agreement as if the same were made on
or as of the date of such event, transaction or circumstance.

b.                          The Buyer will notify the Seller and TICA promptly in
writing of, and contemporaneously will provide the Seller and TICA with true
and complete copies of any and all information or documents relating to, and
will use commercially reasonable efforts to cure before the Closing, any event,
transaction, or circumstance occurring after the date of this Agreement that
causes or will cause any covenant or agreement of the Buyer under this
Agreement to be breached, or that renders or will render untrue any
representation or warranty of the Buyer contained in this Agreement as if the
same were made on or as of the date of such event, transaction or circumstance.

Section 5.06           Financial Statements and Reports. As promptly as
practicable, the Seller will deliver to the Buyer true and complete copies of
such financial statements, reports, or analyses as may be prepared or received
by the Seller, TICA, or any other Affiliate of TICA to the extent such
financial statements relate to TICA businesses, operations, or affairs,
including without limitation, quarterly statements, normal internal reports
(such as those reflecting monthly cash flow), and special reports (such as
those of consultants) relating to TICA business operations and affairs. It is
expected that the only such financial statements will be quarterly statements
prepared for insurance regulatory authorities. Each such financial statement,
report and analysis, including without limitation, each balance sheet and each
of the statements of operations, capital and surplus account and cash flow
contained therein, and any internal reports or special reports, shall be
prepared in accordance with SAP or GAAP, as applicable, applied on a basis and
in a manner consistent with prior periods except as disclosed in the footnotes
thereto, shall be true and complete in all material respects, and shall fairly
represent the financial condition as of the respective date thereof, and the
results of operations and changes in capital and surplus and in cash flow for
and during the respective period covered thereby, of the Seller, TICA or the
Affiliate, whichever is applicable.

Section
5.07           No Charter Amendments.
Except to the extent necessary to complete the change of TICA’s name to Tower
Indemnity Company of America from MIIX Insurance Company of New York, the
Seller will cause TICA to refrain from amending its certificate of
incorporation or bylaws and from taking any action with respect to any such
amendment without first having obtained the Buyer’s written consent thereto.

Section
5.08           No Issuance of Securities.
The Seller will cause TICA to refrain from authorizing or issuing any shares of
their capital stock or other equity securities or entering into any contract or
granting any option, warrant, or right calling for the authorization or
issuance of any such shares or other equity securities, or creating or issuing
any securities directly or indirectly convertible
into or exchangeable for any such shares or other equity securities, or issuing
any options, warrants, or rights to purchase any such convertible securities.

Section 5.09           No Dividends. The Seller will
cause TICA to refrain from declaring, setting aside, or paying any dividend or
other distribution in respect of the capital stock of TICA and from directly or
indirectly redeeming, purchasing, or otherwise acquiring any capital stock of TICA
or any interest in or right to acquire any such stock.

 

 

11

 

Section
5.10           Resignations of
Directors and Officers. The Seller will cause those members of TICA’s Board
of Directors and Officers as it shall designate on Schedule 5.10 to tender,
effective as of the Closing Date, their resignations from TICA’s Board of
Directors or as officers of TICA.

Section
5.11           Intercompany Balances
and Agreements. As of or prior to the Closing, the Seller shall (i) settle,
or cause to be settled, all intercompany balances between TICA, on the one
hand, and the Seller and any of the Seller’s other Affiliates, on the other
hand, if any, and (ii) terminate, or cause to be terminated, each contract
between TICA, on the one hand, and the Seller and any of the Seller’s other
Affiliates, on the other hand, if any.

Section
5.12           Tax Sharing Agreements.
All tax-sharing agreements or similar agreements with respect to or involving TICA
shall be terminated prior to the Closing and, after the Closing, TICA shall not
be bound thereby or have any liability thereunder for amounts due in respect of
periods ending on or prior to the Closing. No new elections with respect to
Taxes or any changes in current elections with respect to Taxes affecting TICA
shall be made after the date of this Agreement without prior written consent of
the Buyer.

Section 5.13           No
New Liens. The Seller will cause TICA to refrain from permitting any assets
or properties of TICA to be subjected to any Liens, except as expressly
contemplated by this Agreement or to the extent any such Lien (i) is made or
incurred in the Ordinary Course of Business and consistent with past practice,
and (ii) does not have and may reasonably be expected not to have, individually
or in the aggregate, any material adverse effect on TICA.

Section 5.14           No
Breach or Default. The Seller will cause TICA to refrain from violating,
breaching or defaulting, and from taking or failing to take any action that
(with or without notice or lapse of time or both) would constitute a violation,
breach or default, in any way under any term of any contract to which TICA is a
party or by which any of the assets or properties of TICA is or may be bound.

Section 5.15           No
Contracts. The Seller will cause TICA to refrain from issuing or entering
into any contract, agreement or other commitment, written or otherwise, except
as expressly contemplated by this Agreement.

