-----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, Dl3637NNVEpg82oFsskcRIE4Y6HoYSTJMyy1QapohiDt+rfILGNuCX7laPb750bB bVdG7g10JYiQW1GsWcJAOw== 0000950135-99-003422.txt : 19990707 0000950135-99-003422.hdr.sgml : 19990707 ACCESSION NUMBER: 0000950135-99-003422 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990706 GROUP MEMBERS: 810679 ONTARIO LIMITED GROUP MEMBERS: FAIRFAX FINANCIAL HOLDINGS LTD/ CAN GROUP MEMBERS: HAMBLIN WATSA INVESTMENT COUNSEL LTD. GROUP MEMBERS: THE SIXTY TWO INVESTMENT COMPANY LIMITED GROUP MEMBERS: V. PREM WATSA SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ZENITH NATIONAL INSURANCE CORP CENTRAL INDEX KEY: 0000109261 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 952702776 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-06570 FILM NUMBER: 99659543 BUSINESS ADDRESS: STREET 1: 21255 CALIFA ST CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187131000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FAIRFAX FINANCIAL HOLDINGS LTD/ CAN CENTRAL INDEX KEY: 0000915191 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 95 WELLINGTON ST WEST STREET 2: STE 800 CITY: TORONTO ONTARIO CANA STATE: A6 BUSINESS PHONE: 4163674941 MAIL ADDRESS: STREET 1: FAIRFAX FINANCIAL HOLDINGS LTD STREET 2: 95 WELLINGTON ST WEST STE 800 CITY: TORONTO ONTARIO CANA STATE: A6 FORMER COMPANY: FORMER CONFORMED NAME: FAIRFAX FINANCIAL HOLDINGS LTD DATE OF NAME CHANGE: 19931122 SC 13D 1 ZENITH NATIONAL INSURANCE CORP. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. ) Zenith National Insurance Corp. ------------------------------- (Name of Issuer) Common Stock, $1.00 Par Value ----------------------------- (Title of Class of Securities) 989390109 --------- (CUSIP Number) Eric P. Salsberg Vice President, Corporate Affairs Fairfax Financial Holdings Limited 95 Wellington Street West, Suite 800 Toronto, Ontario, Canada, M5J 2N7 Telephone: (416) 367-4941 ------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) -With a copy to- Brice T. Voran Shearman & Sterling Commerce Court West 199 Bay Street, Suite 4405 Toronto, Ontario M5L 1E8 Telephone: (416) 360-8484 June 25, 1999 ------------- (Date of Event which Requires Filing of this Statement) ================================================================================ If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. 2 CUSIP NO. 989390109 13D Page 2 of 17 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person FAIRFAX FINANCIAL HOLDINGS LIMITED - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ X ] - -------------------------------------------------------------------------------- (3) SEC use only - -------------------------------------------------------------------------------- (4) Source of Funds WC - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). [ ] - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization CANADA - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of 0 Shares Beneficially --------------------------- Owned (8) Shared Voting Power by Each 6,660,599 Reporting --------------------------- Person With (9) Sole Dispositive Power 0 --------------------------- (10) Shared Dispositive Power 6,660,599 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficial Owned by each Reporting Person 6,660,599 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 38.9% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) HC and CO - -------------------------------------------------------------------------------- 3 CUSIP NO. 989390109 13D Page 3 of 17 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person V. PREM WATSA - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ X ] - -------------------------------------------------------------------------------- (3) SEC use only - -------------------------------------------------------------------------------- (4) Source of Funds WC - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). [ ] - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization CANADIAN - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of 0 Shares Beneficially --------------------------- Owned (8) Shared Voting Power by Each 6,660,599 Reporting --------------------------- Person With (9) Sole Dispositive Power 0 --------------------------- (10) Shared Dispositive Power 6,660,599 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficial Owned by each Reporting Person 6,660,599 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 38.9% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) IN - -------------------------------------------------------------------------------- 4 CUSIP NO. 989390109 13D Page 4 of 17 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person THE SIXTY TWO INVESTMENT COMPANY LIMITED - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ X ] - -------------------------------------------------------------------------------- (3) SEC use only - -------------------------------------------------------------------------------- (4) Source of Funds WC - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). [ ] - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization BRITISH COLUMBIA, CANADA - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of 0 Shares Beneficially --------------------------- Owned (8) Shared Voting Power by Each 6,660,599 Reporting --------------------------- Person With (9) Sole Dispositive Power 0 --------------------------- (10) Shared Dispositive Power 6,660,599 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficial Owned by each Reporting Person 6,660,599 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 38.9% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) CO - -------------------------------------------------------------------------------- 5 CUSIP NO. 989390109 13D Page 5 of 17 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person 810679 ONTARIO LIMITED - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ X ] - -------------------------------------------------------------------------------- (3) SEC use only - -------------------------------------------------------------------------------- (4) Source of Funds WC - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). [ ] - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization ONTARIO, CANADA - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of 0 Shares Beneficially --------------------------- Owned (8) Shared Voting Power by Each 6,660,599 Reporting --------------------------- Person With (9) Sole Dispositive Power 0 --------------------------- (10) Shared Dispositive Power 6,660,599 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficial Owned by each Reporting Person 6,660,599 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 38.9% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) CO - -------------------------------------------------------------------------------- 6 CUSIP NO. 989390109 13D Page 6 of 17 Pages - -------------------------------------------------------------------------------- (1) Name of Reporting Person HAMBLIN WATSA INVESTMENT COUNSEL LTD. - -------------------------------------------------------------------------------- (2) Check the Appropriate Box if a Member of a Group (a) [ ] (b) [ X ] - -------------------------------------------------------------------------------- (3) SEC use only - -------------------------------------------------------------------------------- (4) Source of Funds WC - -------------------------------------------------------------------------------- (5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item 2(d) or 2(e). [ ] - -------------------------------------------------------------------------------- (6) Citizenship