<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 1999
Commission File Number 1-9627
ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]
Delaware 95-2702776
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] Identification No.]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
(818) 713-1000
[Registrant's telephone number, including area code]
1
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ZENITH NATIONAL INSURANCE CORP.
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
Effective March 31, 1999, Zenith Insurance Company ("Zenith Insurance"), a
wholly-owned subsidiary of Zenith National Insurance Corp. ("Zenith"),
completed the sale of all of the issued and outstanding capital stock of
CalFarm Insurance Company ("CalFarm"), a wholly-owned subsidiary of Zenith
Insurance, for $275,639,000 in cash, subject to post-closing adjustments in
certain circumstances, to Nationwide Mutual Insurance Company. The estimated
gain on the sale, net of tax, is $103,449,000.
Prior to the closing, $63,864,000 of cash was transferred from Zenith
Insurance to CalFarm in connection with the cessation of CalFarm's
participation in the intercompany reinsurance pooling agreement (the "pooling
agreement") to which Zenith Insurance and its wholly-owned property-casualty
insurance subsidiaries were parties (the "de-pooling transaction"). Zenith
Insurance and its wholly-owned property-casualty affiliates, other than
CalFarm, will continue to participate in an intercompany reinsurance pooling
agreement.
After accounting for applicable taxes and expenses, the net proceeds from the
sale that will be available to Zenith Insurance for investment are
approximately $212,000,000, compared to cash and investments of approximately
$227,000,000 that will be excluded from Zenith's Consolidated Balance Sheet
with the sale of CalFarm.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Unaudited Pro Forma Financial Information
The unaudited pro forma condensed consolidated balance sheet of Zenith at
December 31, 1998 estimates the pro forma effect of the sale of CalFarm as if
the sale and related transactions had been consummated on that date. The
unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1998 estimates the pro forma effect of the sale as if
the sale and related transactions had occurred on January 1, 1998.
The pro forma information is based upon the historical financial statements
of Zenith and reflects all material adjustments necessary to reflect the
foregoing assumptions.
The pro forma information may not be indicative of the results of operations
and financial position of Zenith, as it may be in the future or as it might
have been had the transactions been consummated on the respective dates
assumed. The pro forma financial information should be read in conjunction
with Zenith's historical Consolidated Financial Statements and notes thereto
included in Item 8 of Zenith's 1998 Annual Report on Form 10-K.
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ZENITH NATIONAL INSURANCE CORP.
NOTE ON FORWARD-LOOKING INFORMATION
This report contains statements that constitute "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. The
words "believe", "estimate", "expect", "intend", "anticipate", and similar
expressions and variations thereof identify certain of such forward-looking
statements, which speak only as of the dates on which they were made. Zenith
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise. Readers are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those indicated in the
forward-looking statements as a result of various factors. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those projected.
(c) Exhibits
10.1 Stock Purchase Agreement, dated as of February 22, 1999, between
Zenith Insurance Company and Nationwide Mutual Insurance Company.
(Herein incorporated by reference to Exhibit 10.1 to Zenith's Current
Report on Form 8-K dated February 22, 1999).
10.2 Amendment No. 1, dated as of March 31, 1999, to Stock Purchase
Agreement, dated as of February 22, 1999, between Zenith Insurance
Company and Nationwide Mutual Insurance Company.
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ZENITH NATIONAL INSURANCE CORP.
