<PAGE> 1
[SUPERIOR PACIFIC LETTERHEAD]
June 4, 1998
Stockholders of Superior National Insurance Group, Inc.
Dear SNTL Stockholder:
Enclosed you will find the Superior National Insurance Group, Inc. ("Superior
National" or "Company") 1997 Form 10-K, which is intended to serve as Superior
National's 1997 Annual Report to Stockholders. The delays in transmitting the
report and scheduling the 1998 Annual Stockholders' Meeting are due to the
timing of the announcement of the acquisition of Business Insurance Group, Inc.
("BIG"), and the timing of the several transactions and regulatory approvals
necessary to complete the acquisition. This letter briefly describes the terms
of the BIG acquisition, and timing of certain events necessary for its
completion.
Terms of the BIG Acquisition
On May 5, 1998, Superior National and Foundation Health Corporation ("FHC"), a
wholly owned subsidiary of Foundation Health Systems, Inc. (NYSE:FHS), entered
into an agreement under which the Company will purchase for approximately
$285 million in cash all outstanding shares of the capital stock of Business
Insurance Group, Inc. ("BIG"), an insurance holding company that, through its
wholly owned insurance subsidiaries, California Compensation Insurance Company,
Business Insurance Company, Combined Benefits Insurance Company, and Commercial
Compensation Insurance Company, write workers' compensation and group health
insurance, principally in California, with branch operations throughout the
continental United States.
Superior National will finance the acquisition of BIG through the issuance of
$200 million of common stock and approximately $110 million in aggregate
principal amount of senior notes. The amount raised in excess of $285 million
will be used to pay related transaction costs and for general corporate
purposes. Superior National will offer $106 million of common stock to Superior
National's existing common stock, warrant, and option holders on a pro-rata
basis (the "rights offering"). Superior National will offer the remaining $94
million of common stock to Insurance Partners, L.P. and its successor fund
(together, "IP") and other investment affiliates of IP in a private transaction
pursuant to a stock purchase agreement between IP and Superior National dated
May 5, 1998, under which IP has also committed to purchase, in addition to the
$94 million of common stock, up to $106 million of common stock. This latter
commitment is to purchase the number of shares of common stock for which rights
are not exercised in the rights offering. By providing this "backstop,"
Superior National was able to provide FHC with satisfactory assurances that all
of the anticipated proceeds of the rights offering would be available to
complete the acquisition of BIG. All of the common stock will be issued at a
price of $16.75 per share. In connection with its investment, IP has agreed to
certain restrictions protecting minority stockholders.
In connection with the acquisition of BIG, FHC will provide, through the
purchase of reinsurance, $175 million of adverse development protection on
BIG's loss and allocated loss adjustment expense reserves. Superior National
has also entered into a three to five-year quota share reinsurance agreement
with a reinsurer rated "A+" by A.M. Best, under which Superior National and BIG
will reinsure policies with estimated annual premiums in excess of $25,000.
Superior National has also agreed to enter into long-term contracts with
affiliates of FHC under which such affiliates will continue to provide bill
review and other claims management services to Superior National and BIG.
The $16.75 price and other terms of the rights offering were set by Superior
National's board of directors, in consultation with its financial advisors, and
will be materially the same as the terms of the IP transaction, subject to
adjustments determined by the board of directors to be reasonable and
appropriate. This description does not constitute an offer of any securities.
Any offering of securities in the transactions described above, other than the
issuance and sale of common stock to IP, will be made only by means of a
prospectus. Stockholders are cautioned,
<PAGE> 2
June 4, 1998 Page 2
however, that the mere decision to undertake a transaction does not change the
contingencies that apply to these prospective transactions, or the likelihood
that an offering will, in fact, occur. Registration statements will be filed
with the Securities and Exchange Commission ("SEC") relating to the rights
offering and the senior notes offering, and none of these securities may be
sold before the registration statements are declared effective.
The acquisition of BIG is subject to the expiration of the waiting period under
the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended, approval
by several state insurance regulatory authorities, and miscellaneous other
contractually required approvals. In addition, the rights offering and the
issuance and sale of common stock to IP are each subject to stockholder
approval, which the company intends to solicit at its 1998 Annual Meeting of
Stockholders, as described below.
Timing of Events
Management anticipates that the Company will file a proxy statement and
registration statements for the rights offering and the new debt by the end of
June. The timing of these filings is dependent in large part on the timely
completion of the SEC review process and an independent audit of BIG to be
provided by FHS.
The Company anticipates that it will receive comments on the proxy and
registration statements from the SEC in late July, and receive SEC approval in
early August. The Company's proxy statement would be mailed to stockholders in
early August, and a stockholders' meeting would be held in early September.
Assuming stockholders approve the stock issuance transactions, promptly after
the stockholders' meeting the rights offering is expected to become effective
for 30 days, during which time the rights would trade independently from
Superior National stock. The Company believes Nasdaq-member firms will make a
market in the rights. Prior to the concluding date of the rights offering,
stockholders, warrant holders, and option holders who wish to purchase Superior
National stock would transmit funds to the Company's agent to effect the
purchase of stock.
The closure of the rights offering, the sale of stock to IP, and the completion
of the debt offering are all necessary prior to the completion of the
acquisition. The Company anticipates that the financing transaction and the
acquisition will all close within the three-week period following the
completion of the rights offering.
* * * * *
Please do not hesitate to call Chris Seaman at (818) 878-2240 or me at (818)
878-2200 if you have any questions regarding the BIG acquisition, or the
associated financing transactions. Superior National's board of directors and
management are delighted to present this opportunity to our stockholders, and
look forward to working with you to assure its timely completion.
Very truly yours,
/s/ WILLIAM L. GENTZ
William L. Gentz
<PAGE> 3
This Annual Report on Form 10-K as filed with the Securities Exchange
Commission on March 31, 1998 is included in its entirety, excluding Exhibits,
and is incorporated in this informational filing by this Reference.
<PAGE> 4
CORPORATE INFORMATION
BOARD OF DIRECTORS
BRADLEY E. COOPER
Partner of Insurance Partners Advisors, L.P.
WILLIAM L. GENTZ
President and Chief Executive Officer
STEVEN D. GERMAIN
Managing Director, General Counsel and Secretary of Centre Re; Managing
Director of Zurich Centre Group L.L.C.; Director, Senior Vice President and
Secretary of CentreLine; Director, President and Chief Executive Officer of
Home Holdings, Inc.
ROGER W. GILBERT
Retired Chief Executive Officer and Chairman of TIC Indemnity Co. and
Chief Executive Officer of TMIC Insurance Co. Inc.; former California
Special Deputy Insurance Commissioner.
STEVEN B. GRUBER
Managing Partner of Insurance Partners Advisors, L.P.; Managing Director
of Oak Hill Partners, Inc.; Vice President of Keystone, Inc.
THOMAS J. JAMIESON
President of Jaco Oil Company
GORDON E. NOBLE
Chairman and Chief Executive Officer of Commodore Insurance Services
C. LEN PECCHENINO
Chairman of the Board of Directors
CRAIG F. SCHWARBERG
Former Managing Director of International Insurance Advisors, Inc.
J. CHRIS SEAMAN
Executive Vice President and Chief Financial Officer
ROBERT A. SPASS
President, Chief Executive Officer and Director of International Insurance
Advisors, Inc.; Managing Partner of Insurance Partners Advisors, L.P.
OFFICERS
SUSAN A. BINDER
Vice President - Workers' Compensation Claims
THOMAS J. BOGGS, JR.
Senior Vice President - Workers' Compensation, Underwriting/Marketing
<PAGE> 5
CURTIS H. CARSON
Vice President - Human Resources
HAROLD J. FEDORA
Vice President - Workers' Compensation Claims Services
WILLIAM J. FERRIER
Vice President - Management Information Services
WILLIAM L. GENTZ
President, Chief Executive Officer and Director
ROBERT N. HENRY
Vice President - Management Information Systems (SWAMIr)
KARL O. JOHNSON
Senior Vice President, Central Region
JOHN E. KING
Resident Vice President, Arizona
ROBERT E. NAGLE
Senior Vice President, General Counsel and Secretary
MATTHEW NATALIZIO
Vice President - Finance and Treasurer
ROBERT J. NIEBUR
Resident Vice President, Northern Region
DALE K. O'BRIEN
Vice President - Rehabilitation/Disability Management Unit
YOOME K. PANNAVALEE
Senior Vice President - Safety Management Services
DOUGLAS R. ROCHE
Senior Vice President - Workers' Compensation Claims
J. CHRIS SEAMAN
Executive Vice President, Chief Financial Officer and Director
ARNOLD J. SENTER
Executive Vice President and Chief Operating Officer
EDWARD C. SHOOP
Senior Vice President and Chief Actuary
WILLIAM P. THOMAS
Resident Vice President, Sacramento
RONALD J. TONANI
Senior Vice President - Marketing
<PAGE> 6
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
26601 Agoura Road, Calabasas, California 91302
(818) 880-1600
ANNUAL MEETING
The Company expects that the annual meeting of the
shareholders will be held at 10:00 a.m., Pacific Time, on Thursday,
September 10, 1998 at:
Superior National Insurance Company
26601 Agoura Road
Calabasas, California 91302
Further details will be announced.
STOCK LISTING
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SNTL"
INDEPENDANT AUDITORS
KPMG Peat Marwick LLP
Los Angeles, California
LEGAL COUNSEL
Riordan & McKinzie
Los Angeles, California
TRANSFER AGENT AND REGISTRAR
U.S. Stock Transfer Corporation
1745 Gardena Avenue, Second Floor
Glendale, California 91204-2991
(818)502-1404
FORM 10-K
Additional information, including the Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 as filed with the Securities and
Exchange Commission, is available upon written request to:
Robert E. Nagle
Senior Vice President, General Counsel and Secretary
26601 Agoura Road, Calabasas, California 91302
(818)880-1600