or Place of Organization CANADA - -------------------------------------------------------------------------------- (7) Sole Voting Power Number of 0 Shares Beneficially --------------------------- Owned (8) Shared Voting Power by Each 86,154 Reporting --------------------------- Person With (9) Sole Dispositive Power 0 --------------------------- (10) Shared Dispositive Power 86,154 - -------------------------------------------------------------------------------- (11) Aggregate Amount Beneficial Owned by each Reporting Person 86,154 - -------------------------------------------------------------------------------- (12) Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] - -------------------------------------------------------------------------------- (13) Percent of Class Represented by Amount in Row (11) 0.5% - -------------------------------------------------------------------------------- (14) Type of Reporting Person (See Instructions) CO and IA - -------------------------------------------------------------------------------- 7 CUSIP NO. 989390109 13D Page 7 of 17 Pages This Statement relates to the Stock Purchase Agreement dated as of June 25, 1999 (the "Stock Purchase Agreement"), between Fairfax Financial Holdings Limited, a Canadian corporation, as purchaser, and Reliance Insurance Company providing for the purchase and sale (the "Purchase"), subject to the terms and conditions set forth in the Stock Purchase Agreement, of 6,574,445 shares (the "Reliance Shares") of common stock of Zenith National Insurance Corp., owned collectively by Reliance Insurance Company and its subsidiaries, Reliance Direct Insurance Company and United Pacific Insurance Company of New York (together, the "Sellers"). The Purchase is expected by Fairfax to occur by the autumn of 1999 and is subject to various closing conditions, including the receipt of applicable insurance regulatory approvals. If the closing has not occurred on or before December 31, 1999, the Stock Purchase Agreement provides that either party may terminate the Stock Purchase Agreement. Through Hamblin Watsa Investment Counsel Ltd., a Canadian corporation, ("Hamblin"), the Reporting Persons (as defined below) are also the beneficial owners of an additional 86,154 shares of common stock of Zenith National Insurance Corp. (the "Hamblin Shares"), 21,954 shares of which are owned by clients of Hamblin that are outside the Fairfax group and 64,200 shares of which are owned by TIG Reinsurance Company ("TIG Re"), an indirect wholly-owned insurance company subsidiary of Fairfax, on behalf of whom Fairfax is filing this Schedule 13D. Hamblin, through its investment advisory agreements with such clients outside the Fairfax group, as well as with TIG Re, may share the power to vote, and shares the power to dispose of the Hamblin Shares. The Hamblin Shares were purchased by Hamblin prior to and independent from any discussion Fairfax had with the Sellers regarding the Reliance Shares. The Hamblin Shares were purchased by Hamblin in its ordinary course of business as an investment advisor without the purpose or effect of changing or influencing control of Zenith. The Reliance Shares and the Hamblin Shares are referred to collectively in this Schedule 13D as the "Shares". ITEM 1. SECURITY AND ISSUER. This Statement relates to the shares of common stock, $1.00 par value of Zenith National Insurance Corp. ("Zenith"). The address of the principal executive offices of Zenith is 21255 Califa Street, Woodland Hills, California, 91367-5021. ITEM 2. IDENTITY AND BACKGROUND. This statement is being filed by Fairfax, a corporation incorporated under the laws of Canada, Hamblin, a corporation incorporated under the laws of Canada, The Sixty Two Investment Company Limited, a corporation incorporated under the laws of British Columbia, ("Sixty Two"), 810679 Ontario Limited, a corporation incorporated under the laws of Ontario ("810679") and V. Prem Watsa (together, the "Reporting Persons"). Fairfax is a financial services holding company which, through its subsidiaries, is 8 CUSIP NO. 989390109 13D Page 8 of 17 Pages engaged in property, casualty and life insurance and reinsurance, investment management and insurance claims management. Hamblin is an investment management company and a wholly owned subsidiary of Fairfax. Mr. Watsa, directly and indirectly through Sixty Two and 810679 owns the controlling equity voting interest of Fairfax. With the exception of Sixty Two, the principal executive offices of the Reporting Persons are located at 95 Wellington Street West, Suite 800, Toronto, Ontario, Canada M5J 2N7, and the telephone number of the Reporting Persons is (416) 367-4941. The principal executive office of Sixty Two is located at 1600 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia, Canada V6C 3L3 and the telephone number of Sixty Two is (604) 685-3456. The filing of this Statement and the statements herein shall not be construed as an admission that Mr. Watsa, Hamblin, Sixty Two or 810679 are for the purposes of Sections 13(d) or 13(g) of the Securities Exchange Act of 1934 the beneficial owners of the Shares or have any pecuniary interest therein. The directors of Fairfax are V. Prem Watsa, Winslow W. Bennett, Robbert Hartog, Kenneth R. Polley and John C. Puddington and its executive officers are V. Prem Watsa, Trevor J. Ambridge, Sam Chan, Francis Chou, J. Paul T. Fink, Brenda Harvey, Bradley P. Martin, Eric P. Salsberg, Ronald Schokking and John C. Varnell. The principal business address and telephone number of each of the directors and executive officers of Fairfax is 95 Wellington Street West, Suite 800, Toronto, Ontario, Canada M5J 2N7, telephone number (416) 367-4941. Mr. Watsa is Chairman and Chief Executive Officer of Fairfax and Vice President of Hamblin; Mr. Ambridge is Vice President and Chief Financial Officer of Fairfax; Mr. Bennett is President of Winwood Holdings Ltd., a private investment company; Mr. Chan is Vice President of Fairfax; Mr. Chou is Vice President of Fairfax; Mr. Fink is Vice President of Fairfax; Mr. Hartog is President of Robhar Investments Ltd., a private investment company; Ms. Harvey is Vice President and Secretary of Fairfax; Mr. Martin is Vice President of Fairfax; Mr. Polley is President and Chief Executive Officer of Lindsey Morden Group Inc., a publicly traded claims adjustment holding company controlled by Fairfax; Mr. Puddington is President of Trilwood Investments Limited, a private investment company; Mr. Salsberg is Vice President, Corporate Affairs of Fairfax; Mr. Schokking is Vice President, Finance of Fairfax; and Mr. Varnell is Vice President of Fairfax. Each such director and executive officer of Fairfax is a Canadian citizen. The directors and executive officers of Sixty Two are Winslow W. Bennett, Eric P. Salsberg and V. Prem Watsa. The sole director and 9 CUSIP NO. 989390109 13D Page 9 of 17 Pages executive officer of 810679 is V. Prem Watsa. The directors of Hamblin are Anthony F. Hamblin and V. Prem Watsa and its executive officers are Anthony F. Hamblin, V. Prem Watsa, Roger Lace and Brian Bradstreet. The principal business address and telephone number of each such director and executive officer is 95 Wellington Street West, Suite 800, Toronto, Ontario, Canada, M5J 2N7, telephone number (416) 367-4941. Each such director and executive officer is a Canadian citizen. During the last five years, neither any of the Reporting Persons nor, to the best knowledge of the Reporting Persons, any of the directors and executive officers listed above