<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 240.14a-12
ZENITH NATIONAL INSURANCE CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
ZENITH NATIONAL INSURANCE CORP.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials:
---------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367
Telephone (818) 713-1000
NOTICE OF ANNUAL MEETING
- --------------------------------------------------------------------------------
The Annual Meeting of Stockholders of Zenith National Insurance Corp.
("Zenith") will be held at the offices of Zenith, 21255 Califa Street, Woodland
Hills, California, on Thursday, May 20, 1999, at 9:00 a.m., for the following
purposes:
1. To elect a Board of ten (10) Directors.
2. To approve Amendment No. 1 to the Zenith National Insurance Corp. 1996
Employee Stock Option Plan.
3. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Stockholders of record at the close of business on March 22, 1999, the
record date fixed by the Board of Directors for the Annual Meeting, are entitled
to notice of, and to vote at, such meeting.
By Order of the Board of Directors
John J. Tickner
SECRETARY
Woodland Hills, California
Dated: April 13, 1999
STOCKHOLDERS, WHETHER OR NOT THEY EXPECT TO ATTEND THE MEETING IN PERSON,
ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED FORM OF PROXY IN
THE ACCOMPANYING POSTPAID AND PRE-ADDRESSED ENVELOPE. THE PROXY IS REVOCABLE AT
ANY TIME PRIOR TO THE EXERCISE THEREOF BY WRITTEN NOTICE TO ZENITH, AND
STOCKHOLDERS WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXIES AND VOTE
IN PERSON IF THEY SO DESIRE.
<PAGE>
ZENITH NATIONAL INSURANCE CORP.
21255 Califa Street,
Woodland Hills, California 91367
------------------------
PROXY STATEMENT
------------------------
VOTING
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Zenith National Insurance Corp. ("Zenith") of proxies to
be voted at the Annual Meeting of Stockholders of Zenith to be held on Thursday,
May 20, 1999, at 9:00 a.m., and at any adjournments thereof (the "Annual
Meeting"). Any proxy given pursuant to this solicitation may be revoked at any
time prior to its exercise by written notice to Zenith, and the persons
executing the same, if in attendance at the Annual Meeting, may vote in person
instead of by proxy. Unless authority therefor is withheld, all proxies will be
voted as provided therein. In addition to solicitation of proxies by mail,
officers and regular employees of Zenith and its subsidiaries, who will receive
no additional compensation therefor, may solicit proxies by telephone, telegram
or personal interview. The corporate subsidiaries of Zenith are Zenith Insurance
Company ("Zenith Insurance"), CalRehab Services, Inc., Perma-Bilt, a Nevada
Corporation, Zenith Development Corp., Zenith Insurance Management Services,
Inc., Zenith Risk Management, Inc., Zenith Star Insurance Company, and ZNAT
Insurance Company. The cost of this solicitation will be borne by Zenith. In
addition, Zenith will reimburse brokerage houses and other custodians, nominees
and fiduciaries for expenses incurred in forwarding solicitation materials to
stockholders.
The approximate date on which this Proxy Statement and accompanying form of
proxy are first being sent to stockholders is April 19, 1999.
Only stockholders of record at the close of business on March 22, 1999, the
record date for the Annual Meeting (the "Record Date"), are entitled to notice
of and to vote at such meeting. On such date, Zenith had outstanding 17,116,364
shares of common stock, $1.00 par value per share (the "Common Stock"). Each
share of Common Stock entitles the record holder to one vote on all matters.
With respect to the election of Directors only, however, every stockholder may
cumulate his votes with respect to candidates whose names have been placed in
nomination prior to the vote if, but only if, any stockholder has given notice
at the Annual Meeting prior to voting of his intention to cumulate his votes. In
the event there is cumulative voting for Directors, each stockholder will be
entitled to give one candidate the number of votes equal to the number of
Directors to be elected multiplied by the number of votes to which the
stockholder's shares are entitled, or to distribute his votes on the same
principle among as many candidates as such stockholder thinks fit. In the event
the election of Directors is to proceed with cumulative voting, the holder of
any proxy given pursuant to this solicitation will have the authority to
cumulate the votes to which shares covered by the proxy are entitled and to
distribute the votes among the candidates for election as the holder of the
proxy sees fit. The presence, in person or by proxy, of stockholders holding a
majority of the issued and outstanding shares of Common Stock entitled to vote
shall constitute a quorom. Election of Directors shall be decided by plurality
vote.
1
<PAGE>
The Board of Directors knows of no matters to come before the Annual Meeting
other than the matters referred to in this Proxy Statement. If, however, any
matters properly come before the meeting, it is the intention of each of the
persons named in the accompanying proxy to vote such proxies in accordance with
his best judgment thereon. Any such matter submitted for stockholder approval
requires the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter.
Abstentions and broker non-votes (except on matters for which brokers lack
discretionary authority to vote under New York Stock Exchange rules) will be
counted and will have the same effect as "no" votes.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information at the Record Date as to:
(1) all persons who, to the knowledge of Zenith, were the beneficial owners of
more than 5% of the outstanding shares of Common Stock, (2) each of the
Executive Officers named in the Summary Compensation Table ("Named Executive
Officers"), (3) each of the Directors of Zenith and (4) all Executive Officers
(including Named Executive Officers) and Directors as a group. The persons named
hold sole voting and investment power with respect to the shares shown opposite
their respective names, unless otherwise indicated. The information with respect
to each person specified is as supplied or confirmed by such person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS
- -------------------------------------------------- ------------------------ --------
<S> <C> <C>
Reliance Insurance Company(2)(3).................. 6,574,445 38.4%
3 Parkway
Philadelphia, PA 19102
Royce Group(4).................................... 1,341,900 7.8%
1414 Avenue of the Americas
New York, New York 10019
Harvey L. Silbert(3)(5)(6)........................ 1,053,640 6.2%
10100 Santa Monica Blvd.
Suite 2200
Los Angeles, CA 90067
Stanley R. Zax(3)(5)(7)........................... 848,564 4.8%
21255 Califa Street
Woodland Hills, CA 91367
James P. Ross(8).................................. 39,594 *
21255 Califa Street
Woodland Hills, CA 91367
Keith E. Trotman(9)............................... 34,847 *
21255 Califa Street
Woodland Hills, CA 91367
Fredricka Taubitz(10)............................. 33,677 *
21255 Califa Street
Woodland Hills, CA 91367
Jack D. Miller(11)................................ 25,035 *
21255 Califa St.
Woodland Hills, CA 91367
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS
- -------------------------------------------------- ------------------------ --------
<S> <C> <C>
John J. Tickner(12)............................... 24,333 *
21255 Califa Street
Woodland Hills, CA 91367
Gerald Tsai, Jr.(5)............................... 5,000 *
200 Park Ave.
New York, New York 10166
Max M. Kampelman(5)............................... 4,992 *
1001 Pennsylvania Avenue N.W.
Washington D.C. 20004
William Steele Sessions(5)(13).................... 1,461 *
Weston Centre
112 East Pecan St.
San Antonio, TX 78205
Robert J. Miller(5)............................... 0 0
3773 Howard Hughes Parkway
Third Floor South
Las Vegas, NV 89109
Michael Wm. Zavis(5).............................. 0 0
525 West Monroe St. Suite 1600
Chicago, IL 60661
George E. Bello(5)(14)............................ 0 0
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
Robert M. Steinberg(5)(14)........................ 0 0
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
Saul P. Steinberg(5)(14)(15)...................... 6,574,445 38.4%
Park Avenue Plaza
55 East 52nd Street
New York, NY 10055
All Executive Officers (including Named Executive
Officers) and
Directors as a group (15 persons)(16)........... 8,645,588 48.5%
</TABLE>
- --------------------------
* Less than 1%
(1) Subject to applicable community property and similar statutes.
