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EXHIBIT 10.6
SUPERIOR NATIONAL INSURANCE GROUP, INC.
26601 Agoura Road
Calabasas, California 91320
November 25, 1996
Insurance Partners, L.P.
201 Main Street, Suite 2600
Fort Worth, Texas 76102
Insurance Partners Offshore (Bermuda), L.P.
Cedar House
41 Cedar Avenue
P.O. Box HM 1179
Hamilton HM EX, Bermuda
International Insurance Advisors, Inc.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
International Insurance Investors, L.P.
c/o International Insurance Investors (Bermuda) Limited
Cumberland House
One Victoria Street
Hamilton HM HX, Bermuda
The persons listed on Schedule 1 hereto
at the addresses set forth opposite
the names of such persons
CentreLine Reinsurance Limited
Cumberland House
One Victoria Street
Hamilton HM HX, Bermuda
The persons listed on Schedule 2 hereto
c/o Superior National Insurance Group, Inc.
26601 Agoura Road
Calabasas, California 91320
Exercise of Warrants and Registration Rights
Ladies and Gentlemen:
Reference is made to the Note Purchase Agreement, dated as of
March 31, 1992 (the "Note Purchase Agreement"), among Superior National
Insurance
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Group, Inc. (the "Company") and each of the several purchasers listed on
Schedule I thereto and the Preferred Securities Purchase Agreement, dated as of
June 30, 1994 (the "Preferred Securities Purchase Agreement"), among the
Company, Superior National Capital Holding Corporation, Superior National
Capital, L.P. and Centre Reinsurance Services (Bermuda) III Limited.
Pursuant to (a) Section 1.2 of the Note Purchase Agreement,
the Company issued to (i) International Insurance Advisors, Inc. ("IIA"), as
agent for the general partner and the limited partners of International
Insurance Investors, L.P. ("III"), warrants (the "IIA Warrants") to purchase
(subject to adjustment) 1,474,306 shares, no par value per share, of Common
Stock of the Company (the "Common Stock") and (ii) the individuals listed on
Schedule 2 hereto (the "Management Warrantholders") warrants (the "Management
Warrants") to purchase (subject to adjustment) 92,159 shares of Common Stock
and (b) Section 5.8 of the Preferred Securities Purchase Agreement, the Company
issued to CentreLine Reinsurance Limited ("CentreLine") a warrant (the
"CentreLine Warrant") to purchase (subject to adjustment) 579,356 shares of
Common Stock. Each of the IIA Warrants, the Management Warrants and the
CentreLine Warrant may be hereinafter referred to collectively as the
"Warrants" or individually as a "Warrant".
Pursuant to Section 5.2(e) of the Stock Purchase Agreement,
dated as of September 17, 1996 (as amended, the "Stock Purchase Agreement"), by
and among the Company, Insurance Partners, L.P. ("IP"), Insurance Partners
Offshore (Bermuda), L.P. ("IP Bermuda") and certain other persons or entities
who executed the form of subscription agreement attached thereto as Exhibit A,
it is a condition to close the transactions contemplated by the Stock Purchase
Agreement that IIA distribute the IIA Warrants to the general partner and the
limited partners of III listed on Schedule 1 hereto (the "III Partners").
Concurrently with the execution and delivery of this letter agreement, IIA is
distributing the IIA Warrants to the III Partners.