has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. The source of the funds for the Shares is working capital, including available cash on hand. The purchase price for the Shares is approximately $186,232,155. ITEM 4. PURPOSE OF TRANSACTION. The Shares have been acquired by the Reporting Persons for investment purposes and not for the purpose of, or in connection with, or as a participant in any transaction having the purpose of changing or influencing the control of Zenith. Under the Stock Purchase Agreement, consummation of the Purchase is subject to various conditions, including, among other things: (i) the obtaining of all requisite insurance and other regulatory approvals; and (ii) the absence of any injunction or law by any court or governmental authority having jurisdiction over Fairfax or the Sellers which prohibits or makes illegal the consummation of the Purchase. The Stock Purchase Agreement provides that if Fairfax and/or its affiliates acquire, by, among other things, tender offer or merger, a majority of Zenith's shares of common stock, prior to a certain date and pay consideration per share in excess of the price paid to the Sellers for the Reliance Shares, Fairfax will pay the Sellers for each of the Reliance Shares, an additional amount equal to the amount of such excess. 10 CUSIP NO. 989390109 13D Page 10 of 17 Pages In addition, the Stock Purchase Agreement provides that if a third party unaffiliated with Fairfax seeks to acquire, by, among other things, tender offer or merger, prior to the closing of the sale of the Reliance Shares, a majority of Zenith's shares of common stock at a price per share in excess of the price paid to the Sellers for the Reliance Shares, and Fairfax and/or its affiliates agrees to sell any or all of the Reliance Shares purchased under the Stock Purchase Agreement, Fairfax will pay the Sellers an amount equal to 50% of such excess for each Reliance Share sold by Fairfax and/or its affiliates in such third party transaction. Subsequent to executing the Stock Purchase Agreement, a standstill agreement dated as of June 30, 1999 was entered into between Fairfax and Zenith (the "Standstill Agreement") which prohibits Fairfax, subject to the terms and conditions set forth in the Standstill Agreement, from acquiring any additional securities or assets of Zenith. The descriptions in this Item 4 of the Stock Purchase Agreement and the Standstill Agreement are qualified in their entirety by reference to the Stock Purchase Agreement and the Standstill Agreement, a copy of each of which is attached to this Schedule 13D as Exhibit 2.1 and 2.2, respectively. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. Based on the most recent information available, the Reporting Persons are deemed to beneficially own the number of shares of common stock of Zenith and the percentage of outstanding shares of common stock of Zenith listed in responses to Items 11 and 13, respectively, on its respective cover page filed herewith and such responses are incorporated by reference herein. In addition, the number of shares of common stock of Zenith with respect to which each of the Reporting Persons: (i) has sole voting power, (ii) shares voting power, (iii) has sole dispositive power, and (iv) shares dispositive power, are listed in responses to Items 7, 8, 9 and 10, respectively, on its respective cover page filed herewith, and such responses are incorporated by reference herein. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Except for the Purchase Agreement and the Standstill Agreement, and except for Hamblin's investment advisory agreements with its clients, referred to in the introductory paragraph preceding Item 1, none of the persons named in Item 2 has any contracts, arrangements, understandings or relationships (legal 11 CUSIP NO. 989390109 13D Page 11 of 17 Pages or otherwise) with any person with respect to any securities of Zenith, including, but not limited to, transfer or voting of any securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 2.1 Stock Purchase Agreement dated as of June 25, 1999 between Fairfax Financial Holdings Limited and Reliance Insurance Company. 2.2 Standstill Agreement dated as of June 30, 1999 between Fairfax Financial Holdings Limited and Zenith National Insurance Corp. 12 CUSIP NO. 989390109 13D Page 12 of 17 Pages SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, Fairfax Financial Holdings Limited certifies that the information set forth in this statement is true, complete and correct. FAIRFAX FINANCIAL HOLDINGS LIMITED Dated: July 6, 1999. By: /s/ Eric P. Salsberg ------------------------------ Name: Eric P. Salsberg Title: Vice President, Corporate Affairs 13 CUSIP NO. 989390109 13D Page 13 of 17 Pages SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, Hamblin Watsa Investment Counsel Ltd. certifies that the information set forth in this statement is true, complete and correct. HAMBLIN WATSA INVESTMENT COUNSEL LTD. Dated: July 6, 1999. By: /s/ V. Prem Watsa ------------------------------ Name: V. Prem Watsa Title: Vice President 14 CUSIP NO. 989390109 13D Page 14 of 17 Pages SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: July 6, 1999. /s/ V. Prem Watsa ------------------------------ Name: V. Prem Watsa 15 CUSIP NO. 989390109 13D Page 15 of 17 Pages SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, The Sixty Two Investment Company Limited certifies that the information set forth in this statement is true, complete and correct. THE SIXTY TWO INVESTMENT COMPANY LIMITED Dated: July 6, 1999. By: /s/ V. Prem Watsa ------------------------------ Name: V. Prem Watsa Title: President 16 CUSIP NO. 989390109 13D Page 16 of 17 Pages SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, 810679 Ontario Limited certifies that the information set forth in this statement is true, complete and correct. 810679 ONTARIO LIMITED Dated: July 6, 1999. By: /s/ V. Prem Watsa ----------------------------- Name: V. Prem Watsa Title: President 17 CUSIP NO. 989390109 13D Page 17 of 17 Pages EXHIBIT INDEX
Exhibit No. Description --- ----------- 2.1 Stock Purchase Agreement dated as of June 25, 1999 between Fairfax Financial Holdings Limited and Reliance Insurance Company. 2.2 Standstill Agreement dated as of June 30, 1999 between Fairfax Financial Holdings Limited and Zenith National Insurance Corp.
EX-2.1 2 STOCK PURCHASE AGREEMENT DATED 6/25/99 1 EXHIBIT 2.1 FINAL EXECUTION COPY STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT, dated as of June 25, 1999, between Reliance Insurance Company ("Reliance") and Fairfax Financial Holdings Limited ("Purchaser", such term to include, except for the proviso to Section 14, any assignee of Fairfax Financial Holdings Limited pursuant to Section 14). For purposes of this Agreement, "Seller" shall mean, collectively, Reliance and its subsidiaries United Pacific Insurance Company of New York and Reliance Direct Insurance Company. WHEREAS, Seller owns an aggregate of 6,574,445 shares (the "Shares") of common stock, par value U.S. $1.00 per share (the "Common Stock") of Zenith National Insurance Corp., a Delaware insurance holding company (the "Company"); WHEREAS, Seller wishes to sell to Purchaser the Shares and Purchaser wishes to purchase from Seller the Shares, upon the terms and subject to the conditions set forth herein; WHEREAS, Purchaser is purchasing the Shares for investment purposes; WHEREAS, Reliance has agreed with Purchaser to assign to Purchaser, at Purchaser's request, subject to Purchaser obtaining the consent, if required, of the Company, its registration rights contained in a purchase agreement, dated as of February 4, 1981 among Reliance, the Company and certain selling stockholders (the "Purchase Agreement"); NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, Reliance, on behalf of each Seller, and Purchaser hereby agree as follows: 1. Sale of Shares. Subject to the terms and conditions contained herein, Seller will sell to Purchaser, and Purchaser will buy from Seller the Shares for an aggregate cash purchase price of U.S. $184,084,460 (the "Purchase Price") representing U.S. $28.00 per Share (the "Per Share Purchase Price") payable on the Settlement Date (as defined below). The Purchase Price shall be adjusted upon the terms and conditions described in Section 10 below. 