<PAGE> 1
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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)
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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 [ ].
<PAGE> 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
- --------------------------------------------------------------------------------
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CUSIP NO. 989390109 13D Page 3 of 17 Pages
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(1) Name of Reporting Person V. PREM WATSA
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(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
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CUSIP NO. 989390109 13D Page 4 of 17 Pages
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(1) Name of Reporting Person THE SIXTY TWO INVESTMENT
COMPANY LIMITED
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(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [ X ]
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(3) SEC use only
- --------------------------------------------------------------------------------
(4) Source of Funds WC
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(5) Check box if Disclosure of Legal Proceedings is Required Pursuant to Item
2(d) or 2(e). [ ]
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(6) Citizenship or Place of Organization BRITISH COLUMBIA, CANADA
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(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%
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(14) Type of Reporting Person (See Instructions) CO
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CUSIP NO. 989390109 13D Page 5 of 17 Pages
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(1) Name of Reporting Person 810679 ONTARIO LIMITED
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(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [ X ]
- --------------------------------------------------------------------------------
(3) SEC use only
- --------------------------------------------------------------------------------
(4) Source of Funds WC
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(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%
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(14) Type of Reporting Person (See Instructions) CO
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CUSIP NO. 989390109 13D Page 6 of 17 Pages
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(1) Name of Reporting Person HAMBLIN WATSA INVESTMENT
COUNSEL LTD.
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(2) Check the Appropriate Box if a Member of a Group (a) [ ]
(b) [ X ]
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(3) SEC use only
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(4) Source of Funds WC
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(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
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(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%
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(14) Type of Reporting Person (See Instructions) CO and IA
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<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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.
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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
<PAGE> 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
<PAGE> 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
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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
<PAGE> 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
<PAGE> 17
CUSIP NO. 989390109 13D Page 17 of 17 Pages
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
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.
</TABLE>
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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;
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
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<PAGE> 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
<PAGE> 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
<PAGE> 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]
