-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ij2g+n4uOFzsOZe4htz36TSx1zE9tacayBuD0fYNiADkucHTuZJHwwcKEIGCdYU8 D3ZPUuraaha5XiLXxpsNBg== 0000950150-96-001485.txt : 19961203 0000950150-96-001485.hdr.sgml : 19961203 ACCESSION NUMBER: 0000950150-96-001485 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961202 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERIOR NATIONAL INSURANCE GROUP INC CENTRAL INDEX KEY: 0000810463 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 953994873 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25984 FILM NUMBER: 96674976 BUSINESS ADDRESS: STREET 1: 26601 AGOURA RD CITY: CALABASAS STATE: CA ZIP: 91203 BUSINESS PHONE: 8188801600 MAIL ADDRESS: STREET 1: 26601 AGOURA ROAD CITY: CALABASAS STATE: CA ZIP: 91203 10-Q/A 1 AMENDMENT TO FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ____________________ FORM 10-Q/A (Amendment No. 1) (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-25984 ____________________ SUPERIOR NATIONAL INSURANCE GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-3994873 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 26601 AGOURA ROAD CALABASAS, CA 91302 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (818) 880-1600 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ____________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of Common Stock, without par value, outstanding as of close of business on November 18, 1996: 3,437,523 shares. 2 The undersigned Registrant hereby amends Item 5 of its Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, as set forth below, in order to correct the "Pro Forma Combined - Net income (loss) from continuing operations" for the year ended December 31, 1995, set forth under "Pro Forma Financial Information - Unaudited Pro Forma Condensed Statements of Income" for the nine months ended September 30, 1996, from an erroneously reported net loss of $10,375,000 to a net gain of $10,375,000. Furthermore, an additional consideration (number (5)) has been added to those considerations set forth under Item 5, in order to provide the Registrant's shareholders with additional information to consider in evaluating the pro forma financial information. The new discussion specifically addresses issues for the Registrant's shareholders to consider regarding the effect that the announcement of the Company's anticipated acquisition of Pac Rim Holding Corporation has had on the Registrant's stock price and the potential impact of events involved in the actual consummation of the acquisition. This additional discussion has been provided by the Registrant to its shareholders in its standard, informal quarterly report to shareholders, currently in the process of distribution. 2 3 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION PRO FORMA FINANCIAL INFORMATION On September 17, 1996, the Company entered into a definitive agreement to acquire Pac Rim for a total consideration of approximately $54 million in cash, which consideration would result in payment of approximately $3.00 to $3.10 per share to each of Pac Rim's common stockholders and debenture holders (based upon the number of shares of Pac Rim Common Stock into which the debentures are convertible), with holders of warrants and options to receive an amount equal to the spread between the exercise price of their options or warrants and the per share payment amount to holders of Pac Rim Common Stock. The actual purchase price per share of Pac Rim Common Stock is subject to a final analysis of Pac Rim's loss reserves immediately prior to closing. Consummation of the transaction is subject to regulatory and SNIG shareholder and Pac Rim stockholder approvals, and various other conditions. The transaction is projected to close late in the fourth quarter of 1996 or the first quarter of 1997. The Company has determined that it is in the best interests of its shareholders to provide in this report certain pro forma financial information that assumes the successful completion of the Company's acquisition of Pac Rim. Set forth below are