(2) Number of shares shown includes 39,110 shares held by Reliance Direct
Insurance Company and 39,110 shares held by United Pacific Insurance Company
of New York, both wholly owned subsidiaries of Reliance Insurance Company.
Reliance Insurance Company is a wholly-owned subsidiary of Reliance
Financial Services Corporation, which is a wholly-owned subsidiary of
Reliance Group Holdings, Inc. Saul P. Steinberg, members of his family, four
separate trusts and a family partnership own approximately 44% of the common
stock of Reliance Group Holdings, Inc. and, as a result of such stock
holdings, Saul P. Steinberg may be deemed to control Reliance Group
Holdings, Inc. Pursuant to an Amended Exemption issued to Reliance Insurance
Company by the Insurance Commissioner of the State of California, Reliance
Insurance Company has agreed that it will not vote shares in excess of 28.7%
of the outstanding Common Stock unless it obtains the Insurance
Commissioner's consent or qualifies for an exemption from such consent.
3
<PAGE>
(3) Reliance Insurance Company and each of Harvey L. Silbert (individually and
as trustee of a family trust) and Stanley R. Zax were granted certain rights
to require Zenith to register for sale, under the Securities Act of 1933,
shares of Common Stock beneficially owned by each of them. Zenith granted
these rights in connection with the sale in February 1981 of an aggregate of
1,387,375 shares of Common Stock (20.5% of the then outstanding shares) to
Reliance Insurance Company by certain selling stockholders, including
Messrs. Silbert and Zax.
(4) On February 22, 1999, Zenith received a copy of an information statement on
Schedule 13G filed with the United States Securities and Exchange Commission
on February 17, 1999 by a group consisting of Royce & Associates, Inc.
("Royce"), Royce Management Company ("RMC"), and Charles M. Royce. The
information in the table is based on such filing. The filing indicates that
Royce beneficially owns 1,301,200 shares, as to which it holds sole voting
and dispositive power; that RMC beneficially owns 40,700 shares, as to which
it holds sole voting and dispositive power; and that Charles M. Royce may be
deemed to be a controlling person of Royce and RMC, and as such may be
deemed to beneficially own the shares owned by Royce and RMC. Charles M.
Royce holds no shares outside of Royce and RMC and disclaims beneficial
ownership of the shares held by Royce and RMC.
(5) Director of Zenith.
(6) Number of shares shown includes 173,551 shares held by Mr. Silbert as
trustee of certain family trusts, as to which shares Mr. Silbert disclaims
beneficial ownership. Number of shares shown also includes 880,089 shares
held by The Harvey L. and Lillian Silbert Family Trust, a revocable trust,
of which Mr. Silbert is a trustee.
(7) Chief Executive Officer of Zenith. Number of shares shown includes 1,030
shares owned by Mr. Zax as custodian for his adult children, as to which
shares Mr. Zax disclaims beneficial ownership, and 600,000 shares, as to
which options are or will become exercisable within sixty days after the
Record Date.
(8) Executive Officer of Zenith. Number of shares shown includes 37,500 shares,
as to which options are or will become exercisable within sixty days after
the Record Date.
(9) Executive Officer of Zenith for part of last fiscal year, but not as of the
end of such year. Number of shares shown includes 4,847 shares allocated to
such Executive Officer's account in The Zenith 401(k) Plan and 20,000
shares, as to which options are or will become exercisable within sixty days
after the Record Date.
(10) Executive Officer of Zenith. Number of shares shown includes 5,927 shares
allocated to such Executive Officer's account in The Zenith 401(k) Plan and
21,250 shares, as to which options are or will become exercisable within
sixty days after the Record Date.
(11) Executive Officer of Zenith. The amount shown consists of 35 shares
allocated to such Executive Officer's account in The Zenith 401(k) Plan and
25,000 shares, as to which options are or will become exercisable within
sixty days after the Record Date.
(12) Executive Officer of Zenith. Number of shares shown consists of 1,833
shares allocated to such Executive Officer's account in The Zenith 401(k)
Plan and 22,500 shares, as to which options are or will become exercisable
within sixty days after the Record Date.
(13) Shares shown are held in Mr. Sessions' Simplified Employee Pension --
Individual Retirement Account.
(14) Director of Reliance Insurance Company.
(15) Shares shown are those owned by Reliance Insurance Company and certain of
its subsidiaries. See notes (2) and (3) above.
(16) Number of shares shown includes 726,250 shares, as to which options are or
will become exercisable within sixty days after the Record Date. Number of
shares shown also includes 6,574,445 shares owned by Reliance Insurance
Company and certain of its subsidiaries. See notes (2), (3) and (15) above.
4
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations of the Securities and Exchange Commission
(the "Commission") thereunder require Zenith's Executive Officers and Directors,
and persons who own more than ten percent of a registered class of Zenith's
equity securities, to file reports of ownership and changes in ownership with
the Commission and the New York Stock Exchange and to furnish Zenith with copies
of all such forms they file.
Based solely on its review of the copies of such forms received by it and
written representations from certain reporting persons, Zenith believes that,
during the year ended December 31, 1998, all filing requirements applicable to
its Executive Officers, Directors, and 10% stockholders were complied with.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
It is the intention of the persons named in the enclosed proxy, unless
otherwise specifically instructed, to vote the proxies received by them for the
election of the nominees listed in the table below as Directors of Zenith. In
the event that there should be cumulative voting in the election of Directors,
as set forth in this Proxy Statement under "Voting" above, it is the intention
of such persons to distribute the votes represented by each proxy among such
nominees in such proportion as they see fit, unless otherwise specifically
instructed.
All nominees have consented to being named herein and have indicated their
intention to serve if elected. In the unanticipated event that any of the
nominees becomes unable to serve as a Director, the proxies will be voted for a
substitute nominee in accordance with the best judgment of the person or persons
voting them.
A Director of Zenith serves until the next Annual Meeting of Stockholders
and until his successor is elected and qualified.
5
<PAGE>
The nominees for Director listed below were designated by the Board of
Directors of Zenith. The information with respect to each nominee is as supplied
or confirmed by such nominee.
<TABLE>
<CAPTION>
SERVED AS POSITIONS AND PRINCIPAL OCCUPATIONS AND OTHER PUBLICLY HELD
DIRECTOR OFFICES HELD WITH EMPLOYMENT DURING PAST CORPORATIONS IN WHICH
NAME AGE SINCE ZENITH FIVE YEARS DIRECTORSHIPS HELD
- ---------------------------- --- --------- -------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
George E. Bello 63 May Director of Zenith Executive Vice President Reliance Group Holdings, Inc.;
(1) 1984 and Zenith Insurance and Controller of Reliance Horizon Health Corporation;
Group Holdings, Inc. for more LandAmerica Financial Group,
than the past five years (2) Inc.
Max M. Kampelman 78 February Director of Zenith Attorney, Of Counsel, since None
1989 and Zenith Insurance March 1991, and Partner,
January 1989 to March 1991,
Fried, Frank, Harris, Shriver
& Jacobson; Counselor of the
Department of State and Head
of the U.S. Delegation to
Negotiations on Nuclear and
Space Arms with the Soviet
Union from January 1985 to
January 1989
Robert J. Miller 54 February Director of Zenith Attorney, Senior Partner, Newmont Mining Corporation;
1999 and Zenith Insurance Jones Vargas since January Paging Network, Inc.