2. Settlement. (a) Settlement of the sale and purchase under Section 1 of this Agreement shall take place at the offices of Seller at 55 East 52nd Street, Park Avenue Plaza, 29th Floor, New York, New York at 11:00 a.m., New York City time, on the third business day after receipt by Seller and Purchaser of all necessary approvals, non-disapprovals or comparable responses described in Sections 3(c) and 4(g) below (the "Settlement Date" and all such approvals, non-disapprovals and other comparable responses being hereafter collectively referred to as the "Necessary Approvals"). (b) On the Settlement Date, Seller shall deliver or cause to be delivered to Purchaser (i) stock certificates evidencing the Shares (or a portion thereof) duly endorsed in blank, or accompanied by stock powers duly executed in blank and with all required stock transfer tax stamps 2 affixed and by DTC transfer, the remainder of the Shares and (ii) a receipt for the Purchase Price in respect of the Shares. (c) On the Settlement Date, Purchaser shall deliver to Seller (i) the Purchase Price by wire transfer of immediately available funds to Sellers' accounts as separately furnished to Purchaser in writing prior to the Settlement Date and (ii) a receipt for the Shares. 3. Representations of Seller. As an inducement to Purchaser to enter into this Agreement, Reliance represents and warrants to Purchaser that: (a) Seller beneficially and of record (or through a custodian) owns the Shares being sold to Purchaser hereunder and such Shares are, free and clear of all liens, charges and other encumbrances, except for the restrictions on voting contained in the letter from the California Insurance Department set forth as Schedule 1 to this Agreement (the "California Letter") and the restrictions imposed upon the sale of the Shares by the United States federal securities laws and state insurance holding company laws. Subject to receipt of the Necessary Approvals, the delivery of and payment for the Shares pursuant to this Agreement will transfer to Purchaser good and valid title to the Shares. 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 Shares, except for the Purchase Agreement and the California Letter. (b) Each constituent corporation of Seller is an insurance corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and to consummate the transaction contemplated hereby. The execution and delivery of this Agreement by Reliance, the performance by Reliance of its obligations hereunder and the consummation by Reliance of the transaction contemplated hereby have been duly authorized by all requisite corporate action on the part of Reliance. This Agreement has been duly executed and delivered by Reliance and constitutes a legal, valid and binding obligation of Reliance, enforceable against it in accordance with its terms. (c) Neither the execution and delivery of this Agreement, nor the consummation of the transaction contemplated hereby conflicts with or results in a breach of any of the provisions of, or constitutes a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, or results in the creation of any encumbrance on any of the Shares under, any material indenture, mortgage, lease or loan agreement to which Seller is bound or violates any statute, regulation, rule, judgment, order, decree or other restriction of any government, governmental agency or court to which Seller is subject. No notice to, filing with or authorization, consent or approval of, any government or governmental agency by Seller is necessary for the consummation of the transaction contemplated by this Agreement although Reliance and certain of its affiliates will be required to file Forms 4 and an Amendment to Schedule 13D under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Seller acknowledges that the Company will be required to file an HSR notification. 2 3 (d) As of the date of this Agreement, Seller does not know of any material adverse development in regard to the Company that has not been disclosed through publicly available filings or press releases. (e) All negotiations relating to this Agreement and the transaction contemplated hereby have been carried on without the intervention of any person acting on behalf of Seller in such manner as to give rise to any valid claim against Purchaser for any brokerage or finder's commission, fee or similar compensation. (f) Assuming the accuracy of the representations of Purchaser in Sections 4(a), (b) and (c), the offer and sale of the Shares hereunder are exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). 4. Representations of Purchaser. As an inducement to Reliance to enter into this Agreement, Purchaser represents and warrants to Reliance that: (a) Purchaser is acquiring the Shares to be purchased pursuant to this Agreement for investment purposes, for Purchaser's own account and with no present intention of distributing or reselling the Shares in any transaction which would be in violation of the securities laws of the United States of America or any state thereof or the insurance laws of any state. (b) Purchaser is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D under the Securities Act. (c) Purchaser is aware that (i) the Shares are "restricted securities" as defined in the Securities Act and are therefore subject to restrictions on resale and (ii) the Company has no obligation to register the Shares for resale except, subject to the Company providing any requisite consent, pursuant to the Purchase Agreement. (d) In entering into the transaction contemplated hereby, Purchaser is not relying upon any representations or warranties made by Seller, except for those expressly set forth in this Agreement. (e) Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority to enter into and perform its obligations under this Agreement and to consummate the transaction contemplated hereby. The execution and delivery of this Agreement by Purchaser, the performance by Purchaser of its obligations hereunder and the consummation by Purchaser of the transaction contemplated hereby have been duly authorized by all requisite action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser. This Agreement constitutes a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms. (f) Purchaser has sufficient cash available to it to consummate the purchase of the Shares contemplated hereby without the need for any financing other than that which is already available or committed to Purchaser without material condition; provided that Purchaser hereby expressly 3 4 acknowledges and agrees that the ability of Purchaser to obtain the necessary funds from such financing shall not be a condition to the consummation of the transaction contemplated hereby. (g) Neither the execution and delivery of this Agreement, nor the consummation of the transaction contemplated hereby conflicts with or results in a breach of any of the provisions of, or constitutes a default (or