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Exhibit 10.38  


 
 

ZENITH NATIONAL INSURANCE CORP.
  
    2003 NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN    
    


        Zenith National Insurance Corp. (the "Company") hereby establishes, effective July 1, 2003, a nonqualified
deferred compensation plan for the benefit of Non-Employee Directors (defined below) of the Company. This plan shall be known as the Zenith National Insurance Corp. 2003
Non-Employee Director Deferred Compensation Plan (the "Plan"). The Plan was adopted by the Board on May 20, 2003. 


ARTICLE 1.    DEFERRED COMPENSATION ACCOUNTS.  


        SECTION
1.1    ESTABLISHMENT OF ACCOUNTS.    The Company shall establish a "Deferred Cash
Account" and a "Stock Unit Account" (each, an "Account," and collectively,
"Accounts") for each Participant which shall be utilized solely as a device to measure and determine the amount of deferred Director's Compensation to
be paid under the Plan. 


        SECTION
1.2    PROPERTY OF COMPANY.    Any amounts so set aside for Benefits payable under the Plan are the property
of the Company, except, and to the extent, of any assignment of such assets to an irrevocable trust. 


ARTICLE 2.    DEFINITIONS, GENDER, AND NUMBER.  



        SECTION
2.1    DEFINITIONS.    Whenever used in the Plan, the following words and phrases shall have the meanings set
forth below unless the context plainly requires a different meaning, and when a defined meaning is intended, the term is capitalized. 



        (a)   "Administrator" means the Board, or if and to the extent the Board does not administer the Plan, the Committee. 


        (b)   "Beneficiary" or "Beneficiaries" means the individuals, trusts or other
entities designated by a Participant in writing pursuant to Section 7.2(d) of the Plan as being entitled to receive any benefit payable under the Plan by reason of the death of a Participant,
or, in the absence of such designation, the persons specified in Section 7.2(e) of the Plan. 


        (c)   "Benefit" means the amounts credited to a Participant's Accounts pursuant to such Participant's Deferred Compensation
Agreement plus or minus the gains or losses pursuant to Section 4.2. 


        (d)   "Board" means the Board of Directors of the Company as constituted at the relevant time. 



        (e)   "Closing Price" means the closing price, or last reported sales price, as the case may be of the Common Stock on the New
York Stock Exchange, or the primary national securities exchange on which the Common Stock is traded as of the applicable date; provided, however, that if no closing price is available for such date,
"Closing Price" means the closing price or last reported sales price, as the case may be, of the Common Stock as of the next most recent date for which a price is available. 


        (f)    "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. References to a
Code Section shall be deemed to be to that section or to any successor to that section. 


        (g)   "Committee" means the Compensation Committee of the Board. 


        (h)   "Common Stock" means the common stock of the Company, par value $1.00 per share, or any successor security. 






 




        (i)    "Company" means Zenith National Insurance Corp., a Delaware corporation. 


        (j)    "Deferred Compensation Agreement" means the agreement to participate and defer compensation between a Participant and the
Company. 


        (k)   "Deferred Stock Unit" means a unit equal in value to one share of Common Stock and posted to a Participant's Stock Unit
Account for the purpose of measuring the Benefits payable under the Plan. The number of Deferred Stock Units in or posted to a Participant's Stock Unit Account shall be rounded to the nearest
one-hundredth. In the event that shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or another
corporation (whether by reason of merger, consolidation, recapitalization, split-up, combination of shares or otherwise), or if the number of shares of Common Stock shall be increased
through a stock split or the payment of a stock dividend, then there shall be substituted for or added to each Deferred Stock Unit the number and kind of shares of stock or other securities into which
each outstanding share of Common Stock shall be so changed, or for which each such share shall be exchanged, or to which each such share shall be entitled, as the case may be, in each case as
determined by the Administrator in its sole discretion. 


        (l)    "Director" means an individual serving as a member of the Board of Directors of the Company. 


        (m)  "Director's Compensation" of a Director for any Plan Year means that individual's total annual retainer, and any fees
received for performance of the Director's functions, including fees for attendance or participation at meetings and for serving on a Board Committee or as a Committee or Board Chair. "Director's
Compensation" shall not include expense reimbursements. 


