TOWER GROUP, INC.
13,000 CAPITAL SECURITIES
FIXED/FLOATING RATE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000.00 PER CAPITAL SECURITY)
PLACEMENT AGREEMENT
--------------------
December 7, 2004
FTN Financial Capital Markets
845 Crossover Lane, Suite 150
Memphis, Tennessee 38117
Keefe, Bruyette & Woods, Inc.
787 7th Avenue, 4th Floor
New York, New York 10019
Ladies and Gentlemen:
Tower Group, Inc., incorporated and existing under the laws of Delaware
(the "Company"), and its financing subsidiary, Tower Group Statutory Trust III,
a Delaware statutory trust (the "Trust," and hereinafter together with the
Company, the "Offerors"), hereby confirm their agreement (this "Agreement") with
you as placement agents (the "Placement Agents"), as follows:
SECTION 1. ISSUANCE AND SALE OF SECURITIES.
1.1 INTRODUCTION. The Offerors propose to issue and sell at the
Closing (as defined in Section 2.3.1 hereof) 13,000 of the Trust's
Fixed/Floating Rate Capital Securities, with a liquidation amount of
$1,000.00 per capital security (the "Capital Securities"), to Preferred
Term Securities XVI, Ltd., a company with limited liability established
under the laws of the Cayman Islands (the "Purchaser") pursuant to the
terms of a Subscription Agreement entered into, or to be entered into on
or prior to the Closing Date (as defined in Section 2.3.1 hereof), between
the Offerors and the Purchaser (the "Subscription Agreement"), the form of
which is attached hereto as Exhibit A and incorporated herein by this
reference.
1.2 OPERATIVE AGREEMENTS. The Capital Securities shall be fully and
unconditionally guaranteed on a subordinated basis by the Company with
respect to distributions and amounts payable upon liquidation, redemption
or repayment (the "Guarantee") pursuant and subject to the Guarantee
Agreement (the "Guarantee Agreement"), to be
dated as of the Closing Date and executed and delivered by the Company and
Wilmington Trust Company ("WTC"), as trustee (the "Guarantee Trustee"),
for the benefit from time to time of the holders of the Capital
Securities. The entire proceeds from the sale by the Trust to the
Purchaser of the Capital Securities shall be combined with the entire
proceeds from the concurrent sale by the Trust to the Company of its
common securities (the "Common Securities"), and shall be used by the
Trust to purchase $13,403,000 in principal amount of the Fixed/Floating
Rate Junior Subordinated Deferrable Interest Debentures (the "Debentures")
of the Company. The Capital Securities and the Common Securities for the
Trust shall be issued pursuant to an Amended and Restated Declaration of
Trust among WTC, as Delaware Trustee (the "Delaware Trustee"), WTC, as
institutional trustee (the "Institutional Trustee"), the administrators of
the Trust named therein, and the Company, to be dated as of the Closing
Date and in substantially the form heretofore delivered to the Placement
Agents (the "Trust Agreement"). The Debentures shall be issued pursuant to
an Indenture (the "Indenture"), to be dated as of the Closing Date,
between the Company and WTC, as indenture trustee (the "Indenture
Trustee"). This Agreement and the documents identified in this Section 1.2
and in Section 1.1 are referred to herein as the "Operative Documents."
1.3 RIGHTS OF PURCHASER. The Capital Securities shall be offered and
sold by the Trust directly to the Purchaser without registration of any of
the Capital Securities, the Debentures or the Guarantee under the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable securities laws in reliance upon exemptions from the
registration requirements of the Securities Act and other applicable
securities laws. The Offerors agree that this Agreement shall be
incorporated by reference into the Subscription Agreement and the
Purchaser shall be entitled to each of the benefits of the Placement
Agents and the Purchaser under this Agreement and shall be entitled to
enforce obligations of the Offerors under this Agreement as fully as if
the Purchaser were a party to this Agreement. The Offerors and the
Placement Agents have entered into this Agreement to set forth their
understanding as to their relationship and their respective rights, duties
and obligations.
1.4 LEGENDS. Upon original issuance thereof, and until such time as
the same is no longer required under the applicable requirements of the
Securities Act, the Capital Securities and Debentures certificates shall
each contain a legend as required pursuant to any of the Operative
Documents.
SECTION 2. PURCHASE OF CAPITAL SECURITIES.
2.1 EXCLUSIVE RIGHTS; PURCHASE PRICE. From the date hereof until the
Closing Date (which date may be extended by mutual agreement of the
Offerors and the Placement Agents), the Offerors hereby grant to the
Placement Agents the exclusive right to arrange for the sale of the
Capital Securities to the Purchaser at a purchase price of $1,000.00 per
Capital Security.
2.2 SUBSCRIPTION AGREEMENT. The Offerors hereby agree to evidence
their acceptance of the subscription by countersigning a copy of the
Subscription Agreement and returning the same to the Placement Agents.
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2.3 CLOSING AND DELIVERY OF PAYMENT.
2.3.1 CLOSING; CLOSING DATE. The sale and purchase of the Capital
Securities by the Offerors to the Purchaser shall take place at a closing
(the "Closing") at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
at 10:00 a.m. (New York City time) on December 15, 2004, or such other
business day as may be agreed upon by the Offerors and the Placement
Agents (the "Closing Date"); provided, however, that in no event shall the
Closing Date occur later than December 22, 2004 unless consented to by the
Purchaser. Payment by the Purchaser shall be payable in the manner set
forth in the Subscription Agreement and shall be made prior to or on the
Closing Date.
2.3.2 DELIVERY. The certificate for the Capital Securities shall be
in definitive form, registered in the name of the Purchaser or its nominee
and in the aggregate amount of the Capital Securities purchased by the
Purchaser.
2.3.3 TRANSFER AGENT. The Offerors shall deposit the certificate
representing the Capital Securities with, or as instructed by, the
Institutional Trustee on the Closing Date.
2.4 PLACEMENT AGENTS' FEES AND EXPENSES.
2.4.1 PLACEMENT AGENTS' COMPENSATION. Because the proceeds from the
sale of the Capital Securities shall be used to purchase the Debentures
from the Company, the Company shall pay an aggregate of $20.00 for each
$1,000.00 of principal amount of Debentures sold to the Trust (excluding
the Debentures related to the Common Securities purchased by the Company).
Of this amount, $10.00 for each $1,000.00 of principal amount of
Debentures shall be payable to FTN Financial Capital Markets and $10.00
for each $1,000.00 of principal amount of Debentures shall be payable to
Keefe, Bruyette & Woods, Inc. Such amount shall be delivered to the
Institutional Trustee or such other person designated by the Placement
Agents on the Closing Date and shall be allocated between and paid to the
respective Placement Agents as directed by the Placement Agents.
2.4.2 COSTS AND EXPENSES. Whether or not this Agreement is
terminated or the sale of the Capital Securities is consummated, the
Company hereby covenants and agrees that it shall pay or cause to be paid
(directly or by reimbursement) all reasonable costs and expenses incident
to the performance of the obligations of the Offerors under this
Agreement, including all fees, expenses and disbursements of counsel and
accountants for the Offerors; the reasonable costs and charges of any
trustee, transfer agent or registrar and the fees and disbursements of
counsel to any trustee, transfer agent or registrar in each case only to
the extent attributable to the Debentures and the Capital Securities; all
reasonable expenses incurred by the Offerors incident to the preparation,
execution and delivery of the Trust Agreement, the Indenture, and the
Guarantee; and all other reasonable costs and expenses incident to the
performance of the obligations of the Company hereunder and under the
Trust Agreement.
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2.5 FAILURE TO CLOSE. If any of the conditions to the Closing
specified in this Agreement shall not have been fulfilled to the
satisfaction of the Placement Agents or if the Closing shall not have
occurred on or before 10:00 a.m. (New York City time) on December 22, 2004
or such later Closing Date consented to by the Purchaser pursuant to
Section 2.3.1, then each party hereto, notwithstanding anything to the
contrary in this Agreement, shall be relieved of all further obligations
under this Agreement without thereby waiving any rights it may have by
reason of such nonfulfillment or failure; PROVIDED, HOWEVER, that the
obligations of the parties under Sections 2.4.2, 7.5 and 9 shall not be so
relieved and shall continue in full force and effect.
SECTION 3. CLOSING CONDITIONS. The obligations of the Purchaser and the
Placement Agents on the Closing Date shall be subject to the accuracy, at
and as of the Closing Date, of the representations and warranties of the
Offerors contained in this Agreement, to the accuracy, at and as of the
Closing Date, of the statements of the Offerors made in any certificates
pursuant to this Agreement, to the performance by the Offerors of their
respective obligations under this Agreement, to compliance, at and as of
the Closing Date, by the Offerors with their respective agreements herein
contained, and to the following further conditions:
3.1 OPINIONS OF COUNSEL. On the Closing Date, the Placement Agents
shall have received the following favorable opinions, each dated as of the
Closing Date: (a) from McLaughlin & Stern, LLP, counsel for the Offerors
and addressed to the Purchaser and the Placement Agents in substantially
the form set forth on EXHIBIT B-1 attached hereto and incorporated herein
by this reference, (b) from Richards, Layton & Finger, P.A., special
Delaware counsel to the Offerors and addressed to the Purchaser, the
Placement Agents and the Offerors, in substantially the form set forth on
EXHIBIT B-2 attached hereto and incorporated herein by this reference, and
(c) from LeBoeuf, Lamb, Greene & MacRae, L.L.P., special tax counsel to
the Offerors, and addressed to the Placement Agents and the Offerors, in
substantially the form set forth on EXHIBIT B-3 attached hereto and
incorporated herein by this reference, subject to the receipt by LeBoeuf,
Lamb, Greene & MacRae, L.L.P. of a representation letter from the Company
in the form set forth in EXHIBIT B-3 completed in a manner reasonably
satisfactory to LeBoeuf, Lamb, Greene & MacRae, L.L.P. (collectively, the
"Offerors' Counsel Opinions"). In rendering the Offerors' Counsel
Opinions, counsel to the Offerors may rely as to factual matters upon
certificates or other documents furnished by officers, directors and
trustees of the Offerors (copies of which shall be delivered to the
Placement Agents and the Purchaser) and by government officials, and upon
such other documents as counsel to the Offerors may, in their reasonable
opinion, deem appropriate as a basis for the Offerors' Counsel Opinions.
Counsel to the Offerors may specify the jurisdictions in which they are
admitted to practice and that they are not admitted to practice in any
other jurisdiction and are not experts in the law of any other
jurisdiction. If the Offerors' counsel is not admitted to practice in the
State of New York, the opinion of Offerors' counsel may assume, for
purposes of the opinion, that the laws of the State of New York are
substantively identical, in all respects material to the opinion, to the
internal laws of the state in which such counsel is admitted to practice.
Such Offerors' Counsel Opinions shall not state that they are to be
governed or qualified by, or that they are otherwise subject to, any
treatise, written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA Section
of Business Law (1991).
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3.2 OFFICER'S CERTIFICATE. At the Closing Date, the Purchaser and
the Placement Agents shall have received certificates from the Chief
Executive Officer of the Company, dated as of the Closing Date, stating
that (a) the representations and warranties of the Offerors set forth in
Section 5 hereof are true and correct as of the Closing Date and that the
Offerors have complied with all agreements and satisfied all conditions on
their part to be performed or satisfied at or prior to the Closing Date,
(b) since the date of this Agreement the Offerors have not incurred any
liability or obligation, direct or contingent, or entered into any
material transactions, other than in the ordinary course of business,
which is material to the Offerors, and (c) covering such other matters as
the Placement Agents may reasonably request.
3.3 ADMINISTRATOR'S CERTIFICATE. At the Closing Date, the Purchaser
and the Placement Agents shall have received a certificate of one or more
administrators of the Trust, dated as of the Closing Date, stating that
the representations and warranties of the Trust set forth in Section 5 are
true and correct as of the Closing Date and that the Trust has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date.
3.4 PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL INVESTMENT. The
purchase of and payment for the Capital Securities as described in this
Agreement and pursuant to the Subscription Agreement shall (a) not be
prohibited by any applicable law or governmental regulation, (b) not
subject the Purchaser or the Placement Agents to any penalty or, in the
reasonable judgment of the Purchaser and the Placement Agents, other
onerous conditions under or pursuant to any applicable law or governmental
regulation, and (c) be permitted by the laws and regulations of the
jurisdictions to which the Purchaser and the Placement Agents are subject.
3.5 CONSENTS AND PERMITS. The Company and the Trust shall have
received all consents, permits and other authorizations, and made all such
filings and declarations, as may be required from any person or entity
pursuant to any law, statute, regulation or rule (federal, state, local
and foreign), or pursuant to any agreement, order or decree to which the
Company or the Trust is a party or to which either is subject, in
connection with the transactions contemplated by this Agreement.
3.6 SALE OF PURCHASER SECURITIES. The Purchaser shall have sold
securities issued by the Purchaser in an amount such that the net proceeds
of such sale shall be (i) available on the Closing Date and (ii) in an
amount sufficient to purchase the Capital Securities and all other capital
or similar securities contemplated in agreements similar to this Agreement
and the Subscription Agreement.
