Exhibit 4.2
PURCHASE AGREEMENT
This PURCHASE AGREEMENT is made as of the 30th day of June, 2001, by
and between Tower Group, Inc. (the "Company"), a company organized under the
laws of Delaware and PXRE Reinsurance Ltd., a company organized under the laws
of Bermuda ("PXRE").
WHEREAS, PXRE is interested in acquiring an option to acquire the
Company's stock at the end of a five year period; and
WHEREAS, the Company intends to contribute the proceeds of this option
to the capital and surplus of its wholly owned subsidiary, Tower Insurance
Company of New York ("Tower");
NOW THEREFORE, in consideration of the promises and agreements set
forth herein, the parties agree as follows:
1. PURCHASE AND SALE OF OPTION
1.1 SALE AND ISSUANCE OF AN OPTION TO PURCHASE SHARES.
(A) PURCHASE OF OPTION. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to sell and issue to PXRE, and PXRE hereby
agrees to purchase from the Company an option (the "Option") to purchase 333,000
shares of the Company's Common Stock, $.01 par value (the "Shares") representing
approximately 9% of the Company's Common Stock on a fully diluted basis as of
the date hereof.
(B) PURCHASE PRICE OF THE OPTION. In consideration for the Option,
PXRE agrees to pay $4,930,000 million on or before June 30, 2001 (the "Purchase
Price"). Additional consideration for the purchase of the Shares shall be due
upon exercise of the Option as discussed in Section 2.
1.2 CLOSING. The closing of the sale to, and purchase of the Option
by, PXRE under this Agreement (the "Closing") shall take place on June 30, 2001
(the "Closing Date") at the offices of the Company, or at such other place as
the Company and PXRE may mutually agree.
2. THE OPTION
2.1 ISSUANCE. The Company will issue an Option to PXRE upon receipt
of the Purchase Price subject to the terms and conditions of this Section 2.
2.2 EXERCISE OF THE OPTION
(A) TERM AND EXERCISE PERIOD. Subject to Section 2.4 below, the
Option shall be exercisable, in whole or in part, on or after June 30, 2006 (the
"Exercise Date") at an exercise price of $30 per Share (the "Exercise Price"),
subject to adjustment as provided in Section 2.3. The Option shall expire on
July 31, 2006.
(B) SHARE OWNERSHIP OF PXRE. Upon exercise of the Option by PXRE in
full, PXRE has the right to receive an aggregate of 333,000 Shares for an
exercise price of $9,990,000.
(C) DELIVERY. Subject to the terms and conditions hereof, upon
exercise of the Option and receipt of payment from PXRE by wire transfer to an
account designated by the Company, the Company shall deliver to PXRE
certificates representing the Shares purchased by PXRE.
(D) COMPANY'S RIGHT OF FIRST REFUSAL. In the event PXRE desires to
sell or transfer any Shares received upon exercise of the Option, PXRE shall
deliver to the Company a written notice of its intention or desire to sell or
transfer (the "Transfer Notice") any or all of such Shares to a third person
(the "Offeree"). The Company shall have the irrevocable and exclusive first
option, but not the obligation, within thirty (30) days of the receipt of such
Transfer Notice to notify PXRE of its intent to purchase all of such Shares on
the same terms and conditions as stated in the Transfer Notice. The Transfer
Notice shall also specify the name and address of the Offeree, the terms of the
proposed Transfer and a copy of the offer received by the Offeree. In the event
the Company intends to purchase PXRE's Shares subject to the Transfer Notice,
the closing for such purchase shall occur within sixty (60) days of receipt by
PXRE of a notice from the Company indicating such intent.