Section 5.16           No
Acquisitions. The Seller will cause TICA to refrain from (i) merging,
consolidating or otherwise combining or agreeing to merge, consolidate or
otherwise combine with any other Person, (ii) acquiring or agreeing to acquire
blocks of business or all or substantially all of the assets or properties or
capital stock or other equity securities of any other Person, or (ii) otherwise
acquiring or agreeing to acquire control or ownership of any other Person.

Section 5.17           Company
Accounts. TICA has and will have only one bank account.

Section 5.18           Books and Records. On the
Closing, the Seller will deliver to the Buyer all corporate stock and minute
books of TICA in Seller’s possession and, if (at any time after the Closing)
the Seller discovers in its possession or under its control any other corporate
stock

 

 

12

 

or minute books of TICA, the Seller will forthwith deliver
such corporate stock and books to the Buyer.

Section 5.19           Name
Change. Prior to the Closing, the Buyer and the Seller shall mutually
cooperate and use their respective commercially reasonable efforts to change
the name of TICA effective as of the Closing or at such other time as may be
prescribed by the New York
Department of Insurance. In connection therewith, TICA shall file all necessary
documentation to effectuate such name change as soon as reasonably practicable
following the execution of this Agreement, such documentation to be prepared by
the Buyer. The Buyer shall (i) reimburse the Seller for all costs reasonably
incurred by the Seller in connection with obtaining the approvals of theState
of New York Insurance Department and, and (ii) be responsible for making all
necessary filings to notify regulatory authorities of the name changes in each
state where TICA holds a Certificate of Authority.

ARTICLE VI          CONDITIONS TO OBLIGATION TO CLOSE

Section
6.01           Conditions to Obligation
of the Buyer. The obligation of the Buyer to consummate the transactions to
be performed by it in connection with the Closings is subject to satisfaction
of the following conditions:

a.                           the representations and warranties set forth in Section 4.01
above shall be true and correct in all material respects at and as of each
Closing;

b.                          the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closings, as
applicable;

c.                           there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;

d.                          the Seller shall have delivered to the Buyer a certificate
to the effect that each of the conditions specified above in Section 6.01(a)-(c)
is satisfied in all respects;

e.                           all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act, if applicable, shall have expired or otherwise
been terminated and the Parties and TICA shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 4.01 (u) and Section 5.02 above;

f.                             all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Buyer;

g.                          the Seller shall have tendered the Shares in exchange for
the payment of the Purchase Price as contemplated by Article 2;

h.                          TICA’s Certificate of Authorities shall be valid, in force,
unimpaired and in good standing on the Closing Date, except as set forth in section
4.01s. hereof;

 

 

13

 

i.                              All of the specified members of TICA’s Board of Directors
and officers shall have tendered their written resignations effective as of the
Closing; i

j.                              Each of the Related Transactions shall have been completed
in form and substance reasonably satisfactory to the Buyer; and

k.                           There shall be no obligations of TICA relating to insurance
policies and TICA shall not have conducted business between its acquisition by
Seller and Closing.

The Buyer may waive any
condition specified in this Section 6.01 if it executes a writing so stating at
or prior to the Closing.

Section
6.02           Conditions to Obligation
of the Seller. The obligation of the Seller to consummate the transactions
to be performed by it in connection with the Closing is subject to satisfaction
of the following conditions:

a.                           the representations and warranties set forth in Section 4.02
above shall be true and correct in all material respects at and as of the
Closing;

b.                          the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;

c.                           there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of the transactions
contemplated by this Agreement;

d.                          the Buyer shall have delivered to the Seller a certificate
to the effect that each of the conditions specified above in Section 6.02(a)-(c)
is satisfied in all respects;

e.                           all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act, if applicable, shall have expired or otherwise
been terminated and the Parties and TICA shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 4.01(aa) and Section 5.02 above;

f.                             all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Seller; and

g.                          the Buyer shall have tendered payment of the Purchase Price
in the manner described in Article 2 of this Agreement in exchange for the
Shares.

The Seller may waive any condition specified in this Section 6.02 if it
executes a writing so stating at or prior to the Closing.

 

 

14

 

ARTICLE VII        SELLER’S CLOSING DELIVERIES

At the Closing, the Seller
will deliver to the Buyer the following items against delivery of items
specified in Article 8 below:

Section
7.01           The certificate or
certificates representing the Shares duly endorsed in blank or with stock
powers duly endorsed in blank;

Section
7.02           A certificate executed by
the President or other duly authorized officer of the Seller certifying that
all corporate action on the part of the Seller necessary to authorize the
execution, delivery and performance of this Agreement and the transactions
contemplated thereunder by the Seller has been duly taken;

Section
7.03           A certificate executed by
the President or other duly authorized officer of the Seller certifying that
(i) all representations and warranties of the Seller are true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of such Closing; and (ii) the Seller has
performed and complied with all of its obligations under this Agreement which
are to be performed or complied with prior to or on the Closing;