1999; Governor of Nevada for
the ten years prior to January
1999
William Steele Sessions 68 September Director of Zenith Attorney, Sessions & Sessions, The Kroll-O'Gara Company
1993 and Zenith Insurance L.C. since March 1995;
Security Consultant since July
1993; Director, Federal Bureau
of Investigation from 1987 to
1993
Harvey L. Silbert 86 January Director of Zenith Attorney, Of Counsel, Loeb & None
(1)(3) 1978 and Zenith Loeb LLP since March 1991; Of
Insurance, Member of Counsel, Wyman, Bautzer,
Performance Bonus Kuchel & Silbert for more than
Committee five years prior to March
1991; management of personal
investments for more than the
past five years
Robert M. Steinberg 56 February Director of Zenith President and Chief Operating Reliance Group Holdings, Inc.;
(1)(4) 1981 and Zenith Insurance Officer of Reliance Group LandAmerica Financial Group,
Holdings, Inc. and Chairman of Inc.
the Board and Chief Executive
Officer of Reliance Insurance
Company for more than the past
five years (2)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SERVED AS POSITIONS AND PRINCIPAL OCCUPATIONS AND OTHER PUBLICLY HELD
DIRECTOR OFFICES HELD WITH EMPLOYMENT DURING PAST CORPORATIONS IN WHICH
NAME AGE SINCE ZENITH FIVE YEARS DIRECTORSHIPS HELD
- ---------------------------- --- --------- -------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
Saul P. Steinberg 59 February Director of Zenith Chairman of the Board and Reliance Group Holdings, Inc.;
(1)(4) 1981 and Zenith Insurance Chief Executive Officer of Symbol Technologies, Inc.
Reliance Group Holdings, Inc.
for more than the past five
years (2)
Gerald Tsai, Jr. 70 December Director of Zenith Management of private The Meditrust Companies;
1991 and Zenith investments since January Saks Incorporated;
Insurance, Chairman 1989; Chairman, President, and Rite Aid Corporation; Sequa
of Performance Bonus Chief Executive Officer of Corporation; Triarc Companies,
Committee Delta Life Corporation, Inc.;
February 1993 to October 1997; United Rentals, Inc.
Chairman and CEO, Primerica
Corp., February 1987 to
December 1988
Michael Wm. Zavis 61 September Director of Zenith Attorney, Co-Managing Partner, None
1998 and Zenith Katten, Muchin & Zavis for
Insurance, Chairman more than the past five years
of Audit Committee,
Member of
Performance Bonus
Committee
Stanley R. Zax 61 July Chairman of the Board and President of Zenith and None
(1) 1977 Zenith Insurance for more than the past five years;
Chairman of the Board of CalFarm Life Insurance
Company for more than five years prior to December
1995; Chairman of the Board and President of CalFarm
Insurance Company ("CalFarm") for more than five
years prior to January 1995; and Chairman of the
Executive Committee of the Board of Directors of
CalFarm from January 1995 to March 1999 (5)
</TABLE>
- ------------------------------
(1) In connection with the sale in February 1981 of an aggregate of 1,387,375
shares of Common Stock (20.5% of the then outstanding shares) to Reliance
Insurance Company by certain selling stockholders, including Messrs. Silbert
and Zax, the selling stockholders agreed to use their best efforts to expand
the Boards of Directors of Zenith and Zenith Insurance and to cause (so long
as Reliance Insurance Company owns at least 10% of Zenith's outstanding
Common Stock) the election thereto of three qualified persons designated by
Reliance Insurance Company. George E. Bello, Robert M. Steinberg and Saul P.
Steinberg have been so designated.
(2) Reliance Insurance Company, Reliance Group Holdings, Inc. and Reliance
Financial Services Corporation are insurance and insurance holding
companies. Based on Reliance Insurance Company's and certain of its
subsidiaries' holdings of Common Stock, Reliance Insurance Company, Reliance
Group Holdings, Inc., and Reliance Financial Services Corporation may be
deemed to be affiliates of Zenith.
(3) Mr. Silbert is of counsel to the law firm of Loeb & Loeb LLP, which
performed certain legal services for Zenith in 1998.
(4) Robert M. Steinberg and Saul P. Steinberg are brothers.
(5) Zenith Insurance is a wholly-owned subsidiary of Zenith, as were CalFarm
Life Insurance Company and CalFarm, until their sales in December 1995 and
March 1999, respectively.
7
<PAGE>
The Board of Directors communicated frequently during the year ended
December 31, 1998 and held four formal meetings. Zenith's Board of Directors has
a standing Audit Committee and a Performance Bonus Committee but has no
nominating committee or any committee performing similar functions. The sole
member and Chairman of the Audit Committee is currently Mr. Zavis, who was
appointed to the Board of Directors and became the sole member and Chairman of
the Audit Committee in September 1998 after the death of the former sole member
and Chairman, Jack M. Ostrow, in May 1998. The functions of the Audit Committee
are to recommend to the Board of Directors retention or change of Zenith's
independent auditors; to consider the range of audit and non-audit fees; to
review the independence of the auditors; to meet with the auditors and Zenith's
internal audit personnel to discuss and review the results of their respective
examinations and audit plans for the ensuing year; to review the adequacy of
Zenith's system of internal accounting controls and like matters. The Audit
Committee is also authorized to review and discuss other matters as it deems
appropriate. During 1998, the Audit Committee communicated frequently with
Zenith's financial and accounting and internal audit department personnel and
independent auditors, including at six formal meetings. The Performance Bonus
Committee, consisting of Messrs. Tsai (Chairman), Silbert and Zavis, is
responsible for performance-based compensation plans for Executive Officers,
namely, the Executive Officer Bonus Plan and the 1996 Employee Stock Option Plan
as it relates to grants thereunder to Executive Officers. The Board of Directors
retains responsibility for all other compensation matters. The Performance Bonus
Committee did not hold any formal meetings in 1998, but communicated frequently
and took action by unanimous written consent. Each Director, except Messrs.
Kampelman and Saul P. Steinberg, attended at least 75% of the aggregate of all
meetings of the Board of Directors and of any committees thereof on which such
Director served.
DIRECTORS' COMPENSATION
Zenith pays each Director (other than Mr. Zax, who receives no additional
compensation therefor) a fee of $50,000 per annum for serving as a member of the
Board of Directors. Mr. Zavis also receives a fee of $25,000 per annum for
serving as the Chairman and sole member of Zenith's Audit Committee.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation paid
during the 1996, 1997 and 1998 fiscal years to the Named Executive Officers. The
Named Executive Officers are Zenith's Chief Executive Officer, its four other
most highly compensated Executive Officers serving as of December 31, 1998 and
one other individual, who served as an Executive Officer during a portion of
1998, but not as of December 31, 1998. Such individual would have been one of
the four other most highly compensated Executive Officers as of December 31,
1998 if he had been serving as an Executive Officer on such date and is included
in the table pursuant to regulations of the Commission.
8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------
AWARDS
ANNUAL COMPENSATION --------------
--------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) ($) SARS (#) ($)(5)
- ---------------------------------------- ---- ---------- ------------ ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
STANLEY R. ZAX 1998 1,023,612 0 0 0 36,966
Chairman of the Board and 1997 1,025,248 0 0 0 36,966
President of Zenith and 1996 1,027,320 1,000,000 0 1,000,000 31,926
Zenith Insurance
JACK D. MILLER(2) 1998 415,600 0 0 0 2,880
Executive Vice President of 1997 -- -- -- -- --
Zenith Insurance 1996 -- -- -- -- --
FREDRICKA TAUBITZ 1998 406,600 0 0 0 8,960
Executive Vice President and 1997 391,600 0 0 25,000 8,926
Chief Financial Officer of Zenith 1996 391,600 200,000 0 0 8,926
and Zenith Insurance
JAMES P. ROSS 1998 283,717 0 0 0 9,111
Senior Vice President of 1997 283,717 0 15,588(3) 0 10,343
Zenith and Zenith Insurance 1996 283,717 100,000 0 0 7,971
JOHN J. TICKNER 1998 269,268 0 0 0 21,025
Senior Vice President and 1997 252,939 0 0 25,000 20,991
Secretary of Zenith and Senior Vice 1996 253,704 100,000 0 10,000 20,991
President, General Counsel and
Secretary of Zenith Insurance
KEITH E. TROTMAN(4) 1998 350,100 200,000 0 0 10,400
Senior Vice President of 1997 340,100 200,000 0 0 10,366
Zenith Insurance 1996 340,100 200,000 0 10,000 7,846
</TABLE>
- ------------------------------
(1) All amounts shown were determined and paid under Zenith's Executive Officer
Bonus Plan except for Mr. Trotman's 1997 and 1998 bonuses, which were
discretionary.