2.3 ADJUSTMENTS TO OPTION-CAPITAL ADJUSTMENTS.
In case of any stock split or reverse stock split, stock dividend,
reclassification of the Common Stock, recapitalization, merger or consolidation,
or like capital adjustment affecting the Common Stock of the Company (each, an
Adjustment), the exercise price in effect at the time of the effective date for
such Adjustment shall be proportionally adjusted so that PXRE shall be entitled
to receive the aggregate number and kind of Shares which, if the Option had been
exercised by PXRE immediately prior to such date, PXRE would have owned upon
such exercise and been entitled to received upon such Adjustment (and for such
purposes PXRE shall, to the extent relevant, be deemed to have exercised this
Option immediately prior to the record date or the effective date, as the case
may be, for the Adjustment). In all other respects the provisions of this
Section shall be applied in a fair, equitable and reasonable manner so as to
give effect, as nearly as may be, to the purposes hereof. A rights offering to
stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
2.4 COMPANY'S OPTION TO CEDE REINSURANCE IN LIEU OF OPTION EXERCISE
(A) PXRE's right to exercise this Option shall terminate if the
Company satisfies each of the following conditions:
(1) The Company causes its wholly owned subsidiary, Tower, to
grant PXRE (or its Permitted Assigns) a right of refusal with respect to all
quota share reinsurance cessions made by Tower during the five year period
commencing on the date hereof and terminating on December 31, 2005, provided,
however, that this condition will be deemed satisfied if the A.M. Best Financial
Strength Rating of PXRE Reinsurance Company is downgraded below "A." For
purposes of this subsection, PXRE's Permitted Assigns shall include any
affiliated reinsurer with an A.M. Best Financial Strength Rating of "A" or
higher, including, without limitation, PXRE Reinsurance Company and PXRE
Reinsurance (Barbados) Ltd. For avoidance of doubt, PXRE or its Permitted
Assigns shall be under no obligation to bind any reinsurance presented to them
by Tower.
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(2) The Company causes either of its wholly owned subsidiaries,
Tower or Tower Risk Management Corporation ("TRM"), to present reinsurance
submissions to PXRE or its Permitted Assigns involving gross written premiums of
at least $25 million per year during each calendar year commencing 2001 through
2005. For avoidance of doubt, PXRE or its Permitted Assigns shall be under no
obligation to bind any reinsurance submissions presented to them by Tower or TRM
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants that:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business, properties, results of operations or financial
condition.
3.2 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and stockholders, necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder, and the authorization, issuance, sale and delivery of the
Option being sold hereunder has been taken. This Agreement constitutes a valid
and legally binding obligation of the Company enforceable in accordance with its
terms, except (I) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally and (II) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
3.3 VALID ISSUANCE OF COMMON STOCK. The Shares when issued, sold and
delivered upon exercise of the Option by PXRE in accordance with the terms of
this Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and under
applicable state and federal securities laws.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company consists of 10 million shares, consisting of 8 million shares of
Common Stock, par value $.01, and 2 million shares of Preferred Stock, par value
$.01. As of the date hereof, 2,500,000 shares of Common Stock and 60,000 shares
of Preferred Stock are issued and outstanding, all of which are validly issued,
fully paid and nonassessable (collectively, the "Outstanding Shares"). None of
the issued and outstanding shares of Common Stock or Preferred Stock was issued
in violation of any preemptive rights. Except as set forth on Schedule 3.4
hereto, there are no options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the capital
stock of the Company or obligating the Company to issue or sell any shares of
capital stock of, or any other interest in, the Company. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of Common Stock or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
other Person. There are no voting trusts, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any of the Outstanding Shares.
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3.5 NO CONFLICT. The execution, delivery and performance of this
Agreement by the Company do not and will not (A) violate, conflict with or
result in the breach of any provision of the certificate of incorporation or
by-laws (or similar organizational documents) of the Company, (B) conflict with
or violate any applicable law, judgment or governmental order applicable to the
Company, or any of its respective assets, properties or businesses, or (C)
conflict with, result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result in
the creation of any encumbrance on any of the Shares or on any of the assets or
properties of the Company pursuant to, any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which the Company is a party or by which any of the
Shares or any of such assets or properties is bound or affected, or would impair
the ability of the Company to execute, deliver or perform its obligations under
this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF PXRE.
PXRE hereby represents and warrants that:
4.1 AUTHORIZATION. PXRE has full power and authority to enter into
this Agreement, and this Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms. All corporate action on
the part of PXRE, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the performance of
all obligations of PXRE hereunder has been taken. This Agreement constitutes a
valid and legally binding obligation of PXRE enforceable in accordance with its
terms, except (I) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (II) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies.
4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
PXRE in reliance upon PXRE's representation to the Company, which by PXRE's
execution of this Agreement PXRE hereby confirms, that the Shares will be
acquired for investment for PXRE's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that PXRE
has no present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, PXRE further represents that
PXRE does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to the Option or any of the Shares upon the exercise of the
Option.
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4.3 DISCLOSURE OF INFORMATION. PXRE believes it has received all the
information it considers necessary or appropriate for deciding whether to
purchase the Shares. PXRE further represents that it has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Option, as applicable, and the business,
properties, prospects and financial condition of the Company. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 3 of this Agreement or the right of PXRE to rely thereon.
4.4 ACCREDITED INVESTOR. PXRE is an "accredited investor" within the
meaning of Rule 501 of Regulation D of the Securities Act of 1933 (the
"Securities Act"), as presently in effect.
4.5 RESTRICTED SECURITIES. PXRE understands that the Option and the
Shares upon the exercise of the Option by PXRE are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act, only in certain limited
circumstances. In this connection, PXRE represents that it is familiar with Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
4.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, PXRE further agrees not to make any
disposition of all or any portion of the Shares unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by Section
2.2(D) and this Section 4.6 provided and to the extent this Section is then
applicable, and:
(A) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(B) (I) PXRE shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (II) if reasonably
requested by the Company, PXRE shall have furnished the Company with an opinion
of counsel, reasonably satisfactory to the Company that such disposition will
not require registration of such shares under the Securities Act. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144 except in unusual circumstances.
(C) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by PXRE to an affiliate of PXRE or to an employee, officer, director or
consultant of PXRE or any affiliate of PXRE.
4.7 LEGENDS. It is understood that the certificates evidencing the
Shares upon exercise of the Option will bear the following legend:
"These securities have not been registered under the Securities Act
of 1933, as amended. They may not he sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required."
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5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.
The obligations of PXRE under Section 1.1 of this Agreement are subject
to the fulfillment on or before the Closing of the following condition, the
waiver of which shall not be effective against PXRE unless it consents in
writing thereto: the representations and warranties of the Company contained in
Section 3 shall be true on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of such
Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to PXRE under this Agreement are subject
to the fulfillment on or before the Closing, as applicable, of each of the
following conditions by that PXRE:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of PXRE contained in Section 4 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the Closing.
6.2 PAYMENT OF PURCHASE PRICE. PXRE shall have delivered the
Purchase Price specified in Section 1.1.
7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and PXRE contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of PXRE or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Shares), provided, however, that the Option may not be
assigned or transferred by PXRE (other than to PXRE Group Ltd. or the Permitted
Assigns) without the prior written consent of the Company. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7.3 NEW YORK GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York as applied to agreements
entered into and to be performed entirely within New York. Any dispute,
controversy or claim between the parties arising in connection with this
Agreement or any further agreements resulting therefrom shall he exclusively
judged by the competent court in the State of New York and the parties agree to
submit to the jurisdiction of the State of New York.
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7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 NOTICES. All notices hereunder shall be in writing. Notices may
be delivered (I) personally by overnight courier, (II) by facsimile (with
confirmation of delivery) or by first class mail, return receipt requested, to
the following addresses. Notice shall be deemed effective upon receipt.
If to Tower Group: Xxxxxxx Xxx, President
Tower Group, Inc.
000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile:(000) 000-0000
If to PXRE: Xxxxxxx X. Xxxxx, President
PXRE Reinsurance Ltd.
Xxxxx 000
00 Xxxxxx Xxxxxx
Xxxxxxxx XX 00
Bermuda
Facsimile:(000) 000-0000
7.7 EXPENSES. Each of the parties shall pay all costs and expenses
incurred or to be incurred by it in negotiating, executing, delivering, and
preparing this Agreement.
7.8 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
7.9 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7.10 AMENDMENT. This Agreement may not be amended or modified
without the prior written consent of the Company and PXRE.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TOWER GROUP, INC.
By: /s/ Xxxxxxx X. Xxx
----------------------
Name: Xxxxxxx Xxx
Title: President
PXRE REINSURANCE LTD.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------
Name: Xxxxxxx X. Xxxxx
Title: President
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SCHEDULE 3.4
OPTIONS AND WARRANTS:
1. Warrant issued to American Re-insurance Company ("AMRE") for 583,333
shares of Common Stock
2. Options issued to employees for an aggregate of 250,000 shares of
Common Stock
CONTRACTUAL OBLIGATIONS
1. Redemption of shares of Series A Preferred Stock under certain
circumstances in accordance with terms of Series A Preferred Stock.
2. Preemptive rights of holders of Series A Preferred Stock to purchase
prorata their fully diluted interest of any additional issuance of
capital stock.
3. Voting Agreement between the Company and AMRE dated January 15,
1997.
4. Stockholders Agreement among the Company, AMRE and certain
stockholders dated January 15, 1997.
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