Section
7.04           Duly executed resignations
from the specified directors and officers of TICA effective as of the Closing;

Section
7.05           Copies of documents
evidencing that all conditions precedent to the sale of the Shares as set forth
in Article 6 of this Agreement have been satisfied;

Section
7.06           Copies of the documents
evidencing the receipt by the Seller and TICA of the consents and approvals
described in Section 5.02;

Section
7.07           Certificates issued by each
of the regulatory authorities having jurisdiction over TICA evidencing the licensure
and good standing of TICA, except as set forth in section 4.01s. hereof; and

Section
7.08           The minute books (including
the original or a certified copy of the Certificate of Incorporation and
Bylaws), stock record books, and corporate seal of TICA.

ARTICLE VIII       BUYER’S CLOSING DELIVERIES

At the Closing, the Buyer will deliver to the Seller the following
items against delivery of items specified in Article 7 above:

Section
8.01           A certificate executed by
the President or other duly authorized officer of the Buyer certifying that all
corporate action on the part of the Buyer necessary to authorize the execution,
delivery and performance of this Agreement by the Buyer has been duly taken;

Section 8.02           A certificate executed by the
President or other duly authorized officer of the Buyer certifying that (i) all
representations and warranties of the Buyer are true and correct on and as of the
Closing with the same effect as though such representations and warranties had

 

 

15

 

been
made on and as of such Closing; and (ii) the Buyer has performed and complied
with all of its obligations under this Agreement which are to be performed or
complied with prior to or on the Closing;

Section
8.03           Copies of the documents
evidencing the Buyer’s receipt of the consents and approvals described in
Section 5.02; and

Section
8.04           Cash by wire transfer of
immediately available funds for the full amount of the Purchase Price specified
in Section 2.01 of this Agreement.

ARTICLE IX         POST-CLOSING COVENANTS

The Parties agree as follows
with respect to the period following the Closing.

Section
9.01           General. In case at
any time after the Closing any further action is necessary or desirable to
carry out the purposes of this Agreement, each of the Parties will take such
further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at
the sole cost and expense of the requesting Party (unless the requesting Party
is entitled to indemnification therefor under Article 10 below).

Section
9.02           Litigation Support. In
the event and for so long as any Party actively is contesting or defending
against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving TICA, the other Party shall cooperate with it and
its counsel in the defense or contest, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the defense or contest, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article 10
below).

Section
9.03           Cooperation as to Tax
Matters.

a.                           The Seller shall include the income of TICA in the Seller’s
federal consolidated Income Tax Returns for all taxable periods ending on or
before the Closing Date, shall prepare or cause to be prepared in a manner
consistent with past practice and file or cause to be filed on a timely basis
all Tax Returns of TICA for taxable periods ending on or before the Closing
Date, and shall pay all Taxes attributable to such Tax Returns. The Buyer shall
cause TICA to furnish Tax information to the Seller for inclusion in such Tax
Returns in accordance with the Target’s past custom and practice.

b.                          The Buyer shall prepare or cause to be prepared and file or
cause to be filed on a timely basis all Income Tax Returns with respect to TICA
for taxable periods ending after the Closing Date and shall (except as
otherwise provided below) pay all Income Taxes attributable to such Income Tax
Returns.

c.                           The Buyer agrees that, to the extent permitted by applicable
law, it shall not carry back, and shall not cause or permit TICA or any other
Affiliate of the Buyer to carry back, any net

 

 

16

 

                                    operating loss, loss from operations or other Tax attributed
to any Tax year or period of TICA or any Affiliate thereof) including, but not
limited to, any member of any affiliated, combined or unitary group of which TICA
are or were members) ending on or before the Closing Date, or to any Tax period
beginning before and ending after the Closing Date to the extent of the portion
of such period ending on the Closing Date. The Buyer agrees that the Seller
shall not have any obligation under this Agreement to return or remit any
refund or other Tax benefit attributable to a breach by the Buyer of the
foregoing undertaking. Notwithstanding the foregoing, neither the Seller nor
members of its Affiliated Group shall be required to seek for the Buyer’s
account a refund of less than one thousand dollars ($1000) or to take any
action that, in its good faith judgment, might cause it to become materially
involved in a substantive dispute with any Tax authority. Rights and benefits
relating to all other Tax attributes arising from or related to a Pre-Closing
Tax Period shall remain with the Seller. All other refunds with respect to
Income Tax Returns for any period ending on or before the Closing Date shall be
paid to the Seller by the Buyer within thirty (30) business days after the
Buyer or TICA receives such refund in cash or such refund is credited against
the Income Tax liability of the Buyer or TICA.

d.                          If the Seller is responsible for filing an Income Tax Return
which requires the signature of an officer of TICA, the Seller shall present a
completed version of such return for the signature of the officer and shall
supply any support for such return the officer may reasonably request. The
officer shall promptly sign the return and deliver it to the Seller unless such
officer demonstrates a good faith objection to so doing.