(2) Mr. Miller was designated an Executive Officer on February 24, 1998.
(3) Amount shown represents reimbursement of certain income tax liabilities.
(4) Executive Officer of Zenith for part of fiscal year 1998, but not as of the
end of such year.
(5) The following amounts are included in the above table: (a) Zenith's matching
contributions made in fiscal year 1998 to The Zenith 401(k) Plan, as
follows: Stanley R. Zax, none; Jack D. Miller, none; Fredricka Taubitz,
$3,200; James P. Ross, none; John J. Tickner, $3,200 and Keith E. Trotman,
$3,200; (b) the dollar value of insurance premiums paid in fiscal year 1998
by, or on behalf of, Zenith with respect to term life insurance for the
benefit of the Named Executive Officer, as follows: Stanley R. Zax, $14,040;
Jack D. Miller, $2,880; Fredricka Taubitz, $5,760; James P. Ross, $2,940;
John J. Tickner, $4,500; and Keith E. Trotman, $7,200; and (c) the dollar
value of the benefit to the Named Executive Officer of premiums paid by, or
on behalf of, Zenith during fiscal year 1998, with respect to certain split
dollar life insurance policies, as follows: Stanley R. Zax, $22,926; Jack D.
Miller, none; Fredricka Taubitz, none; James P. Ross, $6,171; John J.
Tickner, $13,325; and Keith E. Trotman, none.
9
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No options or SARs were granted to any of the Named Executive Officers in
fiscal year 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS AT FY-END
SHARES OPTIONS/SARS AT FY-END (#) ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley R. Zax -- -- 400,000 600,000 0 0
Jack D. Miller -- -- 25,000 75,000 0 0
Fredricka Taubitz 25,000 27,843 21,250 23,750 23,438 7,813
James P. Ross 25,000 29,906 37,500 12,500 58,594 19,531
John J. Tickner 10,000 12,731 22,500 27,500 17,578 5,860
Keith E. Trotman(2) 25,000 28,944 20,000 10,000 23,438 7,813
</TABLE>
- ------------------------
(1) Based on the $23.1250 closing price of the Common Stock on the New York
Stock Exchange on December 31, 1998.
(2) Executive Officer for part of fiscal year 1998, but not as of the end of
such year.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Effective December 11, 1997, Zenith entered into an amended and restated
employment agreement with Mr. Zax, which extended the expiration date of his
employment agreement from December 31, 1998 to December 31, 2002. The amended
and restated employment agreement provides for an annual base compensation plus
an annual bonus to be determined under Zenith's Executive Officer Bonus Plan.
Under the agreement, Mr. Zax's base compensation is continued at $1,000,000,
subject to such increases as the Board of Directors may determine from time to
time. Upon Mr. Zax's death, Zenith will continue to pay either his wife,
children or estate his base compensation and annual bonus for a period of twelve
months. If Mr. Zax's employment is terminated for disability, he will receive
his base compensation and annual bonus for a period of six months. If Mr. Zax's
employment is terminated for breach by him of his employment agreement, he will
receive his base compensation through the end of the month in which the
termination occurs. If his employment is terminated for any reason other than
for breach of his employment agreement, death, or disability, Zenith will pay
Mr. Zax his base compensation and annual bonus through the term of his
employment agreement. Upon a Change in Control (as defined in the employment
agreement) of Zenith, all stock options and stock appreciation rights granted to
Mr. Zax, to the extent not exercisable at such time, become immediately
exercisable. In addition, if Mr. Zax's employment is terminated subsequent to
any Change in Control, either by Mr. Zax within 180 days of the Change in
Control or by Zenith for any reason other than disability or breach of his
employment agreement, Mr. Zax is entitled to receive Severance Payments (as
defined below).
Effective October 20, 1997, Zenith Insurance entered into an employment
agreement with Mr. Miller, for a term expiring on October 31, 2002. The
employment agreement provides for an annual base salary plus an annual
discretionary bonus and certain additional benefits. The employment agreement
was entered into prior to Mr. Miller becoming an Executive Officer in 1998, but
any bonus payable to him
10
<PAGE>
would be determined under the Executive Officer Bonus Plan. The base
compensation is currently $400,000, subject to such increases as the Board of
Directors of Zenith Insurance may determine from time to time.
Effective December 11, 1997, Zenith entered into an amended and restated
employment agreement with Ms. Taubitz, which extends the expiration date of her
employment agreement from October 1, 1998 to December 31, 2002. The amended and
restated employment agreement provides for annual base compensation plus bonus
to be determined under Zenith's Executive Officer Bonus Plan and certain
additional benefits. The base compensation is currently $391,000, subject to
such increases as the Board of Directors may determine from time to time.
Effective January 5, 1998, Zenith entered into an amended and restated
employment agreement with Mr. Tickner, which extends the expiration date of his
employment agreement from October 1, 1998 to March 1, 2001. The amended and
restated employment agreement provides for an annual base compensation plus an
annual bonus to be determined under Zenith's Executive Officer Bonus Plan and
certain additional benefits. The base compensation is currently $265,000,
subject to such increases as the Board of Directors may determine from time to
time.
Zenith's employment agreements with Mr. Miller, Ms. Taubitz and Mr. Tickner
provide that if the executive's employment is terminated by Zenith other than
for cause or disability, the executive is entitled to Severance Payments. In
addition, each of Ms. Taubitz and Mr. Tickner may terminate her or his
employment with Zenith and receive Severance Payments should (a) Mr. Zax cease,
for any reason other than death or disability, to be the full-time Chairman of
the Board and President of Zenith, (b) she or he be prohibited or restricted in
the performance of her or his duties, (c) any payment due her or him under her
or his agreement remain unpaid for more than 60 days, or (d) she or he give
written notice to Zenith of termination of her or his employment agreement
within 180 days following a Change in Control (as defined in the employment
agreements) of Zenith. Mr. Miller may terminate his employment with Zenith and
receive Severance Payments in the event of (b), (c) or (d) in the immediately
preceding sentence.
For purposes of the foregoing, "Severance Payments" include the following
benefits: (1) in the case of Mr. Tickner, all salary payments that would have
been payable to him for the greater of (a) the remaining term of the employment
agreement or (b) one year, plus a pro rata portion of any bonus that would have
been payable to him with respect to the year of termination; (2) in the case of
Mr. Miller, all salary payments that would have been payable to him for the
greater of (a) the remaining term of the employment agreement or (b) two years,
plus any bonus that would otherwise have been payable to him for such period;
(3) in the case of Mr. Zax and Ms. Taubitz, a cash lump sum payment equal to the
greater of (a) twice the sum of the executive's then current base compensation
and the highest annual bonus paid or payable during the three consecutive years
immediately preceding termination of employment or (b) the actuarial equivalent
of the base compensation and annual bonuses that would have been payable to the
executive under the remaining term of the employment agreement; (4) continuation
of life, disability, dental, accident and group health insurance benefits, plus
an additional amount necessary to reimburse the executive for any taxes
attributable solely to the executive's receipt of such benefits; (5) in the case
of Ms. Taubitz and Mr. Tickner, vesting of all stock option and similar rights;
and (6) an additional payment, if necessary, to assure that none of the above
benefits are subject to net reduction due to the imposition of excise taxes
under section 4999 of the Internal Revenue Code of 1986, as amended.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1998, all decisions on Executive Officer compensation, other than
decisions related to performance-based compensation plans, were made by the
Board of Directors. Mr. Zax, Chairman of the Board and President, is a member of
the Board of Directors, and except with respect to his own compensation,
participated in the Board of Directors' deliberations concerning Executive
Officer compensation.
The Performance Bonus Committee, consisting of Messrs. Silbert, Tsai and
Zavis, determines matters relating to performance-based compensation plans for
Executive Officers. Mr. Silbert is of counsel to the law firm of Loeb & Loeb
LLP, which performed certain legal services for Zenith in 1998.
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION; PERFORMANCE
BONUS COMMITTEE REPORT ON PERFORMANCE BASED
COMPENSATION PLANS FOR EXECUTIVE OFFICERS
Zenith's entire Board of Directors made determinations with respect to
compensation of Executive Officers in 1998, except with respect to Mr. Zax's
compensation, which is established in Board of Directors' actions from which Mr.
Zax excuses himself and in which he does not participate, and except with
respect to matters related to performance-based compensation plans for Executive
Officers. The Performance Bonus Committee made determinations under
performance-based compensation plans for Executive Officers. The Board of
Directors' report on Executive Compensation and the Performance Bonus
Committee's report on its determinations shall not be deemed to be incorporated
by reference through any general statement incorporating by reference this proxy
statement into any filings under the Securities Act of 1933 or under the
Securities Exchange Act of 1934 and shall not otherwise be deemed to be filed
under such Acts.
The Board of Directors' report on Executive Compensation follows:
EXECUTIVE OFFICERS
The level of compensation for Executive Officers of Zenith is intended to be
competitive (that is, "attractive") and to provide appropriate incentives.
Executive Officers of Zenith are generally compensated through salary, grants of
stock options, and bonuses under the Executive Officer Bonus Plan. The Executive
Officer Bonus Plan, approved by the stockholders of Zenith at the 1994 Annual
Meeting, is administered by the Performance Bonus Committee. The Performance
Bonus Committee also grants stock options to Executive Officers under Zenith's
1996 Employee Stock Option Plan. The report of the Performance Bonus Committee
follows this report.
The level of an Executive Officer's base compensation is generally based on
a combination of (1) the performance of Zenith, (2) the performance of the
insurance subsidiary, if any, to which the Executive Officer is principally
assigned, and (3) a subjective and qualitative evaluation of the personal
contribution made by the Executive Officer to Zenith. Success in these areas
does not translate mechanically into compensation levels; the manner in which
these factors are taken into account is discretionary with the Board of
Directors and is not based on any formulaic weighting.
The performance of Zenith is generally measured by the combined ratio of its
property and casualty insurance operations and by its overall profitability.
Zenith strives for and has achieved long term average combined ratios that are
about 100%. Zenith also strives for combined ratios that compare favorably in
both the short- and long-term with insurers primarily engaged in writing
workers' compensation insurance. In addition, Zenith endeavors to have loss
ratios that are among the lowest for the industry in any rolling
12
<PAGE>
previous five year period. The performance of the Zenith insurance subsidiaries
is generally measured by their combined ratios and profitability, as applicable.
With respect to the subjective and qualitative evaluation of an Executive
Officer's personal contribution to the business of Zenith, a variety of factors
are taken into account. These factors vary and include, but are not limited to,
the manner in which the Executive Officer favorably affects Zenith's combined
ratio and profitability. Equally, if not more, important is the manner in which
the Executive Officer performs in Zenith's environment, which fosters an
entrepreneurial spirit, teamwork, and a commitment to education. Zenith believes
an entrepreneurial spirit maximizes profits, promotes sound execution of good
business fundamentals, and maintains a pool of executive talent. Teamwork is
crucial to the effective and efficient implementation of Zenith's goals. A
commitment to education means a dedication to lifelong learning and training for
oneself and creating conditions so that the workforce is similarly dedicated.
Such dedication is critical to Zenith's ability to address changes in market
conditions and use such changes to its competitive advantage. In such an
environment, proactive and innovative approaches are strongly encouraged and
rewarded.
On the operational side, activities that demonstrate an opportunistic
outlook, anticipation of changing business conditions and the development of
postures to take advantage of opportunities to increase short-and long-term
profits are rewarded. On the administrative side, efficiency, competence, strong
compliance efforts, anticipation and avoidance of problems, as well as
innovation, are rewarded.
Certain of the Executive Officers are employed under employment agreements
that provide for minimum base compensation and annual bonuses. Determinations as
to salary increases for these Executive Officers, as well as those without
employment agreements, are discretionary and are not made on the basis of a
formulaic weighting of the factors described above. Bonuses are generally
determined for Executive Officers in accordance with the Executive Officer Bonus
Plan.
In 1998, the combined ratio of Zenith's property and casualty operations was
slightly greater than the combined ratio for the industry as a whole. Given this
performance and taking into account the subjective and qualitative evaluations
of individual Executive Officers, the level of each Executive Officer's base
compensation was set accordingly. Please see the separate report of the
Performance Bonus Committee for a discussion regarding the determination of
annual bonuses for Executive Officers for 1998.
STANLEY R. ZAX, CHIEF EXECUTIVE OFFICER
Mr. Zax is never present when the Board of Directors deliberates with
respect to his compensation and, accordingly, does not participate in Board of
Directors' decisions on his own compensation.
Mr. Zax's base salary for 1998 was specified in an amended and restated
employment agreement executed in 1997. Under the employment agreement, which
ends on December 31, 2002, increases in base compensation are at the discretion
of the Board of Directors and are not based on a formulaic weighting of factors.
In determining whether to grant any salary increase, the same performance
criteria that are applied to Executive Officers in general are applied to Mr.
Zax. Also, as with Executive Officers generally, bonuses to Mr. Zax are
determined in accordance with the Executive Officer Bonus Plan.
Taking the objective and subjective criteria described above into account,
the Board of Directors was generally satisfied with Mr. Zax's initiative and
leadership during 1998. However, the Board of Directors is concerned, as is Mr.
Zax, with certain aspects of Zenith's operations that have led to unsatisfactory
results. The Board of Directors concurs in Mr. Zax's appraisal of steps that
must be taken to address these issues
13
<PAGE>
and believes Mr. Zax's base compensation should continue at its present level,
with incentives and rewards to be earned under the Executive Officer Bonus Plan.
SECTION 162(m) POLICY
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits the Federal income tax deduction that a public corporation may claim for
annual compensation paid to certain executive officers. The limitation with
respect to each affected Executive Officer is $1,000,000 per year. However, the
limitation does not apply to compensation which is performance-based, earned
under a plan approved by the corporation's stockholders and which satisfies
certain other conditions set forth in Section 162(m) and the regulations
thereunder. Stock option grants awarded to Executive Officers under Zenith's
1996 Employee Stock Option Plan and bonuses payable under the Executive Officer
Bonus Plan are intended to comply with Section 162(m). Accordingly, neither
income accruing to Executive Officers upon exercise of stock options nor the
amount of any bonus payment made to Executive Officers under the Executive
Officer Bonus Plan should be subject to the $1,000,000 limit on deductibility.
The Board of Directors has determined that it will pay Mr. Zax's annual salary
even though any portion in excess of $1,000,000 would not be deductible by
Zenith.
Stanley R. Zax, Chairman of the Board
George E. Bello Robert M. Steinberg
Max M. Kampelman Saul P. Steinberg
Robert J. Miller Gerald Tsai, Jr.
William Steele Sessions Michael Wm. Zavis
Harvey L. Silbert
The Performance Bonus Committee's report of its determinations of
performance-based compensation for Executive Officers follows:
The Performance Bonus Committee is responsible for administering the
Executive Officer Bonus Plan and for granting stock options to Executive
Officers under the 1996 Employee Stock Option Plan. In so doing, the Performance
Bonus Committee implements and reinforces the compensation philosophy of the
Board of Directors, as set out in the Board of Directors' Report on Executive
Compensation.