        (n)   "Early Benefit Distribution Date" means a date specified by the Participant and which is at least twenty-four
(24) full calendar months after the date the Participant's Deferred Compensation Agreement is received by the Company. 


        (o)   "Effective Date" means the date on which this Plan became effective, i.e., July 1, 2003. 


        (p)   "Enrollment Period" means the period of December 1 to December 31 prior to the Plan Year to which a
deferral election pursuant to a Deferred Compensation Agreement applies. However, for the first Plan Year, the Enrollment Period shall be June 1, 2003 to June 30, 2003. The Enrollment
Period for any
newly elected Non-Employee Director shall be any time within thirty (30) days before or after the Director takes office. 


        (q)   "Non-Employee Director" means any Director who is not an employee of the Company or any of its subsidiaries. 


        (r)   "Participant" means a Non-Employee Director of the Company who has executed a Deferred Compensation Agreement
and who maintains an Account under the Plan. 


        (s)   "Plan" means this Zenith National Insurance Corp. 2003 Non-Employee Director Deferred Compensation Plan as
set forth herein and as amended or restated from time to time. 


        (t)    "Plan Year" means January 1 through December 31, except that the first Plan Year shall be from
July 1, 2003 through December 31, 2003. 



        (u)   A
"Termination Event" shall be deemed to occur if a Participant ceases being a Non-Employee Director of the
Company for any reason. 




        SECTION
2.2.    GENDER AND NUMBER.    Except as otherwise indicated by context, masculine terminology used herein also
includes the feminine and neuter, and terms used in the singular may also include the plural. 


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ARTICLE 3.    PARTICIPATION.  


        SECTION
3.1    ELIGIBILITY TO PARTICIPATE.    Each Non-Employee Director of the Company may participate in
this Plan. 


        SECTION
3.2    ELECTION TO PARTICIPATE.    Each Non-Employee Director may become a Participant in the Plan
by electing to defer compensation in accordance with the terms of this Plan during an Enrollment Period. An election to defer shall be in writing and shall be made by executing a Deferred Compensation
Agreement. Except for the amounts deferred in 2003 and except with respect to new Non-Employee Directors, all elections to defer amounts under this Plan shall be made pursuant to a
Deferred Compensation Agreement executed and filed with the Company before the year in which the amount deferred is earned. All Deferred Compensation Agreements relating to the deferral of 2003
Director's Compensation shall be executed and filed with the Company no later than June 30, 2003 and shall relate to compensation to be earned after June 30, 2003. A deferral election
made pursuant to a Deferred Compensation Agreement shall remain in effect until modified by the Participant. No modification shall be given effect with respect to a Plan Year to which the modification
is intended to apply unless that modification is made prior to the beginning of that Plan Year. 


        SECTION
3.3    CESSATION OF PARTICIPATION.    Participation in the Plan shall continue until all of the Benefits to
which the Participant is entitled have been paid in full. 


ARTICLE 4.    ENTRIES TO PARTICIPANTS' ACCOUNTS.  



        SECTION
4.1    DEFERRALS.    Pursuant to a Deferred Compensation Agreement in effect for the applicable Plan Year, a
Participant may elect to defer all or a portion of Director's Compensation into his or her Deferred Cash Account, Stock Unit Account, or a combination thereof. 



        (a)    Deferred Cash Account.    A Participant's Deferred Cash Account shall be credited with the dollar amount of
Director's Compensation to be deferred as designated by such Participant in his or her Deferred Compensation Agreement on the date such compensation would otherwise have been payable. 



        (b)    Stock Unit Account.    A Participant's Stock Unit Account shall be credited with a number of Deferred Stock
Units determined by dividing (i) the amount of Director's Compensation to be deferred as designated by such Participant in his or her Deferred Compensation Agreement on the date such
compensation would otherwise have been payable, by (ii) the Closing Price of the Common Stock on the last trading day prior to the date the Deferred Stock Units are credited. 




        SECTION
4.2    CREDITS TO ACCOUNTS.    



        (a)    Deferred Cash Account.    At the end of each calendar quarter, a Participant's Deferred Cash Account shall be
credited by an amount equal to deemed interest, at the prime rate of interest, as reported in the Wall Street Journal on the last day of such calendar quarter (or if not reported on such day, the
latest reported rate preceding the last day of the calendar quarter), upon the average daily balance of such Participant's Deferred Cash Account during such calendar quarter. 