e.                           Neither Party will make any Section 338 election.

f.                             The Seller shall be liable, based on applicable statutes,
for and shall pay, and shall hold the Buyer and its Subsidiaries harmless
against any transfer, recordation, stamp, or similar Taxes of any kind required
in the applicable jurisdiction in connection with the effectuation of the
transactions contemplated hereunder and imposed upon the Buyer and its
Subsidiaries.

g.                          The Seller and the Buyer agree that for all federal income
tax purposes the Tax period of TICA which began on January 1, 2006 shall be
terminated as of the close of business on the Closing in accordance with
Treasury Regulations Section 1.1502-76(b)(1).

h.                          The Seller and the Buyer shall provide to each other notice
within ten (10) days of receipt of any audit or similar investigation or
proceeding in which the IRS or any other governmental entity makes or proposes
to make a Tax adjustment to any Tax period which includes any period up to the Closing.
The Seller shall control any such proceeding as to Tax periods ending on or
prior to the Closing, and the Buyer shall control any such proceeding as to Tax
periods beginning after the Closing, provided that, with respect to any such
audit, the other Party or its representative shall have the right, at its expense,
to participate in any such audit or similar investigation. The Parties agree
that they will not settle, compromise or agree to any tax adjustment which
affects or could affect the other Party’s Tax liability without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld. The Parties agree to cooperate with each other for the purposes of
any audit or similar investigation, which cooperation shall include, but not be

 

 

17

 

                                    limited to (i) providing all relevant information that is
available to the Buyer, the Seller and/or the Target, as the case may be, with
respect to such audit or investigation, (ii) making personnel available at
reasonable times, and (iii) preparation and responses to requests for
information, provided that the foregoing shall be done in a manner so as to not
interfere unreasonably with the conduct of business by the Buyer, the Seller or
TICA, as the case may be.

i.                              Miscellaneous Taxes. The Buyer shall be responsible for
filing all miscellaneous Tax returns of TICA required to be filed for taxable
periods ending after the Closing and for paying all such miscellaneous Taxes
shown to be due on such Tax returns (irrespective of whether such Taxes relate
to transactions or events occurring in the pre-Closing Tax period or
post-Closing Tax period). The Seller shall reimburse the Buyer no later than
the date on which such Taxes are required to be paid for all such Taxes but
only to the extent the amount payable is attributable to the pre-Closing Tax
period (including transactions or events occurring during such period). At the
Seller’s request and expense, the Buyer shall cooperate in filing one or more
amended returns or other requests for, and shall promptly pay over to the
Seller, any refund of or credit for miscellaneous Taxes attributable to the
pre-Closing Tax period. For purposes of determining such miscellaneous Taxes
attributable to the period through the Closing, (i) premium Taxes shall be
accrued on the date premiums are written, (ii) ad valorem Taxes (including,
without limitation, real and personal property Taxes) shall be accrued on a
daily basis over the fiscal period of the taxing authority for which the Taxes
are levied irrespective of the lien or assessment date of such Taxes, (iii)
privilege Taxes not measured by sales, gross receipts, wages, expenses or other
similar periodic measures shall be accrued on a daily basis over the period to
which the privilege relates, and (iv) Taxes on, or measured by sales, gross
receipts, wages, expenses or other similar periodic measures shall be accrued
for the period during which the sales, gross receipts, wages, expenses or other
periodic measures are actually earned or accrued (based on an interim closing of
the books as of the close of the Closing Date).

j.                              The Seller and the Buyer shall reasonably cooperate, and
shall cause their respective Affiliates, agents, auditors, representatives,
officers and employees reasonably to cooperate, in preparing and filing all Tax
Returns (including amended returns and claims for refund), including
maintaining and making available to each other all records necessary in
connection with Taxes and in resolving all disputes and audits with respect to
all taxable periods relating to Taxes.

k.                           In the event of an audit or other examination by any
authority with respect to Taxes for which the Seller is responsible under this
Agreement (in whole or in part), the Buyer shall notify the Seller of such
audit or examination and permit representatives of the Seller reasonably
satisfactory to the Buyer to participate in all relevant proceedings, at the
Seller’s expense. In the case of controversies relating to Income Taxes for
periods ending on or before the Closing Date, the Seller may, at its expense,
assume control of such proceedings, but the Buyer shall be entitled to continue
to monitor such proceedings at the Buyer’s expense. The Seller shall not have
the right to settle or compromise such proceedings without the consent of the
Buyer, which shall not be unreasonably withheld, if the settlement or
compromise could affect the Tax liability of TICA after the Closing. The Seller
shall have the right to settle or compromise such proceedings without the
consent of

 

 

18

 

                                    the Buyer provided that the settlement or compromise could
not affect the Tax liability of TICA after the Closing.

l.                              Tax Indemnities.

                                    (i)                                                 The Seller shall be liable for and shall indemnify and hold
harmless the Buyer and TICA from and against any and all damages, losses, Taxes
and expenses arising out of (a) any breach of any of the Seller’s
representations and warranties in Section 4.1(i) or any breach of the Seller’s
covenants in this Section 9.3, and (b) any liability for Taxes of TICA for any
pre-Closing Tax period.

                                    (ii)                                              The Buyer shall indemnify and hold harmless the Seller from
and against any and all damages, losses and expenses arising out of (a) any
breach of any of the Buyer’s covenants in this Section 9.3 or (b) any liability
for Taxes of TICA for any post-Closing Tax period.

Section 9.04           Use
of Company Marks. From and after the Closing, the Buyer shall use its
commercially reasonable efforts to promptly change the name of TICA as
contemplated in Section 3.02 of this Agreement. The Buyer agrees that from and
after the Closing, it shall not, and it shall cause TICA not to, use the names “TICA”
or “Tower Indemnity” in connection with any press release, marketing or
promotional materials utilized or distributed by the Buyer, its Affiliates or
TICA, or on any policies of insurance written or renewed by the Buyer, its
Affiliates or TICA, except to the extent (i) that such name or term is required
to be used on such materials or policies for identification or other purposes pursuant
to applicable law or insurance regulation, or (ii) otherwise consented to by
the Seller in writing.

 

ARTICLE X           INDEMNIFICATIONS

Section
10.01         Indemnification by the Seller.
The Seller agrees to defend, indemnify and hold the Buyer and its respective
shareholders, subsidiaries, Affiliates, officers, directors, employees,
successors and assigns (the “Buyer Indemnitees”), harmless at all times from
and against any and all Loss resulting from or relating in any way to (i) any
inaccuracy or breach of any representation or warranty or breach or
nonfulfillment of any covenants or agreements made by the Seller which is
contained in this Agreement or in any certificate or document furnished by the
Seller pursuant hereto; (ii) TICA operations conducted prior to the Closing,
except as expressly contemplated herein, including any liabilities or
obligations arising from or relating in any way to any insurance or reinsurance
transactions entered into by TICA prior to the Closing, such indemnification to
survive the Closing indefinitely; or (iii) any enforcement of this indemnity.

Section 10.02         Indemnification by the Buyer. The
Buyer agrees to defend, indemnify and hold the Seller and its shareholders,
subsidiaries, Affiliates, officers, directors, employees, successors and
assigns (the “Seller Indemnitees”), harmless at all times from and against any
and all Loss resulting from or relating in any way to any inaccuracy or breach
of any representation or warranty or breach or nonfulfillment of
any covenants or agreements made by the Buyer which

 

 

19

 

is
contained in this Agreement or in any certificate or document furnished by the
Buyer pursuant hereto; or any enforcement of this indemnity.

Section
10.03         Notice of Claims. Any
Party seeking indemnification under this Agreement (the “Indemnified Party”)
shall give to the Party from which indemnification is sought (the “Indemnitor”)
a notice (a “Claim Notice”) describing in reasonable detail the facts
giving rise to any claim for indemnification hereunder and shall include in
such Claim Notice (if then known) the amount or the method of computation of
the amount of such claim, and a reference to the provisions of this Agreement
or any other agreement, document or instrument executed or delivered hereunder
or in connection herewith upon which such claim is based; provided, that a
Claim Notice in respect of any action at law or suit in equity by or against a
third Person as to which indemnification will be sought shall be given promptly
after the action or suit is commenced; and provided further that failure to
give such notice shall not relieve the Indemnitor of its obligations hereunder
except to the extent it shall have been prejudiced by such failure.

Section 10.04         Third-Party Claims. The
Indemnitor shall have ten (10) Business Days after receipt of any Claim Notices
or information necessary to make the Claim Notice complete, relating to any
third Person claim, action or suit (collectively, “Claim”) to notify the
Indemnified Party of its election to conduct and control the defense,
compromise or settlement of such Claim. Unless the Indemnitor gives the
foregoing notice, the Indemnified Party shall have the right to conduct and
control, through counsel of its own choosing, the defense, compromise or
settlement of such Claim, and in any such case the Indemnitor shall cooperate
in connection with such Claim and shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings, trials and
appeals as may be reasonably requested by the Indemnified Party in connection
therewith; provided that, should the Indemnitor fail to timely give notice as
provided above in this Section 10.04, (i) the Indemnitor may, in any event,
participate, through counsel chosen by it and at its own expense, in the
defense of any such Claim and (ii) if the Indemnitor has acknowledged and
agreed in writing that it has an obligation to provide indemnification under
this Agreement for any Loss incurred in connection with or arising from such
Claim, the Indemnitor shall have the right to assume control of the defense,
compromise or settlement of such Claim from the Indemnified Party at any time
by giving written notice of such election to the Indemnified Party. If the Indemnitor
timely gives notice as provided above in this Section 10.04 or assumes control
of the defense, compromise or settlement of any Claim, and in any such case,
the Indemnified Party shall cooperate in connection with such Claim and shall
furnish such records, information and testimony and attend such conferences,
discovery, proceedings, hearings, trials and appeals as may be reasonably
requested by the Indemnitor in connection therewith; provided, that the
Indemnified Party may participate, through counsel chosen by it and at its own
expense, in the defense of any such Claim, as to which the Indemnitor has so
elected to conduct and control the defense thereof; and provided further, that
the Indemnitor shall not, without the written consent of the Indemnified Party
(which consent shall not be unreasonably withheld) pay, compromise or settle
any such Claim (i) in any case where the Indemnitor has not acknowledged its
obligation to provide indemnification to the Indemnified Party under this
Agreement, or (ii) seeking any relief other than monetary damages; and provided
further, that the Indemnitor shall, at any time prior to the settlement of
commencement of trial with respect to any Claim, tender the defense, compromise
and settlement of such Claim to the Indemnified Party should the Indemnitor
reasonably determine, based upon the information furnished to it by the
Indemnified Party or obtained by the Indemnitor in the course of defending the
Claim, that

 

 

20

 

the
Indemnitor is not obligated to provide indemnification to the Indemnified Party
under this Agreement.

Section
10.05         Interest. In the case
of any payments made or costs or damages incurred and paid by a Party, interest
on the amount thereof shall accrue beginning the date any Loss is paid by the
Indemnified Party or a date thirty (30) days after written notice of the claim
is given, whichever is later, provided that such notice is accompanied by
documentation describing the basis of such claim in reasonable detail for
evaluation; provided further, however, that the claiming Party shall only be
entitled to receive such interest to the extent that it is determined that such
Party is entitled to indemnification hereunder. Interest shall accrue until the
claim is paid in full at a variable rate equal to the prime interest rate (as
published in the Money Rates column of The Wall Street Journal) on the date that such
interest begins to accrue.

Section
10.06         Exclusive Remedy. The
indemnification provided under this Article 10 shall be the sole remedy of any
Party to this Agreement against any other Party for any claim covered by such
indemnification other than claims for specific performance or injunctive
relief, and claims based on intentional fraud.

ARTICLE XI         SURVIVAL OF REPRESENATIONS AND
WARRANTIES

All representations and
warranties made by the Seller and the Buyer shall terminate as of the Closing.

ARTICLE XII        TERMINATION

Section
12.01         Termination  of
Agreement. The Parties may terminate this Agreement as provided below:

a.                           the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;

b.                          the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing in the event (i) the
Seller has within the then previous ten (10) Business Days given the Buyer any
notice pursuant to Section 5.05 above and (ii) the development that is the
subject of the notice has had a material adverse effect upon the financial
condition of TICA;

c.                           the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (i) in the event the
Seller has breached any representation, warranty, or covenant contained in this
Agreement in any material respect, the Buyer has notified the Seller of the
breach, and the breach has continued without cure for a period of 30 days after
the notice of breach or (ii) if the Closing shall not have occurred on or
before January 31, 2007, by reason of the failure of any condition precedent
under Article 6 hereof (unless the failure results primarily from the Buyer
itself breaching any representation, warranty, or covenant contained in this
Agreement); and

d.                          the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (i) in the event the Buyer
has breached any material representation,

 

 

21

 

                                    warranty, or covenant contained in this Agreement in any
material respect, the Seller has notified the Buyer of the breach, and the
breach has continued without cure for a period of 30 days after the notice of
breach or (ii) if the Closing shall not have occurred on or before January 31,
2007, by reason of the failure of any condition precedent under Article 6
hereof (unless the failure results primarily from the Seller itself breaching
any representation, warranty, or covenant contained in this Agreement).

Section
12.02         Effect of Termination.
In the event of termination by the Seller or the Buyer pursuant to this Article
12, written notice thereof shall forthwith be given to the other Party and the
transactions contemplated by this Agreement shall be terminated, without
further action by either Party. If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Article 12, this
Agreement shall become null and void and of no further force or effect, except
for the provisions of (i) Article 14 relating to the obligation of each of the
Parties to keep confidential certain Information obtained by it, (ii) Article
13 relating to certain expenses, and (iii) this Article 12. Nothing in this
Article 12 shall be deemed to release either Party from any liability for any
breach by such Party of the terms and provisions of this Agreement or to impair
the right of either Party to compel specific performance by the other Party of
its obligations under this Agreement.

ARTICLE XIII       EXPENSES

Except as otherwise
expressly provided herein, the Buyer and the Seller shall each pay all of their
own expenses in connection with this Agreement and the transactions and
deliveries contemplated hereby, including without limitation, any expenses
incurred in connection with any claims made by any third party calling into
question the transactions contemplated hereby.

ARTICLE XIV       CONFIDENTIALITY

All books, records, data and
information (collectively the “Information”) furnished by either the
Seller or TICA on the one hand or the Buyer on the other hand to each other in
connection with the transactions contemplated by this Agreement shall remain
and be deemed to be the exclusive property of the Party furnishing the
Information unless and until the Closing occurs and shall be held in the
strictest of confidence by the other Party to the extent such information is
not publicly available and shall not be used by such other Party for any
purpose other than consideration of the transactions contemplated by this
Agreement and obtaining consents and approvals for such transactions. In the
event that the transactions contemplated by this Agreement are not consummated,
each Party shall return all Information in its possession which is deemed to be
the exclusive property of any other Party, together with all copies thereof,
and shall continue to hold such Information in strict confidence and not use
such Information for any purpose whatsoever.

ARTICLE XV        MISCELLANEOUS

Section
15.01         No Third-Party
Beneficiaries. This Agreement shall not confer any rights or remedies upon
any Person other than the Parties and their respective successors and permitted
assigns.

Section 15.02         Entire Agreement. This Agreement
(including the documents referred to herein) constitutes the entire agreement
among the Parties and supersedes any prior understandings,

 

 

22

 

agreements,
or representations by or among the Parties, written or oral, to the extent they
have related in any way to the subject matter hereof.

Section
15.03         Succession  and
Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any of his or
its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller.

Section
15.04         Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original but all of which together will constitute one and the same
instrument.

Section
15.05         Headings. The section
headings contained in this Agreement are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this Agreement.

Section
15.06         Notices. All notices,
requests, demands, claims, and other communications hereunder will be in
writing. Any notice, request, demand, claim, or other communication hereunder
shall be deemed duly given if (and then two (2) Business Days after) it is sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:

If to the Seller:

Tower Group, Inc.

120 Broadway

New York, NY 10271

Tel: (212) 655-2000

 

Attn: Stephen Kibblehouse, General Counsel

 

If to the Buyer:

CastlePoint Management Corp.

120 Broadway

New York, NY 10271

Tel: 212.847.9456

Fax: 212.847.9549

Attn: Joel Weiner, CFO

 

With Copies to:

Roger A. Brown

120 Broadway

New York, New York 10271

Tel: 212.847.9461

Fax: 212.847.9549

 

 

23

 

Any Party may send any notice,
request, demand, claim, or other communication hereunder to the intended
recipient at the address set forth above using any other means (including
personal delivery, expedited courier, messenger service, telecopy, telex,
ordinary mail, or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.

Section
15.07         Governing Law. This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of New York without giving effect to any choice or conflict
of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.

Section
15.08         Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Buyer and the Seller. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.

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

Section
15.10         Construction. The
Parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring any
Party by virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word “including” shall mean
including without limitation.

Section 15.11         Incorporation of Exhibits, Annexes
and Schedules. The Exhibits, Annexes, and Schedules identified in this
Agreement are incorporated herein by reference and made a part hereof.

 

 

24

 

IN WITNESS WHEREOF, the Parties hereto have
executed this Agreement as of the date first above written.

 

 

 

	
  CastlePoint Management
  Corp.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ JOEL S. WEINER

  	
   

  	
   

  
	
  Title:

  	
  Senior Vice President and
  Chief Financial Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Tower Group, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ FRANCIS COLALUCCI

  	
   

  	
   

  
	
  Title:

  	
  Senior Vice President and
  Chief Financial Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

 

25Exhibit 10.32

 

EXECUTION COPY

 

 

PARENT GUARANTEE AGREEMENT

 

by and between

 

CASTLEPOINT HOLDINGS, LTD.

 

and

 

WILMINGTON TRUST COMPANY

 

Dated as of December 1, 2006

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS AND INTERPRETATION

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Definitions and Interpretation

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Powers and Duties of the Guarantee Trustee

  	
  6

  
	
  Section 2.2

  	
  Certain Rights of the Guarantee Trustee

  	
  8

  
	
  Section 2.3

  	
  Not Responsible for Recitals or Issuance of
  Guarantee

  	
  9

  
	
  Section 2.4

  	
  Events of Default; Waiver

  	
  9

  
	
  Section 2.5

  	
  Events of Default; Notice

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  GUARANTEE TRUSTEE

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Guarantee Trustee; Eligibility

  	
  10

  
	
  Section 3.2

  	
  Appointment, Removal and Resignation of the
  Guarantee Trustee

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  GUARANTEE

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Guarantee

  	
  11

  
	
  Section 4.2

  	
  Waiver of Notice and Demand

  	
  12

  
	
  Section 4.3

  	
  Obligations Not Affected

  	
  13

  
	
  Section 4.4

  	
  Rights of Holders

  	
  14

  
	
  Section 4.5

  	
  Guarantee of Payment

  	
  14

  
	
  Section 4.6

  	
  Subrogation

  	
  14

  
	