EXECUTIVE OFFICER BONUS PLAN
The Executive Officer Bonus Plan was approved by the stockholders at the
1994 Annual Meeting as a performance-based compensation plan. It provides for
bonuses to Executive Officers based upon attainment by Zenith in any fiscal year
of an objectively measured performance goal, namely a combined ratio that is
below the industry's combined ratio. The Executive Officer Bonus Plan provides
for bonuses to Executive Officers up to an amount equal to:
100% of his or her salary at the beginning of the fiscal year if the Company
Combined Ratio for such fiscal year is at least three percentage points, but
less than five percentage points, below the Industry Combined Ratio or
150% of his or her salary at the beginning of the fiscal year if the Company
Combined Ratio for such fiscal year is at least five percentage points below
the Industry Combined Ratio;
14
<PAGE>
provided, however, in either instance, the Performance Bonus Committee may, in
its sole discretion, on a case by case basis, reduce such bonus by any amount.
In 1998, Zenith's combined ratio was 105.3%; the industry's 1998 combined
ratio, as estimated and reported by A.M. Best Company, was 105.0%. Accordingly,
the objective performance goal under the Executive Officer Bonus Plan was not
met and no bonuses thereunder are payable to Executive Officers with respect to
fiscal year 1998.
STOCK OPTION GRANTS
EXECUTIVE OFFICERS
From time to time the Performance Bonus Committee grants options to
Executive Officers to purchase Common Stock. Options are considered a part of
compensation to recognize an Executive Officer's contribution and to reinforce
that Executive Officer's long term commitment to the success of Zenith. The
Performance Bonus Committee's determination to grant options to an Executive
Officer is based on the recommendation of the Chairman of the Board, subjective
measures and prior grants to that Executive Officer. Beyond these general
considerations, there is no particular formula governing the number of shares
awarded.
In 1998, none of the Named Executive Officers were granted options to
purchase Common Stock under the 1996 Employee Stock Option Plan.
Gerald Tsai, Jr., Chairman
Harvey L. Silbert
Michael Wm. Zavis
15
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below compares the cumulative total
returns of the Common Stock, the Standard and Poor's 500 Stock Index ("S&P 500")
and the Standard and Poor's 500 Property-Casualty Insurance Index ("S&P PC") for
a five year period. Stock price performance is based on historical results and
is not necessarily indicative of future stock price performance. The following
graph assumes $100 was invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in the Common Stock,
the S&P 500, and the S&P PC. The calculation of cumulative total return assumes
reinvestment of dividends. The graph was prepared by Standard and Poor's
Compustat, which obtained factual materials from sources believed by it to be
reliable, but which disclaims responsibility for any errors or omissions
contained in such data. The Stock Price Performance Graph shall not be deemed
incorporated by reference through any general statement incorporating by
reference this proxy statement into any filings under the Securities Act of 1933
or under the Securities Exchange Act of 1934 and shall not otherwise be deemed
to be filed under such Acts.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
ZENITH, S&P 500 AND S&P PC
(PERFORMANCE RESULTS THROUGH 12/31/98)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ZNT S&P 500 S&P PC
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 106.14 101.32 104.90
1995 104.39 139.40 142.02
1996 138.94 171.40 172.58
1997 135.63 228.59 251.04
1998 126.50 293.91 233.59
</TABLE>
16
<PAGE>
PROPOSAL TO APPROVE AMENDMENT NO. 1 TO
THE ZENITH NATIONAL INSURANCE CORP. 1996 EMPLOYEE STOCK OPTION PLAN
(ITEM 2 ON PROXY CARD)
In 1996, the Board of Directors adopted, and Zenith's stockholders approved,
the Zenith National Insurance Corp. 1996 Employee Stock Option Plan (the "1996
Employee Stock Option Plan"), which provides for the grant of stock options and
stock appreciation rights to officers and employees of Zenith and its
subsidiaries. The number of shares of Common Stock reserved for issuance
pursuant to awards under the 1996 Employee Stock Option Plan was originally
equal to 2,176,000.
The Board of Directors adopted the 1996 Employee Stock Option Plan as part
of its policy to reinforce the long term commitment to Zenith's success of those
officers (including officers who are directors of Zenith) and other employees of
Zenith and its subsidiaries who are or will be responsible for such success; to
facilitate the ownership of Zenith's stock by such individuals, thereby
reinforcing the identity of their interests with those of Zenith's stockholders;
and to assist Zenith in attracting and retaining officers and other employees
with experience and ability. On December 8, 1998, the Board of Directors
determined that the 71,000 shares of Common Stock then remaining available for
issuance pursuant to new awards under the 1996 Employee Stock Option Plan were
insufficient to provide for the continued proper compensation and
incentivization of Zenith's officers and employees. To address this issue, on
December 8, 1998, the Board of Directors adopted, subject to stockholders'
approval, Amendment No. 1 to the Zenith National Insurance Corp. 1996 Employee
Stock Option Plan ("Amendment No. 1"), which would provide an additional 250,000
shares of Common Stock for issuance pursuant to new awards under the 1996
Employee Stock Option Plan. The Board of Directors believes that Amendment No. 1
reflects the best interests of Zenith and recommends its approval by
stockholders.
The summary that follows is subject to the actual terms of the 1996 Employee
Stock Option Plan.
THE 1996 EMPLOYEE STOCK OPTION PLAN
The 1996 Employee Stock Option Plan provides for the granting of
nonqualified stock options ("NSOs") to purchase Common Stock, stock appreciation
rights ("SARs") and limited stock appreciation rights ("LSARs"). NSOs granted
under the 1996 Employee Stock Option Plan may be accompanied by SARs or LSARs,
or both ("rights"). Rights may also be granted independently of NSOs. On April
9, 1999 the closing market price of the Common Stock on the New York Stock
Exchange was $23.5625 per share.
PLAN ADMINISTRATION
The 1996 Employee Stock Option Plan is administered in two parts. With
respect to employees other than Executive Officers of Zenith, the Board of
Directors is the plan administrator. With respect to Zenith's Executive
Officers, the 1996 Employee Stock Option Plan is administered by the Performance
Bonus Committee, or by another committee of Zenith's Board of Directors (the
"Committee") consisting solely of two or more directors of Zenith who are
"Non-employee Directors" within the meaning of Rule 16b-3 promulgated under
Section 16 of the Exchange Act and "outside directors" within the meaning of
Section 162(m) of the Code. Directors who serve as administrators of the 1996
Employee Stock Option Plan do not receive any remuneration in such capacity from
the 1996 Employee Stock Option Plan. The 1996 Employee Stock Option Plan
provides that no member of the Board of Directors or the Committee will be
liable for any action or determination taken or made in good faith with respect
to the 1996 Employee Stock Option Plan or any option or right granted
thereunder.
17
<PAGE>
Subject to the terms of the 1996 Employee Stock Option Plan, the plan
administrator has the right to grant awards to eligible recipients and to
determine the terms and conditions of the award agreements evidencing the grant
of such awards, including the vesting schedule and option price of such awards,
and the effect, if any, of a change in control of Zenith on the exercisability,
vesting and potential cash-out of such awards.
SECURITIES SUBJECT TO THE 1996 EMPLOYEE STOCK OPTION PLAN
There were originally 2,176,000 shares of Common Stock reserved for issuance
pursuant to awards under the 1996 Employee Stock Option Plan. As of the date
hereof, 1,000 shares remain reserved for issuance pursuant to new awards.
However, if Amendment No. 1 is approved by the stockholders, an additional
250,000 shares will be reserved for issuance pursuant to new awards under the
1996 Employee Stock Option Plan. The aggregate number of shares of Common Stock
as to which options and rights may be granted to any single individual during
any calendar year may not, subject to adjustment as set forth below, exceed
1,000,000.
The 1996 Employee Stock Option Plan provides that, in the event of changes
in the Common Stock by reason of a merger, reorganization, recapitalization,
common stock dividend, stock split or similar change, the plan administrator
will make appropriate adjustments in the aggregate number of shares available
for issuance under the 1996 Employee Stock Option Plan and the option price to
be paid or the number of shares issuable upon the exercise thereafter of any
option previously granted.