unaudited pro forma condensed balance sheets and statements of income, presented at June 30, 1996 and at September 30, 1996. The unaudited pro forma combined balance sheets data assumes the acquisition of Pac Rim by the Company took place on the date presented, and combines the Company's balance sheet data with Pac Rim's balance sheet data on such date using the purchase method of accounting. The unaudited pro forma statements of operations data assumes that the acquisition of Pac Rim by the Company took place as of the beginning of each of the periods presented using the allocation of the purchase information calculated as of the end of such period, and combines the statement of operations data for the Company and for Pac Rim for the year ended December 31, 1995 and for either the six-month period ended June 30, 1996 or the nine-month period ended September 30, 1996. The June 30, 1996 presentation was provided to the Company's shareholders in the Company's Proxy Statement, dated November 11, 1996. The unaudited pro forma financial information is not necessarily indicative of future operations and should not be construed as representative of future operations of the combined companies. In reviewing the pro forma statements, the Company's management urges shareholders to consider the following: (1) Reserve Adjustment. The updated pro forma financial information reflects a $4.5 million addition to claims and claim adjustment expenses for the 1990-1993 accident years that was recorded by Pac Rim in the third quarter of 1996. Management, in performing its due diligence and analyzing Pac Rim's reserves, contemplated such an adjustment. (2) Maintenance of Premium Volume. The strategic and financial benefits expected to be realized as a result of the Company's acquisition of Pac Rim are dependent on insurance market reception to the combination of the two companies, and on other factors beyond the Company's control. The ability of the combined companies to maintain an acceptable percentage of the volume of premiums historically written by the individual companies, as well as their ability to maintain gross margins in the face of expected price competition, is uncertain. It is unlikely the combined entity will maintain the premium volume of the companies as they existed independently. (3) Realization of Cost Reductions and Cash Flow Increases. The senior management of the Company has identified cost reductions that they believe can be achieved. The Board of Directors of the Company took into account this expectation in deciding to approve the acquisition of Pac Rim. There can be no assurance that the Company will be able to realize the expected cost reductions, or do so within any particular time frame, or to generate additional revenue to offset any unanticipated inability to realize such expected cost reductions. (4) Coordination of Operations. The success of the acquisition of Pac Rim in enhancing long-term shareholder value depends in part on the ability of the management of the Company to coordinate and integrate the operations of the business enterprises of the Company and Pac Rim. As in every business combination, such coordination will require the dedication of management resources, which may temporarily divert attention from the day-to-day business of the Company. There can be no assurance that the coordination necessary to realize the expected benefits of the acquisition of Pac Rim will be achieved. 3 4 (5) Dilution and Increased Leverage. In evaluating the Company and Pac Rim on a pro forma basis, shareholders also should consider a number of issues in connection with the price of the Company's common stock. On September 17, 1996, the Company announced that it had entered into a definitive agreement to acquire Pac Rim for approximately $54 million, to be financed through a $44 million term loan and the sale of $18 million of the Company's common stock at $7.53 per share. Since that date, the Company's common stock price has increased over five points to close on November 20, 1996, at $13-1/8, apparently