event which with the giving of notice or lapse of time or both, would become a default) under, any material indenture, mortgage, lease or loan agreement to which Purchaser is bound or violates any statute, regulation, rule, judgment, order, decree or other restriction of any government, governmental agency or court to which Purchaser is subject. No notice to, filing with or authorization, consent or approval of, any government or governmental agency by Purchaser is necessary for the consummation of the transaction contemplated by the Agreement, except that Purchaser will be required to make a notification under the Hart-Scott Rodino Anti-trust Improvements Act of 1976, as amended (the "HSR Act"), file Forms A with the insurance regulatory authorities in the States of California and Texas and make such other filings as may be necessary with applicable insurance regulatory authorities in the United States having jurisdiction over Purchaser with relation to the purchase of the Shares (the Form A filings and other filings with insurance regulatory authorities in the United States being hereinafter referred to as the "Insurance Filings" and the notification under the HSR Act and the Insurance Filings being hereinafter collectively referred to as the "Purchaser Regulatory Filings") and obtain the approvals, non-disapprovals or comparable responses (including the expiration or termination of waiting periods) of the applicable regulatory entities for the purchase of the Shares and although Purchaser will be required to file a Form 3 and a Schedule 13D under the Exchange Act. Purchaser acknowledges that the Company will be required to file an HSR notification. (h) All negotiations relating to this Agreement and the transaction contemplated hereby have been carried on without the intervention of any person acting on behalf of Purchaser in such manner as to give rise to any valid claim against Seller for any brokerage or finder's commission, fee or similar compensation. 5. Covenants of Seller and Purchaser. Each of Seller and Purchaser will: (a) file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by it pursuant to applicable law in connection with the sale and purchase of the Shares and the consummation of the transaction contemplated by this Agreement, including with respect to Purchaser, Form A and other filings with all appropriate insurance regulatory authorities and all notifications required by the HSR Act (all of which notifications and filings shall be made as soon as reasonably practicable; provided that Purchaser will use its best efforts to give such notifications and make such filings by July 20, 1999 and will do so in any event no later than July 30, 1999); (b) promptly respond to requests for additional information and give such reasonable undertakings to insurance and other regulatory authorities as may be required to consummate the sale and purchase of the Shares; 4 5 (c) use its best efforts to take, or cause to be taken, all actions necessary, proper or advisable in order for it to fulfill its obligations under this Agreement; and (d) take no action that would result in its representations and warranties becoming untrue. 6. Covenants of Seller. (a) Reliance will cause each Seller to fulfill such Seller's obligations under this Agreement. (b) Seller will arrange for the resignations from the Board of Directors of the Company, effective on the Settlement Date, of each of Messrs. Saul P. Steinberg, Robert M. Steinberg and George E. Bello. (c) At the request of Purchaser made at least two (2) days prior to the Settlement Date, Reliance will execute and deliver to Purchaser a duly executed assignment agreement (the "Assignment Agreement") pursuant to which Reliance will assign all of its registration rights under the Purchase Agreement to Purchaser, subject to Purchaser obtaining the consent of the Company, to the extent such consent is required (it being agreed by Purchaser that it shall be Purchaser's sole responsibility to obtain such consent and Reliance will have no obligation in that regard). 7. Conditions to Closing. (a) The obligations of Purchaser hereunder to purchase and of Seller hereunder to sell the Shares are subject to the fulfillment of the following conditions: (i) all permits, orders, approvals, consents, non-disapprovals or non-objections relating to the Insurance Filings and of any other governmental or insurance regulatory authority which are required in connection with the consummation of the transaction contemplated by this Agreement including, but not limited to, the approval by the States in which the Insurance Filings are required and such other regulatory authorities as require a permit, order, approval, consent, non-disapproval or non-objection (in the case of any non-disapprovals or non-objections as evidenced by the time period prescribed by applicable insurance law having elapsed without Purchaser having received any objection), shall have been obtained (and, subject to Purchaser's obligations under Section 5(b) and (c), not contain any conditions or other terms that are not reasonably acceptable to Purchaser) and such permits, orders, approvals, consents, non-disapprovals and/or non-objections shall be effective and shall not have been suspended, revoked or stayed; (ii) all applicable waiting periods under the HSR Act shall have expired or been terminated; and (iii) no injunction or law prohibiting or making illegal the consummation of the transaction contemplated by this Agreement shall have been enacted, issued, promulgated or enforced by any court or governmental authority having jurisdiction over Seller or Purchaser. 5 6 (b) The obligations of Seller to consummate the transaction contemplated by this Agreement shall be further subject to the fulfillment, at or prior to the Settlement Date, of the following conditions: (i) the representations and warranties of Purchaser contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Settlement Date, with the same force and effect as if made at the Settlement Date (except if made as of a specified earlier date), (ii) the covenants and agreements contained in this Agreement to be complied with by Purchaser on or before the Settlement Date shall have been complied with in all material respects, and (iii) Seller shall have received a certificate from Purchaser to the effect set forth in clauses (i) and (ii) signed by a duly authorized representative thereof. (c) The obligations of Purchaser to consummate the transaction contemplated by this Agreement shall be further subject to the fulfillment, on or prior to the Settlement Date, of the following conditions: (i) the representations and warranties of Seller contained in this Agreement shall have been true and correct when made and shall be true and correct in all material respects as of the Settlement Date, with the same force and effect as if made at the Settlement Date (except for the representation and warranty set forth in Section 3(d), which shall only be made as of the date of this Agreement), (ii) the covenants and agreements contained in this Agreement to be complied with by Seller on or before the Settlement Date shall have been complied with in all material respects, and (iii) Purchaser shall have received a certificate from Seller to the effect set forth in clauses (i) and (ii) signed by a duly authorized representative thereof and if requested in writing by Purchaser at least two (2) days prior to the Settlement Date, a duly executed Assignment Agreement. 8. Termination. This Agreement may be terminated as follows: (a) by mutual written consent of Seller and Purchaser; (b) at the election of Seller or Purchaser if the conditions set forth in Section 7(a) of this Agreement have not been fulfilled on or prior to December 31, 1999 (so long as the party seeking to terminate this Agreement has not breached any provision hereof); (c) at the election of Seller, in the event that the conditions set forth in Section 7(b) have not been fulfilled by the Settlement Date or have become impossible of fulfillment prior to the Settlement Date; and (d) at the election of Purchaser, in the event that the conditions set forth in Section 7(c) have not been fulfilled by the Settlement Date or have become impossible of fulfillment prior to the Settlement Date. In the event of the termination of this Agreement pursuant to the provisions of this Section 8, this Agreement shall become void and have no effect, without any liability on the part of any party hereto or its directors, officers or stockholders in respect of this Agreement, except as specified in Section 18 hereof and except that nothing herein shall limit the right of either party to seek damages from the other for breach of this Agreement. 6 7 9. Transactions. (a) If a Purchaser Acquisition Transaction is consummated on or prior to the date which is the fifteen month anniversary of the Settlement Date or is consummated thereafter pursuant to a Purchaser Acquisition Transaction "commenced" for purposes of Rule 14d-2 of the Exchange Act prior to such date or pursuant to a definitive acquisition agreement executed as of a date prior to such fifteen month anniversary and the purchase price per share of Common Stock is greater than the Per Share Purchase Price, Purchaser shall pay to Seller in cash, upon consummation of such Purchaser Acquisition Transaction, an amount equal to the product of (i) the excess of the price per share of the Common Stock paid by any Purchaser Part(y)(ies) (as defined below) in the Purchaser Acquisition Transaction over the Per Share Purchase Price and (ii) the number of Shares sold to Purchaser pursuant to this Agreement. (b) If a Third Party Acquisition Transaction is "commenced" for purposes of Rule 14d-2 of the Exchange Act or a definitive acquisition agreement is executed on or prior to the Settlement Date and the purchase price per share of Common Stock to be paid in such Third Party Acquisition Transaction is greater than the Per Share Purchase Price, and any Purchaser Party sells or otherwise disposes of or agrees to sell or otherwise dispose of the Shares or any portion thereof purchased or to be purchased by Purchaser hereunder, then Purchaser shall pay to Seller in cash upon consummation of the Third Party Acquisition Transaction an amount equal to 50% of the product of (i) the excess of the purchase price per share of Common Stock in the Third Party Acquisition Transaction over the Per Share Purchase Price and (ii) the number of Shares sold or otherwise disposed of by all Purchaser Parties in such Third Party Acquisition Transaction. Seller acknowledges that nothing in this Section 9(b) shall be deemed to obligate Purchaser to sell the Shares in a Third Party Acquisition Transaction. For purposes of this Section 9, (i) the term "Purchaser Acquisition Transaction" shall mean a tender offer, merger, consolidation or other transaction having a similar effect (it being understood that open market purchases and purchases from the treasury of the Company are not "transactions having a similar effect") after giving effect to which Purchaser, any affiliate of Purchaser or any group (as defined in Rule 13d-3 of the Exchange Act) including Purchaser and/or any of its affiliates (each, a "Purchaser Party"), owns more than 50% of the Common Stock, (ii) the term "Third Party Acquisition Transaction" shall mean any transaction in which a party (other than a Purchaser Party) seeks to own, or after giving effect to which a party other than a Purchaser Party owns, more than 50% of the Common Stock, whether by a tender offer, merger, consolidation or other transaction having similar effect, (iii) securities, notes or other property paid in any Purchaser Acquisition Transaction or Third Party Acquisition Transaction shall be valued at their fair market value and (iv) any amount due to Seller under this Section 9 shall be subject to adjustment pursuant to Section 10 (b) below. 10. Adjustments for Dividends and Other Distributions; Stock Splits, etc. (a) Seller and Purchaser agree that Seller shall be entitled to all dividends and other distributions on the Shares for which the record date is on or prior to the Settlement Date and that Purchaser shall be entitled to all dividends and other distributions on the Shares for which the record 7 8 date is after the Settlement Date; provided that in the event of an Extraordinary Dividend, the Per Share Purchase Price shall be reduced by the amount per share of such Extraordinary Dividend. For the purposes of this Section 10, an "Extraordinary Dividend" shall be any dividend or distribution on the Shares other than the regular quarterly dividend paid on the Common Stock. (b) In the event of a change in the number of Shares by virtue of a stock split, stock dividend, split-up, recapitalization or other similar transaction, Seller shall deliver to Purchaser on the Settlement Date, without change in the Purchase Price, that number of shares of Common Stock owned by Seller on the Settlement Date as a result of such transaction and all such shares shall be "Shares" under this Agreement. Any payments by Purchaser required by Section 9 of this Agreement shall give effect to any stock split, stock dividend, split-up, recapitalization or other similar transaction the record date for which is prior to the closing of the Purchaser Acquisition Transaction or the Third Party Acquisition Transaction, as the case may be. 11. Securities Laws. The parties hereto hereby acknowledge that they are aware that the United States securities laws prohibit any person who has material non-public information about a company from purchasing or selling securities of such company or communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell securities of such company. 12. Law Governing. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. The headings of the Sections hereof are inserted for convenience only and shall not be deemed to constitute a part thereof. 13. Consent to Jurisdiction. Purchaser hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and any court of the State of New York located in the Borough of Manhattan over any suit, action or proceeding arising out of or relating to this Agreement. Purchaser hereby irrevocably waives, to the fullest extent permitted by law (i) any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court or (ii) any claim that any such suit, action or proceeding has been brought in an inconvenient forum. THE PARTIES HERETO HEREBY WAIVE ANY RIGHTS TO A TRIAL BY JURY WITH RESPECT TO ANY MATTER RELATING TO THIS AGREEMENT. 14. Assignment. This Agreement may not be assigned by either party hereto without the prior written consent of the other party hereto, except that Fairfax Financial Holdings Limited may assign this Agreement to one or more of its subsidiaries without Seller's prior written consent (Fairfax Financial Holdings Limited hereby advising Seller of its intent to assign this Agreement to one or more of its U.S. insurance company subsidiaries); provided that Fairfax Financial Holdings Limited shall remain liable for the obligations of Purchaser hereunder as if such assignment had not taken place. 15. Parties in Interest. All the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. 