  Section 4.7

  	
  Independent Obligations

  	
  14

  
	
  Section 4.8

  	
  Enforcement by a Beneficiary

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  LIMITATION OF TRANSACTIONS; RANKING

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Limitation of Transactions

  	
  15

  
	
  Section 5.2

  	
  Ranking

  	
  16

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  TERMINATION

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Termination

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  INDEMNIFICATION

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Exculpation

  	
  17

  
	
  Section 7.2

  	
  Indemnification

  	
  17

  
	
  Section 7.3

  	
  Compensation; Reimbursement of Expenses

  	
  18

  

 

i

 

	
  ARTICLE VIII

  	
  MISCELLANEOUS

  	
  19

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Successors and Assigns

  	
  19

  
	
  Section 8.2

  	
  Company May Consolidate, etc., on Certain
  Terms

  	
  19

  
	
  Section 8.3

  	
  Amendments

  	
  19

  
	
  Section 8.4

  	
  Notices

  	
  20

  
	
  Section 8.5

  	
  Benefit

  	
  20

  
	
  Section 8.6

  	
  Governing Law

  	
  21

  
	
  Section 8.7

  	
  Counterparts

  	
  21

  
	
  Section 8.8

  	
  Separability

  	
  22

  

 

ii

 

PARENT GUARANTEE AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

Section
1.1            Definitions and
Interpretation.

 

In this Guarantee, unless the context otherwise requires:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

 

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

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

ARTICLE II

 

POWERS, DUTIES AND RIGHTS OF THE

GUARANTEE TRUSTEE

 

Section
2.1            Powers and Duties of the
Guarantee Trustee.

 

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

 

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

 

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

 

6

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

7

 

Section
2.2            Certain Rights of the
Guarantee Trustee.

 

(a)           Subject to the provisions of Section
2.1:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

Section
2.3            Not Responsible for
Recitals or Issuance of Guarantee.

 

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

 

Section
2.4            Events of Default;
Waiver.

 

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

 

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

 

9

 

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

 

Section
2.5            Events of Default;
Notice.

 

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

 

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

 

ARTICLE III

 

GUARANTEE TRUSTEE

 

Section
3.1            Guarantee Trustee;
Eligibility.

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE IV

 

GUARANTEE

 

Section
4.1            Guarantee.

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Section
4.2            Waiver of Notice and
Demand.

 

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

 

12

 

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

 

Section
4.3            Obligations Not
Affected.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

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

 

Section
4.4            Rights of Holders.

 

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

 

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

 

Section
4.5            Guarantee of Payment.

 

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

 

Section
4.6            Subrogation.

 

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

 

Section
4.7            Independent Obligations.

 

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

 

14

 

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

 

Section
4.8            Enforcement by a
Beneficiary.

 

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

 

ARTICLE V

 

LIMITATION
OF TRANSACTIONS; RANKING

 

Section
5.1            Limitation of
Transactions.

 

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

 

15

 

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

 

Section
5.2            Ranking.

 

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

 

16

 

ARTICLE VI

 

TERMINATION

 

Section
6.1            Termination.

 

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

 

ARTICLE VII

 

INDEMNIFICATION

 

Section
7.1            Exculpation.

 

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

 

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

 

Section
7.2            Indemnification.

 

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

 

17

 

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

 

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

 

Section
7.3            Compensation;
Reimbursement of Expenses.

 

The Guarantor agrees:

 

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

 

18

 

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

 

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

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section
8.1            Successors and Assigns.

 

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

 

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

 

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

 

Section
8.3            Amendments.

 

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

 

19

 

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

 

Section
8.4            Notices.

 

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

 

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

 

Wilmington Trust Company

1100 North Market Street

Wilmington, Delaware 19890

Attention:  Corporate Trust
Administration

Telecopy:  302-636-4140

 

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

 

CastlePoint Holdings, Ltd.

Clarendon House

2 Church Street

Hamilton HM

Bermuda

Attention:  Joel Weiner, Chief Financial
Officer

Telecopy:  441-292-4720

 

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

 

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

 

Section
8.5            Benefit.

 

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

 

20

 

Section
8.6            Governing Law.

 

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

 

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

 

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

 

Section
8.7            Counterparts.

 

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

 

21

 

Section
8.8            Separability.

 

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

 

Signatures appear on the following page

 

22

 

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

 

	
   

  	
  CASTLEPOINT HOLDINGS, LTD.,
  as

  Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOEL S. WEINER

  
	
   

  	
   

  	
  Name: Joel S. Weiner

  
	
   

  	
   

  	
  Title: Senior Vice President and Chief
  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY,
  as

  Guarantee Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ CHRISTOPHER J. SLAYBAUGH

  
	
   

  	
   

  	
  Name: Christopher J. Slaybaugh

  
	
   

  	
   

  	
  Title: Senior Financial Services Officer

  

 

23

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