indicating that the market approves of the Company's decision to acquire Pac Rim and sees significant added value in the combination of the companies. While the market's confidence is gratifying, management wishes to remind the Company's shareholders that it is extremely difficult to anticipate the market's reaction to events as they unfold. There can be no assurance that the completion of the acquisition of Pac Rim will have a continued favorable effect on the trading price of the Company's common stock. In addition to the factors described above concerning the combination of the companies, shareholders should note that, while the increased leverage resulting from the $44 million term loan has been disclosed, it is possible that when the loan is actually incurred the market will view the Company's common stock as riskier and the trading price may fall. Further, the dilutive effect (given the current trading price) of the issuance of $18 million of common stock at $7.53 per share has been previously described and presumably has been taken into account by an efficient market in setting the current trading price of the Company's common stock. However, even taking into account the fact that the $7.53 per share represents the average daily closing price of the Company's common stock over an agreed-upon period of time preceding the date of the definitive agreement, and the fact that without the firm commitment of a major equity investment the acquisition transaction could not have been agreed to and the event that caused the Company's stock price to begin its rise to its current levels would not have occurred, it is entirely possible that the issuance of those shares, the incurrence of the term debt, and the consummation of the Pac Rim acquisition, could result in a decline in the trading price of the Company's common stock. 4 5 PRO FORMA FINANCIAL INFORMATION ACQUISITION OF PAC RIM HOLDING CORPORATION BY SUPERIOR NATIONAL INSURANCE GROUP, INC. PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AS OF JUNE 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
Purchase SNIG Accounting Pro Forma SNIG Pac Rim Adjustments Adjustments Combined -------- -------- ----------- ----------- -------- ASSETS Investments: Bonds and notes: Available-for sale, at market . . $51,543 $112,277 $163,820 Equity securities, at market . . . 643 643 Funds withheld from reinsurers, at amortized cost . . . . . . . . . 87,359 87,359 Invested cash . . . . . . . . . . . 15,198 4,777 19,975 -------- -------- -------- -------- -------- Total Investments . . . . . . . . 154,743 117,054 0 0 271,797 Cash . . . . . . . . . . . . . . . 2,290 1,493 54,070 (d) (57,100)(k) 753 Reinsurance receivables . . . . . . 32,054 4,275 36,329 Premiums receivable (less allowance for doubtful accounts) . . . . . 15,513 13,650 29,163 Deferred policy acquisition costs . 3,062 1,241 4,303 Income taxes . . . . . . . . . . . 9,847 10,482 (139)(h) 20,190 Goodwill . . . . . . . . . . . . . -- -- 1,062 (l) 1,062 Other assets . . . . . . . . . . . 9,530 15,294 (1,265 (e) 23,109 (450 (f) -------- -------- -------- -------- -------- Total Assets . . . . . . . . . . $227,039 $163,489 $54,070 $(57,892) $386,706 ======== ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Claims and claim adjustment expenses . . . . . . . . . . . . $122,650 $90,709 $213,359 Unearned premiums . . . . . . . . . 9,633 5,586 15,219 Long-term debt - Imperial Bank . . 7,930 (7,930)(a) Debentures payable . . . . . . . . 18,769 (18,769)(g) 0 Term loan - The Chase Manhattan Bank . . . . . . . . . . . . . . 44,000 (b) 44,000 Policyholder dividends . . . . . . 6,187 233 6,420 Accounts payable and other liabilities . . . . . . . . . . . 14,436 6,369 2,700 (i) 23,505 -------- -------- -------- -------- -------- Total Liabilities . . . . . . . . 160,836 121,666 36,070 (16,069) 302,503 Preferred securities issued by affiliate; authorized 1,100,000 shares: issued and outstanding 966,860 shares in 1996 . . . . . 22,272 22,272 Shareholders' Equity: Common stock and additional paid- in-capital . . . . . . . . . . . . 15,943 29,719 18,000 (c) (29,719)(j) 33,943 Unrealized (loss) on investments . (584) (270) 270 (j) (584) Paid in capital - warrants . . . . 2,206 1,800 (1,800)(j) 2,206 Retained earnings . . . . . . . . . 26,366 10,574 (10,574)(j) 26,366 -------- -------- -------- -------- -------- Total Shareholders' Equity . . . 43,931 41,823 18,000 (41,823) 61,931 -------- -------- -------- -------- -------- Total Liabilities and Shareholders' Equity . . . . . . $227,039 $163,489 $54,070 $(57,892) $386,706 ======== ======== ======== ======== ========