1. Restriction on Exercise of Warrants and Registration
Rights. Each of the III Partners, the Management Warrantholders and CentreLine
acknowledge and agree that the exercise of a Warrant could cause, or increase
the risk of, an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended, and the Treasury Regulations (as
amended from time to time, the "Regulations") promulgated thereunder
(collectively, "Section 382"). Notwithstanding anything to the contrary set
forth in this letter agreement or in each of the IIA Warrants, the Management
Warrants or the CentreLine Warrant, from and after the date hereof through and
including the end of the 36th month following the date of the closing of the
transactions contemplated by the Stock Purchase Agreement (the "Restriction
Termination Date"), each of the III Partners, the Management Warrantholders and
CentreLine covenant and agree that (a) it or he shall not exercise or attempt
to exercise its or his Warrant, (b) it or he shall not Transfer (as hereinafter
defined) or attempt to Transfer its or his Warrant to any individual or any
"entity" (as
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that term is defined in Regulations Section 1.382-3(a)) unless, prior to such
Transfer, it or he shall deliver to the Company an instrument, in form and
substance reasonably satisfactory to the Company, duly executed by the
transferee of such Warrant pursuant to which such transferee has agreed to be
bound by the terms and conditions of this letter agreement, (c) it or he shall
not exercise or attempt to exercise the registration rights granted by its or
his Warrant and (d) any exercise or attempted exercise thereof in violation of
subsection (a) or subsection (c) above or any Transfer or attempted Transfer
thereof in violation of subsection (b) above shall be void ab initio; provided,
however, that notwithstanding the foregoing, prior to the Restriction
Termination Date, (i) each of the III Partners, the Management Warrantholders
and CentreLine may exercise its or his Warrant in the event of a tender or
exchange offer or a merger or other business combination involving the Company,
which is approved by the Board of Directors of the Company (the "Board of
Directors") or with respect to which the Board of Directors has announced its
intention to remain neutral and (ii) each of the III Partners, the Management
Warrantholders and CentreLine may exercise its or his (x) Warrant other than in
the event of a tender or exchange offer or a merger or business combination
described in clause (i) above or (y) registration rights upon the prior written
approval of the Board of Directors, which approval shall be granted in its sole
and absolute discretion after considering all facts and circumstances,
including, without limitation, future events the occurrence of which are deemed
by the Board of Directors to be reasonably possible; and provided further, that
the Company hereby consents to the distribution by IIA of the IIA Warrants to
the III Partners. Each of IIA and each of the III Partners hereby acknowledges
and represents that no consideration was or shall be given or received by any
such party in connection with the distribution of the IIA Warrants to the III
Partners as contemplated hereunder. For purposes of this letter agreement,
"Transfer" means, with respect to the Warrants, any direct or indirect
acquisition or disposition thereof, whether by sale, exchange, merger,
consolidation, transfer, assignment, conveyance, distribution, pledge,
inheritance, gift, mortgage, creation of a security interest in, or lien or
encumbrance upon, or any other acquisition or disposition of any kind and in
any manner, whether voluntary or involuntary, knowing or unknowing, by
operation of law or otherwise.
2. Legend. All Warrants shall bear the following
conspicuous legend describing the restrictions set forth in paragraph 1 hereof
and the Board of Directors shall take such actions as it deems necessary to
substitute for the Warrants, new warrants bearing such legend:
THE EXERCISE AND TRANSFER OF THIS WARRANT AND THE EXERCISE OF THE
REGISTRATION RIGHTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN
RESTRICTIONS PURSUANT TO THE CHARTER OF SUPERIOR NATIONAL INSURANCE
GROUP, INC. ("THE COMPANY") AND THAT CERTAIN LETTER AGREEMENT,
RELATING TO THIS WARRANT, AMONG THE COMPANY, THE RECORD HOLDER OF THIS
WARRANT AND CERTAIN OTHER PARTIES
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THERETO (THE "LETTER AGREEMENT"). ANY EXERCISE OR TRANSFER OF THIS
WARRANT OR EXERCISE OF REGISTRATION RIGHTS IN VIOLATION OF THE CHARTER
OF THE COMPANY OR THE LETTER AGREEMENT SHALL BE VOID AB INITIO. A
COPY OF THE CHARTER OF THE COMPANY AND THE LETTER AGREEMENT MAY BE
OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON WRITTEN REQUEST.
3. Registration Rights Agreement. The parties hereto
acknowledge that on the date hereof, the Company, IP and IP Bermuda are
entering into a Registration Rights Agreement (the "Registration Rights
Agreement").