8 9 16. Amendments. This Agreement may be amended, modified or terminated only by an instrument in writing signed by Seller and Purchaser. 17. Conveyance Taxes. Purchaser and Seller shall each be responsible for any stock transfer and stamp taxes or other similar taxes which become payable in connection with the sale of the Shares to Purchaser under this Agreement which are such party's obligation under applicable law. Purchaser and Seller shall execute and deliver all instruments and certificates necessary to enable the other party to make the necessary tax and other filings, if any. 18. Press Releases. Neither party shall issue any press release relating to the transaction contemplated hereby without having consulted in advance with the other party and the parties shall cooperate as to the timing and contents of any such press release, except in the event that such press release is required by law or regulations, or by the rules of any securities exchange on which securities of any of the parties hereto are listed or quoted and such consultation and cooperation is not reasonably practicable within the applicable time periods for issuing the release. 19. Notices. All notices, consents, requests, instructions, approvals and other communications provided herein shall be validly given or made (and shall be deemed to have been duly given or made upon receipt or delivery), if in writing and delivered personally or sent by nationally recognized overnight courier, by facsimile transmission (followed up by certified or registered mail, return receipt requested) or by registered or certified mail return receipt requested, (i) if to Purchaser at Fairfax Financial Holdings Limited, 95 Wellington Street West, Suite 800, Toronto, Canada M5J 2N7, attention: Eric Salsberg, Vice President-Corporate Affairs, facsimile (416) 367-2201 with a copy to Shearman & Sterling, Commerce Court West, Suite 4405, P.O. Box 247, Toronto, Canada M5L 1E8, attention: Brice T. Voran, facsimile (416) 360-2958 and (ii) if to Seller at Reliance Group Holdings, Inc., 55 East 52nd Street, Park Avenue Plaza, 29th Floor, New York, New York 10055, attention: Lowell C. Freiberg, Executive Vice President and Chief Financial Officer, facsimile (212) 909.1864, with a copy to the attention of Howard E. Steinberg, Executive Vice President and General Counsel, facsimile (212) 909-1241. 20. Miscellaneous. This Agreement may be executed concurrently 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. Each counterpart may be delivered by facsimile transmission, which transmission shall be deemed delivery of an originally executed document. 21. Entire Agreement. This Agreement is intended by the parties as a final expression of their understandings and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 22. Further Action. Each of the parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things necessary, proper or advisable under applicable laws and regulations, and execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and consummate and make 9 10 effective the transaction contemplated by this Agreement. Each party will consent to any proposal by one or more of the other parties for structuring any aspect of the sale of the Shares in a manner which is advantageous to the party making the proposal if such proposal is neutral or advantageous to the party whose consent is sought, provided that such proposal is reasonably feasible, is not contrary to applicable laws and regulations and will be at no cost to such party. INTENTIONALLY LEFT BLANK 10 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. RELIANCE INSURANCE COMPANY By: /s/ Albert A. Benchimol ---------------------------------------- Name: Albert A. Benchimol Title: Vice President FAIRFAX FINANCIAL HOLDINGS LIMITED By: /s/ Eric P. Salsberg ---------------------------------------- Name: Eric P. Salsberg Title: Vice President, Corporate Affairs 11 EX-2.2 3 STANDSTILL AGREEMENT DATED 6/30/99 1 EXHIBIT 2.2 STANDSTILL AGREEMENT THIS STANDSTILL AGREEMENT ("Standstill Agreement") is made as of this 30th day of June, 1999, by and between Zenith National Insurance Corp., a Delaware corporation (the "Company") and Fairfax Financial Holdings Limited, a Canada corporation (the "Purchaser"). RECITALS WHEREAS, Reliance Group Holdings, Inc. (the "Seller") beneficially owns as of the date of this agreement an aggregate of 6,574,445 shares (the "Shares") of the common stock of the Company ("Zenith Common Stock"); WHEREAS, the Seller and the Purchaser, have entered into a Stock Purchase Agreement, dated June 25, 1999 (the "Stock Purchase Agreement"), which provides, among other things, that the Purchaser shall purchase the Shares from the Seller (the "Transaction"); WHEREAS, in order to induce the Purchaser to enter into this Standstill Agreement, the Company is willing to facilitate the Transaction on the terms described herein by cooperating in seeking all necessary approval of the Transaction as shall be required (i) under applicable insurance laws and with the appropriate insurance commission(s), and (ii) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R Act"); NOW THEREFORE, in consideration of the aforesaid and mutual promises hereinafter made, the parties hereto agree as follows: 1. Standstill 1.1 Subject to the provisions of Section 1.2 below, and except in connection with the consummation of the Transaction, the Purchaser and any corporation or other entity controlled by or affiliated with the Purchaser (collectively, the "Purchaser Group") hereby covenants and agrees that, without the prior written consent of the Board of Directors of the Company specifically expressed in a resolution adopted by a majority of the directors of the Company who are not affiliates of, and are neither officers, directors nor employees of, any member of the Purchaser Group, the Purchaser Group will not in any manner, directly or indirectly, or in connection with any other person or entity, (a) effect or seek, offer, encourage or 2 propose (whether publicly or otherwise) to effect or participate in, (i) any acquisition of any securities (or beneficial ownership thereof) or assets of the Company, except by way of stock dividends or other distributions or offerings made available to holders of Company securities generally, (ii) any tender or exchange offer, merger or other business combination involving the Company, except to the extent that the Purchaser is selling Zenith Common Stock owned on the date hereof or acquired pursuant to the Transaction or by way of stock dividends or other distributions or offerings made available to holders of Company securities generally, (iii) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to the Company, or (iv) any "solicitation" of "proxies" (as such terms are defined in Rule 14a-1 under the Exchange Act) or consents to vote any securities of the Company, (b) form, join or in any way participate in a "group" (as such term is used in Section 13(d)(3) of the Exchange Act) (except insofar as the Purchaser Group sets to consummate the Transaction), or otherwise act, alone or with others, to seek to acquire or affect control or influence the management, Board of Directors or policies of the Company, (c) enter into any arrangements with any third party regarding any of the foregoing or (d) take any action which would force the Company to make a public announcement regarding the types of matters set forth in (a) of this Section 1.1. The Purchaser Group also agrees not to ask, subject to the provisions of Section 1.2 hereof, the Company (or its directors, officers, employees or agents) directly or indirectly, to amend, waive or terminate any of the provisions of this Section 1.1, including this sentence. The covenants and agreements contained in this Section 1.1 shall survive until the earlier of (i) the fifth anniversary of the consummation of the Transaction and (ii) the date on which Stanley R. Zax is no longer the full-time Chairman of the Board and President of the Company. Nothing herein shall affect the Purchaser Group's ability to dispose of its Zenith Common Stock and, except as set forth above, nothing herein shall limit the Purchaser Group's ability to exercise the rights attaching to the Shares. 