See accompanying explanatory notes to pro forma financial statements. 5 6 PRO FORMA FINANCIAL INFORMATION ACQUISITION OF PAC RIM HOLDING CORPORATION BY SUPERIOR NATIONAL INSURANCE GROUP, INC. PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
Purchase SNIG Accounting Pro Forma SNIG Pac Rim Adjustments Adjustments Combined ----------- ----------- ----------- ----------- ----------- ASSETS Investments: Bonds and notes: Available-for-sale, at market $ 35,608 $ 110,136 $ 145,744 Equity securities, at market 769 - 769 Funds withheld from reinsurers, at amortized 79,469 - 79,469 cost Invested cash 33,748 2,405 36,153 ----------- ----------- ----------- ----------- ----------- Total Investments 149,594 112,541 - - 262,135 Cash 2,332 732 54,370 (d) (57,100) (k) 334 Reinsurance receivables 38,217 4,076 42,293 Premiums receivable (less allowance for doubtful accounts) 15,371 21,204 36,575 Deferred policy acquisition cost 3,120 1,255 4,375 Income taxes 9,536 9,660 (109) (h) 19,087 Goodwill - - 5,998 (l) 5,998 Other assets 9,924 12,995 (1,164) (e) 21,305 (450) (f) ----------- ----------- ----------- ----------- ----------- Total Assets $ 228,094 $ 162,463 $ 54,370 $ (52,825) $ 392,102 =========== =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Claims and claim adjustment expenses $ 113,539 $ 92,517 $ 206,056 Unearned premiums 9,808 7,088 16,896 Long-term debt - Imperial Bank 7,630 (7,630) (a) - Debentures payable 18,854 (18,854) (g) - Term loan - The Chase Manhattan Bank 44,000 (b) 44,000 Policyholder dividends 4,517 247 4,764 Accounts payable and other liabilities 24,576 7,086 2,700 (i) 34,362 ----------- ----------- ----------- ----------- ----------- Total Liabilities 160,070 125,792 36,370 (16,154) (306,078) Preferred securities issued by affiliate; authorized 1,100,000 shares: issued and outstanding 966,860 shares in 1996 22,921 22,921 Shareholders' Equity: Common stock and additional paid-in-capital 15,956 29,719 18,000 (c) (29,719) (j) 33,956 Unrealized (loss) on investments (137) (211) 211 (j) (137) Paid in capital - warrants 2,206 1,800 (1,800) (j) 2,206 Retained earnings 27,078 5,363 (5,363) (j) 27,078 ----------- ----------- ----------- ----------- ----------- Total Shareholders' Equity 45,103 36,671 18,000 (36,671) 63,103 ----------- ----------- ----------- ----------- ----------- Total Liabilities and Shareholders' Equity $ 228,094 $ 162,463 $ 54,370 $ (52,825) $ 392,102 =========== =========== =========== =========== ===========
See accompanying notes to pro forma financial statements. 6 7 PRO FORMA FINANCIAL INFORMATION ACQUISITION OF PAC RIM HOLDING CORPORATION BY SUPERIOR NATIONAL INSURANCE GROUP, INC. PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
Year Ended December 31, 1995 Six Months Ended June 30, 1996 --------------------------------------------- ------------------------------------------------ Pro Pro Forma Forma Pro Forma Pro Forma SNIG(1) Pac Rim(1) Adjustments Combined SNIG Pac Rim Adjustment Combined ------ --------- ----------- -------- ---- ------- ---------- -------- Inc. (Decr) Inc. (Decr) (In thousands, except for share and per share amounts) REVENUES: Net premiums earned . . $89,735 $76,016 $165,751 $43,033 41,259 $84,292 Net investment income and capital gains . . 9,784 8,542 -- 18,326 4,265 3,696 7,961 -------- -------- -------- -------- -------- -------- Total Revenues . . . 99,519 84,558 184,077 47,298 44,955 92,253 EXPENSES: Claims and claim adjustment expenses, net of reinsurance . 