4. Demand Registrations. Subject to paragraph 1 hereof,
if at any time pursuant to Section 8.3 of the IIA Warrants, the Management
Warrants or the CentreLine Warrant any holder (the "Initiating Holder") thereof
requests in writing that the Company effect the registration under the
Securities Act of 1933, as amended (the "Securities Act"), and under the
securities or "blue sky" laws of any jurisdiction designated by such holder (a
"Demand Registration"), of all or part of such holder's shares of Common Stock
issued or issuable upon exercise of its Warrant, then the Company shall, in
addition to its obligations under Section 8.3 of each of the Warrants, promptly
give written notice of such Demand Registration to the Insurance Partners
Stockholders (as defined in the Registration Rights Agreement) and use its best
efforts to effect the registration under the Securities Act of the Registrable
Securities (as defined in the Registration Rights Agreement) which the Company
has been requested by the Insurance Partners Stockholders to register. In
connection with any Demand Registration involving an underwriting, if the
managing underwriter of the offering advises the Company in writing that in its
opinion the aggregate amount of shares of Common Stock requested to be included
in such offering is sufficiently large to have a material adverse effect on the
success of such offering, then the Company shall include in such registration
only the aggregate amount of shares of Common Stock that in the opinion of such
managing underwriter may be sold without such material adverse effect and shall
reduce, as to each Initiating Holder, each holder of Warrants (other than the
Initiating Holder) requesting registration of shares of Common Stock in such
Demand Registration pursuant to Section 8.3 of such Warrants (the "Other
Rightholders") and the Insurance Partners Stockholders as a group, the amount
of Common Stock to be included in such registration, pro rata within such group
based on the number of shares of Common Stock included in the request for
registration by such Initiating Holder, Other Rightholders and Insurance
Partners Stockholders. The Insurance Partners Stockholders covenant and agree
that in the event that any of the Insurance Partners Stockholders requests a
Demand Registration pursuant to the Registration Rights Agreement (an "IP
Demand Registration"), each of the holders of the IIA Warrants, the Management
Warrants and the CentreLine Warrant shall be entitled to participate in such IP
Demand Registration to the same extent that the Insurance Partners Stockholders
are entitled to participate in a Demand Registration pursuant to this paragraph
4.
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5. Incidental Registrations. Subject to paragraph 1
hereof, if (a) the Company, at any time or from time to time, proposes to
register in an underwriting any of its shares of Common Stock for its own
account under the Securities Act (subject to the limitations set forth in
Section 4(a) of the Registration Rights Agreement) (an "Incidental
Registration") and (b) the representative of the underwriters advises the
Company in writing that marketing factors require a limitation of the number of
shares of Common Stock to be underwritten, then the number of shares of Common
Stock that are entitled to be included in the Incidental Registration shall be
allocated (i) first, to the Company for shares of Common Stock being sold for
its own account, (ii) second, among each holder of Warrants requesting
registration of shares of Common Stock in such Incidental Registration pursuant
to Section 8.4(a) of such Warrants, each of the Insurance Partners Stockholders
requesting registration of its Registrable Securities in such Incidental
Registration pursuant to Section 4(a) of the Registration Rights Agreement and
any other holders of Common Stock entitled to "incidental" registration rights
and requesting inclusion of shares of Common Stock in such Incidental
Registration, pro rata on the basis of the number of shares of Common Stock
requested to be included in such Incidental Registration and (iii) third, any
other shares of Common Stock requested to be included in such Incidental
Registration. The Insurance Partners Stockholders covenant and agree that
pursuant to the Registration Rights Agreement, in the event of an Incidental
Registration in which marketing factors require a limitation of the number of
shares of Common Stock to be underwritten, the allocation of the shares of
Common Stock that are entitled to be included in such Incidental Registration
shall be identical to the allocation described in the preceding sentence.
6. Waiver of Adjustments of Warrant Price and Preemptive
Rights. The parties hereto acknowledge that pursuant to the Stock Purchase
Agreement, the Company agreed to issue an aggregate of $18,000,000 worth of
shares of Common Stock (the "Shares") for a purchase price per share of $7.53.
With respect to the issuance by the Company of the Shares pursuant to the Stock
Purchase Agreement, (a) each of the III Partners hereby waives its or his
rights to any adjustments under Section 2 of the IIA Warrants, including,
without limitation, Section 2.2.1 thereof, and its or his preemptive rights
under Section 9 of the IIA Warrants, (b) each of the Management Warrantholders
hereby waives his rights to any adjustments under Section 2 of the Management
Warrants, including, without limitation, Section 2.2.1 thereof, and his
preemptive rights under Section 9 of the Management Warrants and (c) CentreLine
hereby waives its rights to any adjustments under Section 2 of the CentreLine
Warrant, including, without limitation, Section 2.3.1 thereof, and its
preemptive rights under Section 9 of the CentreLine Warrant.