3.7 INFORMATION. Prior to or on the Closing Date, the Offerors shall
have furnished to the Placement Agents such further information,
certificates, opinions and documents addressed to the Purchaser and the
Placement Agents, which the Placement Agents may reasonably request,
including, without limitation, a complete set of the Operative Documents
or any other documents or certificates required by this Section 3; and all
proceedings taken by the Offerors in connection with the issuance, offer
and sale of the Capital Securities as herein contemplated shall be
reasonably satisfactory in form and substance to the Placement Agents.
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If any condition specified in this Section 3 shall not have been
fulfilled when and as required in this Agreement, or if any of the
opinions or certificates mentioned above or elsewhere in this Agreement
shall not be reasonably satisfactory in form and substance to the
Placement Agents, this Agreement may be terminated by the Placement Agents
by notice to the Offerors at any time at or prior to the Closing Date.
Notice of such termination shall be given to the Offerors in writing or by
telephone or facsimile confirmed in writing.
SECTION 4. CONDITIONS TO THE OFFERORS' OBLIGATIONS. The obligations of the
Offerors to sell the Capital Securities to the Purchaser and consummate
the transactions contemplated by this Agreement shall be subject to the
accuracy, at and as of the Closing Date, of the representations and
warranties of the Placement Agents contained in this Agreement and to the
following further conditions:
4.1 EXECUTED AGREEMENT. The Offerors shall have received from the
Placement Agents an executed copy of this Agreement.
4.2 FULFILLMENT OF OTHER OBLIGATIONS. The Placement Agents shall
have fulfilled all of their other obligations and duties required to be
fulfilled under this Agreement prior to or at the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE OFFERORS. Except as set
forth on the Disclosure Schedule (as defined in Section 11.1) attached
hereto, if any, the Offerors jointly and severally represent and warrant
to the Placement Agents and the Purchaser as of the date hereof and as of
the Closing Date as follows:
5.1 SECURITIES LAW MATTERS; AUTHORIZATIONS.
(a) Neither the Company nor the Trust, nor any of their
"Affiliates" (as defined in Rule 501(b) of Regulation D under the
Securities Act ("Regulation D")), nor any person acting on any of their
behalf has, directly or indirectly, made offers or sales of any security,
or solicited offers to buy any security, under circumstances that would
require the registration under the Securities Act of any of the Capital
Securities, the Guarantee or the Debentures (collectively, the
"Securities") or any other securities to be issued, or which may be
issued, by the Purchaser.
(b) Neither the Company nor the Trust, nor any of their
Affiliates, nor any person acting on its or their behalf has (i) other
than the Placement Agents, offered for sale or solicited offers to
purchase the Securities, (ii) engaged or will engage, in any "directed
selling efforts" within the meaning of Regulation S under the Securities
Act ("Regulation S") with respect to the Securities, or (iii) engaged in
any form of offering, general solicitation or general advertising (within
the meaning of Regulation D) in connection with any offer or sale of any
of the Securities.
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(c) The Securities satisfy the eligibility requirements of
Rule 144A(d)(3) under the Securities Act.
(d) Neither the Company nor the Trust is or, after giving
effect to the offering and sale of the Capital Securities and the
consummation of the transactions described in this Agreement, will be an
"investment company" or an entity "controlled" by an "investment company,"
in each case within the meaning of Section 3(a) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), without regard to
Section 3(c) of the Investment Company Act.
(e) Neither the Company nor the Trust has paid or agreed to
pay to any person or entity (other than the Placement Agents) any
compensation for soliciting another to purchase any of the Securities.
(f) No authorization, approval, consent, order, registration
or qualification of or with any court or governmental authority or agency
(including, without limitation, any insurance regulatory agency or body)
is required in connection with the offering and sale of the Securities or
the Guarantee hereunder, or the consummation by the Company or the Trust
of any other transaction contemplated hereby, except such as have been
obtained and made under the federal securities laws or state insurance
laws and such as may be required under state or foreign securities or Blue
Sky laws.
5.2 INCORPORATED DOCUMENTS. The documents of the Company filed with
the Securities and Exchange Commission (the "Commission") in accordance
with the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
from and including the commencement of the fiscal year covered by the
Company's most recent Annual Report on Form 10-K, at the time they were or
hereafter are filed by the Company with the Commission, complied and will
comply in all material respects with the requirements of the Exchange Act
and the rules and regulations of the Commission thereunder, and, at the
date of this Agreement and on the Closing Date, do not and will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and other than such instruments, agreements, contracts and
other documents as are filed as exhibits to the Company's Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q or Current Reports on Form 8-K,
and Registration Statement on Form S-1, there are no instruments,
agreements, contracts or documents of a character described in Item 601 of
Regulation S-K promulgated by the Commission to which the Company or any
of its subsidiaries is a party.
5.3 ORGANIZATION, STANDING AND QUALIFICATION OF THE TRUST. The Trust
has been duly created and is validly existing in good standing as a
statutory trust under the Delaware Statutory Trust Act (the "Statutory
Trust Act") with the power and authority to own property and to conduct
the business it transacts and proposes to transact and to enter into and
perform its obligations under the Operative Documents. The Trust is duly
qualified to transact business as a foreign entity and is in good standing
in each jurisdiction in which such qualification is necessary, except
where the failure to so qualify or be in good standing would not have a
material adverse effect on the Trust. The Trust is not a party to or
otherwise bound by any agreement other than the Operative Documents. The
Trust is and will, under current law, be classified for federal income tax
purposes as a grantor trust and not as an association taxable as a
corporation.
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5.4 TRUST AGREEMENT. The Trust Agreement has been duly authorized by
the Company and, on the Closing Date, will have been duly executed and
delivered by the Company and the administrators of the Trust, and,
assuming due authorization, execution and delivery by the Delaware Trustee
and the Institutional Trustee, will be a valid and binding obligation of
the Company and such administrators, enforceable against them in
accordance with its terms, subject to (a) applicable bankruptcy,
insolvency, moratorium, receivership, reorganization, liquidation and
other laws relating to or affecting creditors' rights generally, and (b)
general principles of equity (regardless of whether considered and applied
in a proceeding in equity or at law) ("Bankruptcy and Equity"). Each of
the administrators of the Trust is an employee or a director of the
Company or of a subsidiary of the Company and has been duly authorized by
the Company to execute and deliver the Trust Agreement.
5.5 GUARANTEE AGREEMENT AND THE INDENTURE. Each of the Guarantee and
the Indenture has been duly authorized by the Company and, on the Closing
Date will have been duly executed and delivered by the Company, and,
assuming due authorization, execution and delivery by the Guarantee
Trustee, in the case of the Guarantee, and by the Indenture Trustee, in
the case of the Indenture, will be a valid and binding obligation of the
Company enforceable against it in accordance with its terms, subject to
Bankruptcy and Equity.
5.6 CAPITAL SECURITIES AND COMMON SECURITIES. The Capital Securities
and the Common Securities have been duly authorized by the Trust Agreement
and, when issued and delivered against payment therefor on the Closing
Date to the Purchaser, in the case of the Capital Securities, and to the
Company, in the case of the Common Securities, will be validly issued and
represent undivided beneficial interests in the assets of the Trust. None
of the Capital Securities or the Common Securities is subject to
preemptive or other similar rights. On the Closing Date, all of the issued
and outstanding Common Securities will be directly owned by the Company
free and clear of any pledge, security interest, claim, lien or other
encumbrance.
5.7 DEBENTURES. The Debentures have been duly authorized by the
Company and, at the Closing Date, will have been duly executed and
delivered to the Indenture Trustee for authentication in accordance with
the Indenture, and, when authenticated in the manner provided for in the
Indenture and delivered against payment therefor by the Trust, will
constitute valid and binding obligations of the Company entitled to the
benefits of the Indenture enforceable against the Company in accordance
with their terms, subject to Bankruptcy and Equity.
5.8 POWER AND AUTHORITY. This Agreement has been duly authorized,
executed and delivered by the Company and the Trust and constitutes the
valid and binding obligation of the Company and the Trust, enforceable
against the Company and the Trust in accordance with its terms, subject to
Bankruptcy and Equity.
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5.9 NO DEFAULTS. The Trust is not in violation of the Trust
Agreement or, to the knowledge of the administrators of the Trust, any
provision of the Statutory Trust Act. The execution, delivery and
performance by the Company or the Trust of this Agreement or the Operative
Documents to which it is a party, and the consummation of the transactions
contemplated herein or therein and the use of the proceeds therefrom, will
not conflict with or constitute a breach of, or a default under, or result
in the creation or imposition of any lien, charge or other encumbrance
upon any property or assets of the Trust, the Company or any of the
Company's Significant Subsidiaries (as defined in Section 5.11 hereof)
pursuant to any contract, indenture, mortgage, loan agreement, note, lease
or other instrument to which the Trust, the Company or any of its
Significant Subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of any of them is
subject, except for a conflict, breach, default, lien, charge or
encumbrance which could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect nor will such action result in
any violation of the Trust Agreement or the Statutory Trust Act or require
the consent, approval, authorization or order of any court or governmental
agency or body, except for those consents, approvals, authorizations and
orders that have been obtained or made. As used herein, the term "Material
Adverse Effect" means any one or more effects that individually or in the
aggregate are material and adverse to the Offerors' ability to consummate
the transactions contemplated herein or in the Operative Documents or any
one or more effects that individually or in the aggregate are material and
adverse to the condition (financial or otherwise), earnings, affairs,
business prospects or results of operations of the Company and its
Significant Subsidiaries taken as whole, whether or not occurring in the
ordinary course of business.
5.10 ORGANIZATION, STANDING AND QUALIFICATION OF THE COMPANY. The
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware, with all
requisite corporate power and authority to own its properties and conduct
the business it transacts and proposes to transact, and is duly qualified
to transact business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its activities requires such
qualification, except where the failure of the Company to be so qualified
would not, singly or in the aggregate, have a Material Adverse Effect.
5.11 SUBSIDIARIES OF THE COMPANY. Each of the Company's significant
subsidiaries (as defined in Section 1-02(w) of Regulation S-X to the
Securities Act (the "Significant Subsidiaries")) is listed in EXHIBIT C
attached hereto and incorporated herein by this reference. Each
Significant Subsidiary has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction in which it is
chartered or organized, with all requisite power and authority to own its
properties and conduct the business it transacts and proposes to transact,
and is duly qualified to transact business and is in good standing as a
foreign entity in each jurisdiction where the nature of its activities
requires such qualification, except where the failure of any such
Significant Subsidiaries to be so qualified would not, singly or in the
aggregate, have a Material Adverse Effect. All of the issued and
outstanding shares of capital stock of the Significant Subsidiaries (a)
have been duly authorized and are validly issued, (b) are fully paid and
nonassessable, and (c) are wholly owned, directly or indirectly, by the
Company free and clear of any security interest, mortgage, pledge, lien,
encumbrance, restriction upon voting or transfer, preemptive rights,
claim, equity or other defect.
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5.12 PERMITS. The Company and each of its Significant Subsidiaries
have all requisite power and authority, and all necessary authorizations,
approvals, orders, licenses (including, without limitation, insurance
licenses from the insurance departments of the various states where the
Significant Subsidiaries write insurance business (the "Insurance
Licenses")), certificates and permits, including those that are necessary
to own or lease their respective properties (collectively, "Permits"), of
and from regulatory or governmental officials, bodies and tribunals that
are material to the Company and its Significant Subsidiaries taken as a
whole and are necessary to conduct the business now operated by them; the
Company and its Significant Subsidiaries are in compliance with the terms
and conditions of all such Insurance Licenses and Permits, except where
the failure so to comply would not, singly or in the aggregate, result in
a Material Adverse Effect; all of the Insurance Licenses and Permits are
valid and in full force and effect, except where the invalidity of such
Insurance Licenses and Permits or the failure of such Insurance Licenses
and Permits to be in full force and effect would not result in a Material
Adverse Effect; and neither the Company nor any of its Significant
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Insurance Licenses and Permits
which, singly or in the aggregate, may reasonably be expected to result in
a Material Adverse Effect.
5.13 CONFLICTS, AUTHORIZATIONS AND APPROVALS. Neither the Company
nor any of its Significant Subsidiaries is in violation of its respective
articles or certificate of incorporation, charter or by-laws or similar
organizational documents or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which either the Company or any of its
Significant Subsidiaries is a party, or by which it or any of them may be
bound or to which any of the property or assets of the Company or any of
its Significant Subsidiaries is subject, the effect of which violation or
default in performance or observance would have, singly or in the
aggregate, a Material Adverse Effect.