56,605 50,957 107,562 22,600 31,132 53,732 Underwriting and general and administrative expenses . . . . . . 27,348 30,309 57,657 18,246 13,424 31,670 Policyholder dividends (5,742) 132 (5,610) (1,406) (141) (1,547) Goodwill amortization . -- -- 39(a) 39 -- -- 20 (a) 20 Interest expense . . . 9,619 2,306 (2,306)(b) 12,329 4,796 1,165 1,165)(b) 6,111 (800)(c) (319)(c) 3,510(d) 1,634 (d) -------- -------- -------- -------- -------- -------- -------- -------- TOTAL EXPENSES . . . 87,830 83,704 443 171,977 44,236 45,580 170 89,986 -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes, preferred securities dividends and accretion, discontinued operations, extraordinary items, and cumulative effect of change in accounting for income taxes . . . . . . . . 11,689 854 (443) 12,100 3,062 (625) (170) 2,267 Income tax expense (benefit) . . . . . . (12) 279 (151)(e) 116 1,048 (185) (58)(e) 805 Income (loss) before preferred securities dividends and accretion, discontinued operations, extraordinary items, and cumulative effect of change in accounting for income taxes . . . . . . . . 11,701 575 (292) 11,984 2,014 (440) (112) 1,462 Preferred securities dividends and accretion, net of income tax benefit . . (1,488) -- -- (1,488) (810) -- -- (810) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) from continuing operations $10,213 $575 $(292) $10,496 $1,204 $(440) $(112) $652 ======== ======== ======== ======== ======== ======== ======== ======== Per common share: Income (loss) from continuing operations $2.98 $0.06 $1.51 $0.27 $(0.05) $0.10 Weighted average shares outstanding . . . . . 3,430,373 9,528,000 7,103,711 5,318,118 9,528,000 7,236,211
(1) Derived from audited financial statements. See accompanying explanatory notes to pro forma financial statements. 7 8 PRO FORMA FINANCIAL INFORMATION ACQUISITION OF PAC RIM HOLDING CORPORATION BY SUPERIOR NATIONAL INSURANCE GROUP, INC. PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995 NINE MONTHS ENDED SEPTEMBER 30, 1996 -------------------------------------------- -------------------------------------------- PRO FORMA PRO FORMA ADJUST- PRO FORMA ADJUST- PRO FORMA SNIG(1) PAC RIM(1) MENTS COMBINED SNIG PAC RIM MENT COMBINED ------- ---------- --------- --------- ---- ------- --------- --------- INC.(DECR) INC.(DECR) (In thousands, except for share and per share amounts) REVENUES: Net premiums earned 89,735 76,016 165,751 66,040 63,415 129,455 Net investment income and capital gains 9,784 8,542 18,326 6,394 5,597 11,991 ---------- ---------- ------ ---------- ---------- ---------- ------ ---------- Total Revenues 99,519 84,558 184,077 72,434 69,012 141,446 EXPENSES: Claims and claim adjustment expenses, net of reinsurance 56,605 50,957 107,562 36,801 51,886 88,687 Underwriting and general and administrative expenses 27,348 30,309 57,657 26,330 20,551 46,881 Policyholder dividends (5,742) 132 (5,610) (2,121) (127) (2,248) Goodwill amortization - - 222 (a) 222 - - 167 (a) 167 Interest expense 9,619 2,306 (2,306) (b) 12,329 6,922 1,752 (1,752) (b) 8,900 (800) (c) (475) (c) 3,510 (d) 2,453 (d) ---------- ---------- ------ ---------- ---------- ---------- ------ ---------- TOTAL EXPENSES 87,830 83,704 626 172,160 67,932 74,062 393 142,387 ---------- ---------- ------ ---------- ---------- ---------- ------ ---------- Income before income taxes, preferred securities dividends and accretion, discontinued operations, extraordinary items, and cumulative effect of change in accounting for income taxes 11,689 854 (626) 11,917 4,502 (5,050) (393) (941) Income tax expense (benefit) (12) 279 (213) (e) 54 1,348 606 (134) (e) 1,820 ---------- ---------- ------ ---------- ---------- ---------- ------ ---------- Income (loss) before preferred securities dividends and accretion, discontinued operations, extraordinary items, and cumulative effect of change in accounting for income taxes 11,701 575 (413) 11,863 3,154 (5,656) (259) (2,761) Preferred securities dividends and accretion, net of income tax benefit (1,488) - - (1,488) (1,238) - (1,238) ---------- ---------- ------ ---------- ---------- ---------- ------ ---------- Net income (loss) from continuing operations $ 10,213 $575 ($413) $10,375 $1,916 ($5,656) ($259) ($3,999) ========== ========== ====== ========== ========== ========== ====== ========== Per common share: Income (loss) from continuing operations $ 2.98 $ 0.06 $1.51 $0.41 ($0.59) ($0.69) Weighted average shares outstanding 3,430,373 9,528,200 7,103,711 5,316,873 9,528,200 5,827,989
(1) Derived from audited financial statements. See accompanying explanatory notes to pro forma financial statements. 8 9 EXPLANATORY NOTES: DESCRIPTION OF PRO FORMA ADJUSTMENTS 1) The following descriptions reference the adjustments as labeled on the unaudited pro forma condensed balance sheets as of June 30, 1996 and September 30, 1996: (a) Adjustment to long-term debt to reflect the redemption of SNIG's outstanding loan with Imperial Bank. (b) Adjustment to senior debt payable to reflect a $44 million credit facility from one or more banks including Chase (the "Term Loan"). (c) Adjustment to reflect the shares of the Company's common stock to be issued and sold (the "Newly Issued Stock") pursuant to the terms of the Stock Purchase Agreement (as defined in "Item 6. Exhibits and Reports on Form 8-K," below). (d) The increase in cash represents total funds provided by the $62 million obtained from the Term Loan and the Newly Issued Stock, less the repayment of $7.630 million of Imperial Bank debt. (e) Adjustment to other assets to write-off the unamortized debenture issuance costs resulting from the redemption of Pac Rim's Series A Convertible Debentures (the "Convertible Debentures"). (f) Adjustment to other assets reflects a netting of receivables due from the Chief Executive Officer of Pac Rim against associated severance payments. (g) Adjustment to debentures payable to reflect the redemption of the Convertible Debentures. (h) Adjustment to deferred tax assets to write-off the deferred tax asset relating to the unrealized loss on investments. (i) Adjustment to accounts payable and other liabilities to reflect assumption of amounts payable to officers of Pac Rim, gross of the receivable referred to in (f) above. (j) Adjustment to common stock and additional paid-in-capital to reflect the elimination of Pac Rim stockholder equity interest. (k) Reduction of cash to reflect the following items: i) purchase of Pac Rim Common Stock for $28.6 million, ii) redemption of the Pac Rim Series 1, 2 and 3 Detachable Warrants and options for $3.5 million, iii) redemption of the Convertible Debentures for $20.0 million, and iv) direct costs of the acquisition of Pac Rim of $5 million. (l) The excess of the purchase price paid for Pac Rim over the amounts assigned to identifiable assets acquired less liabilities assumed is recorded as goodwill. 2) The following descriptions reference the adjustments as labeled on the unaudited pro forma condensed statements of operations for the year ended December 31, 1995 and either the six months ended June 30, 1996 or the nine months ended September 30, 1996: (a) Adjustment represents amortization of goodwill on a straight line basis over an estimated 27-year period. (b) Adjustment represents the elimination of interest expense on the Convertible Debentures payable as if the redemption of the Convertible Debentures had been effective on January 1, 1995. (c) Adjustment represents the elimination of interest expense on the Company's term loan with Imperial Bank as if the repayment of such term loan had been effective on January 1, 1995. (d) Adjustment represents the interest expense on the Company's Term Loan as if the Term Loan had been effective on January 1, 1995. (e) Adjustment represents the tax effect of pro forma adjustments at an effective tax rate of 34%. 9 10 SIGNATURE 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 thereunto duly authorized. Dated: December 2, 1996 SUPERIOR NATIONAL INSURANCE GROUP, INC. By /s/ J. Chris Seaman ---------------------------- Name: J. Chris Seaman Title: Executive Vice President and Chief Financial Officer 10 -----END PRIVACY-ENHANCED MESSAGE-----