        (b)    Stock Unit Account.    The Participant's Stock Unit Account shall be valued as if his or her Stock Unit Account
were invested in shares of Common Stock equal to the number of Deferred Stock Units posted to his or her Stock Unit Account. The value of a Participant's Stock Unit Account shall vary with the value
of the Common Stock. In addition, a Participant's Stock Unit Account shall be credited, as of the applicable dividend payment date, with additional Deferred Stock Units determined by dividing
(i) the per share dividend declared on the Common Stock multiplied by the number of Deferred Stock Units posted to the Participant's Stock Unit Account as of the record date with respect to the
declaration of such dividend, by (ii) the Closing Price of the Common Stock on the last trading 


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day
prior to the date such dividend is declared. As of any date of valuation, the value of a Participant's Stock Unit Account will be equal to the value (at the Closing Price on such date) of the
number of shares of Common Stock represented by the Deferred Stock Units credited to the Stock Unit Account as of that date. 


        SECTION
4.3    DISTRIBUTIONS.    



        (a)    Deferred Cash Account.    A Participant's Deferred Cash Account shall be debited for the amount of any
distribution from such Account. 


        (b)    Stock Unit Account.    A Participant's Stock Unit Account shall be debited for the amount of any distribution
from such Account by dividing: (i) the dollar amount of the distribution by (ii) the Closing Price of the Common Stock on the last trading day prior to the date the Stock Unit Account is
debited. 




ARTICLE 5.    BENEFITS.  



        SECTION
5.1    TIMING OF DISTRIBUTION.    The amounts credited to a Participant's Accounts shall be paid (or payment
shall commence) within a reasonable time after the earlier of: (i) the Early Benefit
Distribution Date, if the Participant has made a valid election for early distribution of Benefits pursuant to Section 5.2, or (ii) a Termination Event. 


        SECTION
5.2    EARLY BENEFIT DISTRIBUTION.    A Participant may elect an Early Benefit Distribution Date. Such
election shall be made in the Participant's original Deferred Compensation Agreement and shall specify the portion or amount of the Participant's Accounts to be distributed on such Early Benefit
Distribution Date. Any election of an Early Benefit Distribution Date shall be irrevocable, both as to the date of distribution and as to the amount of the distribution. 



        (a)   No
election of an Early Benefit Distribution Date shall be given effect unless such election specifies an Early Benefit Distribution Date that is at least
twenty-four (24) full calendar months after the date the Participant's Deferred Compensation Agreement is received by the Company. With respect to elections relating to Plan Years
subsequent to the Plan Year to which the original election relates, the Company will be deemed to have received the election on December 31 of the prior year. 



        (b)   If
a Participant elects an Early Benefit Distribution Date for less than 100% of each of his or her Accounts (determined as of the Early Benefit Distribution Date), the
balance of such Participant's Account remaining after the Early Benefit Distribution Date (adjusted as provided in Article 4) shall be distributed in accordance with Section 5.1 without
regard to Section 5.1(i). 


        (c)   If
a Participant has a Termination Event prior to his or her Early Benefit Distribution Date, his or her election of an Early Benefit Distribution Date shall not be
given effect and distribution of the Participant's Accounts, shall be made in accordance with Section 5.1 without regard to Section 5.1(i). 




ARTICLE 6.    VESTING.  


        SECTION
6.1    IMMEDIATE VESTING.    Participants shall be fully vested in all Accounts at all times. 


ARTICLE 7.    DISTRIBUTION OF BENEFITS.  



        SECTION
7.1    FORM OF BENEFIT.    Participants may elect in their Deferred Compensation Agreements one of the
following forms of cash payment of Benefits: 



        (a)   annual
installment payments over a five (5) year or a ten (10) year period; or 



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        (b)   a
lump sum distribution. 




        Installment
payments shall be available to a Participant only in the event the Participant elects to receive a distribution on a Termination Event. In the event a Participant has failed
to elect a form of distribution, or if no record of such election can be found, the Participant shall receive annual payments over a five (5) year period. Except for lump sum distributions,
Benefit payments shall be a level annual amount for each calendar year, calculated using the sum of the balances in the Participant's Accounts at the beginning of the calendar year (or, in the case of
the first calendar year, on the Early Benefit Distribution Date or the date of the Termination Event) and dividing it by the total number of annual payments remaining in the entire payment period. The
Benefit payment amount shall be adjusted at the beginning of each calendar year. A Participant's Account shall continue to be credited during the payment period with gains and losses as provided in
Section 4.2. 


        SECTION
7.2    DEATH BENEFITS.    



        (a)   If
a Participant dies after commencement of payment of Benefits, the remaining benefit payments, if any, shall be paid to the Participant's Beneficiary in a lump sum
within a reasonable time following the Participant's death. 


        (b)   If
a Participant dies prior to the time payment of Benefits commence, the Participant's Benefit shall be paid to the Beneficiary in a lump sum within a reasonable time
following the Participant's death. 


        (c)   Any
Benefits that become payable under this Article 7 to the surviving spouse of a Participant shall be paid in a manner that will qualify such Benefits for a
marital deduction in the estate of a deceased Participant under the terms of Section 2056 of the Code, and unless specifically directed by a Participant to the contrary pursuant to an effective
beneficiary designation, any portion of a Participant's Benefit payable to a surviving spouse that remains unpaid at the death of such spouse shall be paid to the spouse's estate. 


        (d)   Each
Participant has the right to designate primary and contingent Beneficiaries for Benefits payable under the Plan. A beneficiary designation by a Participant shall be
in writing on a form acceptable to the Company and shall only be effective upon delivery to the Company. A beneficiary designation may be revoked by a Participant at any time by delivering to the
Company either written notice of revocation or a new beneficiary designation form. The beneficiary designation form last delivered to the Company prior to the death of a Participant shall control. 



        (e)   In
the event there is no beneficiary designation on file with the Company, or all Beneficiaries designated by a Participant have predeceased the Participant, the
Benefits payable by reason of the death of the Participant shall be paid to the Participant's spouse, if living; if the Participant does not leave a surviving spouse, to the Participant's issue by
right of representation; or, if there are no such issue then living, to the Participant's estate. In the event there are Benefits remaining unpaid at the death of a sole Beneficiary and no successor
Beneficiary has been designated, either by the Participant or the Participant's spouse pursuant to Section 7.2(d), the remaining balance of such benefit shall be paid to the deceased
Beneficiary's estate; or, if the deceased Beneficiary is one of multiple concurrent Beneficiaries, such remaining Benefits shall be paid proportionally to the surviving Beneficiaries. 




ARTICLE 8.    FUNDING.  


        SECTION
8.1    SOURCES OF BENEFITS.    All Benefits under the Plan shall be paid when due by the Company out of its
assets or from an irrevocable trust established by the Company for that purpose. 


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        SECTION
8.2    NO CLAIM ON SPECIFIC ASSETS.    No Participant shall be deemed to have, by virtue of being a
Participant in the Plan, any claim on any specific assets of the Company such that the Participant would be subject to income taxation on his Benefits under the Plan prior to distribution and the
rights of Participants and Beneficiaries to Benefits to which they are otherwise entitled under the Plan shall be those of an unsecured general creditor of the Company. 


ARTICLE 9.    ADMINISTRATION OF THE PLAN.  


        SECTION
9.1    ADMINISTRATOR.    The Administrator shall be responsible for the general operation and administration
of this Plan and for carrying out the provisions thereof. 


        SECTION
9.2    GENERAL POWERS OF ADMINISTRATION.    The Plan shall be administered by the Administrator. The
Administrator shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed
or engaged by the Company with respect to this Plan. 


        SECTION
9.3    CLAIMS PROCEDURE.    The Administrator shall notify a Participant in writing within ninety
(90) days of the Participant's written application for Benefits of his eligibility or non-eligibility for Benefits under the Plan. If the Administrator determines that a Participant
is not eligible for Benefits or full Benefits, the notice shall set forth (i) the specific reasons for such denial, (ii) a specific reference to the provision of the Plan on which the
denial is based, (iii) a description of any additional information or material necessary for the claimant to perfect his claim, a description of why it is needed, and an explanation of the
Plan's claims review procedure and other appropriate information as the steps to be taken if the Participant wishes to have his claim reviewed. If the Administrator determines that there are special
circumstances requiring additional time to make a decision, the Administrator shall notify the Participant of the special circumstances and the date by which a decision is expected to be made, and may
extend the time for an additional 90-day period. If a Participant is determined by the Administrator to be not eligible for Benefits, or if the Participant believes that he is entitled to
greater or different Benefits, he shall have the opportunity to have his claim reviewed by the Administrator by filing a petition for review with the Administrator within sixty (60) days after
receipt by him of the notice issued by the Administrator. Said petition shall state the specific reasons the Participant believes he is entitled to Benefits or greater or different Benefits. Within
sixty (60) days after receipt by the Administrator of said petition, the Administrator shall afford the Participant (and his counsel, if any) an opportunity to present his position to the
Administrator orally or in writing, and said Participant (or his counsel) shall have the right to review the pertinent documents, and the Administrator shall notify the Participant of its decision in
writing within said sixty (60) day period, stating specifically the basis of said decision written in a manner calculated to be understood by the Participant and the specific provisions of the
Plan on which the decision is based. If, because of the need for a hearing, the sixty (60) day period is not sufficient, the decision may be deferred for up to another sixty (60) day
period at the election of the Administrator, but notice of this deferral shall be given to the Participant. 


ARTICLE 10.    MISCELLANEOUS.  


        SECTION
10.1    BENEFITS INALIENABLE.    Except as provided in Section 7.2, the right of any Participant, any
Beneficiary, or any other person to the payment of any Benefits under this Plan shall not be assigned, transferred, pledged or encumbered. 



        SECTION
10.2    SUCCESSORS AND ASSIGNS.    This Plan shall be binding upon and inure to the benefit of the Company,
its successors and assigns and the Participant and his or her heirs, executors, administrators and legal representatives. 


        SECTION
10.3    COSTS OF ENFORCEMENT.    If the Company, the Participant, any Beneficiary, or a successor in interest
to any of the foregoing, brings legal action to enforce any of the 


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provisions
of this Plan, the prevailing party in such legal action shall be reimbursed by the other party for the prevailing party's costs of such legal action including, without limitation,
reasonable fees of attorneys, accountants and similar advisors and expert witnesses. 


        SECTION
10.4    DISPUTES.    Any dispute or claim relating to or arising out of this Plan that cannot be resolved
pursuant to the internal dispute resolution processes implemented by the Administrator with respect to the Plan shall be resolved in the following manner. The Participant or Beneficiary, as the case
may be, on the one hand, and the Administrator or its representative, on the other hand (collectively, the "Parties"), shall meet to attempt to resolve
such disputes. If the disputes cannot be resolved by the Parties, either Party may make a written demand for formal dispute resolution and specify therein the scope of the dispute. Within thirty
(30) days after such written notification, the parties agree to meet for one day with an impartial mediator and consider dispute resolution alternatives other than litigation. If an alternative
method of dispute resolution is not agreed upon within thirty (30) days after the one day mediation, either party may begin litigation proceedings. 


        SECTION
10.5    GOVERNING LAW.    This Plan shall be construed in accordance with and governed by the laws of the
State of Delaware, without reference to the principles of conflicts of law thereof, to the extent such construction is not pre-empted by any applicable federal law. 


        SECTION
10.6    ENTIRE AGREEMENT.    This Plan constitutes the entire understanding and agreement with respect to the
subject matter contained herein, and there are no agreements, understandings, restrictions, representations or warranties among any Participant and the Company other than those set forth or provided
for herein. 


        SECTION
10.7    AMENDMENT AND TERMINATION.    



        (a)   This
Plan may be amended by the Board at any time in its sole discretion; provided, however, any amendment that would alter the irrevocable nature of an election or
which would reduce the amount credited to a Participant's Account on the date of such amendment shall not be effective unless consented to in writing by the Participant or, if the Participant has died
or is incompetent, the Participant's Beneficiary or conservator. 


        (b)   Notwithstanding
the foregoing paragraph or any other provision in this Plan to the contrary, the Board may terminate the Plan at any time. Within a reasonable period
following termination of the Plan, Participants shall be distributed all Benefits due them. Any amounts not distributed after payment in full of all Benefits hereunder shall revert to the Company. 




ARTICLE 11.    TERM OF PLAN.  


        The Plan shall remain in effect until terminated by the Board. 


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ZENITH NATIONAL INSURANCE CORP. 2003 NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN