Exhibit 10.2


 


Execution Copy


 


NONCOMPETITION AGREEMENT


 


This NONCOMPETITION AGREEMENT, (this “Agreement”)
is made and entered into as of this 17th day of
February, 2010, between Fairfax Financial Holdings Limited, a Canadian
corporation (“Parent”), and Stanley R. Zax (“Covenantor”).


 


WHEREAS, pursuant to that certain Agreement and Plan of Merger, dated
as of February 17, 2010 (the “Merger Agreement”), among Parent,
Fairfax Investments II USA Corp., a Delaware corporation and a wholly owned
subsidiary of Parent (“Merger Sub”), and Zenith National Insurance
Corp., a Delaware corporation (the “Company”), Merger Sub shall be
merged with and into the Company, upon the terms and subject to the conditions
set forth in the Merger Agreement (the “Sale Transaction”);


 


WHEREAS, Covenantor is a significant stockholder of
the Company, and, as a result of the Sale Transaction, Covenantor will receive
significant consideration in connection with the Sale Transaction;


 


WHEREAS, Covenantor is the Chairman and Chief
Executive Officer of the Company, and Covenantor acknowledges that he has
detailed knowledge of the Proprietary Information (as defined below);


 


WHEREAS, the parties agree that it is their
intention that the entire goodwill of the Company and its business be transferred
to Parent as part of the Sale Transaction and acknowledge that they explicitly
considered the value of the goodwill transferred and was valued as a component
of the consideration for the Sale Transaction;


 


WHEREAS, the parties agree that Parent’s failure to
receive the entire goodwill contemplated by the Sale Transaction would have the
effect of reducing the value of the Sale Transaction to Parent;


 


WHEREAS, the parties acknowledge that the life
expectancy of the Company’s workers’ compensation insurance business (the “Business”) is at least
three (3) years;


 


WHEREAS, the parties acknowledge that the relevant
market for the Company is throughout the United States and that intense
competition exists throughout the United States for the products and services
of the Company; and


 


WHEREAS, as a condition and mutual inducement to the
Sale Transaction, and to preserve the value of the business being acquired by
Parent after the Sale Transaction, the Merger Agreement contemplates, among
other things, that Covenantor shall enter into this Agreement.


 


NOW, THEREFORE, in consideration of the foregoing
and of the mutual covenants and agreements contained herein and in the Merger
Agreement, and intending to be legally bound hereby, Covenantor hereby agrees
as follows:


 





















 


1.  
Confidentiality, Non-Disparagement.


 


(a)                                  Covenantor recognizes that by reason of his provision of
services to the Company, Covenantor has acquired confidential information and
trade secrets concerning research and development, know-how, processes and
techniques, technical data, customers, sales prospects, distribution, pricing
and cost information, and marketing plans and proposals, financial data and the
intellectual property of the Company (collectively, the “Proprietary
Information”), the use or disclosure of which could cause Parent
substantial loss and damages that could not be readily calculated and for which
no remedy at law would be adequate; provided that Proprietary
Information does not include any information that (i) is or becomes available
to the general public or is generally available within the relevant business or
industry other than as a result of an action by Covenantor in breach of this
Agreement or (ii) Covenantor receives or has received on a
non-confidential basis from a source other than the Company.  Accordingly, Covenantor covenants and agrees
with Parent that, for the period commencing at the Effective Time (as defined
in the Merger Agreement) and ending on the second anniversary of the date that
Covenantor ceases to be a director, officer or employee of the Company he will
not at any time, except in performance of his obligations to the Company or
with the prior written consent of Parent, directly or indirectly, disclose or
reveal to any person, entity or other organization or use for Covenantor’s own
benefit any Proprietary Information known to him unless disclosure is required
by law, regulation or legal process (including, without limitation, by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar process) in connection with any proceeding by or before a
governmental or judicial authority, regulatory or administrative body or
securities exchange.  For purposes of
this Agreement, Proprietary Information may be in any medium or form,
including, without limitation, physical documents, computer files or disks,
videotapes, audiotapes, and oral communications.


 


(b)                                 In the event that Covenantor is requested or required by
law, regulation or legal process to disclose any Proprietary Information,
Covenantor shall provide Parent with prompt written notice so that Parent may,
at its own cost, seek a protective order or other appropriate remedy.  In the event that such protective order or
other remedy is not obtained or Parent waives its right to seek such an order
or remedy, Covenantor shall, without liability under this Agreement, furnish
only that portion of such Proprietary Information or take only such action
that, in the opinion of Covenantor’s counsel, 
Covenantor is required to disclose under applicable law, regulation or
legal process; provided that Covenator shall exercise his commercially
reasonable efforts to obtain assurance that confidential treatment shall be
accorded any such Proprietary Information.


 


(c)                                  Covenantor agrees he will not make, or cause or assist any
other person to make, any statement or other communication, written or
otherwise, to any third party, including, without limitation, books, articles
or writings of any other kind, as well as film, videotape, audio tape,
computer/internet format or any other medium, which impugns, attacks or
criticizes, is misleading or untrue with respect to, or is otherwise
disparaging (or that constitutes trade libel) of the reputation, business,
prospects, products, services or character of any of the Company or Parent or
any of their affiliates or any of their respective directors, officers or
employees or the 


 


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Sale
Transaction.  Nothing in this Section 1(d) shall
prohibit Covenantor from providing truthful information in response to a
subpoena or other legal process.


 


(d)                                 The parties hereto agree that the covenants contained in
this Section 1 impose a reasonable restraint on Covenantor.  The covenants contained in this Section 1
are independent covenants and shall be enforceable by Parent regardless of any
claims that any Covenantor shall have against Parent or any of its affiliates,
whether under this Agreement or otherwise.


 


2.  Non-Competition;
Non-Solicitation.


 


(a)                                  In consideration of Parent
entering into the Merger Agreement and in order that Parent may enjoy the full
benefit of the Business, for the period commencing at the Effective Time and
ending on the third anniversary of the Effective Time (as extended pursuant to Section 2(d),
the “Restricted Period”), Covenantor shall not, directly or indirectly,
whether as principal, agent, partner, officer, director, stockholder, employee,
consultant, advisor or otherwise, alone or in association with any other
person, own, manage, operate, control, participate in, invest in (other than an
investment that results in such person owning less than 3% of the outstanding
voting stock of a publicly traded company), or carry on, a business (located or
selling in the United States) that is in direct competition with the products
and services offered by the Company at the Effective Time or by the Company in
the Business as conducted by the Company in the United States (or in direct
competition with those same products and/or services as they continue to be
offered by the Parent in the Business in the United States) (the “Competing
Activities”).


 


(b)                                 Covenantor agrees that during the Restricted Period,
without the prior written consent of Parent, Covenantor shall not, and shall
not authorize or direct any of his affiliates to, directly or indirectly:  (i) solicit for the purpose of offering
employment to or hire or recommend that any person solicit for the purpose of
offering employment to or hiring, whether as an employee, consultant, agent,
independent contractor or otherwise, any of the employees and officers of the
Company or any of its subsidiaries or any individual who was an employee or
officer of the Company during the immediate prior six-month period; or (ii) solicit,
induce or attempt to solicit or induce any customer, client, supplier, licensee
or other business relation (including banks and accountants and other resellers
of Company products) of the Company or any of its affiliates related to the
Business as conducted by the Company or any customer, client, supplier,
licensee or other business relation of Parent or any of its affiliates related
to the Business as conducted by Parent (or, in each case, any party which
provided services to the Business during the immediate prior six-month period)
to enter into any business relationship with Covenantor or an affiliate of
Covenantor in a manner that negatively impacts the Business as conducted by the
Company or Parent, reduce such person’s business with the Company, Parent or
any of their respective affiliates or cease doing business with the Company,
Parent or any of their respective affiliates. 
As used in this Section 2(b), the term “indirectly” shall include,
without limitation, Covenantor’s permitting the use of Covenantor’s name by any
competitor of the Company or Parent or any of their affiliates to induce or
interfere with any employee or business relationship of the Company or Parent
or any of their respective affiliates.


 


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(c)                                  Covenantor acknowledges and agrees that the remedy at law
for any breach of any of the provisions of this Section 2 may be
inadequate and, accordingly, Covenantor covenants and agrees that Parent shall,
in addition to any other rights and remedies which Parent and the Company may
have under applicable law, be entitled to equitable relief, including
injunctive relief, without bond or other necessity, and to the remedy of
specific performance with respect to any breach or threatened breach of such
covenant, as may be available from any court of competent jurisdiction.  In addition, Covenantor and Parent expressly
agree that the terms of the covenants, including the duration, scope and
geographic area of restriction, in this Section 2 are fair and reasonable
in light of Parent’s plans for the Business as conducted by the Company and are
necessary to accomplish the full transfer of the goodwill and other intangible
assets contemplated by the Merger Agreement. 
In the event that any of the covenants contained in this Section 2
shall be determined by any court of competent jurisdiction to be unenforceable
for any reason whatsoever, then any such provision or provisions shall not be
deemed void, and the parties hereto agree that said limits may be modified by
the court and that said covenant contained in this Section 2 shall be
amended in accordance with said modification, it being specifically agreed by
the parties that it is their continuing desire that this covenant be enforced
to the full extent of its terms and conditions or if a court finds the scope of
the covenant unenforceable, the court should redefine the covenant so as to
comply with applicable law.


 


(d)                                 In addition to the remedies Parent and the Company may seek
and obtain pursuant to Section 2(c), the Restricted Period shall be
extended, regardless of whether the initial period set forth in Section 2(a) has
otherwise expired, by any and all periods during which Covenantor shall be
found by a court of competent jurisdiction to have been in violation of the
covenants contained in this Section 2.


 


3.  Responsibilities.  Parent agrees that during the Restricted
Period, Covenantor shall, subject to the last sentence of this Section 3,
manage the business and operations of the Company and its subsidiaries with the
same level of responsibility, control and discretion that Covenantor exercised
at the time the Merger Agreement was executed and delivered.  In the event that Parent fails to permit
Covenantor to exercise such responsibility, control or discretion as provided
in the preceding sentence, Covenantor may terminate this Agreement on written
notice to Parent, which termination shall be Covenantor’s sole remedy for a
breach of this Section 3; provided, however, that inquiries
or actions by Parent or its representatives related to the consolidated
accounts of Parent or inquiries by Parent or its representatives regarding the
business and operations of the Company and its subsidiaries shall not be (or be
deemed to be) a breach by Parent of this Section 3.  Notwithstanding anything to the contrary
contained in this Section 3, (a) all matters and decisions in respect
of the investment of the assets of the Company and its subsidiaries shall be at
the sole discretion of Parent and (b) all other matters and decisions
related to financing activities and capital allocation of the Company and its
subsidiaries (including the declaration and payment of dividends) shall be
determined by the board of directors of the Company.


 


4.  Term.  If the Merger Agreement is terminated
pursuant to Section 8.01 thereof, this Agreement shall terminate
automatically at the time the Merger Agreement is terminated.  Upon termination pursuant to the preceding
sentence, this Agreement shall forthwith become void.


 


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5.  Miscellaneous.


 


(a)                                  Notices.  All notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
transmission) and shall be given,


 


if to Parent, to:


 


Fairfax Financial Holdings Limited

95 Wellington Street West, Suite 800

Toronto, ON M5J 2N7


Attention: Paul Rivett, Esq.


Vice President and Chief Legal Officer


Facsimile No: 416-367-2201


e-mail: p_rivett@fairfax.ca


 


with a copy (which shall not constitute notice) to:


 


Shearman & Sterling LLP

199 Bay Street

Suite 4405

Toronto, Ontario M5L 1E8

Canada

Facsimile No:  (416) 360-2958

Attention:  Adam Givertz

Email:  agivertz@shearman.com


 


if to Covenantor, to the address set forth on the
signature page hereto


 


or to such other address or
facsimile number as such party may hereafter specify for the purpose by notice
to the other parties hereto.  All such
notices, requests and other communications shall be deemed received on the date
of receipt by the recipient thereof if received prior to 5:00 p.m. on a
business day in the place of receipt. 
Otherwise, any such notice, request or communication shall be deemed to
have been received on the next succeeding business day in the place of receipt.


 


(b)                                 Entire Agreement.  This Agreement, together with the Merger
Agreement referenced herein, constitutes the entire agreement between the
parties with respect to the subject matter of this Agreement and supersede all
prior agreements and understandings, both oral and written, between the parties
with respect to the subject matter of this Agreement.


 


(c)                                  Amendments and Waiver.  Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement or, in
the case of a waiver, by the party against whom the waiver is to be
effective.  No failure or delay by any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any other
or further exercise thereof or the exercise of any other 


 


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right,
power or privilege.  The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by applicable law.


 


(d)                                 Binding Effect; Benefits; Assignment.  The provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, successors and assigns.  Except as set forth below in this Section 5(d),
no provision of this Agreement is intended to confer any rights, benefits,
remedies, obligations or liabilities hereunder upon any person other than the
parties hereto and their respective successors and assigns.  No party may assign or otherwise transfer any
of its rights or obligations under this Agreement, without the consent of each
other party hereto, except that Parent may transfer or assign its rights and
obligations under this Agreement, in whole or from time to time in part, to any
person; provided that such transfer or assignment shall not relieve
Parent of its obligations hereunder or enlarge, alter or change any obligation
of any other party hereto or due to Parent.


 


(e)                                  Severability.  It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under applicable law and public policies applied in each
jurisdiction in which enforcement is sought. 
Accordingly, if any particular provision of this Agreement shall be
adjudicated by a court of competent jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.  Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.


 


(f)                                    Expenses.  The parties shall bear their own respective
expenses (including all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred with
respect hereto.


 


(g)                                 Counterparts; Effectiveness.  This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.  Delivery of an executed counterpart by
facsimile or other means of electronic transmission will be as effective as
manual delivery of an original thereof. 
Until and unless each party has received a counterpart hereof signed by
the other party hereto, this Agreement shall have no effect and no party shall
have any right or obligation hereunder (whether by virtue of any other oral or
written agreement or other communication).


 


(h)                                 Remedies Cumulative.  No remedy made available by any of the
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity.


 


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(i)                                     Governing Law.  ALL PROVISIONS OF THIS AGREEMENT SHALL BE SUBJECT
TO AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.


 


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IN
WITNESS WHEREOF, Parent and Covenantor have caused this Agreement to be executed
as of the date first written above.


 


 


	
   

  	
  FAIRFAX FINANCIAL
  HOLDINGS LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul Rivett

  
	
   

  	
   

  	
  Title: Chief Legal
  Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STANLEY R. ZAX

  
	
   

  	
   

  
	
   

  	
  /s/ Stanley R. Zax

  
	
   

  	
       Chairman
  and President

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Zenith National
  Insurance Corp.

  
	
   

  	
   

  	
  21255 Califa Street

  
	
   

  	
   

  	
  Woodland
  Hills, California 91367

  
				



 


[Signature page to
Noncompetition Agreement]