5.14 FINANCIAL STATEMENTS.
(a) The consolidated balance sheets of the Company and all of
its Significant Subsidiaries as of December 31, 2002 and December 31,
2003, and related consolidated income statements and statements of changes
in shareholders' equity for the 3 years ended December 31, 2003 together
with the notes thereto, and the consolidated balance sheets of the Company
and all of its Significant Subsidiaries as of September 30, 2004 and the
related consolidated income statements and statements of changes in
shareholders' equity for the 9 months then ended (the "Financial
Statements"), copies of each of which have been provided to the Placement
Agents, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as
may be disclosed therein) and fairly present in all material respects the
financial position and the results of operations and changes in
shareholders' equity of the Company and all of its Significant
Subsidiaries as of the dates and for the periods indicated (subject, in
the case of interim financial statements, to normal recurring year-end
adjustments, none of which shall be material). The books and records of
the Company and all of its Significant Subsidiaries have been, and are
being, maintained in all material respects in accordance with generally
accepted accounting principles and any other applicable legal and
accounting requirements and reflect only actual transactions.
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(b) The audited statutory financial statements as of December
31, 2002, and December 31, 2003 and the unaudited statutory financial
statements as of September 30, 2004 (collectively, the "Statutory
Financial Statements") of each of the Company's insurance company
subsidiaries have for each relevant period been prepared in accordance
with statutory accounting practices ("SAP") prescribed or permitted by the
National Association of Insurance Commissioners, and with respect to each
insurance subsidiary, the appropriate Insurance Department of the state of
domicile of such insurance subsidiary, and SAP has been applied on a
consistent basis throughout the periods involved.
(c) Since the respective dates of the most recent Financial
Statements and the Statutory Financial Statements, there has been no
material adverse change or development with respect to the financial
condition or earnings of the Company and all of its Significant
Subsidiaries, taken as a whole.
(d) The accountants of the Company who certified the Financial
Statements are independent public accountants of the Company and its
Significant Subsidiaries within the meaning of the Securities Act and the
rules and regulations thereunder.
5.15 INTERNAL CONTROLS. Each of the Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
the management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and/or SAP, as applicable and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with the management's general or specific authorization, (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences and (v) material information relating to the Company and its
subsidiaries is made known to management. Management has (a) evaluated the
effectiveness of the internal accounting controls of each of the Company
and its subsidiaries and (b) disclosed to the accountants who certified
the Financial Statements and the Statutory Financial Statements and to the
audit committee (1) all significant deficiencies in the design or
operation of internal controls which could adversely affect the ability of
the Company and its subsidiaries to record, process, summarize, and report
financial data, and have identified for such accountants any material
weaknesses in internal controls and (2) any fraud, whether or not
material, that involves management or other employees who have a
significant role in the internal controls of the Company and its
subsidiaries, and any such deficiencies or fraud would not, singularly or
in the aggregate, be expected to result in a Material Adverse Effect.
11
5.16 REGULATORY ENFORCEMENT MATTERS. Neither the Company nor any of
its Significant Subsidiaries is subject or is party to, or has received
any notice or advice that any of them may become subject or party to, any
investigation with respect to, any cease-and-desist order, agreement,
consent agreement, memorandum of understanding or other regulatory
enforcement action, proceeding or order with or by, or is a party to any
commitment letter or similar undertaking to, or is subject to any
directive by, or has been since January 1, 2001, a recipient of any
supervisory letter from, or since January 1, 2001, has adopted any board
resolutions at the request of, any agency charged with the supervision or
regulation of insurance companies (a "Regulatory Agency") that currently
restricts in any material respect the conduct of their business or that in
any material manner relates to their capital adequacy, their ability or
authority to pay dividends or make distributions to their shareholders or
make payments of principal or interest on their debt obligations, their
management or their business (each, a "Regulatory Agreement"), nor has the
Company or any of its Significant Subsidiaries been advised since January
1, 2001, by any Regulatory Agency that it is considering issuing or
requesting any such Regulatory Agreement. There is no material unresolved
violation, criticism or exception by any Regulatory Agency with respect to
any report or statement relating to any examinations of the Company or any
of its Significant Subsidiaries.
5.17 NO MATERIAL CHANGE. Since the respective dates of the most
recent Financial Statements and Statutory Financial Statements, there has
been no material adverse change or development with respect to the
condition (financial or otherwise), earnings, affairs, business prospects
or results of operations of the Company or its Significant Subsidiaries on
a consolidated basis, whether or not arising in the ordinary course of
business.
5.18 INSURANCE RESERVING PRACTICES. The Company and its Significant
Subsidiaries have made no material change in their insurance reserving
practices since the respective dates as of which information is given in
the most recent Financial Statements and Statutory Financial Statements.
5.19 REINSURANCE TREATIES. All reinsurance and retrocessional
treaties, contracts, agreements and arrangements to which any Significant
Subsidiary is a party are in full force and effect and no Significant
Subsidiary is in violation of, or in default in the performance,
observance or fulfillment of, any obligation, agreement, covenant or
condition contained therein, with such exceptions that would not,
singularly or in the aggregate, have a Material Adverse Effect; and no
Significant Subsidiary has received any notice from any of the other
parties to such treaties, contracts, agreements or arrangements that such
other party intends not to perform thereunder and, to the best knowledge
of the Company and the Significant Subsidiaries, none of the other parties
to such treaties, contracts, agreements or arrangements will be unable to
perform thereunder except to the extent adequately and properly reserved
for in the consolidated financial statements of the Company, with such
exceptions that would not, singularly or in the aggregate, have a Material
Adverse Effect.
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5.20 NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its
Significant Subsidiaries has any material liability, whether known or
unknown, whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and
whether due or to become due, including any liability for taxes (and there
is no past or present fact, situation, circumstance, condition or other
basis for any present or future action, suit, proceeding, hearing, charge,
complaint, claim or demand against the Company or its Significant
Subsidiaries giving rise to any such liability), except (i) for
liabilities set forth in the Financial Statements and Statutory Financial
Statements, respectively, (ii) normal fluctuation in the amount of the
liabilities referred to in clause (i) above occurring in the ordinary
course of business of the Company and all of its Significant Subsidiaries
since the date of the most recent balance sheet included in the Financial
Statements and Statutory Financial Statements, respectively, and (iii) as
may be specifically disclosed in writing to the Placement Agents.
5.21 LITIGATION. No inquiry, charge, investigation, action, suit or
proceeding (including, without limitation, any proceeding to revoke or
deny renewal of any Insurance Licenses) is pending or, to the knowledge of
the Offerors, threatened, against or affecting the Company or its
Significant Subsidiaries or any of their respective properties before or
by (i) any court wherein an unfavorable decision, ruling or finding could
reasonably be expected to have, singly or in the aggregate, a Material
Adverse Effect, or (ii) any regulatory, administrative or governmental
official, commission, board, agency or other authority or body, or any
arbitrator, wherein an unfavorable decision, ruling or finding could have,
singly or in the aggregate, a Material Adverse Effect.
5.22 DEFERRAL OF INTEREST PAYMENTS ON DEBENTURES. The Company has no
present intention to exercise its option to defer payments of interest on
the Debentures as provided in the Indenture. The Company believes that the
likelihood that it would exercise its right to defer payments of interest
on the Debentures as provided in the Indenture at any time during which
the Debentures are outstanding is remote because of the restrictions that
would be imposed on the Company's ability to declare or pay dividends or
distributions on, or to redeem, purchase, acquire or make a liquidation
payment with respect to, any of the Company's capital stock and on the
Company's ability to make any payments of principal, interest or premium
on, or repay, repurchase or redeem, any of its debt securities that rank
PARI PASSU in all respects with, or junior in interest to, the Debentures.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENTS. Each
Placement Agent represents and warrants to the Offerors as to itself (but
not as to the other Placement Agent) as follows:
6.1 ORGANIZATION, STANDING AND QUALIFICATION.
(a) FTN Financial Capital Markets is a division of First
Tennessee Bank, N.A., a national banking association duly organized,
validly existing and in good standing under the laws of the United States,
with full power and authority to own, lease and operate its properties and
conduct its business as currently being conducted. FTN Financial Capital
Markets is duly qualified to transact business as a foreign corporation
and is in good standing in each other jurisdiction in which it owns or
leases property or conducts its business so as to require such
qualification and in which the failure to so qualify would, individually
or in the aggregate, have a material adverse effect on the condition
(financial or otherwise), earnings, business, prospects or results of
operations of FTN Financial Capital Markets.
13
(b) Keefe, Bruyette & Woods, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York, with full power and authority to own, lease and operate
its properties and conduct its business as currently being conducted.
Keefe, Bruyette & Woods, Inc. is duly qualified to transact business as a
foreign corporation and is in good standing in each other jurisdiction in
which it owns or leases property or conducts its business so as to require
such qualification and in which the failure to so qualify would,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), earnings, business, prospects or
results of operations of Keefe, Bruyette & Woods, Inc.
6.2 POWER AND AUTHORITY. The Placement Agent has all requisite power
and authority to enter into this Agreement, and this Agreement has been
duly and validly authorized, executed and delivered by the Placement Agent
and constitutes the legal, valid and binding agreement of the Placement
Agent, enforceable against the Placement Agent in accordance with its
terms, subject to Bankruptcy and Equity and except as any indemnification
or contribution provisions thereof may be limited under applicable
securities laws.
6.3 GENERAL SOLICITATION. In the case of the offer and sale of the
Capital Securities, no form of general solicitation or general advertising
was used by the Placement Agent or its representatives including, but not
limited to, advertisements, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio or any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising. Neither the
Placement Agent nor its representatives have engaged or will engage in any
"directed selling efforts" within the meaning of Regulation S with respect
to the Capital Securities.
6.4 PURCHASER. The Placement Agent has made such reasonable inquiry
as is necessary to determine that the Purchaser is acquiring the Capital
Securities for its own account, that the Purchaser does not intend to
distribute the Capital Securities in contravention of the Securities Act
or any other applicable securities laws, and that the Purchaser is not a
"U.S. person" as that term is defined under Rule 902 of the Securities
Act.
6.5 QUALIFIED PURCHASERS. The Placement Agent has not offered or
sold and will not arrange for the offer or sale of the Capital Securities
except (i) in an offshore transaction complying with Rule 903 of
Regulation S, or (ii) to those the Placement Agent reasonably believes are
"accredited investors" (as defined in Rule 501 of Regulation D), or (iii)
in any other manner that does not require registration of the Capital
Securities under the Securities Act. In connection with each such sale,
the Placement Agent has taken or will take reasonable steps to ensure that
the Purchaser is aware that (a) such sale is being made in reliance on an
exemption under the Securities Act, and (b) future transfers of the
Capital Securities will not be made except in compliance with applicable
securities laws.
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6.6 OFFERING CIRCULARS. Neither the Placement Agent nor its
representatives will include any non-public information about the Company,
the Trust or any of their affiliates in any registration statement,
prospectus, offering circular or private placement memorandum used in
connection with any purchase of Capital Securities without the prior
written consent of the Trust and the Company.
SECTION 7. COVENANTS OF THE OFFERORS. The Offerors covenant and agree with
the Placement Agents and the Purchaser as follows:
7.1 COMPLIANCE WITH REPRESENTATIONS AND WARRANTIES. During the
period from the date of this Agreement to the Closing Date, the Offerors
shall use their best efforts and take all action necessary or appropriate
to cause their representations and warranties contained in Section 5
hereof to be true as of the Closing Date, after giving effect to the
transactions contemplated by this Agreement, as if made on and as of the
Closing Date.
7.2 SALE AND REGISTRATION OF SECURITIES. The Offerors and their
Affiliates shall not nor shall any of them permit any person acting on
their behalf (other than the Placement Agents), to directly or indirectly
(a) sell, offer for sale or solicit offers to buy or otherwise negotiate
in respect of any security (as defined in the Securities Act) that would
or could be integrated with the sale of the Capital Securities in a manner
that would require the registration under the Securities Act of the
Securities, or (b) make offers or sales of any such Security, or solicit
offers to buy any such Security, under circumstances that would require
the registration of any of such Securities under the Securities Act. 7.3
USE OF PROCEEDS. The Trust shall use the proceeds from the sale of the
Capital Securities to purchase the Debentures from the Company.
7.4 INVESTMENT COMPANY. The Offerors shall not engage, or permit any
subsidiary to engage, in any activity which would cause it or any
subsidiary to be an "investment company" under the provisions of the
Investment Company Act.
7.5 REIMBURSEMENT OF EXPENSES. If the sale of the Capital Securities
provided for herein is not consummated (a) because any condition set forth
in Section 3 hereof is not satisfied, or (b) because of any refusal,
inability or failure on the part of the Company or the Trust to perform
any agreement herein or comply with any provision hereof other than by
reason of a breach by the Placement Agents, the Company shall reimburse
the Placement Agents upon demand for all of their pro rata share of
out-of-pocket expenses (including reasonable fees and disbursements of
counsel) in an amount not to exceed $50,000.00 that shall have been
incurred by them in connection with the proposed purchase and sale of the
Capital Securities. Notwithstanding the foregoing, the Company shall have
no obligation to reimburse the Placement Agents for their out-of-pocket
expenses if the sale of the Capital Securities fails to occur because the
condition set forth in Section 3.6 is not satisfied or because either of
the Placement Agents fails to fulfill a condition set forth in Section 4.
15
7.6 DIRECTED SELLING EFFORTS, SOLICITATION AND ADVERTISING. In
connection with any offer or sale of any of the Securities, the Offerors
shall not, nor shall either of them permit any of their Affiliates or any
person acting on their behalf, other than the Placement Agents, to, (a)
engage in any "directed selling efforts" within the meaning of Regulation
S, or (b) engage in any form of general solicitation or general
advertising (as defined in Regulation D).
7.7 COMPLIANCE WITH RULE 144A(D)(4) UNDER THE SECURITIES ACT. So
long as any of the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
the Offerors will, during any period in which they are not subject to and
in compliance with Section 13 or 15(d) of the Exchange Act, or the
Offerors are not exempt from such reporting requirements pursuant to and
in compliance with Rule 12g3-2(b) under the Exchange Act, provide to each
holder of such restricted securities and to each prospective purchaser (as
designated by such holder) of such restricted securities, upon the request
of such holder or prospective purchaser in connection with any proposed
transfer, any information required to be provided by Rule 144A(d)(4) under
the Securities Act, if applicable. This covenant is intended to be for the
benefit of the holders, and the prospective purchasers designated by such
holders, from time to time of such restricted securities. The information
provided by the Offerors pursuant to this Section 7.7 will not, at the
date thereof, contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
7.8 QUARTERLY REPORTS. Within 50 days of the end of each of the
first three calendar year quarters and within 75 days of the end of each
calendar year during which the Debentures are issued and outstanding, the
Offerors shall submit to The Bank of New York a completed quarterly report
in the form attached hereto as EXHIBIT D. The Offerors acknowledge and
agree that The Bank of New York and its successors and assigns is a third
party beneficiary of this Section 7.8.
SECTION 8. COVENANTS OF THE PLACEMENT AGENTS. The Placement Agents
covenant and agree with the Offerors that, during the period from the date
of this Agreement to the Closing Date, the Placement Agents shall use
their best efforts and take all action necessary or appropriate to cause
their representations and warranties contained in Section 6 to be true as
of Closing Date, after giving effect to the transactions contemplated by
this Agreement, as if made on and as of the Closing Date. The Placement
Agents further covenant and agree not to engage in hedging transactions
with respect to the Capital Securities unless such transactions are
conducted in compliance with the Securities Act.
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SECTION 9. INDEMNIFICATION.
9.1 INDEMNIFICATION OBLIGATION. The Offerors shall jointly and
severally indemnify and hold harmless the Placement Agents and the
Purchaser and each of their respective agents, employees, officers and
directors and each person that controls either of the Placement Agents or
the Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and agents, employees, officers and
directors or any such controlling person of either of the Placement Agents
or the Purchaser (each such person or entity, an "Indemnified Party") from
and against any and all losses, claims, damages, judgments, liabilities or
expenses, joint or several, to which such Indemnified Party may become
subject under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Offerors), insofar as such losses, claims,
damages, judgments, liabilities or expenses (or actions in respect
thereof) arise out of, or are based upon, or relate to, in whole or in
part, (a) any untrue statement or alleged untrue statement of a material
fact contained in any information (whether written or oral) or documents
executed in favor of, furnished or made available to the Placement Agents
or the Purchaser by the Offerors, or (b) any omission or alleged omission
to state in any information (whether written or oral) or documents
executed in favor of, furnished or made available to the Placement Agents
or the Purchaser by the Offerors a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
shall reimburse each Indemnified Party for any legal and other expenses as
such expenses are reasonably incurred by such Indemnified Party in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, judgment, liability, expense or action
described in this Section 9.1. In addition to their other obligations
under this Section 9, the Offerors hereby agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of, or based upon, or related to the
matters described above in this Section 9.1, they shall reimburse each
Indemnified Party on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the possibility that such payments might later be held
to have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been
improper, each Indemnified Party shall promptly return such amounts to the
Offerors together with interest, determined on the basis of the prime rate
(or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by First Tennessee Bank, N.A. (the
"Prime Rate"). Any such interim reimbursement payments that are not made
to an Indemnified Party within 30 days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
9.2 CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by an Indemnified Party under this Section 9 of notice of the commencement
of any action, such Indemnified Party shall, if a claim in respect thereof
is to be made against the Offerors under this Section 9, notify the
Offerors in writing of the commencement thereof; but, subject to Section
9.4, the omission to so notify the Offerors shall not relieve them from
any liability pursuant to Section 9.1 which the Offerors may have to any
Indemnified Party unless and to the extent that the Offerors did not
otherwise learn of such action and such failure by the Indemnified Party
results in the forfeiture by the Offerors of substantial rights and
defenses. In case any such action is brought against any Indemnified Party
17
and such Indemnified Party seeks or intends to seek indemnity from the
Offerors, the Offerors shall be entitled to participate in, and, to the
extent that they may wish, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Party; PROVIDED, HOWEVER, if
the defendants in any such action include both the Indemnified Party and
the Offerors and the Indemnified Party shall have reasonably concluded
that there may be a conflict between the positions of the Offerors and the
Indemnified Party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other Indemnified
Parties which are different from or additional to those available to the
Offerors, the Indemnified Party shall have the right to select separate
counsel to assume such legal defenses and to otherwise participate in the
defense of such action on behalf of such Indemnified Party. Upon receipt
of notice from the Offerors to such Indemnified Party of their election to
so assume the defense of such action and approval by the Indemnified Party
of counsel, the Offerors shall not be liable to such Indemnified Party
under this Section 9 for any legal or other expenses subsequently incurred
by such Indemnified Party in connection with the defense thereof unless
(a) the Indemnified Party shall have employed such counsel in connection
with the assumption of legal defenses in accordance with the proviso in
the preceding sentence (it being understood, however, that the Offerors
shall not be liable for the expenses of more than one separate counsel
representing the Indemnified Parties who are parties to such action), or
(b) the Offerors shall not have employed counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel of such Indemnified Party
shall be at the expense of the Offerors.
9.3 CONTRIBUTION. If the indemnification provided for in this
Section 9 is required by its terms, but is for any reason held to be
unavailable to or otherwise insufficient to hold harmless an Indemnified
Party under Section 9.1 in respect of any losses, claims, damages,
judgments, liabilities or expenses referred to herein or therein, then the
Offerors shall contribute to the amount paid or payable by such
Indemnified Party as a result of any losses, claims, damages, judgments,
liabilities or expenses referred to herein (a) in such proportion as is
appropriate to reflect the relative benefits received by the Offerors, on
the one hand, and the Indemnified Party, on the other hand, from the
offering of such Capital Securities, or (b) if the allocation provided by
clause (a) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (a) above but also the relative fault of the Offerors, on the one
hand, and the Placement Agents, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and
warranties herein or other breaches which resulted in such losses, claims,
damages, judgments, liabilities or expenses, as well as any other relevant
equitable considerations. The respective relative benefits received by the
Offerors, on the one hand, and the Placement Agents, on the other hand,
shall be deemed to be in the same proportion, in the case of the Offerors,
as the total price paid to the Offerors for the Capital Securities sold by
the Offerors to the Purchaser (net of the compensation paid to the
Placement Agents hereunder, but before deducting expenses), and in the
case of the Placement Agents, as the compensation received by them, bears
to the total of such amounts paid to the Offerors and received by the
Placement Agents as compensation. The relative fault of the Offerors and
the Placement Agents shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue statement of a
18
material fact or the omission or alleged omission of a material fact or
the inaccurate or the alleged inaccurate representation and/or warranty
relates to information supplied by the Offerors or the Placement Agents
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
provisions set forth in Section 9.2 with respect to notice of commencement
of any action shall apply if a claim for contribution is made under this
Section 9.3; PROVIDED, HOWEVER, that no additional notice shall be
required with respect to any action for which notice has been given under
Section 9.2 for purposes of indemnification. The Offerors and the
Placement Agents agree that it would not be just and equitable if
contribution pursuant to this Section 9.3 were determined by pro rata
allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in this Section 9.3. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages, judgments, liabilities or expenses referred to in this
Section 9.3 shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such
action or claim. In no event shall the liability of the Placement Agents
hereunder be greater in amount than the dollar amount of the compensation
(net of payment of all expenses) received by the Placement Agents upon the
sale of the Capital Securities giving rise to such obligation. No person
found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not found guilty of such fraudulent
misrepresentation.
9.4 ADDITIONAL REMEDIES. The indemnity and contribution agreements
contained in this Section 9 are in addition to any liability that the
Offerors may otherwise have to any Indemnified Party.
9.5 ADDITIONAL INDEMNIFICATION. The Company shall indemnify and hold
harmless the Trust against all loss, liability, claim, damage and expense
whatsoever, as due from the Trust under Sections 9.1 through 9.4 hereof.
SECTION 10. RIGHTS AND RESPONSIBILITIES OF PLACEMENT AGENTS.
10.1 RELIANCE. In performing their duties under this Agreement, the
Placement Agents shall be entitled to rely upon any notice, signature or
writing which they shall in good faith believe to be genuine and to be
signed or presented by a proper party or parties. The Placement Agents may
rely upon any opinions or certificates or other documents delivered by the
Offerors or their counsel or designees to either the Placement Agents or
the Purchaser.
10.2 RIGHTS OF PLACEMENT AGENTS. In connection with the performance
of their duties under this Agreement, the Placement Agents shall not be
liable for any error of judgment or any action taken or omitted to be
taken unless the Placement Agents were grossly negligent or engaged in
willful misconduct in connection with such performance or non-performance.
No provision of this Agreement shall require the Placement Agents to
expend or risk their own funds or otherwise incur any financial liability
on behalf of the Purchaser in connection with the performance of any of
their duties hereunder. The Placement Agents shall be under no obligation
to exercise any of the rights or powers vested in them by this Agreement.
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SECTION 11. MISCELLANEOUS.
11.1 DISCLOSURE SCHEDULE. The term "Disclosure Schedule," as used
herein, means the schedule, if any, attached to this Agreement that sets
forth items the disclosure of which is necessary or appropriate as an
exception to one or more representations or warranties contained in
Section 5 hereof. The Disclosure Schedule shall be arranged in paragraphs
corresponding to the section numbers contained in Section 5. Nothing in
the Disclosure Schedule shall be deemed adequate to disclose an exception
to a representation or warranty made herein unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of
the immediately preceding sentence, the mere listing (or inclusion of a
copy) of a document or other item in the Disclosure Schedule shall not be
deemed adequate to disclose an exception to a representation or warranty
made herein unless the representation or warranty has to do with the
existence of the document or other item itself. Information provided by
the Company in response to any due diligence questionnaire shall not be
deemed part of the Disclosure Schedule and shall not be deemed to be an
exception to one or more representations or warranties contained in
Section 5 hereof unless such information is specifically included on the
Disclosure Schedule in accordance with the provisions of this Section
11.1.
11.2 NOTICES. Prior to the Closing, and thereafter with respect to
matters pertaining to this Agreement only, all notices and other
communications provided for or permitted hereunder shall be made in
writing by hand-delivery, first-class mail, telex, telecopier or overnight
air courier guaranteeing next day delivery:
if to the Placement Agents, to:
FTN Financial Capital Markets
845 Crossover Lane, Suite 150
Memphis, Tennessee 38117
Telecopier: 901-435-4706
Telephone: 800-456-5460
Attention: James D. Wingett
and
Keefe, Bruyette & Woods, Inc.
787 7th Avenue, 4th Floor
New York, New York 10019
Telecopier: 212-887-7777
Telephone: 212-541-6668
Attention: Mitchell Kleinman, General Counsel
20
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Telecopier: 212-424-8500
Telephone: 212-424-8000
Attention: Alexander M. Dye, Esq.
and
Sidley Austin Brown & Wood LLP
787 7th Avenue
New York, New York 10019
Telecopier: 212-839-5599
Telephone: 212-839-5300
Attention: Renwick Martin, Esq.
if to the Offerors, to:
Tower Group, Inc.
120 Broadway, 14th Floor
New York, New York 10271-1699
Telecopier: 212-271-5492
Telephone: 212-655-2000
Attention: Francis M. Colalucci
with a copy to:
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
Telecopier: 212-448-1100
Telephone: 212-448-0066
Attention: Steven W. Schuster
All such notices and communications shall be deemed to have been duly
given (a) at the time delivered by hand, if personally delivered, (b) five
business days after being deposited in the mail, postage prepaid, if mailed, (c)
when answered back, if telexed, (d) the next business day after being
telecopied, or (e) the next business day after timely delivery to a courier, if
sent by overnight air courier guaranteeing next day delivery. From and after the
Closing, the foregoing notice provisions shall be superseded by any notice
provisions of the Operative Documents under which notice is given. The Placement
Agents, the Company, and their respective counsel, may change their respective
notice addresses from time to time by written notice to all of the foregoing
persons.
21
11.3 PARTIES IN INTEREST, SUCCESSORS AND ASSIGNS. Except as
expressly set forth herein, this Agreement is made solely for the benefit
of the Placement Agents, the Purchaser and the Offerors and any person
controlling the Placement Agents, the Purchaser or the Offerors and their
respective successors and assigns; and no other person shall acquire or
have any right under or by virtue of this Agreement. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of
each of the parties.
11.4 COUNTERPARTS. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute
one and the same agreement.
11.5 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
11.6 GOVERNING LAW. PURSUANT TO SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK, THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
EACH OF THE TRUST AND THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES (INCLUDING, WITHOUT LIMITATION, THE TRUST), HEREBY
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW
YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY
SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS
CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL
JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.
EACH OF THE TRUST AND THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES (INCLUDING, WITHOUT LIMITATION, THE TRUST), IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
11.7 ENTIRE AGREEMENT. This Agreement, together with the other
Operative Documents and the other documents delivered in connection with
the transactions contemplated by this Agreement, is intended by the
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and
therein. There are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein and therein. This
Agreement, together with the other Operative Documents and the other
documents delivered in connection with the transaction contemplated by
this Agreement, supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
22
11.8 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected, it being intended that all
of the Placement Agents' and the Purchaser's rights and privileges shall
be enforceable to the fullest extent permitted by law.
11.9 DISCLOSURE OF TAX TREATMENT AND TAX STRUCTURE. Notwithstanding
anything herein to the contrary, any party to this Agreement (and each
employee, representative or other agent of any party to this Agreement)
may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the offering and all materials of any
kind, the tax treatment and tax structure of the transactions contemplated
by this Agreement and all materials of any kind (including opinions or
other tax analyses) that are provided to it relating to such tax treatment
and tax structure. However, such information relating to the tax treatment
or tax structure is required to be kept confidential to the extent
necessary to comply with any applicable federal or state securities laws.
For this purpose, "tax structure" means any facts relevant to the federal
income tax treatment of the offering contemplated by this Agreement but
does not include information relating to the identity of the Offerors.
11.10 SURVIVAL. The Placement Agents and the Offerors, respectively,
agree that the representations, warranties and agreements made by each of
them in this Agreement and in any certificate or other instrument
delivered pursuant hereto shall remain in full force and effect and shall
survive the delivery of, and payment for, the Capital Securities.
SIGNATURES APPEAR ON THE FOLLOWING PAGE
23
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance of this Agreement and deliver such counterpart to the Offerors
whereupon this Agreement will become binding between us in accordance with its
terms.
Very truly yours,
TOWER GROUP, INC.
By: /s/ Michael H. Lee
-------------------------------------------
Name: Michael H. Lee
-------------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
TOWER GROUP STATUTORY TRUST III
By: /s/ Francis M. Colalucci
-----------------------------------------
Name: Francis M. Colalucci
-----------------------------------------
Title: Administrator
CONFIRMED AND ACCEPTED,
as of the date first set forth above
FTN FINANCIAL CAPITAL MARKETS,
A DIVISION OF FIRST TENNESSEE BANK, N.A.,
AS A PLACEMENT AGENT
By: /s/ James D. Wingett
-----------------------------------------
Name: James D. Wingett
Title Managing Director
KEEFE, BRUYETTE & WOODS, INC.
A NEW YORK CORPORATION, AS A PLACEMENT AGENT
By: /S/ Peter J. Wirth
-----------------------------------------
Name: Peter J. Wirth
Title: Managing Director
24
DISCLOSURE SCHEDULE
5.14 On December 2, 2004, Tower Group, Inc. entered into a letter agreement with
Cohen Bros & Company to offer up to $13 million in subordinated trust preferred
securities of a trust to be formed by Tower Group, Inc. and to be purchased by a
special purpose entity, which offering is anticipated to have similar structure
to the offering of trust preferred securities consummated on September 30, 2003.
25
EXHIBIT A
FORM OF SUBSCRIPTION AGREEMENT
TOWER GROUP STATUTORY TRUST III
TOWER GROUP, INC.
SUBSCRIPTION AGREEMENT
DECEMBER 15, 2004
THIS SUBSCRIPTION AGREEMENT (this "Agreement") made among Tower Group
Statutory Trust III (the "Trust"), a statutory trust created under the Delaware
Statutory Trust Act (Chapter 38 of Title 12 of the Delaware Code, 12 Del. C.
ss.ss. 3801, ET SEQ.), Tower Group, Inc., a Delaware corporation, with its
principal offices located at 120 Broadway, 14th Floor, New York, New York
10271-1699 (the "Company," and collectively with the Trust, the "Offerors"), and
Preferred Term Securities XVI, Ltd. (the "Purchaser").
RECITALS:
A. The Trust desires to issue 13,000 of its Fixed/Floating Rate Capital
Securities (the "Capital Securities"), liquidation amount $1,000.00
per Capital Security, representing an undivided beneficial interest
in the assets of the Trust (the "Offering"), to be issued pursuant
to an Amended and Restated Declaration of Trust (the "Declaration")
by and among the Company, Wilmington Trust Company ("WTC"), the
administrators named therein, and the holders (as defined therein),
which Capital Securities are to be guaranteed by the Company with
respect to distributions and payments upon liquidation, redemption
and otherwise pursuant to the terms of a Guarantee Agreement between
the Company and WTC, as trustee (the "Guarantee"); and
B. The proceeds from the sale of the Capital Securities will be
combined with the proceeds from the sale by the Trust to the Company
of its common securities, and will be used by the Trust to purchase
an equivalent amount of Fixed/Floating Rate Junior Subordinated
Deferrable Interest Debentures of the Company (the "Debentures") to
be issued by the Company pursuant to an indenture to be executed by
the Company and WTC, as trustee (the "Indenture"); and
C. In consideration of the premises and the mutual representations and
covenants hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF CAPITAL SECURITIES
1.1. Upon the execution of this Agreement, the Purchaser hereby subscribes
for and agrees to purchase from the Trust 13,000 Capital Securities at a price
equal to $1,000.00 per Capital Security (the "Purchase Price") and the Trust
agrees to sell such Capital Securities to the Purchaser for said Purchase Price.
The rights and preferences of the Capital Securities are set forth in the
Declaration. The Purchase Price is payable in immediately available funds on
December 15, 2004, or such other business day as may be designated by the
Purchaser, but in no event later than December 22, 2004 (the "Closing Date").
The Offerors shall provide the Purchaser wire transfer instructions no later
than 1 day following the date hereof.
1.2. The certificate for the Capital Securities shall be delivered by the
Trust on the Closing Date to the Purchaser or its designee.
1.3. The Placement Agreement, dated December 7, 2004 (the "Placement
Agreement"), among the Offerors and the Placement Agents identified therein
includes certain representations and warranties, covenants and conditions to
closing and certain other matters governing the Offering. The Placement
Agreement is hereby incorporated by reference into this Agreement and the
Purchaser shall be entitled to each of the benefits of the Placement Agents and
the Purchaser under the Placement Agreement and shall be entitled to enforce the
obligations of the Offerors under such Placement Agreement as fully as if the
Purchaser were a party to such Placement Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PURCHASER
2.1. The Purchaser understands and acknowledges that neither the Capital
Securities, the Debentures nor the Guarantee have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable securities law, are being offered for sale by the Trust in
transactions not requiring registration under the Securities Act, and may not be
offered, sold, pledged or otherwise transferred by the Purchaser except in
compliance with the registration requirements of the Securities Act or any other
applicable securities laws, pursuant to an exemption therefrom or in a
transaction not subject thereto.
2.2. The Purchaser represents, warrants and certifies that (i) it is not a
"U.S. person" as such term is defined in Rule 902 under the Securities Act, (ii)
it is not acquiring the Capital Securities for the account or benefit of any
such U.S. person, (iii) the offer and sale of Capital Securities to the
Purchaser constitutes an "offshore transaction" under Regulation S of the
Securities Act, and (iv) it will not engage in hedging transactions with regard
to the Capital Securities unless such transactions are conducted in compliance
with the Securities Act and the Purchaser agrees to the legends and transfer
restrictions set forth on the Capital Securities certificate.
A-2
2.3. The Purchaser represents and warrants that it is purchasing the
Capital Securities for its own account, for investment, and not with a view to,
or for offer or sale in connection with, any distribution thereof in violation
of the Securities Act or other applicable securities laws, subject to any
requirement of law that the disposition of its property be at all times within
its control and subject to its ability to resell such Capital Securities
pursuant to an effective registration statement under the Securities Act or
under Rule 144A or any other exemption from registration available under the
Securities Act or any other applicable securities law.
2.4. The Purchaser represents and warrants that it has full power and
authority to execute and deliver this Agreement, to make the representations and
warranties specified herein, and to consummate the transactions contemplated
herein and it has full right and power to subscribe for Capital Securities and
perform its obligations pursuant to this Agreement.
2.5. The Purchaser, a Cayman Islands company whose business includes
issuance of certain notes and acquiring the Capital Securities and other similar
securities, represents and warrants that it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of purchasing the Capital Securities, has had the opportunity to ask
questions of, and receive answers and request additional information from, the
Offerors and is aware that it may be required to bear the economic risk of an
investment in the Capital Securities.
2.6. The Purchaser represents and warrants that no filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any governmental body, agency or court having jurisdiction over the
Purchaser, other than those that have been made or obtained, is necessary or
required for the performance by the Purchaser of its obligations under this
Agreement or to consummate the transactions contemplated herein.
2.7. The Purchaser represents and warrants that this Agreement has been
duly authorized, executed and delivered by the Purchaser.
2.8. The Purchaser represents and warrants that (i) the Purchaser is not
in violation or default of any term of its Memorandum of Association or Articles
of Association, of any provision of any mortgage, indenture, agreement,
instrument or contract to which it is a party or by which it is bound or of any
judgment, decree, order, writ or, to its knowledge, any statute, rule or
regulation applicable to the Purchaser which would prevent the Purchaser from
performing any material obligation set forth in this Agreement; and (ii) the
execution, delivery and performance of and compliance with this Agreement, and
the consummation of the transactions contemplated herein, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or the suspension, revocation, impairment, forfeiture or non-renewal of any
permit, license, authorization or approval applicable to the Purchaser, its
business or operations or any of its assets or properties which would prevent
the Purchaser from performing any material obligations set forth in this
Agreement.
2.9. The Purchaser represents and warrants that the Purchaser is an
exempted company with limited liability duly incorporated, validly existing and
in good standing under the laws of the Cayman Islands, with full power and
authority to perform its obligations under this Agreement.
A-3
2.10. The Purchaser understands and acknowledges that the Company will
rely upon the truth and accuracy of the foregoing acknowledgments,
representations, warranties and agreements and agrees that, if any of the
acknowledgments, representations, warranties or agreements deemed to have been
made by it by its purchase of the Capital Securities are no longer accurate, it
shall promptly notify the Company.
2.11. The Purchaser understands that no public market exists for any of
the Capital Securities, and that it is unlikely that a public market will ever
exist for the Capital Securities.
ARTICLE III
MISCELLANEOUS
3.1. Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, international courier or delivered by hand against written
receipt therefor, or by facsimile transmission and confirmed by telephone, to
the following addresses, or such other address as may be furnished to the other
parties as herein provided:
To the Offerors: Tower Group, Inc.
120 Broadway, 14th Floor
New York, New York 10271-1699
Attention: Francis M. Colalucci
Telecopier: 212-271-5492
To the Purchaser: Preferred Term Securities XVI, Ltd.
c/o Maples Finance Limited
P.O. Box 1093 GT
Queensgate House
South Church Street
George Town, Grand Cayman
Cayman Islands
Attention: The Directors
Telecopier 345-945-7100
Unless otherwise expressly provided herein, notices shall be deemed to
have been given on the date of mailing, except notice of change of address,
which shall be deemed to have been given when received.
3.2. This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
A-4
3.3. Upon the execution and delivery of this Agreement by the Purchaser,
this Agreement shall become a binding obligation of the Purchaser with respect
to the purchase of Capital Securities as herein provided.
3.4. Notwithstanding anything expressed or implied to the contrary, each
Purchaser of Capital Securities (and each employee, representative, or other
agent of a Purchaser) may disclose to any and all persons, without limitation of
any kind, the U.S. tax treatment and U.S. tax structure of the transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax analyses) that are provided to the Purchaser relating to such U.S.
tax treatment and U.S. tax structure as such terms are defined in Treasury
Regulation Section 1.6011-4; provided, that any such disclosure of the U.S. tax
treatment and U.S. tax structure and materials related thereto may not be made
(i) in a manner that would constitute an offer to sell or the solicitation of an
offer to buy the Capital Securities offered herein under applicable securities
laws or (ii) when nondisclosure is reasonably necessary to comply with
applicable securities laws. This authorization of tax disclosure is
retroactively effective to the commencement of the first discussions between the
parties regarding the transactions contemplated herein.
3.5. PURSUANT TO SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH OF THE TRUST, THE
PURCHASER AND THE COMPANY, ON BEHALF OF ITSELF AND ITS SUBSIDIARIES (INCLUDING,
WITHOUT LIMITATION, THE TRUST), HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW
YORK IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT
OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF
LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT.
EACH OF THE TRUST, THE PURCHASER AND THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES (INCLUDING, WITHOUT LIMITATION, THE TRUST), IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
3.6. The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
3.7. This Agreement may be executed in one or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
A-5
3.8. In the event that any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected, it being
intended that all of the Offerors' and the Purchaser's rights and privileges
shall be enforceable to the fullest extent permitted by law.
SIGNATURES APPEAR ON THE FOLLOWING PAGE
A-6
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed as of the day and year first written above.
PREFERRED TERM SECURITIES XVI, LTD.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
IN WITNESS WHEREOF, this Agreement is agreed to and accepted as of the
day and year first written above.
TOWER GROUP, INC.
By:
--------------------------------------------------
Name: Michael H. Lee
Title: President and Chief Executive Officer
TOWER GROUP STATUTORY TRUST III
By:
--------------------------------------------------
Name: Michael H. Lee
Title: Administrator
A-7
EXHIBIT B-1
FORM OF COMPANY COUNSEL OPINION
December 15, 2004
Preferred Term Securities XVI, Ltd. FTN Financial Capital Markets
c/o Maples Finance Limited 845 Crossover Lane, Suite 150
P. O. Box 1093 GT Memphis, Tennessee 38117
Queensgate House
South Church Street Keefe, Bruyette & Woods, Inc.
George Town, Grand Cayman 787 7th Avenue, 4th Floor
Cayman Islands New York, New York 10019
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-1600
Ladies and Gentlemen:
We have acted as counsel to Tower Group, Inc. (the "Company"), a
Delaware corporation in connection with a certain Placement Agreement, dated
December 7, 2004, (the "Placement Agreement"), between the Company and Tower
Group Statutory Trust III (the "Trust"), on one hand, and FTN Financial Capital
Markets and Keefe, Bruyette & Woods, Inc. (the "Placement Agents"), on the other
hand. Pursuant to the Placement Agreement, and subject to the terms and
conditions stated therein, the Trust will issue and sell to Preferred Term
Securities XVI, Ltd. (the "Purchaser"), $13,000,000 aggregate principal amount
of Fixed/Floating Rate Capital Securities (liquidation amount $1,000.00 per
capital security) (the "Capital Securities").
Capitalized terms used herein and not otherwise defined shall have the
same meanings ascribed to them in the Placement Agreement.
The law covered by the opinions expressed herein is limited to the law
of the United States of America and of the State of Delaware and New York.
We have made such investigations of law as, in our judgment, were
necessary to render the following opinions. We have also reviewed (a) the
Company's Articles of Incorporation, as amended, and its By-Laws, as amended,
and (b) such corporate documents, records, information and certificates of the
Company and its Significant Subsidiaries, certificates of public officials or
government authorities and other documents as we have deemed necessary or
appropriate as a basis for the opinions hereinafter expressed. As to certain
facts material to our opinions, we have relied, with your permission, upon
statements, certificates or representations, including those delivered or made
in connection with the above-referenced transaction, of officers and other
representatives of the Company and its Significant Subsidiaries and the Trust.
B-1-1
As used herein, the phrase "to our knowledge" or "to the best of our
knowledge" or other similar phrase means the actual knowledge of the attorneys
who have had active involvement in the transactions described above or who have
prepared or signed this opinion letter, or who otherwise have devoted
substantial attention to legal matters for the Company.
To the extent it may be relevant to the opinions expressed herein, we
have assumed that the parties to the Operative Documents other than the Company
have the power to enter into and perform such documents and to consummate the
transactions contemplated thereby and that such documents have been duly
authorized, executed and delivered by, and constitute legal, valid and binding
obligations of, such parties.
Our opinion as to the enforceability of the Operative Documents is
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law or in a
bankruptcy proceeding) and assumes that the parties seeking enforcement will act
with commercial reasonableness in exercising each of their rights and remedies
thereunder. We further assume that the enforcement of any rights may in all
cases be subject to an implied duty of good faith and fair dealing and to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
We express no opinion on the validity, binding effect or enforceability
under any provisions of the Operative Documents (i) which waive any rights
afforded to any party thereto under any statute or constitutional provisions,
(ii) which waive broadly or vaguely stated rights or future rights, or waive
certain rights or defenses to obligations where such waivers are against
statutes, laws or public policy, or (ii) the breach of which a court concludes
is not material or does not adversely affect the non-breaching party. Insofar as
the indemnity provisions of the Operative Documents may encompass
indemnification with respect to violation of laws, enforcement thereof may be
limited by public policies underlying such laws.
We express no opinion as to the accuracy of factual matters contained
in any exhibits or schedules to the Operative Documents. No opinion is given
herein as to the choice of law or internal substantive rules of law that any
court or other tribunal may apply to the transactions contemplated by the
Operative Documents.
This opinion is issued as of the date hereof and is necessarily limited
to the laws now in effect and the facts and circumstances known to us on the
date hereof. We are not assuming any obligation to review or update this opinion
should applicable law or the existing fact and circumstances change.
Based upon and subject to the foregoing and the further qualifications
set forth below, we are of the opinion as of the date hereof that:
1. The Company is validly existing and in good standing under the laws of the
State of Delaware. Each of the Significant Subsidiaries is validly existing and
in good standing under the laws of its jurisdiction of organization. Each of the
Company and the Significant Subsidiaries has full corporate power and authority
to own or lease its properties and to conduct its business as such business is
currently conducted in all material respects. To the best of our knowledge, all
outstanding shares of capital stock of the Significant Subsidiaries have been
duly authorized and validly issued, and are fully paid and nonassessable and
owned of record and beneficially, directly or indirectly by the Company.
B-1-2
2. The issuance, sale and delivery of the Debentures in accordance with the
terms and conditions of the Placement Agreement and the Operative Documents have
been duly authorized by all necessary actions of the Company. The issuance, sale
and delivery of the Debentures by the Company and the issuance, sale and
delivery of the Trust Securities by the Trust do not give rise to any preemptive
or other rights to subscribe for or to purchase any shares of capital stock or
equity securities of the Company or the Significant Subsidiaries pursuant to the
corporate Articles of Incorporation or Charter, By-Laws or other governing
documents of the Company or the Significant Subsidiaries, or, to the best of our
knowledge, any agreement or other instrument to which either Company or the
Significant Subsidiaries is a party or by which the Company or the Significant
Subsidiaries may be bound.
3. The Company has all requisite corporate power to enter into and perform its
obligations under the Placement Agreement and the Subscription Agreement, and
the Placement Agreement and the Subscription Agreement have been duly and
validly authorized, executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company enforceable in accordance
with their terms, except as the enforcement thereof may be limited by general
principles of equity and by bankruptcy or other laws affecting creditors' rights
generally, and except as the indemnification and contribution provisions thereof
may be limited under applicable laws and certain remedies may not be available
in the case of a non-material breach.
4. Each of the Indenture, the Trust Agreement and the Guarantee Agreement has
been duly authorized, executed and delivered by the Company, and is a valid and
legally binding obligation of the Company enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
receivership, moratorium and other laws affecting the rights and remedies of
creditors generally and of general principles of equity.
5. The Debentures have been duly authorized, executed and delivered by the
Company, are entitled to the benefits of the Indenture and are legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, subject to the effect of bankruptcy, insolvency,
reorganization, receivership, moratorium and other laws affecting the rights and
remedies of creditors generally and of general principles of equity.
6. To the best of our knowledge, neither the Company, the Trust, nor any other
Significant Subsidiaries of the Company is in breach or violation of, or default
under, with or without notice or lapse of time or both, its Articles of
Incorporation or Charter, By-Laws or other governing documents (including
without limitation, the Trust Agreement). The execution, delivery and
performance of the Placement Agreement and the Operative Documents and the
consummation of the transactions contemplated by the Placement Agreement and the
Operative Documents do not and will not (i) result in the creation or imposition
of any material lien, claim, charge, encumbrance or restriction upon any
property or assets of the Company or its Significant Subsidiaries, or (ii)
conflict with, constitute a material breach or violation of, or constitute a
material default under, with or without notice or lapse of time or both, any of
the terms, provisions or conditions of (A) the Articles of Incorporation or
Charter, By-Laws or other governing documents of the Company or its Significant
Subsidiaries, or (B) to the best of our knowledge, any material contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease,
franchise, license or any other agreement or instrument to which the Company or
its Significant Subsidiaries is a party or by which any of them or any of their
respective properties may be bound or (C) any order, decree, judgment,
franchise, license, permit, rule or regulation of any court, arbitrator,
government, or governmental agency or instrumentality, domestic or foreign,
known to us having jurisdiction over the Company or its Significant Subsidiaries
or any of their respective properties which, in the case of each of (i) or (ii)
above, is material to the Company and its Significant Subsidiaries on a
consolidated basis.
B-1-3
7. Except for filings, registrations or qualifications that may be required by
applicable securities laws, no authorization, approval, consent or order of, or
filing, registration or qualification with, any person (including, without
limitation, any court, governmental body or authority) is required under the
laws of the State of New York in connection with the transactions contemplated
by the Placement Agreement and the Operative Documents in connection with the
offer and sale of the Capital Securities as contemplated by the Placement
Agreement and the Operative Documents.
8. To the best of our knowledge (i) no action, suit or proceeding at law or in
equity is pending or threatened to which the Offerors or their Significant
Subsidiaries are or may be a party, and (ii) no action, suit or proceeding is
pending or threatened against or affecting the Offerors or their Significant
Subsidiaries or any of their properties, before or by any court or governmental
official, commission, board or other administrative agency, authority or body,
or any arbitrator, wherein an unfavorable decision, ruling or finding could
reasonably be expected to have a material adverse effect on the consummation of
the transactions contemplated by the Placement Agreement and the Operative
Documents or the issuance and sale of the Capital Securities as contemplated
therein or the condition (financial or otherwise), earnings, affairs, business,
or results of operations of the Offerors and their Significant Subsidiaries on a
consolidated basis.
9. Assuming the truth and accuracy of the representations and warranties of the
Placement Agents in the Placement Agreement and the Purchaser in the
Subscription Agreement, it is not necessary in connection with the offering,
sale and delivery of the Capital Securities, the Debentures and the Guarantee
Agreement (or the Guarantee) to register the same under the Securities Act of
1933, as amended, under the circumstances contemplated in the Placement
Agreement and the Subscription Agreement.
10. Neither the Company nor the Trust is or after giving effect to the offering
and sale of the Capital Securities and the consummation of the transactions
described in the Placement Agreement will be, an "investment company" or an
entity "controlled" by an "investment company," in each case within the meaning
of the Investment Company Act of 1940, as amended, without regard to Section
3(c) of such Act .
B-1-4
The opinion expressed in the first two sentences of numbered paragraph
1 of this Opinion Letter is based solely upon certain certificates and
confirmations issued by the applicable governmental officer or authority with
respect to each of the Company and the Significant Subsidiaries.
[With respect to the foregoing opinions, since no member of this firm
is actively engaged in the practice of law in the States of Delaware, we do not
express any opinions as to the laws of such states and have relied, with your
approval, upon the opinion of Richards, Layton & Finger, P.A. with respect to
matters of Delaware law. Except with respect to the opinions expressed in
paragraphs 2, 6 and 10, we also express no opinion with respect to the Trust
except to the extent such matters are opined upon by Richards, Layton & Finger,
P.A. in the opinion dated the date hereof, including, but not limited to the
enforceability of any Operative Documents with respect to the Trust, without
regard to conflict of law provisions.]
This opinion is rendered to you solely pursuant to Section 3.1(a) of
the Placement Agreement. As such, it may be relied upon by you only and may not
be used or relied upon by any other person for any purpose whatsoever without
our prior written consent.
Very truly yours,
B-1-5
EXHIBIT B-2
FORM OF DELAWARE COUNSEL OPINION
To Each of the Persons
Listed on Schedule A Hereto
Re: Tower Group Statutory Trust III
Ladies and Gentlemen:
We have acted as special Delaware counsel for Tower Group Statutory
Trust III, a Delaware statutory trust (the "Trust"), in connection with the
matters set forth herein. At your request, this opinion is being furnished to
you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust (the "Certificate of Trust"), as
filed in the office of the Secretary of State of the State of Delaware (the
"Secretary of State") on December 3, 2004;
(b) The Declaration of Trust, dated as of December 3, 2004, among Tower
Group, Inc., a Delaware corporation (the "Company"), Wilmington Trust Company, a
Delaware banking corporation ("WTC"), as trustee and the administrators named
therein (the "Administrators");
(c) The Amended and Restated Declaration of Trust of the Trust, dated as
of December 15, 2004 (including the form of Capital Securities Certificate
attached thereto as Exhibit A-1 and the terms of the Capital Securities attached
as Annex I) (the "Declaration of Trust"), among the Company, as sponsor, WTC, as
Delaware trustee (the "Delaware Trustee") and institutional trustee (the
"Institutional Trustee"), the Administrators and the holders, from time to time,
of undivided beneficial interests in the assets of the Trust;
(d) The Placement Agreement, dated December 7, 2004 (the "Placement
Agreement"), among the Company, the Trust, and FTN Financial Capital Markets and
Keefe, Bruyette & Woods, Inc., as placement agents;
(e) The Subscription Agreement, dated December 15, 2004 (the "Subscription
Agreement"), among the Trust, the Company and Preferred Term Securities XIV,
Ltd. (the documents identified in items (c) through (e) being collectively
referred to as the "Operative Documents");
(f) The Capital Securities being issued on the date hereof (the "Capital
Securities");
B-2-1
(g) The Common Securities being issued on the date hereof (the "Common
Securities") (the documents identified in items (f) and (g) being collectively
referred to as the "Trust Securities"); and
(h) A Certificate of Good Standing for the Trust, dated [CERTIFICATE
DATE], 2004, obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined are used as
defined in the Declaration of Trust, except that reference herein to any
document shall mean such document as in effect on the date hereof. This opinion
is being delivered pursuant to Section 3.1 of the Placement Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (h) above. In particular, we
have not reviewed any document (other than the documents listed in paragraphs
(a) through (h) above) that is referred to in or incorporated by reference into
the documents reviewed by us. We have assumed that there exists no provision in
any document that we have not reviewed that is inconsistent with the opinions
stated herein. We have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Declaration
of Trust constitutes the entire agreement among the parties thereto with respect
to the subject matter thereof, including with respect to the creation,
operation, and termination of the Trust, and that the Declaration of Trust and
the Certificate of Trust are in full force and effect and have not been amended
further, (ii) that there are no proceedings pending or contemplated, for the
merger, consolidation, liquidation, dissolution or termination of the Trust,
(iii) except to the extent provided in paragraph 1 below, the due creation, due
formation or due organization, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, formation or organization, (iv) that each
party to the documents examined by us is qualified to do business in each
jurisdiction where such qualification is required generally or necessary in
order for such party to enforce its rights under the documents examined by us,
(v) the legal capacity of each natural person who is a party to the documents
examined by us, (vi) except to the extent set forth in paragraph 2 below, that
each of the parties to the documents examined by us has the power and authority
to execute and deliver, and to perform its obligations under, such documents,
(vii) except to the extent provided in paragraph 3 below, that each of the
parties to the documents examined by us has duly authorized, executed and
delivered such documents, (viii) the receipt by each Person to whom a Capital
Security is to be issued by the Trust (the "Capital Security Holders") of a
Capital Security Certificate for the Capital Security and the payment for the
Capital Securities acquired by it, in accordance with the Declaration of Trust
and the Subscription Agreement, (ix) that the Capital Securities are issued and
sold to the Holders of the Capital Securities in accordance with the Declaration
of Trust and the Subscription Agreement, (x) the receipt by the Person (the
"Common Securityholder") to whom the common securities of the Trust representing
common undivided beneficial interests in the assets of the Trust (the "Common
Securities" and, together with the Capital Securities, the "Trust Securities")
are to be issued by the Trust of a Common Security Certificate for the Common
Securities and the payment for the Common Securities acquired by it, in
accordance with the Declaration of Trust, (xi) that the Common Securities are
issued and sold to the Common Securityholder in accordance with the Declaration
of Trust, (xii) that each of the parties to the documents reviewed by us has
agreed to and received the stated consideration for the incurrence of its
obligations under such documents and (xiii) that each of the documents reviewed
by us (other than the Declaration of Trust) is a legal, valid, binding and
enforceable obligation of the parties thereto in accordance with the terms
thereof. We have not participated in the preparation of any offering materials
with respect to the Trust Securities and assume no responsibility for its
contents.
B-2-2
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder that are
currently in effect.
We express no opinion as to (i) the effect of suretyship defenses, or
defenses in the nature thereof, with respect to the obligations of any
applicable guarantor, joint obligor, surety, accommodation party, or other
secondary obligor or any provisions of the Trust Agreement with respect to
indemnification or contribution and (ii) the accuracy or completeness of any
exhibits or schedules to the Operative Documents. No opinion is given herein as
to the choice of law or internal substantive rules of law that any court or
other tribunal may apply to the transactions contemplated by the Operative
Documents.
We express no opinion as to the enforceability of any particular
provision of the Trust Agreement or the other Operative Documents relating to
remedies after default.
We express no opinion as to the enforceability of any particular
provision of any of the Operative Documents relating to (i) waivers of rights to
object to jurisdiction or venue, or consents to jurisdiction or venue, (ii)
waivers of rights to (or methods of) service of process, or rights to trial by
jury, or other rights or benefits bestowed by operation of law, (iii) waivers of
any applicable defenses, setoffs, recoupments, or counterclaims, (iv) waivers or
variations of provisions which are not capable of waiver or variation under the
Uniform Commercial Code ("UCC") of the State, (v) the grant of powers of
attorney to any person or entity, or (vi) exculpation or exoneration clauses,
indemnity clauses, and clauses relating to releases or waivers of unmatured
claims or rights.
We have made no examination of, and no opinion is given herein as to
the Trustee's or the Trust's title to or other ownership rights in, or the
existence of any liens, charges or encumbrances on, or adverse claims against,
any asset or property held by the Institutional Trustee or the Trust. We express
no opinion as to the creation, validity, attachment, perfection or priority of
any mortgage, security interest or lien in any asset or property held by the
Institutional Trustee or the Trust.
B-2-3
We express no opinion as to the effect of events occurring,
circumstances arising, or changes of law becoming effective or occurring, after
the date hereof on the matters addressed in this opinion letter, and we assume
no responsibility to inform you of additional or changed facts, or changes in
law, of which we may become aware.
We express no opinion as to any requirement that any party to the
Operative Documents (or any other persons or entities purportedly entitled to
the benefits thereof) qualify or register to do business in any jurisdiction in
order to be able to enforce its rights thereunder or obtain the benefits
thereof.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a statutory trust under the Delaware Statutory Trust Act (12 Del. C.
ss. 3801, et seq.) (the "Act"). All filings required under the laws of the State
of Delaware with respect to the creation and valid existence of the Trust as a
statutory trust have been made.
2. Under the Declaration of Trust and the Act, the Trust has the trust
power and authority to (A) execute and deliver the Operative Documents, (B)
perform its obligations under such Operative Documents and (C) issue the Trust
Securities.
3. The execution and delivery by the Trust of the Operative Documents, and
the performance by the Trust of its obligations thereunder, have been duly
authorized by all necessary trust action on the part of the Trust.
4. The Declaration of Trust constitutes a legal, valid and binding
obligation of the Company, the Trustees and the Administrators, and is
enforceable against the Company, the Trustees and the Administrators, in
accordance with its terms.
5. Each of the Operative Documents constitutes a legal, valid and binding
obligation of the Trust, enforceable against the Trust, in accordance with its
terms.
6. The Capital Securities have been duly authorized for issuance by the
Declaration of Trust, and, when duly executed and delivered to and paid for by
the purchasers thereof in accordance with the Declaration of Trust, the
Subscription Agreement and the Placement Agreement, the Capital Securities will
be validly issued, fully paid and, subject to the qualifications set forth in
paragraph 8 below, nonassessable undivided beneficial interests in the assets of
the Trust and will entitle the Capital Securities Holders to the benefits of the
Declaration of Trust. The issuance of the Capital Securities is not subject to
preemptive or other similar rights under the Act or the Declaration of Trust.
B-2-4
7. The Common Securities have been duly authorized for issuance by the
Declaration of Trust and, when duly executed and delivered to the Company as
Common Security Holder in accordance with the Declaration of Trust, will be
validly issued, fully paid and, subject to paragraph 8 below and Section 9.1(b)
of the Declaration of Trust (which provides that the Holder of the Common
Securities are liable for debts and obligations of Trust), nonassessable
undivided beneficial interests in the assets of the Trust and will entitle the
Common Security Holder to the benefits of the Declaration of Trust. The issuance
of the Common Securities is not subject to preemptive or other similar rights
under the Act or the Declaration of Trust.
8. Under the Declaration of Trust and the Act, the Holders of the Capital
Securities, as beneficial owners of the Trust, will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware. We note that the Holders of the Capital Securities and the Holder
of the Common Securities may be obligated, pursuant to the Declaration of Trust,
(A) to provide indemnity and/or security in connection with and pay taxes or
governmental charges arising from transfers or exchanges of Capital Security
Certificates and the issuance of replacement Capital Security Certificates, and
(B) to provide security or indemnity in connection with requests of or
directions to the Institutional Trustee to exercise its rights and powers under
the Declaration of Trust.
9. Neither the execution, delivery and performance by the Trust of the
Operative Documents, nor the consummation by the Trust of any of the
transactions contemplated thereby, requires the consent or approval of, the
authorization of, the withholding of objection on the part of, the giving of
notice to, the filing, registration or qualification with, or the taking of any
other action in respect of, any governmental authority or agency of the State of
Delaware, other than the filing of the Certificate of Trust with the Secretary
of State (which Certificate of Trust has been duly filed).
10. Neither the execution, delivery and performance by the Trust of the
Trust Documents, nor the consummation by the Trust of the transactions
contemplated thereby, (i) is in violation of the Trust Agreement or of any law,
rule or regulation of the State of Delaware applicable to the Trust or (ii) to
the best of our knowledge, without independent investigation, violates,
contravenes or constitutes a default under, or results in a breach of or in the
creation of any lien (other than as permitted by the Operative Documents) upon
any property of the Trust under any indenture, mortgage, chattel mortgage, deed
of trust, conditional sales contract, bank loan or credit agreement, license or
other agreement or instrument to which the Trust is a party or by which it is
bound.
11. Assuming that the Trust will not be taxable as a corporation for
federal income tax purposes, but rather will be classified for such purposes as
a grantor trust under Subpart E, Part I of Subchapter J of the Internal Revenue
Code of 1986, as amended, the Trust will not be subject to any tax, fee or
governmental charge under the laws of the State of Delaware.
B-2-5
The opinions expressed in paragraph 4, 5, 6, 7 and 8 above are subject,
as to enforcement, to the effect upon the Declaration of Trust of (i)
bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation,
fraudulent conveyance and transfer, and other similar laws relating to or
affecting the rights and remedies of creditors generally, (ii) principles of
equity, including applicable law relating to fiduciary duties (regardless of
whether considered and applied in a proceeding in equity or at law), and (iii)
the effect of applicable public policy on the enforceability of provisions
relating to indemnification or contribution.
We consent to your relying as to matters of Delaware law upon this
opinion in connection with the Placement Agreement. We also consent to LeBoeuf,
Lamb, Greene & MacRae, L.L.P. and McLaughlin & Stern LLP's relying as to matters
of Delaware law upon this opinion in connection with opinions to be rendered by
them on the date hereof pursuant to the Placement Agreement.
Except as stated above, without our prior written consent, this opinion
may not be furnished or quoted to, or relied upon by, any other Person for any
purpose.
Very truly yours,
B-2-6
NYB 596174.4 07935 00429
SCHEDULE I
Wilmington Trust Company
FTN Financial Capital Markets
Keefe, Bruyette & Woods, Inc.
Preferred Term Securities XVI, Ltd.
Preferred Term Securities XVI, Inc.
Tower Group, Inc.
EXHIBIT A TO EXHIBIT B-2
CERTIFICATE OF LEGAL EXISTENCE
See attached
EXHIBIT B-3
FORM OF TAX COUNSEL OPINION
December 15, 2004
Tower Group, Inc.
120 Broadway, 14th Floor
New York, New York 10271-1699
Tower Group Statutory Trust III
c/o Tower Group, Inc.
120 Broadway, 14th Floor
New York, New York 10271-1699
FTN Financial Capital Markets
845 Crossover Lane, Suite 150
Memphis, Tennessee 38117
Keefe, Bruyette & Woods, Inc.
787 7th Avenue, 4th Floor
New York, New York 10019
Dear Sirs:
We are acting as special United States tax counsel to Tower Group,
Inc., a corporation organized and existing under the laws of Delaware (the
"Company"), and to Tower Group Statutory Trust III, a statutory trust created
under the laws of Delaware (the "Trust"), in connection with the proposed
issuance of (i) Floating Rate Capital Securities, liquidation amount $1,000.00
per Capital Security (the "Capital Securities") of the Trust, pursuant to the
terms of the Amended and Restated Declaration of Trust dated as of the date
hereof by and among the Company, Wilmington Trust Company, as Delaware trustee,
Wilmington Trust Company, as institutional trustee, and Michael H. Lee, Francis
M. Colalucci and Steven G. Fauth, as Administrators (the "Trust Agreement"),
(ii) Floating Rate Common Securities, liquidation amount $1,000 per common
security (the "Common Securities") of the Trust, pursuant to the terms of the
Trust Agreement, (iii) Floating Rate Junior Subordinated Deferrable Interest
Debentures (the "Corresponding Debentures") of the Company issued pursuant to
the terms of an Indenture dated as of the date hereof from the Company to
Wilmington Trust Company, as trustee (the "Indenture"), which Corresponding
Debentures are to be sold by the Company to the Trust, and (iv) the Guarantee
Agreement of the Company with respect to the Capital Securities dated as of the
date hereof (the "Guarantee") between the Company and Wilmington Trust Company,
as guarantee trustee. The Capital Securities, the Common Securities and the
Corresponding Debentures are to be issued pursuant to the terms of the Placement
Agreement among the Company, the Trust, FTN Financial Capital Markets, and
Keefe, Bruyette & Woods, Inc. dated December 7, 2004 (the "Placement Agreement")
as described in the Offering Circular (the "Offering Circular") dated [OC DATE],
2004 prepared by Preferred Term Securities XVI, Ltd., an entity formed under the
Companies Law of the Cayman Islands, and Preferred Term Securities XVI, Inc., a
Delaware corporation.
B-3-1
In formulating our opinions, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of documents, corporate
records and other instruments as we have deemed necessary or appropriate for
purposes of this opinion including (i) the Offering Circular, (ii) the
Indenture, (iii) the form of the Corresponding Debentures attached as an exhibit
to the Indenture, (iv) the Trust Agreement, (v) the Guarantee, and (vi) the
forms of Capital Securities Certificate and Common Securities Certificate
attached as exhibits to the Trust Agreement (collectively the "Documents").
Furthermore, we have relied upon certain representations made by the Company and
upon the opinion of Richards, Layton & Finger, P.A. as to certain matters of
Connecticut law.
In such examination, we have assumed the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified photostatic copies, the authenticity of
the originals of such latter documents, the genuineness of all signatures and
the correctness of all representations made therein. We have further assumed
that there are no agreements or understandings contemplated therein other than
those contained in the Documents.
In rendering our opinions, we have assumed that the transactions
described in or contemplated by the Documents have been or will be carried out
strictly in accordance with the Documents, and that such Documents accurately
reflect the material facts of such transactions. Any variance in the facts may
result in United States federal income tax consequences that differ from those
reflected in the opinions set forth herein. Our opinion is also based on the
Internal Revenue Code of 1986, as amended, (the "Code"), Treasury regulations,
administrative rulings, judicial decisions, and other applicable authorities.
The statutory provisions, regulations and interpretations on which our opinion
is based are subject to change, possibly retroactively. In addition, there can
be no assurance that the Internal Revenue Service will not take positions
contrary to those stated in our opinion.
Subject to the foregoing, under current law and based upon the facts,
assumptions and qualifications contained herein, it is our opinion that:
1. The Corresponding Debentures will be classified as indebtedness of
the Company for United States federal income tax purposes; and
2. The Trust will be characterized as a grantor trust and not as an
association taxable as a corporation for United States federal
income tax purposes.
The opinions we express herein are limited solely to matters governed
by the federal income tax laws of the United States. Our opinion is provided
solely to you as a legal opinion only, and not as a guaranty or warranty, and is
limited to the specific transactions, documents, and matters described above. No
opinion may be implied or inferred beyond that which is expressly stated in this
letter.
B-3-2
We express no opinion with respect to any matter not specifically
addressed by the foregoing opinions, including state or local tax consequences,
or any federal, state, or local issue not specifically referred to and discussed
above including, without limitation, the effect on the matters covered by this
opinion of the laws of any other jurisdiction.
We are furnishing this opinion to you solely for your benefit in
connection with the issuance of the Capital Securities, the Common Securities
and the Corresponding Debentures, and this opinion is not to be relied upon for
any other purpose or by any other person without our express written consent.
Notwithstanding the foregoing, (i) copies of this opinion letter may be provided
for the benefit of [RATING AGENCY] and (ii) you (and each of your employees,
representatives and other agents) may disclose this letter to any and all
persons, without limitation of any kind, to the extent such disclosure may be
relevant to understanding the tax treatment or tax structure of any transaction
contemplated by the Placement Agreement. We disclaim any obligation to update
this opinion letter for events occurring or coming to our attention after the
date hereof.
Very truly yours,
B-3-3
Tower Group, Inc.
December 15, 2004
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Robert A.N. Cudd
Re: Representations Concerning the Issuance of Fixed/Floating
Rate Junior Subordinated Deferrable
Interest Debentures (the "Corresponding Debentures")
to Tower Group Statutory Trust III (the "Trust")
and Sale of Trust Securities
(THE "TRUST SECURITIES") OF THE TRUST
Dear Sirs:
In accordance with your request, Tower Group, Inc. (the "Company")
hereby makes the following representations in connection with the preparation of
your opinion letter as to the United States federal income tax consequences of
the issuance by the Company of the Corresponding Debentures to the Trust and the
sale of the Trust Securities.
The Company hereby represents that:
(1) The sole assets of the Trust will be the Corresponding Debentures, any
interest paid on the Corresponding Debentures to the extent not
distributed, proceeds of the Corresponding Debentures, or any of the
foregoing.
(2) The Company intends to use the net proceeds from the sale of the
Corresponding Debentures for general corporate purposes.
(3) The Trust was not formed to conduct any trade or business and is not
authorized to conduct any trade or business. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities, (ii)
using the proceeds from the sale of Trust Securities to acquire the
Corresponding Debentures, and (iii) engaging only in activities necessary
or incidental thereto.
(4) The Trust was formed to facilitate direct investment in the assets of
the Trust, and the existence of multiple classes of ownership is
incidental to that purpose. There is no intent to provide holders of such
interests in the Trust with diverse interests in the assets of the Trust.
(5) The Company intends to create a debtor-creditor relationship between
the Company, as debtor, and the Trust, as a creditor, upon the issuance
and sale of the Corresponding Debentures to the Trust by the Company. The
Company will (i) record and at all times continue to reflect the
Corresponding Debentures as indebtedness on its separate books and records
for financial accounting purposes, and (ii) treat the Corresponding
Debentures as indebtedness for all United States federal, state and local
income tax purposes.
B-3-4
(6) During each year, the Trust's income will consist solely of payments
made by the Company with respect to the Corresponding Debentures. Such
payments will not be derived from the active conduct of a financial
business by the Trust. Both the Company's obligation to make such payments
and the measurement of the amounts payable by the Company are defined by
the terms of the Corresponding Debentures. Neither the Company's
obligation to make such payments nor the measurement of the amounts
payable by the Company is dependent on income or profits of the Company or
any affiliate of the Company.
(7) The Company has reviewed projections of earnings, cash flow, capital
and surplus and other relevant financial and economic data relating to the
Company and its affiliates. Based on the current and estimated net cash
flow and the projections of earnings, cash flow, capital and surplus of
the Company and its affiliates, the Company believes its net cash flow
will be in excess of the amount of principal and interest required to be
paid in accordance with the terms of the Corresponding Debentures and the
Company expects that it will be able to make, and will make, timely
payment of principal and interest in accordance with the terms of the
Corresponding Debentures with available capital or accumulated net cash
flow.
(8) The principal insurance operating subsidiary of the Company has
received either a financial strength rating of at least B+ with a neutral
or positive outlook from A.M. Best Company, Inc., or an investment grade
financial strength rating from either Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc. or Fitch Ratings.
(9) The terms and conditions of the Corresponding Debentures, including
the interest rate, were determined on an arm's length basis.
(10) The Company presently has no intention to defer interest payments on
the Corresponding Debentures, and it considers the likelihood of such a
deferral to be remote because, if it were to exercise its right to defer
payments of interest with respect to the Corresponding Debentures, it
would not be permitted to declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with
respect to, any capital stock of the Company or any affiliate of the
Company (other than payments of dividends or distributions to the Company)
or make any payment of principal of or interest or premium, if any, on or
repay, repurchase, or redeem any debt securities of the Company or any
affiliate of the Company that rank PARI PASSU in all respects with or
junior in interest to the Corresponding Debentures, in each case subject
to limited exceptions stated in Section 2.11 of the Indenture to be
entered into in connection with the issuance of the Corresponding
Debentures.
B-3-5
(11) Immediately after the issuance of the Corresponding Debentures, the
debt-to-equity ratio of the Company (as determined for financial
accounting purposes) will be no higher than three to one (3 : 1). The
Company has no plan or intention to issue debt that would cause such ratio
to exceed three to one (3 : 1). For purposes of this paragraph 11, (i) the
Corresponding Debentures will be treated as debt and payments thereon will
be treated as interest, (ii) other debt (as determined for financial
accounting purposes) shall include both short-term and long-term
indebtedness of the Company, and (iii) equity (as determined for financial
accounting purposes) shall include capital stock, preferred stock, if any,
paid in surplus and retained earnings of the Company.
(12) To the best of our knowledge, the Company's subsidiaries are
currently in compliance with all applicable federal, state, and local
capital requirements, except to the extent that failure to comply with any
such requirements would not have a material adverse effect on the Company
and its subsidiaries.
(13) For purposes hereof, you may rely on the representations made by the
Company in the Placement Agreement dated as of December 7, 2004, by and
among FTN Financial Capital Markets, Keefe, Bruyette & Woods, Inc., the
Trust and the Company.
(14) The Company will not issue any class of common stock or preferred
stock senior in rights (such as payment rights and liquidation preference)
to the Corresponding Debentures during their term.
(15) The Internal Revenue Service has not challenged the interest
deduction on any class of the Company's subordinated debt in the last ten
(10) years on the basis that such debt constitutes equity for federal
income tax purposes.
The above representations are accurate as of the date hereof and will
continue to be accurate through the issuance of the Trust Securities, unless you
are otherwise notified by us in writing. The undersigned understands that you
will rely on the foregoing in connection with rendering certain legal opinions,
and possesses the authority to make the representations set forth in this letter
on behalf of the Company.
Very truly yours,
Tower Group, Inc.
By:
-----------------------------------------
Name:
Title:
B-3-6
EXHIBIT C
SIGNIFICANT SUBSIDIARIES
Tower Insurance Company of New York
Tower Risk Management Corp.
NYB 596174.4 07935 00429
EXHIBIT D
FORM OF QUARTERLY REPORT
Preferred Term Securities XVI, Ltd.
c/o The Bank of New York
101 Barclay Street, Floor 8-East
CDO Unit
New York, New York 10286
Attention: Franco Talavera
CDO Relationship Manager
PLEASE COMPLETE FOR THE PRINCIPAL INSURANCE OPERATING SUBSIDIARY
AS OF YEAR END _______, 20__
NAIC Risk Based Capital Ratio (authorized control level) _______%
AS OF [MARCH 31, JUNE 30, SEPTEMBER 30, OR DECEMBER 31,] 20___
Total Policyholders' Surplus $_______
Consolidated Debt to Total Policyholders' Surplus _______%
Total Assets $_______
NAIC Class 1 & 2 Rated Investments to Total Fixed Income Investments _______%
NAIC Class 1 & 2 Rated Investments to Total Investments _______%
Return on Policyholders' Surplus _______%
FOR PROPERTY & CASUALTY COMPANIES
EXPENSE RATIO _______%
LOSS AND LAE RATIO _______%
COMBINED RATIO _______%
NET PREMIUMS WRITTEN (ANNUALIZED) TO POLICYHOLDERS' SURPLUS _______%
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Naic Risk Based Capital Ratio-P&C (Total Adjusted Capital/authorized Control Level Risk-based
Capita/)/2
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Naic Risk Based Capital Ratio-life ((Total Adjusted Capital-asset Valuation Reserve)/authorized
Control Level Risk-based Capita/)/2
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Total Capital and Surplus-life Common Capital Stock + Preferred Capital
Stock + Aggregate Write-ins for Other Than Special Surplus Funds
Surplus Notes +Gross Paid-in and Contributed Surplus + Aggregate
Write-ins for Special Surplus Funds + Unassigned Funds (Surplus) -
Treasury Stock
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Total Capital and Surplus-P&C Aggregate Write-ins for Special Surplus Funds +
Common Capital Stock + Preferred Capital Stock + Aggregate Writ
Other Than Special Surplus Funds + Surplus Notes +Gross Pai
Contributed Surplus + Unassigned Funds (Surplus) - Treasury Stock
- -------------------------------------------------------------------------------------------------------------------------------
Total Class 1 & 2 Rated Investments to Total (Total Class 1 + Total Class 2 Rated Investments)/total Fixed
Fixed Income Investments Income Investments
- -------------------------------------------------------------------------------------------------------------------------------
Total Class 1 & 2 Rated Investments to (Total Class 1 + Total Class 2 Rated Investments)/total
Total Investments Investments
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets Total Assets
- -------------------------------------------------------------------------------------------------------------------------------
Return On Policyholders' Surplus Net Income/policyholders' Surplus
- -------------------------------------------------------------------------------------------------------------------------------
Expense Ratio Other Underwriting Expenses Incurred/net Premiums Earned
- -------------------------------------------------------------------------------------------------------------------------------
Loss and Lae Ratio (Losses Incurred + Loss Expenses Incurred)/net Premiums Earned
- -------------------------------------------------------------------------------------------------------------------------------
Combined Ratio Expense Ratio + Loss and Lae Ratio
- -------------------------------------------------------------------------------------------------------------------------------
Net Premiums Written (Annualized) to Net Premiums Written/policyholders' Surplus
Policyholders' Surplus
- --------------------------------------------------------------------------------------------------------------------------------