1.2 Notwithstanding Section 1.1 above, the Purchaser Group shall not be prohibited from proposing a transaction to the Company or its Board of Directors or from having discussions with officers, directors, employees or agents of the Company in the ordinary course with respect to the Company or the conduct of the Company's business. 2. Company Covenants 2.1 The Company covenants that it will use its commercially reasonable efforts to cooperate in seeking all necessary approvals of the Transaction 2 3 as shall be required (i) under applicable insurance law and with the appropriate insurance commission(s) and (ii) under the H-S-R Act. 2.2 The Company hereby consents to the assignment by the Seller to the Purchaser of the registration rights embodied in Article IX of the Purchase Agreement, made as of February 4, 1981 among Reliance Insurance Company, the Company, and certain other parties. 3. CONDITIONS TO PURCHASER'S OBLIGATIONS. The Purchaser's covenants and agreements set forth herein are subject to the receipt by the Purchaser of waivers, with respect to the Transaction, from Stanley R. Zax, Fredricks Taubitz, John J. Tickner, Jack D. Miller, Robert E. Meyer, Kenneth I. Wuelfing and Corey A. Ingber substantially in the form of Exhibit A hereto. 4. MISCELLANEOUS 4.1 MERGER CLAUSE. This Agreement constitutes the complete agreement between the parties hereto with respect to the subject matter hereof and shall continue in full force and affect until terminated by mutual agreement of the parties hereto or pursuant to the terms hereof. The section headings used herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 4.2 CHOICE OF LAW. This Agreement shall be construed, performed and enforced in accordance with, and governed by the internal laws of the State of Delaware, without giving effect to the principles of conflicts of law thereof, and each party consents to personal jurisdiction in such state and voluntarily submits to the jurisdiction of the courts of such state in any action or proceeding relating to this Agreement. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision hereof is held to be invalid, illegal or unenforceable under any applicable law or rule in any jurisdiction, such provision will be ineffective only to the extent of such invalidity, illegality, or unenforceability, without invalidating the remainder of this Agreement. This Agreement may not be modified or amended and no provision hereof may be waived, in whole or in part, except by a written agreement signed by the parties hereto. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default. 3 4 4.3 Remedy. The Purchaser acknowledges that the Company would not have an adequate remedy at law for money damages in the event that this agreement is not performed in accordance with its terms and therefore the Purchaser agrees that the Company shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity. 4.4 Notices. Every notice or other communication required or contemplated by this Agreement by either party shall be delivered by (i) personal delivery, (ii) postage prepaid, return receipt requested, registered or certified mail (airmail if available), or the equivalent of registered or certified mail under the laws of the country where mailed, (iii) internationally recognized express courier, such as Federal Express, UPS or DHL, or (iv) facsimile with a confirmation copy sent simultaneously in the manner contemplated by clauses (i), (ii) or (iii) of this Section 4.4, in each case addressed to the party for whom intended at the following address or at such other address of which notice has been given in accordance with this Section 4.4: (i) If to the Company: Zenith National Insurance Corp. 21255 Califa Street Woodland Hills, CA 91367 Facsimile No.: 818-713-0177 Attn: Stanley R. Zax, Chairman of the Board and President With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Ste. 3400 Los Angeles, CA 90071 Facsimile No.: 213-687-5600 Attn: Jerome L. Coben (2) If to the Purchaser: Fairfax Financial Holdings Limited 95 Wellington Street West, Ste. 800 Toronto, Ontario Canada M5J 2N7 Facsimile No.: 416-367-2201 Attn: Eric Salsberg, Vice President, Corporate Affairs 4 5 4.5 Counterparts. This Agreement may be executed in counterparts, all of which shall be taken together as one and the same instrument. Please acknowledge your agreement with the terms of this Agreement where indicated below and return an executed copy of this Agreement to the undersigned, whereupon this will be a binding agreement between us. Zenith National Insurance Corp. By: /s/ STANLEY R. ZAX ----------------------------- Name: Stanley R. Zax Title: Chairman of the Board and President ACCEPTED AND AGREED to by: Fairfax Financial Holdings Limited By: /s/ ERIC SALSBERG ----------------------------- Name: Eric Salsberg Title: Vice President, Corporate Affairs 5 6 EXHIBIT A , 1999 [Zenith National Insurance Corp.] [Zenith Insurance Company] 21255 Califa Street Woodland Hills, CA 91367 Fairfax Financial Holdings Limited 95 Wellington Street West Suite 800 Toronto, Canada M5J 2N7 Dear Sirs: Reference is made to the Employment Agreement, effective as of ________ (the "Employment Agreement") between [Zenith National Insurance Corp., a Delaware corporation ("Zenith")] [Zenith Insurance Company, a California corporation and wholly-owned subsidiary of Zenith National Insurance Corp., a Delaware corporation ("Zenith") and the undersigned. Pursuant to Section _____ of the Employment Agreement, the undersigned was granted certain rights in the event of a Change in Control (as defined in the Employment Agreement). The undersigned has been informed that Fairfax Financial Holdings Limited, a Canada corporation ("Fairfax"), has entered into a Stock Purchase Agreement, dated June 25, 1999 with Reliance Insurance Company ("Reliance"), pursuant to which Fairfax will purchase all of the shares of the common stock of Zenith held by Reliance and its affiliates (the "Transaction"). In connection with the Transaction, Fairfax has entered into a Standstill Agreement, dated June 30, 1999 (the "Standstill Agreement"), with Zenith. Under the terms of the Employment Agreement, as a result of the Transaction, a Change in Control will have occurred and, accordingly, the undersigned would be entitled to exercise the rights specified in Section _____ of the Employment Agreement. Section 3 of the Standstill Agreement provides that the covenants and agreements of Fairfax thereunder are conditioned on the waiver of such rights by the undersigned. The undersigned hereby waives [his] [her] rights to terminate under Section _____ of the Employment Agreement with respect to the Transaction. In so doing, however, the undersigned is not waiving any other rights under the Employment Agreement, including any rights that may arise in the event of any future or different transaction that would constitute a Change in Control. Very truly yours, [Employee] -----END PRIVACY-ENHANCED MESSAGE-----