ELIGIBILITY
Grants of options and/or rights may be made to any officer (including
officers who are directors) or employee of Zenith or its direct and indirect
subsidiaries who is determined by the plan administrator to be in a position to
contribute to the long-term success of Zenith.
EXERCISE OF OPTIONS
Options will vest and become exercisable according to a schedule established
by the plan administrator. In the case of options exercisable by installment,
options not exercised during any one year may be accumulated and exercised
during the remaining years of the option. Options will have a term of no more
than ten (10) years, and any options that are not exercised prior to the
expiration of such term will expire without value.
The section entitled "Death -- Termination of Employment -- Restrictions on
Transfer" describes the provisions that relate to the exercise of an option
following termination of employment.
The purchase price of the Common Stock purchased pursuant to the exercise of
an option will be as determined by the plan administrator (but will not in any
event be less than the fair market value of the Common Stock on the date of
grant of the option) and may be adjusted in accordance with the antidilution
provisions described in "Securities Subject to the 1996 Employee Stock Option
Plan." Upon the exercise of any option, the purchase price must be fully paid in
cash, cash equivalents, by delivery of Common Stock equal in market value to the
option price, by means of a cashless exercise procedure or, in the discretion of
the plan administrator, with proceeds of a loan from Zenith, or by a combination
of the foregoing.
18
<PAGE>
STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
SARs and LSARs may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of an NSO ("Related Rights"). Upon the exercise of
an SAR, a holder is entitled to receive cash, unrestricted shares of Common
Stock or any combination thereof, as determined by the plan administrator, in an
amount equal to the excess of the fair market value of one share of Common Stock
over the option price per share specified in the related NSO (or in the case of
a Free Standing Right, the price per share specified in such right), multiplied
by the number of shares in respect of which the SAR is exercised. Upon the
exercise of an LSAR, a holder is entitled to receive an amount in cash equal in
value to (x) the excess of (i) the Change in Control Price (as defined by the
plan administrator in the LSAR award agreement) of one share of Common Stock on
the date of exercise over (ii) the option price per share specified in the
related NSO (or in the case of an LSAR which is a Free Standing Right, the price
per share specified in the Free Standing Right) multiplied by (y) the number of
shares in respect of which the LSAR is exercised.
With respect to SARs and LSARs that are Related Rights, which may be granted
concurrently with or after the grant of an NSO, each such SAR and LSAR will
terminate upon the termination or exercise of the pertinent portion of the
related NSO, and the pertinent portion of the related NSO will terminate upon
the exercise of any such SAR or LSAR. Unless otherwise determined by the plan
administrator at grant, if an SAR or LSAR is granted with respect to less than
the full number of shares covered by a related NSO, the SAR or LSAR will only be
reduced if and to the extent that the number of shares covered by the exercise
or termination of such NSO exceeds the number of shares not covered by such SAR
or LSAR. LSARs that are Related Rights can only be exercised within the 30-day
period following a Change in Control (as defined by the plan administrator in
the LSAR award agreement) and only to the extent that the NSOs to which they
relate are exercisable. SARs that are Related Rights may be exercised at any
time that the underlying NSO is exercisable or, at the discretion of the plan
administrator, in certain other limited circumstances. In the case of both SARs
and LSARs that are Related Rights, such Related Rights may not be exercised
during the first six months after grant except in the event of death or
disability of the recipient prior to the expiration of the six-month period.
SARs that are Free Standing Rights may be exercised at such time or times
and may be subject to such terms and conditions as may be determined by the plan
administrator at or after grant. LSARs that are Free Standing Rights can only be
exercised within the 30-day period following a Change in Control. In the case of
both SARs and LSARs that are Free Standing Rights, such Free Standing Rights may
not be exercised during the first six months after grant thereof, except in the
event of death or disability of the recipient prior to the expiration of the
six-month period. The term of each Free Standing Right will be fixed by the plan
administrator but may not exceed ten years from the date of grant. The price per
share for each Free Standing Right will be set by the plan administrator but
will not be less than 100% of the fair market value of a share of Common Stock
on the date of grant.
DEATH -- TERMINATION OF EMPLOYMENT -- RESTRICTIONS ON TRANSFER
If an optionee should die while employed by Zenith or any of its
subsidiaries or within three (3) months of the termination of such employment,
any option held by such optionee may thereafter be exercised, to the extent the
optionee would have been entitled to do so at the date of death or the
termination of employment (whichever first occurs) or on such accelerated basis
as the plan administrator may determine at or after grant. Such option may be
exercised at any time within one (1) year from the date of such optionee's death
or until the expiration of the stated term of such option, whichever period is
19
<PAGE>
shorter, by the optionee's executors or administrators or by any person or
persons who shall have acquired the option from the optionee by bequest or
inheritance.
In the event an optionee shall cease to be an employee of Zenith or its
subsidiaries other than by reason of death, any option held by the optionee may
be exercised within three (3) months from the date of termination of employment
(or until the expiration of the stated term of such option, if earlier) to the
extent such option was exercisable as of the date of such termination of
employment or on such accelerated basis as the plan administrator may determine
at or after grant.
In no event may any option be exercisable more than ten years from the date
it is granted.
Except as otherwise determined by the plan administrator in accordance with
Rule 16b-3, options and rights are not transferable and are exercisable during
the recipient's lifetime only by the recipient.
AMENDMENT; TERMINATION
Except as provided below, the 1996 Employee Stock Option Plan will terminate
in the year 2006, ten (10) years following its approval by Zenith's
stockholders. The Board of Directors may terminate or amend the 1996 Employee
Stock Option Plan at any time, except that stockholder approval is required for
any amendment to (i) increase the maximum number of shares of stock which may be
issued under the 1996 Employee Stock Option Plan (except for adjustments set
forth in the 1996 Employee Stock Option Plan), (ii) change the class of
individuals eligible to participate in the 1996 Employee Stock Option Plan, or
(iii) extend the term of the 1996 Employee Stock Option Plan or the period
during which any option or right may be granted or exercised, but only to the
extent required by Rule 16b-3 and/or Section 162(m) of the Code with respect to
the material amendment of any employee benefit plan maintained by Zenith.
Termination or amendment of the 1996 Employee Stock Option Plan will not affect
previously granted options or rights, which will continue in effect in
accordance with their terms.
PAYMENT OF TAXES
Participants are required, no later than the date as of which the value of
an award first becomes includible in the gross income of the participant for
federal income tax purposes, to pay to Zenith, or make arrangements satisfactory
to the plan administrator regarding payment of, any Federal, state, or local
taxes of any kind required by law to be withheld with respect to the award. The
obligations of Zenith under the 1996 Employee Stock Option Plan are conditional
on the making of such payments or arrangements, and Zenith will have the right,
to the extent permitted by law, to deduct any such taxes from any payment of any
kind otherwise due to the participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
Under current Federal income tax laws, awards under the 1996 Employee Stock
Option Plan will generally have the following tax consequences:
NON-QUALIFIED STOCK OPTIONS
A participant will generally not be taxed upon the grant of an NSO. Rather,
at the time of exercise of such NSO, the participant will recognize ordinary
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares purchased over the option price. Zenith will
20
<PAGE>
generally be entitled to a tax deduction at such time and in the same amount
that the participant recognizes ordinary income.
If shares acquired upon exercise of an NSO are later sold or exchanged, then
the difference between the sales price and the fair market value of such shares
on the date that ordinary income was recognized with respect thereto will
generally be taxable as capital gain or loss.
According to a published ruling of the Internal Revenue Service, a
participant who pays the option price upon exercise of an NSO, in whole or in
part, by delivering shares of Common Stock already owned by him will recognize
no gain or loss for Federal income tax purposes on the shares surrendered, but
otherwise will be taxed according to the rules described above for NSOs. With
respect to shares acquired upon exercise which are equal in number to the shares
surrendered, (i) such shares will be treated as exchanged for the shares
surrendered in a non-taxable transaction, (ii) the basis of such shares will be
equal to the basis of the shares surrendered, and (iii) the holding period of
the shares acquired will include the holding period of the shares surrendered.
With respect to the additional shares received upon exercise, (a) the
participant will recognize ordinary income in an amount equal to the fair market
value of such shares on the date of receipt, (b) the basis of such additional
shares will be equal to the fair market value of such shares on the date of
receipt, and (c) the holding period for such additional shares will commence
after the date of receipt.
RIGHTS
A grant of SARs or LSARs has no Federal income tax consequences at the time
of such grant. Upon the exercise of SARs or LSARs (other than a Free Standing
LSAR), the amount of any cash and the fair market value as of the date of
exercise of any shares of Common Stock received is taxable to the participant as
ordinary income. With respect to a Free Standing LSAR, however, a recipient
should be required to include as taxable ordinary income on the Change in
Control date an amount equal to the amount of cash that could be received upon
the exercise of the LSAR, even if the LSAR is not exercised until a date
subsequent to the Change in Control date. Zenith will generally be entitled to a
deduction at the same time that is equal to the amount included in the
participant's income. Upon the sale of any shares acquired upon the exercise of
SARs or LSARs, participants will generally recognize capital gain or loss in an
amount equal to the difference between the amount realized upon such sale and
the fair market value of the stock on the date that governs the determination of
ordinary income.
CAPITAL GAIN OR LOSS
Net capital gain (I.E., generally, capital gain in excess of capital losses)
recognized by a participant upon the sale of shares held for more than 12 months
will generally be subject to tax at a rate not to exceed 20%. Net capital gain
recognized from the sale of shares held for 12 months or less will be subject to
tax at ordinary income rates.
NEW PLAN BENEFITS
It is not possible to determine at this time the awards that will be granted
in connection with the additional shares of Common Stock to be reserved for
issuance under the 1996 Employee Stock Option
21
<PAGE>
Plan pursuant to Amendment No. 1. No such awards have been made to any of the
persons listed in the table below, which is provided pursuant to requirements of
the Commission.
<TABLE>
<CAPTION>
NAME AND POSITION OPTIONS GRANTED
- ------------------------------------------------------------------------ ---------------
<S> <C>
STANLEY R. ZAX --
Chairman of the Board and President of Zenith and Zenith Insurance
JACK D. MILLER --
Executive Vice President of Zenith Insurance
FREDRICKA TAUBITZ --
Executive Vice President and Chief Financial Officer of Zenith and
Zenith Insurance
JAMES P. ROSS --
Senior Vice President of Zenith and Zenith Insurance
JOHN J. TICKNER --
Senior Vice President and Secretary of Zenith and Senior Vice
President, General Counsel and Secretary of Zenith Insurance
EXECUTIVE OFFICER GROUP --
NON-EXECUTIVE DIRECTOR GROUP --
NON-EXECUTIVE OFFICER EMPLOYEE GROUP --
NOMINEES FOR ELECTION AS DIRECTOR --
EACH ASSOCIATE OF THE ABOVE-MENTIONED DIRECTORS, OFFICERS OR NOMINEES --
</TABLE>
VOTE REQUIRED
Amendment No. 1 is being submitted for stockholder approval pursuant to
rules of the New York Stock Exchange, which require the affirmative vote of a
majority of the votes cast, in person or by proxy at the Annual Meeting,
provided that the total number of votes cast on the proposal to approve
Amendment No. 1 represents more than 50% of the outstanding shares of Common
Stock entitled to vote thereon at the Annual Meeting.
THE BOARD OF DIRECTORS HAS DETERMINED THAT AMENDMENT NO. 1 IS IN THE BEST
INTERESTS OF ZENITH AND ITS STOCKHOLDERS AND HAS APPROVED AMENDMENT NO. 1. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF
AMENDMENT NO. 1.
22
<PAGE>
INFORMATION RELATING TO INDEPENDENT AUDITORS
Zenith's independent auditor for fiscal year 1998 was PricewaterhouseCoopers
LLP, successor in interest to Coopers & Lybrand L.L.P., and, upon the
recommendation of the Audit Committee, the Board of Directors of Zenith has
selected PricewaterhouseCoopers LLP as Zenith's independent auditor for fiscal
year 1999. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting and will have an opportunity to respond to
appropriate questions and to make a statement if they desire to do so. For
information concerning Zenith's Audit Committee, see "Election of Directors"
above.
STOCKHOLDER PROPOSALS AT THE NEXT ANNUAL
MEETING OF STOCKHOLDERS
Stockholders of Zenith who intend to submit proposals to Zenith's
stockholders at the next Annual Meeting of Stockholders to be held in 2000 must
submit such proposals to Zenith no later than December 20, 1999 in order for
them to be included in Zenith's proxy materials for such meeting or no later
than March 5, 2000 if proposals are not sought to be included in such proxy
materials. Stockholder proposals should be submitted to Zenith National
Insurance Corp., 21255 Califa Street, Woodland Hills, California 91367,
Attention: Secretary.
By Order of the Board of Directors
JOHN J. TICKNER
SECRETARY
Dated: April 13, 1999
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<PAGE>
[LOGO]
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF ZENITH NATIONAL INSURANCE CORP.
FOR THE ANNUAL MEETING OF STOCKHOLDERS, MAY 20, 1999
The undersigned stockholder hereby appoints Harvey L. Silbert and
Stanley R. Zax and each or any of them (each with full power of
substitution), proxies for the undersigned to vote all shares of Common Stock
of Zenith National Insurance Corp. ("Zenith") owned by the undersigned at the
Annual Meeting of Stockholders to be held on Thursday, May 20, 1999, at 9:00
a.m., at the offices of Zenith, 21255 Califa Street, Woodland Hills,
California, and at any adjournments thereof, in connection with the matters
set forth in the Notice of Annual Meeting and Proxy Statement dated April 13,
1999 (the "Proxy Statement"), copies of which have been received by the
undersigned.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS OF THE STOCKHOLDER, BUT IF NO INSTRUCTIONS ARE GIVEN THIS PROXY
WILL BE VOTED FOR ELECTION OF DIRECTORS AS PROVIDED BY ZENITH'S PROXY
STATEMENT AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
IN THE EVENT OF CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS, THE PROXIES
MAY DISTRIBUTE THE VOTES REPRESENTED BY THIS PROXY AMONG THE NOMINEES IN SUCH
PROPORTION AS THEY SEE FIT.
(Continued and to be marked, signed and dated on other side)
- ------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark your votes as indicated in this example /X/
1. Election of Directors:
FOR all nominees listed below (except as marked to the contrary below) / /
WITHHOLD AUTHORITY to vote for all nominees listed below / /
George E. Bello, Max M. Kampelman, Robert J. Miller, William Steele Sessions,
Harvey L. Silbert, Robert M. Steinberg, Saul P. Steinberg, Gerald Tsai, Jr.,
Michael Wm. Zavis and Stanley R. Zax.
(INSTRUCTION: To withhold authority for any individual nominee write that
nominee's name in the space provided below.)
___________________________________________________________________________
2. Proposal to approve Amendment No. 1 to the 1996 Employee Stock Option Plan.
For / / Against / / Abstain / /
3. In their discretion, upon such other matters as may properly come before
the meeting.
Dated: _______________________________________, 1999
Signature __________________________________________
Signature __________________________________________
NOTE PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREIN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE YOUR FULL
TITLE AS SUCH. IF EXECUTED BY A CORPORATION, AN AUTHORIZED OFFICER SHOULD
SIGN, AND THE CORPORATE SEAL SHOULD BE AFFIXED. A PROXY FOR SHARES HELD IN
JOINT OWNERSHIP SHOULD BE SIGNED BY EACH JOINT OWNER.
Please mark, sign and date this Proxy and return it promptly in the
accompanying envelope, which requires no postage if mailed in the United
States.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
