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 Xxxx-Xxxxx-Xxxxxx
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
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 acts 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 Xxxxxxx X. Xxx 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
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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 Xxxxxxx X. Xxx, Xxxxxxxxx
Xxxxxxx, Xxxx X. Xxxxxxx, Xxxx X. Xxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx X.
Xxxxxxxx and Xxxxx X. Xxxxxx 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 effect 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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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:
(1) If to the Company:
Zenith National Insurance Corp.
00000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxxx, XX 00000
Facsimile No.: 000-000-0000
Attn: Xxxxxxx X. Xxx, Chairman of the Board and President
With a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx, Xxx. 0000
Xxx Xxxxxxx, XX 00000
Facsimile No.: 213-687-5600
Attn: Xxxxxx X. Xxxxx
(2) If to the Purchaser:
Fairfax Financial Holdings Limited
00 Xxxxxxxxxx Xxxxxx Xxxx, Xxx. 000
Xxxxxxx, Xxxxxx X0X 0X0
Facsimile No.: 000-000-0000
Attn: Xxxx Xxxxxxxx, Vice President, Corporate Affairs
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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/ Xxxxxxx X. Xxx
--------------------------------
Name: Xxxxxxx X. Xxx
Title: Chairman of the Board and
President
ACCEPTED AND AGREED to by:
Fairfax Financial Holdings Limited
By: /s/ Xxxx Xxxxxxxx
-----------------------------
Name: Xxxx Xxxxxxxx
Title: Vice President, Corporate Affairs
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EXHIBIT A
, 1999
Zenith Insurance Company
00000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxxx, XX 00000
Fairfax Financial Holdings Limited
00 Xxxxxxxxxx Xxxxxx Xxxx, Xxx. 000
Xxxxxxx, Xxxxxx X0X 0X0
Dear Sirs:
Reference is made to the Employment Agreement, effective as of June 8,
1998, between 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 9(c)(iii) 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 has entered into a Stock Purchase Agreement, dated as of 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 9(c)(iii) 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 rights to terminate under Section
9(c)(iii) 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,
Witness,
___________________________
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