7. Consents and Notices. Each of IIA, CentreLine, the
III Partners and the Management Warrantholders acknowledges receipt of notice
duly given from the Company of any and all transactions described or mentioned
in the Company's Proxy Statement to its shareholders dated November 11, 1996,
and consents to each such transaction.
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8. Waiver of Covenants. With respect to the issuance by
the Company of the Shares pursuant to the Stock Purchase Agreement and the
acquisition by the Company of Pac Rim Holding Corporation ("Pac Rim") pursuant
to the Agreement and Plan of Merger, dated as of September 17, 1996, among the
Company, SNTL Acquisition Corp. and Pac Rim, International Insurance Investors,
L.P. hereby waives its rights under Section 7 of the Note Purchase Agreement.
9. Counterparts. This letter agreement may be executed
in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same letter
agreement.
10. Governing Law. This letter agreement shall be
governed by and construed in accordance with the laws of the State of
California, without regard to the principles of conflicts of law thereof.
11. Binding Effect. This letter agreement shall be
binding upon and inure to the benefit of the parties hereto and their permitted
successors and assigns.
12. Ratification of Warrants. Except as otherwise
expressly provided herein, all of the terms and conditions of each of the IIA
Warrants, the Management Warrants and the CentreLine Warrant are ratified and
shall remain in full force and effect.
13. Termination. If the transactions contemplated by the
Stock Purchase Agreement are not consummated and such agreement thereby
terminates, then upon such termination, this letter agreement shall immediately
terminate without further action by the parties hereto, and all terms, rights,
restrictions and conditions created hereunder, including, without limitation,
all terms, rights, restrictions and conditions created by paragraph 1 hereof,
and the enforceability and effect of the restrictive legend placed on each of
the Warrants as contemplated by paragraph 2 hereof, shall terminate and have no
further force and effect.
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14. Further Assurances. Each of the parties shall
execute such documents and perform such further acts as may be reasonably
required or desirable to carry out or to perform the provisions of this letter
agreement.
Very truly yours,
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ J. CHRIS SEAMAN
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Name: J. Chris Seaman
Title: Chief Financial Officer
Agreed and accepted on this
25th day of November, 1996
INSURANCE PARTNERS, L.P.
By: Insurance GenPar, L.P., its General Partner
By: Insurance GenPar MGP, L.P., its General Partner
By: Insurance GenPar MGP, Inc., its General Partner
By: /s/ Insurance GenPar MGP, Inc.
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Name:
Title:
INSURANCE PARTNERS OFFSHORE (BERMUDA), L.P.
By: Insurance GenPar (Bermuda), L.P., its General Partner
By: Insurance GenPar (Bermuda) MGP, L.P., its General Partner
By: Insurance GenPar (Bermuda) MGP, Ltd., its General Partner
By: /s/ Insurance GenPar (Bermuda) MGP, Ltd.
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Name:
Title:
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INTERNATIONAL INSURANCE ADVISORS, INC.
By: /s/ International Insurance Advisors, Inc.
--------------------------------------------------------
Name:
Title:
INTERNATIONAL INSURANCE INVESTORS, L.P.
By: International Insurance Investors (Bermuda) Limited,
its General Partner
By: /s/ International Insurance Investors, L.P.
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Name:
Title:
INTERNATIONAL INSURANCE INVESTORS (BERMUDA) LIMITED
By: /s/ International Insurance Investors (Bermuda) Limited
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Name:
Title:
CENTRE REINSURANCE LIMITED
By: /s/ Centre Reinsurance Limited
--------------------------------------------------------
Name:
Title:
TRUSTEES OF THE ESTATE OF BERNICE P. BISHOP
By: /s/ Trustees of The Estate of Bernice P. Bishop
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Name:
Title:
CARLISLE VENTURES, INC.
By: /s/ Carlisle Ventures, Inc.
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Name:
Title:
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J.P. MORGAN CAPITAL CORP.
By: /s/ J.P. Morgan Capital Corp.
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Name:
Title:
BEACH HAVEN INVESTORS, INC.
By: /s/ Beach Haven Investors, Inc.
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Name:
Title:
BACARDI CAPITAL LTD.
