FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 13, 2006
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Tower Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 000-50990 13-3894120
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(State or other jurisdiction or Commission File (IRS Employer Identification
incorporation) Number: No.)
120 Broadway, 31st Floor, New York, NY 10271
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 655-2000
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.133-4(c))
Item 1.01 Entry into a Material Definitive Agreement
On November 13, 2006, the Company entered into a Stock Purchase Agreement (the
"Acquisition Agreement") to acquire all of the outstanding shares of stock of
Preserver Group, Inc. ("Preserver"). The sellers are certain individuals and
trusts and companies affiliated with them. The Company agreed to pay
$68,250,000, subject to adjustment for certain expenses and book value
adjustments, to the sellers. This amount will be used to acquire the outstanding
shares and to satisfy all outstanding debt of Preserver owed to the sellers.
Approximately $12 million of trust preferred securities will remain outstanding
as a liability of Preserver. An additional purchase price of up to $13 million
may be payable approximately three years following the closing if Preserver has
favorable development on its loss and loss adjustment expense reserves as of
June 30, 2006.
The Acquisition Agreement contains representations, warranties, covenants and
indemnities which are customary for this type of transaction. The closing of the
transaction is subject to regulatory approval and other customary closing
conditions. The Acquisition Agreement may be terminated by the Company or the
sellers if the closing does not occur before June 30, 2007.
On November 13, 2006, the Company entered into a Stock Purchase Agreement (the
"Preferred Stock Purchase Agreement") with CastlePoint Reinsurance Company, Ltd.
("CastlePoint Re") pursuant to which the Company agreed to issue and sell 40,000
shares of non-cumulative convertible perpetual preferred stock (the "Preferred
Stock") to CastlePoint Re for aggregate consideration of $40 million. The
Preferred Stock Purchase Agreement provides for the closing of the issuance and
sale of the Preferred Stock to occur on December 4, 2006. The Preferred Stock
will have a liquidation preference of $1,000 per share. Dividends will be
non-cumulative and will be payable quarterly at the rate of 8.66% per annum. If
dividends on the Preferred Stock are not declared and paid for any period, no
dividends may be declared on the Company's common stock for such period. The
Preferred Stock is redeemable by the Company at any time, in whole or in part,
at a price per share equal to the liquidation preference plus declared and
unpaid dividends. If the Company completes an underwritten public offering of
common stock in the future, 30,000 shares of the Preferred Stock will be
mandatorily convertible into the Company's common stock and the other 10,000
shares of Preferred Stock will be convertible into the Company's common stock at
the option of the holder, in each case at a price per share of common stock
equal to the price per share in the public offering. In the event of a change in
control of the Company, the Preferred Stock will also be convertible at the
option of the holder into shares of the Company's common stock worth $40 million
(plus declared and unpaid dividends), valued at the value per share of common
stock in the change in control transaction. The Preferred Stock will have no
voting rights except as required by law, except that if the Company fails to pay
six dividends, whether or not consecutive, the holders of the Preferred Stock,
voting as a separate class, will be entitled to elect one director to the
Company's board of directors until the Company has thereafter paid in full at
least four dividends, whether or not consecutive.
In connection with the issuance and sale of the Preferred Stock, the Company
agreed to pay a placement fee to CastlePoint Re, in an amount of up to $400,000.
The Preferred Stock Purchase Agreement includes customary representations,
warranties, covenants and indemnities for transactions of this nature.
CastlePoint Re has agreed not to transfer any of the shares of Preferred Stock
or any shares of common stock issued upon conversion of the Preferred Stock for
a period of 180 days after the date of the Preferred Stock Purchase Agreement.
At the closing of the issuance of the Preferred Stock, the Company and
CastlePoint Re will enter into a registration rights agreement pursuant to which
the Company will agree to file a registration statement to register the resale
of the Preferred Stock and any shares of common stock that are issued upon
conversion of the Preferred Stock, on up to two separate occasions if required
by CastlePoint Re, and to grant CastlePoint Re unlimited "piggyback" rights to
have the Preferred Stock and any shares of common stock that are issued upon
conversion of the Preferred Stock included in other registration statements
filed to register other securities of the Company.
Item 3.02 Unregistered Sales of Equity Securities
Please see the third, fourth and fifth paragraphs under Item 1.01 above. The
Preferred Stock was issued in a private placement in reliance on Regulation D
under the Securities Act of 1933, as amended, in reliance on the absence of
general solicitation or general advertising and on the provisions of the
Preferred Stock Purchase Agreement, including the representations and warranties
made by CastlePoint Re and the provisions restricting transfers.
The following exhibits are filed as part of this report.
Number Description
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99.1 Copy of press release issued by Tower Group, Inc. dated November 14, 2006.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Tower Group, Inc.
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(Registrant)
Date November 14, 2006
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/s/ Stephen L. Kibblehouse
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(Signature)
Stephen L. Kibblehouse
Senior Vice President &
General Counsel