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET (UNAUDITED)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
(Dollars in thousands, except per share data) Historical(a) (b) (c) Pro Forma
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments:
Fixed maturities $ 770,427 $(145,761) $ $ 624,666
Equity securities 51,609 (1,889) 5,359 55,079
Short-term investments 187,123 (78,169) 275,639 384,593
Other investments 39,522 39,522
---------- --------- -------- ----------
Total Investments 1,048,681 (225,819) 280,998 1,103,860
Cash 1,998 (985) 1,013
Premiums receivable 133,631 (41,039) 92,592
Receivable from reins, state trust funds and
prepaid reinsurance premiums 373,045 (19,329) 353,716
Properties and equipment, less accumulated
depreciation 79,908 (20,541) 59,367
Federal income taxes 25,351 (5,874) (19,477) 0
Intangible assets 25,744 (2,937) 22,807
Other assets 130,368 (21,277) 109,091
---------- --------- -------- ----------
TOTAL ASSETS $1,818,726 $(337,801) $261,521 $1,742,446
---------- --------- -------- ----------
---------- --------- -------- ----------
</TABLE>
(a) Historical information is as previously published in Zenith's 1998 Annual
Report on Form 10-K.
(b) To record the disposal of the previously consolidated assets of CalFarm,
including $63,864,000 transferred to CalFarm immediately prior to the closing
in connection with the cessation of CalFarm's participation in the pooling
agreement, net of tax.
(c) To record the sale of CalFarm, the receipt of sale proceeds, applicable
taxes and expenses, and the gain on the sale of $103,449,000.
(continued)
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ZENITH NATIONAL INSURANCE CORP.
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET (UNAUDITED)
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
(Dollars in thousands, except per share data) Historical(a) (b) (c) Pro Forma
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES:
Policy liabilities and accruals:
Unpaid losses and loss expenses $997,647 $(121,716) $ $875,931
Unearned premiums 157,965 (95,422) 62,543
Payable to banks and other notes payable 19,255 19,255
Senior notes payable, less unamortized
issue costs 74,596 74,596
Payable to RISCORP 52,952 52,952
Federal income taxes 43,328 43,328
Other liabilities 96,018 (11,919) 6,000 90,099
---------- --------- ------- ---------
TOTAL LIABILITIES 1,398,433 (229,057) 49,328 1,218,704
---------- --------- ------- ---------
REDEEMABLE SECURITIES:
Company-obligated, mandatorily redeemable
capital securities of Zenith National Insurance
Capital Trust I, holding solely 8.55%
Subordinated Deferrable Interest Debentures
due 2028, of Zenith National Insurance Corp.,
less unamortized issue cost and discount 73,341 73,341
---------- --------- ------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued and outstanding
Common stock 24,970 24,970
Additional paid-in capital 270,679 270,679
Retained earnings 188,243 103,449 291,692
Accumulated other comprehensive income -
net unrealized appreciation on investments,
net of deferred tax expense 9,596 9,596
---------- --------- ------- ---------
493,488 0 103,449 596,937
Less treasury stock (146,536) (146,536)
---------- --------- ------- ---------
TOTAL STOCKHOLDERS' EQUITY 346,952 0 103,449 450,401
---------- --------- ------- ---------
TOTAL LIABILITIES, REDEEMABLE
SECURITIES AND STOCKHOLDERS'
EQUITY $1,818,726 $(229,057) $152,777 $1,742,446
---------- --------- -------- ----------
---------- --------- -------- ----------
</TABLE>
(a) Historical information is as previously published in Zenith's 1998 Annual
report on Form 10-K.
(b) To record the disposal of the previously consolidated liabilities and
equity of CalFarm, including $63,864,000 transferred to CalFarm immediately
prior to the closing in connection with the cessation of CalFarm's
participation in the pooling agreement, net of tax.
(c) To record the sale of CalFarm, the receipt of sale proceeds, applicable
taxes and expenses, and the gain on the sale of $103,449,000.
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ZENITH NATIONAL INSURANCE CORP.
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro Forma
(Dollars in thousands, except per share data) Historical(a) Adjustments (b)(c) Pro Forma
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSOLIDATED REVENUES:
Premiums earned $529,855 $(221,814) $308,041
Net investment income 53,593 (11,087) 42,506
Realized gains on investments 11,602 (1,851) 9,751
Real estate sales 37,737 37,737
Service fee income 3,992 3,992
-------- --------- --------
Total revenues 636,779 (234,752) 402,027
EXPENSES:
Loss and loss adjustment expenses incurred 382,890 (148,595) 234,295
Policy acquisition costs 96,937 (49,000) 47,937
Other underwriting and operating expenses 85,299 (19,987) 65,312
Policyholders' dividends and participation 516 516
Real estate construction and operating costs 36,374 36,374
Interest expense 5,928 5,298
-------- --------- --------
Total expenses 607,944 (217,582) 390,362
Income before federal income tax expense 28,835 (17,170) 11,665
Federal income tax expense 9,735 (5,970) 3,765
-------- --------- --------
NET INCOME $ 19,100 $(11,200) 7,900
-------- --------- --------
-------- --------- --------
EARNINGS PER SHARE:
Basic $ 1.12 $ 0.46
-------- --------
-------- --------
Diluted 1.11 0.46
-------- --------
-------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 17,035 17,035
-------- --------
-------- --------
Diluted 17,158 17,158
-------- --------
-------- --------
</TABLE>
(a) Historical information is as previously published in Zenith's 1998 Annual
report on Form 10-K.
(b) To record the disposal of the previously consolidated revenue and expenses
of CalFarm. The estimated gain on the sale of CalFarm, net of applicable
taxes and expenses, has not been reflected in the pro forma adjustments since
such gain on sale would be a non-recurring transaction.
(c) CalFarm's income from underwriting in 1998 was $4,232,000 before tax, or
$2,754,000 after tax. Since CalFarm was acquired by Zenith in 1985,
CalFarm's cumulative combined ratio was 100% and its cumulative underwriting
income was approximately zero. In addition to the loss of any underwriting
income provided by CalFarm, Zenith's consolidated net income would be
reduced by the investment income on the net reduction of consolidated
investments of approximately $15,000,000 caused by the sale of CalFarm.
Estimated investment income after tax on such decrease would have been
$546,000. Based on a reduction in underwriting income of $2,754,000 after
tax and a reduction in investment income of $546,000, pro forma net income
for 1998 would be $15,800,000, or $0.92 per share (diluted).
6
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ZENITH NATIONAL INSURANCE CORP.
Signatures
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.
ZENITH NATIONAL INSURANCE CORP.
Registrant
Date: April 15, 1999 /s/ Fredricka Taubitz
--------------------------------
Fredricka Taubitz
Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
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AMENDMENT NO. 1
TO
STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK AGREEMENT dated as of March 31, 1999 by and
between Zenith Insurance Company, a California corporation ("Seller"), and
Nationwide Mutual Insurance Company, an Ohio mutual insurance company ("Buyer").
WHEREAS, Seller and Buyer are parties to a Stock Purchase Agreement dated
as of February 22, 1999 (the "Agreement"); and
WHEREAS, Buyer and Seller desire to amend the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual terms,
conditions and other agreements set forth herein, intending to be legally bound,
the parties hereby agree as follows:
1. Section 2.2 of the Agreement is hereby amended by:
(a) substituting the amount "Two Hundred Seventy Five Million Six
Hundred Thirty Nine Thousand One Hundred and Sixty Dollars ($275,639,160)"
for the amount "Two Hundred Seventy-Two Million Dollars ($272,000,000)" in
the first line thereof; and
(b) substituting the following sentence for the second sentence
thereof:
"The Purchase Price shall be subject to adjustment after
Closing pursuant to Sections 2.4 and 2.6 hereof."
2. Section 2.3 of the Agreement is hereby amended by and restated in its
entirety to read as follows:
"The consummation of the purchase and sale of the
Shares ("Closing") shall be effective at 11:59 p.m.,
California time, on the last day of the calendar month in
which all conditions to the respective obligations of the
parties set forth in Sections 7 and 8 hereof (other than
those that are intended to be satisfied only at the Closing)
have been satisfied (such effective date and time being
referred to herein as the "Closing Date"). The physical
transfer of funds and delivery of the Shares shall occur at
11:00 a.m., New York time, on the Closing Date at the
offices of
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LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street, New
York, New York, or at such other time, date and place as shall be
mutually agreed upon by the parties. Each party hereto agrees to use
commercially reasonable efforts promptly to satisfy the conditions to
Closing to be satisfied by it in order to expedite the Closing."
3. Section 2.4 of the Agreement is amended by substituting the phrase:
"an unaudited statutory balance sheet of CalFarm as of the Closing Date (the
"Closing Date Balance Sheet")" for the words "an unaudited statutory balance
sheet of CalFarm as of the end of the calendar month immediately preceding the
Closing Date (the "Closing Balance Sheet")" in the third line thereof.
4. Section 2.5 of the Agreement is hereby amended by:
(a) substituting the words "Within the earlier of 15 days after
receipt of the 1998 Pro Forma Balance Sheet or 9:00 am (New York
Time) on March 31, 1999" for the words "within 15 days after
receipt of the 1998 Pro Forma Balance Sheet and
(b) amending the last sentence thereof in its entirety to read as
follows:
If Buyer does not notify Seller as to any disputed items within
the earlier 15 days after receipt of the 1998 Pro Forma Balance
Sheet or 9:00 am (New York Time) on March 31, 1999, the 1998 Pro
Forma Balance Sheet provided by Seller shall be deemed acceptable
to Buyer."
5. Section 2.6 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"On March 3, 1999, Seller provided Buyer with a copy of an
appraisal report prepared by Giannelli, Jarrette & Filipiak on the
real property located at 1601 Exposition Boulevard, Sacramento, CA
95815 (the "Sacramento Property") which set forth an estimated current
market valuation for the Sacramento Property equal to $24,155,000 (the
"Appraised Value"). On March 16, 1999, Buyer delivered notice to
Seller of its objection to and dispute of the Appraised Value (the
"Objection Notice"). Buyer shall deliver to Seller, within 30
Business Days after the delivery of the Objection Notice, at its own
cost and expense, an appraisal report by an MAI certified appraiser of
Buyer's choice familiar with the Sacramento commercial real estate
market, of the estimated current market value for the Sacramento
Property
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(the "Buyer Appraised Value"). If Buyer and Seller are unable to
reach agreement as to the amount of the purchase price adjustment, if
any, due under this Section 2.6 within 15 Business Days after receipt
by Seller of the report containing the Buyer Appraised Value, Buyer
and Seller shall select another MAI certified appraiser familiar with
the Sacramento commercial real estate market with no material
relationship with Buyer, Seller or any of their respective affiliates
to render a third appraisal report of the estimated current market
value for the Sacramento Property (the "Final Appraised Value"). Upon
determination of the Final Appraised Value and within two Business
Days after delivery to Buyer and Seller of a copy of the third
appraisal report, (i) Buyer shall pay Seller, in immediately available
funds, a sum equal to the amount, if any, by which the Final Appraised
Value exceeds $20,000,000 and (ii) Seller shall pay Buyer, in
immediately available funds, a sum equal to the amount, if any, by
which the Final Appraised Value is less than $20,000,000; provided
that in no event shall Seller be required to pay Buyer an amount in
excess of $3,639,160."
6. All other terms and conditions of the Agreement are hereby ratified
and confirmed by the parties hereto and shall remain in full force and effect.
7. All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided such terms in the Agreement.
8. This Amendment shall bee governed by and construed and enforced in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws.
9. This Amendment may be executed 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.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
ZENITH INSURANCE COMPANY
By: /s/ John J. Tickner
-------------------
Name: John J. Tickner
Title: Senior Vice President
NATIONWIDE MUTUAL INSURANCE COMPANY
By: /s/ Robert A. Oakley
--------------------
Name: Robert A. Oakley
Title: Executive Vice President -
Chief Financial Officer
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