By: /s/ Bacardi Capital Ltd.
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Name:
Title:
FLUOR REINSURANCE INVESTMENTS, INC.
By: /s/ Fluor Reinsurance Investments, Inc.
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Name:
Title:
INTERNATIONAL INSURANCE ADVISORS, INC. 401(K)
AND PENSION PLANS
International Insurance Advisors, Inc. 401(K)
By: /s/ and Pension Plans
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Name:
Title: Trustee
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/s/ Robert A. Spass
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Robert A. Spass
/s/ Paul H. Warren
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Paul H. Warren
/s/ Bradley E. Cooper
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Bradley E. Cooper
/s/ Craig Schwarberg
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Craig Schwarberg
CENTRELINE REINSURANCE LIMITED
By: /s/ Centreline Reinsurance Limited
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Name:
Title:
/s/ Karl O. Johnson
- --------------------------------
Karl O. Johnson
/s/ Joseph P. Wolonsky
- --------------------------------
Joseph P. Wolonsky
/s/ J. Chris Seaman
- --------------------------------
J. Chris Seaman
/s/ Richard D. Hotchkiss
- --------------------------------
Richard D. Hotchkiss
/s/ Edwin J. Wilson
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Edwin J. Wilson
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Schedule 1
III Partners
III Partner Address
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International Insurance Investors (Bermuda) Cumberland House
Limited One Victoria Street, Seventh Floor
Hamilton HM HX, Bermuda
Centre Reinsurance Limited Cumberland House
One Victoria Street, Seventh Floor
Hamilton HM HX, Bermuda
Trustees of the Estate of Bernice P. Bishop 567 South King Street
Suite 200
Honolulu, Hawaii 96813
Carlisle Ventures, Inc. 720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
J.P. Morgan Capital Corp. 60 Wall Street
New York, New York 10260
Beach Haven Investors, Inc. 10 Floral Court
Westfield, New Jersey 07090
Bacardi Capital Ltd. Pitts Bay Road
Hamilton, Bermuda
Fluor Reinsurance Investments, Inc. 3333 Michaelson Drive
Irvine, California 92730
Robert A. Spass One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Paul H. Warren One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Bradley E. Cooper One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Craig Schwarberg 221 West 48th Street, #1802
Kansas City, Missouri 64112
International Insurance Advisors, Inc. 401(k) One Chase Manhattan Plaza
and Pension Plans 44th Floor
New York, New York 10005
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Schedule 2
Management Warrantholders
Karl O. Johnson
Joseph P. Wolonsky
J. Chris Seaman
Richard D. Hotchkiss
Edwin J. Wilson
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ANNEX A
The parties hereto acknowledge that, pursuant to an Assignment of
Warrant dated as of November 8, 1996, Centre Reinsurance Limited assigned all
of its right, title and interest in the IIA Warrants, subject to all of Centre
Reinsurance Limited's duties and obligations thereunder, to Centre Reinsurance
(Bermuda) Limited. Accordingly, Centre Reinsurance (Bermuda) Limited
acknowledges, accepts and agrees to all of the terms, obligations and
conditions under the letter agreement dated November 25, 1996, with respect to
the IIA Warrants applicable to Centre Reinsurance Limited.
This agreement may be executed in one or more counterparts and all so
executed shall constitute one instrument, notwithstanding that all parties are
not signatories to the original or the same counterpart, and the facsimile
transmission of the signature of any party shall be deemed to be an original
signature of such party.
CENTRE REINSURANCE (BERMUDA) LIMITED
as Assignee of the IIA Warrants from Centre Reinsurance
Limited pursuant to the Assignment of Warrant, dated as of
November 8, 1996
By: /s/ Centre Reinsurance (Bermuda) Limited
----------------------------------------
Name:
Title:
CENTRE REINSURANCE LIMITED
in its capacity as a limited partner of III and not as a
holder of any IIA Warrants
By: /s/ Centre Reinsurance Limited
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Name:
Title:
INTERNATIONAL INSURANCE ADVISORS, INC.
By: /s/ International Insurance Advisors, Inc.
------------------------------------------
Name:
Title:
SUPERIOR NATIONAL INSURANCE GROUP, INC.
By: /s/ Superior National Insurance Group, Inc.
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Name:
Title: