Exhibit 99.3
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
A. Existing LOC
- --------------------------------------------------------------------------------
Account Party: Trenwick Holdings Limited (the "Account Party").
- --------------------------------------------------------------------------------
Banks: All of the Banks (the "Existing Banks") with
commitments under existing LOC (the "Existing LOC")
pursuant to the existing credit agreement (the
"Existing Credit Agreement").
- --------------------------------------------------------------------------------
Amount: $182.5 million, with each of the Existing Banks'
commitment permanently reduced pro rata to reflect
the reduction of the Existing LOC from approximately
$226 million to $182.5 million; provided that at
least 91.25% (the "Renewal Percentage") of the
Existing Banks (as determined by reference to each
Existing Bank's commitment before giving effect to
the above-referenced reduction) elect to participate
in the Renewal LOC (as defined below).
- --------------------------------------------------------------------------------
Beneficiary: Lloyd's (in support of the underwriting of syndicates
839 and 44).
- --------------------------------------------------------------------------------
Expiration: December 31, 2005.
- --------------------------------------------------------------------------------
B. Renewal LOC
- --------------------------------------------------------------------------------
Account Party: The Account Party.
- --------------------------------------------------------------------------------
Banks: The renewal LOC (the "Renewal LOC" and, together with
the Existing LOC Facility, the "LOC Facility") will
include all of the Existing Banks who elect to
participate in the Renewal LOC ("the Renewing Banks,"
with any of the Existing Banks who do not participate
in the Renewal LOC being referred to herein the
"Nonrenewing Banks") with each of the Renewing Banks
increasing its respective commitment pro rata to
reflect the termination of the commitments of the
Nonrenewing Banks; provided that the Existing Banks
constituting the Renewal Percentage elect to
participate in the Renewal LOC.
- --------------------------------------------------------------------------------
Amount: $182.5 million, subject to reduction on a dollar for
dollar basis upon drawings being made on the Existing
LOC.
- --------------------------------------------------------------------------------
Beneficiary: Lloyd's (in support of Syndicates 839 and 44).
- --------------------------------------------------------------------------------
Effective Date January 1, 2006
- --------------------------------------------------------------------------------
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
Expiration: December 31, 2006.
- --------------------------------------------------------------------------------
C. Terms applicable to the LOC Facility
- --------------------------------------------------------------------------------
Guarantors: Trenwick Group Ltd. ("Trenwick") and each existing
and future direct and indirect subsidiary of Trenwick
(other than the Account Party), to the extent
permitted by law or applicable regulatory
authorities.
- --------------------------------------------------------------------------------
Security: The Nonrenewing Banks will continue to have their
respective obligations under the Existing LOC secured
by a pledge of 100% of the stock and equity interests
of La Salle Re Holdings Limited and La Salle Re
Limited (the "Existing Collateral").
The Renewing Banks shall have their respective
obligations under the Existing LOC and the Renewal
LOC secured by the following, to the extent permitted
by applicable law and instruments governing the
currently outstanding indebtedness of Holdings and
its subsidiaries: (i) the Existing Collateral (which
shall be pari passu with the liens in favor of the
Nonrenewing Banks), (ii) a pledge of 100% of the
stock and equity interests now or hereafter owned by
Holdings and its direct and indirect subsidiaries
(other than the Existing Collateral), and (iii)
substantially all of the present and future assets
and property of Holdings, each direct and indirect
U.S. nonregulated subsidiary of Holdings and each
direct and indirect Non-U.S. subsidiary of Holdings
(which security shall include, without limitation,
the current and future profits from Trenwick America
and the OAK dedicated entities).
- --------------------------------------------------------------------------------
Pricing: o Nonrenewing Banks:
o Same as the Existing Credit
Agreement.
o Renewing Banks:
o 500 bps per annum on each Renewing
Bank's commitment under the Existing
LOC during the period that the
Existing LOC is in effect (i.e.,
from the date which is the date of
the closing of this transaction
through December 31, 2005) (the
"Existing LOC Period") and on each
Renewing Bank's commitment under the
Renewal LOC during the period that
the
- --------------------------------------------------------------------------------
-2-
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
Renewal LOC is in effect (i.e.,
from January 1, 2006 through
December 31, 2006) (the "Renewal LOC
Period"), payable quarterly.
o An additional Letter of Credit Fee
in the form of PIK notes (the "PIK
Notes"), to be issued to each
Renewing Bank equal to the PIK Note
amount (as defined below). Interest
on the PIK Notes shall accrue on a
quarterly basis at an interest rate
of LIBOR plus 250 bps per annum via
the issuance of like-kind notes. The
"PIK Note Amount" shall equal the
difference, calculated on a
quarterly basis, between (i) 500 bps
per annum on each Renewing Bank's
commitment under (I) the Existing
LOC during the Existing LOC Period
and (II) the Renewal LOC during the
Renewal LOC Period, and (ii) the
cost to Trenwick (expressed in basis
points) to have the Berkshire
Back-Up LOC (as defined below)
issued.
o An additional Letter of Credit Fee
in an amount equal to 50 bps on each
Renewing Bank's commitment under the
Existing LOC during the Existing LOC
Period and the Renewal LOC during
the Renewal LOC Period to the extent
Trenwick has not collateralized the
LOC in a manner satisfactory to the
Administrative Agent on dates to be
determined.
o Warrants to purchase common stock
equal to 10% of Trenwick's fully
diluted equity capital as of the
closing of the transaction on terms
and conditions satisfactory to the
Banks. The warrants shall be issued
to each Renewing Bank pro rata based
on each Bank's commitment (as
determined by reference to each
Renewing Bank's commitment under the
Renewal LOC).
o An additional Letter of Credit Fee
equal to 15% of the profits earned
by Trenwick for the 2002 and 2003
years of Account.
- --------------------------------------------------------------------------------
Cash Collateralization The obligations of the Renewing Banks under the
of the Existing LOC and Renewal LOC will be collateralized
in a manner
- --------------------------------------------------------------------------------
-3-
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
LOC: satisfactory to the Administrative Agent with the
proceeds from the following (less any cash letter of
credit fees paid to the Existing Banks and the
Renewing Banks):
o any debt issuance.
o any equity issuance.
o any asset sale.
o any profits earned from the Oak dedicated
entities.
- --------------------------------------------------------------------------------
Affirmative Covenants: Similar to the Existing Credit Agreement with changes
consistent within the context of this transaction,
including, without limitation, the following:
o Trenwick International Limited to be placed
into run-off prior to December 31, 2002.
o Trenwick to use its best efforts to
terminate the Existing LOC and Renewal LOC
by December 31, 2003.
o Trenwick to fully collateralize in a manner
satisfactory to the Administrative Agent the
obligations of the Renewing Banks under the
Existing LOC and Renewal LOC by December 31,
2003 to the extent the respective LOCs are
not terminated.
o Trenwick to use its best efforts to secure
stop-loss treaties satisfactory to the
Required Banks for the 2000, 2001 and 2002
years of account.
o Trenwick to use its best efforts to convert
the LaSalle regulated entities to Class 3
insurer status.
o Senior Notes to be refinanced no later than
March 1, 2003 in a manner satisfactory to
the Required Banks.
o Trenwick to pay Lloyd's any residual amounts
due for the 2002 and prior years of account.
o Trenwick to use its best efforts to secure
loss portfolio transfers at LaSalle
satisfactory to the Required Banks.
o Monthly reporting.
o Reviews by Elliston or similar company at
the request of the Required Banks,
including, without limitation, a review and
analysis of the salaries and
- --------------------------------------------------------------------------------
-4-
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
directors' fees in connection with the
Trenwick Managing Agency syndicate.
o Monitoring by Elliston or similar company at
the request of the Required Banks with
respect to any run off costs incurred in
connection with the Existing LOC and Renewal
LOC, with the Required Banks retaining veto
rights in connection with the incurrence of
such run off costs.
o The appointment of new directors
satisfactory to the Required Banks to manage
syndicates 839 and 44 to the extent such
syndicates runoff for the 2003 and prior
years of account.
- --------------------------------------------------------------------------------
Negative Covenants: Similar to the Existing Credit Agreement with changes
consistent in the context of the transaction,
including, but not limited to the following:
o Prohibitions on any distributions of any
kind from the Oak dedicated entities except
to Lloyd's or to collateralize the Existing
LOC and Renewal LOC.
o Prohibitions on writing any future U.S. D&O
and E&O business.
o Prohibition on writing any new or renewal
business that has an insurance period
greater than 12 months plus odd time to a
maximum of 18 months.
o Prohibition on writing any business,
including by class, duration or otherwise,
without review by Elliston or similar
company and with the Required Banks
retaining veto rights in connection of the
writing of such business.
o Further prohibitions on debt, including, but
not limited to, a prohibition on the
guaranty of the Senior Notes.
o Further prohibitions on the incurrence of
liens.
o Further prohibitions on asset sales and
reorganizations, provided that (a) Holdings
will be permitted to redomesticate to
Delaware and, if applicable, merge Trenwick
America Corporation and LaSalle Re Holdings
Limited into the redomesticated Holdings,
(b) Chartwell Insurance Company will be
permitted to merge with and into
- --------------------------------------------------------------------------------
-5-
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
Trenwick America Reinsurance Corporation (c)
LaSalle Re Limited will be permitted to
acquire Oak Dedicated Limited and Oak
Dedicated Three Limited, (d) Holdings will
be permitted to sell Trenwick International
Limited and/or Trenwick Holdings Limited and
(e) Holdings will be permitted to dividend
and sell Dakota Specialty Insurance Company.
o Prohibition on expenditures (other than
claims payments) in excess of $100,000
without the approval of the Required Banks.
o Prohibition on other than ordinary and
necessary expenditures made by the LaSalle
entities.
o Prohibitions on salary increases, bonuses,
options and other similar forms of
compensation except pursuant to plans
already in existence and within the normal
course of business.
o Prohibitions on intercompany transfers and
on dividends, including, without limitation,
on Holdings common shares, Holdings Series B
Cumulative Convertible Perpetual Preferred
Shares and LaSalle Series A Preferred
Shares, with limited exceptions for certain
intercompany transfers and intercompany
dividends to be agreed upon, and the
prohibition of payments on the Trust
Preferred Securities.
o Prohibition on any new agreements permitting
any other creditors to be preferred over the
Banks.
- --------------------------------------------------------------------------------
Financial Covenants: o Maximum Leverage Ratio (as currently
defined) of .325 to 1.
o Minimum Combined Statutory Surplus (as
currently defined) of not less than $325
million.
o Minimum Tangible Consolidated Net Worth (as
currently defined) of at least $350 million.
- --------------------------------------------------------------------------------
Conditions Precedent: Similar to the Existing Credit Agreement with changes
consistent with the context of the transaction,
including but not limited to the following:
o Payment by Trenwick to Lloyd's of
approximately $104 million to cure the
solvency deficit.
- --------------------------------------------------------------------------------
-6-
Trenwick Group Ltd.
Term Sheet
LOC Facility
December 3, 2002
- --------------------------------------------------------------------------------
o Lloyd's agreement that it will apply the
$104 million payment to meet the solvency
deficit before it draws on the LOC.
o Delivery of a solvency certificate.
o Regulatory approval in manner satisfactory
to each of the Renewing Banks regarding the
reserve requirements for each of the
Renewing Banks and the treatment of the
Existing LOC and Renewal LOC on each of the
Renewing Bank's financial statements.
o Agreement with Lloyd's on the form and
substance of the Existing LOC and the
Renewal LOC.
o Each Renewing Bank's approval of the terms
and conditions of the back-up LOC to be
issued by Berkshire to support the 2003 year
of account (the "Berkshire Back-Up LOC"), it
being understood and agreed that the
Berkshire Back-Up LOC shall be drawn upon by
Lloyd's only after exhaustion of the
Existing LOC or the Renewal LOC, as the case
may be.
o The LOC Facility closing by no later than
December 31, 2002.
- --------------------------------------------------------------------------------
Event of Default: Similar to the Existing Credit Agreement with changes
consistent with the context of the transaction,
including but not limited to the following:
o The Termination of the Chubb and Berkshire
Agreements.
- --------------------------------------------------------------------------------
Amendments & Waivers: Similar to the Existing Credit Agreement with the
additional requirement that any material transfers
(intercompany or otherwise) from the LaSalle entities
(other than transfers to collateralize or reimburse
the Existing LOC or Renewal LOC or pay letter of
credit or other fees to the Banks) require 66-2/3%
Bank approval to the extent that this additional
requirement does not require 100% Bank approval.
- --------------------------------------------------------------------------------
-7-