Exhibit 10.1
MASTER TRANSACTION AGREEMENT
BY AND AMONG
MERITAGE CORPORATION,
MTH-HOMES NEVADA, INC.,
PERMA-BILT, A NEVADA CORPORATION,
AND
ZENITH NATIONAL INSURANCE CORP.
Dated October 7, 2002
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS.....................................................1
1.1 Definitions.........................................................1
ARTICLE II PURCHASE AND SALE OF ASSETS.....................................8
2.1 Closing.............................................................8
2.2 Assets to be Purchased..............................................8
2.3 Assets Not Being Transferred........................................8
2.4 Liabilities.........................................................9
2.5 Purchase Price; Earn-Out; Adjustment; and Warranty and
Reserves Administration............................................11
2.6 Allocation of Purchase Price.......................................17
2.7 Risk of Loss.......................................................18
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER.............18
3.1 Organization and Qualification.....................................18
3.2 Authority Relative to this Agreement...............................18
3.3 No Conflicts.......................................................18
3.4 Sufficient Funds...................................................18
3.5 No Consents........................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES..............19
4.1 Organization and Qualification.....................................19
4.2 Authority Relative to this Agreement...............................19
4.3 [intentionally omitted]............................................19
4.4 No Conflicts.......................................................19
4.5 No Consents........................................................20
4.6 Ownership Interests................................................20
4.7 Financial Statements...............................................20
4.8 [intentionally omitted]............................................20
4.9 No Material Adverse Changes........................................20
4.10 Absence of Certain Developments....................................20
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TABLE OF CONTENTS
(CONTINUED)
PAGE
4.11 Permitted Liens; Good Title to and Condition of Acquired Assets....22
4.12 Legal Descriptions of Real Property................................22
4.13 Real Property......................................................22
4.14 Acquired Contracts.................................................25
4.15 Warranties.........................................................26
4.16 Environmental Matters..............................................26
4.17 Tax Matters........................................................27
4.18 Restrictions on Business Activities................................28
4.19 Intellectual Property..............................................28
4.20 Litigation.........................................................28
4.21 Employees..........................................................28
4.22 Employee Benefit Plans.............................................29
4.23 Insurance..........................................................29
4.24 Affiliate Transactions.............................................30
4.25 Compliance with Laws...............................................30
4.26 Permits............................................................30
4.27 Disclosure.........................................................31
ARTICLE V CONDUCT OF SELLER PENDING THE CLOSING..........................31
5.1 Conduct of Business Pending the Closing............................31
5.2 Business Relationships.............................................33
5.3 Notification of Certain Matters....................................33
5.4 Required Approvals.................................................33
ARTICLE VI ADDITIONAL AGREEMENTS..........................................33
6.1 Employment.........................................................33
6.2 No Negotiations....................................................34
6.3 Public Announcements...............................................34
6.4 Confidentiality....................................................35
6.5 Further Assurances.................................................36
6.6 Right to Enter and Inspect.........................................36
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TABLE OF CONTENTS
(CONTINUED)
PAGE
6.7 Tax on Prior Sales.................................................37
6.8 Transfer of Permits................................................37
6.9 Landbanking........................................................37
6.10 Independent Auditors...............................................37
6.11 Charter Amendment..................................................37
ARTICLE VII CONDITIONS.....................................................37
7.1 Conditions to Obligation of Selling Parties........................37
7.2 Conditions to Obligations of Parent and Buyer......................38
ARTICLE VIII CLOSING........................................................40
8.1 Selling Parties' Obligations.......................................40
8.2 Parent's or Buyer's Obligations....................................42
8.3 Transfer Fees, Title Costs, and Closing Costs and
Other Fees; Prorations.............................................42
ARTICLE IX SURVIVAL AND INDEMNITIES.......................................44
9.1 Survival of Representations and Warranties.........................44
9.2 Nature of Statements...............................................44
9.3 Dispute Resolution.................................................44
9.4 Indemnification Agreement..........................................44
ARTICLE X TERMINATION/REMEDIES...........................................45
10.1 Termination........................................................45
10.2 Effect of Termination..............................................45
10.3 Specific Performance...............................................45
ARTICLE XI GENERAL PROVISIONS.............................................45
11.1 Notices..........................................................45
11.2 Counterparts.......................................................46
11.3 Governing Law......................................................46
11.4 Assignment.........................................................46
11.5 Gender and Number..................................................46
11.6 Schedules and Exhibits.............................................47
11.7 Waiver of Provisions...............................................47
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TABLE OF CONTENTS
(CONTINUED)
PAGE
11.8 Costs..............................................................47
11.9 Amendment..........................................................47
11.10 Severability.......................................................47
11.11 Binding Effect.....................................................47
11.12 Construction.......................................................47
11.13 Time Periods.......................................................47
11.14 Headings...........................................................48
11.15 Access to Records..................................................48
11.16 Entire Agreement...................................................48
11.17 Enforcement of Rights..............................................48
11.18 No Third Beneficiaries.............................................48
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TABLE OF CONTENTS
(CONTINUED)
EXHIBITS
EXHIBIT A - ASSET AGREEMENT
EXHIBIT B - REAL PROPERTY AGREEMENT
EXHIBIT C - INDEMNIFICATION AGREEMENT
EXHIBIT D - DISPUTE RESOLUTION PROCEDURES
EXHIBIT E - NON-DISCLOSURE AND NON-COMPETE AGREEMENT
EXHIBIT F - FORM OF GRANT, BARGAIN, SALE DEED
EXHIBIT G - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT H - BILL OF SALE AND ASSIGNMENT AGREEMENT
EXHIBIT I - SCHWARTZ EMPLOYMENT AGREEMENT
EXHIBIT J - CAPITAL CHARGE SAMPLE CALCULATION
MASTER TRANSACTION AGREEMENT SCHEDULES
Schedule 2.3 - Excluded Assets
Schedule 2.4A - Seller Debt
Schedule 2.4D - Specific Reserves
Schedule 2.5B(1) - August 31, 2002 Balance Sheet
Schedule 2.5(B)(2) - Preliminary Closing Balance Sheet
Schedule 4.4 - Conflicts
Schedule 4.5 - Consents
Schedule 4.6 - Ownership Interests
Schedule 4.7A - Financial Statements
Schedule 4.7B - Undisclosed Liabilities
Schedule 4.9 - Material Adverse Changes
Schedule 4.10 - Certain Developments Since Balance Sheet Date
Schedule 4.11 - Permitted Liens
Schedule 4.12 - Legal Description of Owned Real Property
Schedule 4.13 - Disclosure for Owned Real Property
Schedule 4.13U - Flood Plain Maps
Schedule 4.13W - Noise Cone Disclosure
Schedule 4.14 - Material Contracts
Schedule 4.15 - Warranty Disclosure
Schedule 4.16 - Environmental Matters
Schedule 4.17 - Tax Matters
Schedule 4.19 - Intellectual Property
Schedule 4.20 - Litigation
Schedule 4.21 - Employee Information
Schedule 4.22 - Employee Benefit Plans
Schedule 4.23 - Insurance
Schedule 4.24 - Affiliate Transactions
Schedule 4.25 - Non-Compliance with Applicable Laws
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TABLE OF CONTENTS
(CONTINUED)
Schedule 4.26 - Land Use Entitlements
Schedule 4.26B - Permits
Schedule 5.1 - Conduct of Business Pending Closing
REAL PROPERTY AGREEMENT SCHEDULES
Schedule 4.2 - Real Property Assets; Title Reports; Surveys
Schedule 4.2C - Disapproved Title Exceptions
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MASTER TRANSACTION AGREEMENT
This MASTER TRANSACTION AGREEMENT (this "AGREEMENT") is made as of October
7, 2002, by and among MERITAGE CORPORATION, a Maryland corporation ("MERITAGE or
PARENT"); MTH-HOMES NEVADA, INC., an Arizona corporation ("BUYER"); PERMA-BILT,
A NEVADA CORPORATION ("SELLER"); and ZENITH NATIONAL INSURANCE CORP., a Delaware
corporation ("ZENITH"). Collectively, Seller and Zenith are referred to herein
as "SELLING PARTIES."
RECITALS
1. Seller owns and operates the Perma-Bilt Homes land development,
homebuilding, and sales operations (the "BUSINESS").
2. Concurrently herewith, the Parties are entering into that Agreement of
Purchase and Sale of Assets in the form attached as EXHIBIT A hereto ("ASSET
AGREEMENT"), that Agreement of Purchase and Sale of Real Property in the form
attached as EXHIBIT B hereto ("REAL PROPERTY AGREEMENT") and that
Indemnification Agreement in the form attached as EXHIBIT C hereto (the
"INDEMNIFICATION AGREEMENT").
3. Pursuant to this Agreement, the Asset Agreement, and the Real Property
Agreement, Buyer will acquire the Business.
4. Selling Parties intend to transfer the economic benefits of the Business
after the Effective Date to the Buyer, subject to the liabilities and other
obligations of the Business arising after the Effective Date.
In consideration of the covenants and mutual agreements set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in reliance upon the representations and warranties
contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms will have the meanings set forth below
where used in this Agreement and identified with initial capital letters.
"ACCOUNTING ARBITRATOR" will have the meaning set forth in SECTION 2.5B(4).
"ACQUIRED ASSETS" will have the meaning set forth in SECTION 2.2.
"ACQUIRED CONTRACTS" means, collectively, the Real Property Acquired
Contracts and the Asset Acquired Contracts.
"ADJUSTED BOOK VALUE" will mean total equity of the Business as reflected
on the August Balance Sheet, Preliminary Closing Balance Sheet, and the Final
Closing Balance Sheet, as the case may be, which are to be prepared in
accordance with Adjusted GAAP.
"ADJUSTED GAAP" will mean generally accepted accounting principles,
consistently applied in accordance with past practices of Seller, provided that
(i) there will be appropriate reserves or accruals for vacation pay, sick pay,
severance obligations and other similar types of employment obligations, (ii)
reserves for Excluded Construction Claims will be as agreed upon by the parties,
subject to revision based only on fraud, concealment or mistake, (iii) Excluded
Assets and Excluded Liabilities (including any reserves or accruals for federal
income taxes) will be omitted, and (iv) any profit or loss on the sale of real
property to landbankers or model homes to investors, which sales are approved by
Seller pursuant to SECTION 6.9, will be disregarded.
"AGREEMENTS" will have the meaning set forth in SECTION 11.16.
"APPLICABLE LAWS" will mean all federal, state, regional, local, or other
governmental or quasi-governmental statutes, laws, rules, regulations, codes,
ordinances, orders, plans, injunctions, decrees, rulings, or judicial or
administrative interpretations thereof, including without limitation
Environmental Laws, which are applicable to Seller, Buyer, the Business, or the
Acquired Assets or the use, development, or condition thereof or otherwise
applicable to any of the Acquired Assets.
"APPROVED TITLE EXCEPTIONS" will have the meaning set forth in SECTION 4.2C
of the Real Property Agreement.
"ASSET ACQUIRED CONTRACTS" shall have the meaning set forth in SECTION 1.2I
of the Asset Agreement.
"ASSET INTELLECTUAL PROPERTY" will have the meaning set forth in SECTION
1.2E of the Asset Agreement.
"ASSETS" will have the meaning set forth in SECTION 1.2 of the Asset
Agreement.
"ASSUMED LIABILITIES" will have the meaning set forth in SECTION 2.4A.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" will have the meaning set forth in
SECTION 8.1A.
"AUGUST BALANCE SHEET" will have the meaning set forth in SECTION 2.5B(1).
"BALANCE SHEET DATE" will have the meaning set forth in SECTION 4.7A.
"BASKET THRESHOLD" will have the meaning set forth in SECTION 4C of the
Indemnification Agreement.
"BILL OF SALE AND ASSIGNMENT AGREEMENT" will have the meaning set forth in
SECTION 8.1D.
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"BONDS" will have the meaning set forth in SECTION 4.23.
"BOOK VALUE TARGET" will have the meaning set forth in SECTION 2.5A(1).
"BUSINESS" will have the meaning set forth in the recitals.
"CAPITAL CHARGE" will have the meaning set forth in SECTION
2.5A(2)(A)(III).
"CLOSING" will have the meaning set forth in SECTION 2.1.
"CLOSING DATE" will have the meaning set forth in SECTION 2.1.
"CODE" will mean the Internal Revenue Code of 1986, as amended.
"CONSTRUCTION CLAIMS" will mean all claims, including, without limitation,
claims for breach of contract, claims for breach of express or implied warranty,
construction defect claims, claims for lost profits, consequential damages, and
incidental and other damages, and all losses, costs and expenses relating to any
work required to be done by Seller, or any corrective work required to be done
by Seller, on a completed Housing Unit (including, without limitation, claims
related to mold) or on streets, gradings, landscaping and homeowners'
association improvements and all other similar subdivision work.
"CONTRACTED REAL PROPERTY" will have the meaning set forth in SECTION 1.2A
of the Real Property Agreement.
"DEED" will have the meaning set forth in SECTION 8.1A.
"DETERMINED INDEMNIFICATION CLAIM" will mean Excluded Liabilities that are
not subject to reasonable dispute, or claims settled in accordance with the
Indemnification Agreement, or as to which Selling Parties consent to liability
(whether by action or inaction as provided thereunder) or as to which liability
is determined by a Governmental Authority.
"DISAPPROVED TITLE EXCEPTIONS" will mean the exceptions to title set forth
on SCHEDULE 4.2C of the Real Property Agreement.
"DISPUTE" will have the meaning set forth in SECTION 9.3.
"EARN-OUT ACCOUNTING ARBITRATOR" will have the meaning set forth in SECTION
2.5A(2)(E).
"EARN-OUT PAYMENTS" will have the meaning set forth in SECTION 2.5A(2).
"EARN-OUT PERIOD" will mean for the first Earn-Out Period, the period
commencing on October 1, 2002 and ending on September 30, 2003; for the second
Earn-Out Period, the period commencing on October 1, 2003 and ending on
September 30, 2004; for the final Earn-Out Period, the period commencing on
October 1, 2004 and ending on September 30, 2005.
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"EFFECTIVE DATE" will mean the Closing Date; PROVIDED, HOWEVER, that if the
Closing occurs on or prior to October 7, 2002, the Effective Date will mean
September 30, 2002.
"ENVIRONMENTAL LAWS" will have the meaning set forth in SECTION 4.16A.
"ERISA" will mean the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" will have the meaning set forth in SECTION 4.1 of the Real
Property Agreement.
"EVALUATION INFORMATION" will have the meaning set forth in SECTION 6.4.
"EXCLUDED ASSETS" will have the meaning set forth in SECTION 2.3.
"EXCLUDED CONTRACTS" means all sales contracts for Housing Units or real
property or improvements thereon, fully performed and closed by all parties
thereto prior to the Effective Date.
"EXCLUDED CONSTRUCTION CLAIMS" means all Construction Claims related to the
property or improvements, which are the subject of Excluded Contracts, whether
brought before or after Effective Date, to the extent such claims arise out of
occurrences or omissions commencing on or prior to the Effective Date, even if
they do not become known until after such date.
"EXCLUDED LIABILITIES" will have the meaning set forth in SECTION 2.4B.
"FINAL CLOSING BALANCE SHEET" will mean a balance sheet reflecting the
closing balances for the Business, prepared in accordance with Adjusted GAAP, as
of the Effective Date.
"FINANCIAL STATEMENTS" will have the meaning set forth in SECTION 4.7A.
"GAAP" will mean generally accepted accounting principles, including but
not limited to, appropriate reserves or accruals for vacation, sick pay,
severance obligations and other similar types of employment obligations.
"GOVERNMENTAL AUTHORITY" will mean any nation or government, any state or
other political subdivision or quasi-governmental authority thereof, any entity
exercising executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government, including, without limitation, any
government authority, agency, department, board, commission, or instrumentality
of the United States, any State of the United States, or any political
subdivision thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organizations.
"HOUSING UNIT" will mean a residential dwelling constructed or to be
constructed on a lot, together with the associated lot.
"HSR ACT" will mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
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"INDEMNIFICATION CAP" will have the meaning set forth in SECTION 4B of the
Indemnification Agreement.
"INTELLECTUAL PROPERTY" means, collectively, the Real Property Intellectual
Property and the Asset Intellectual Property.
"KNOWLEDGE OF SELLING PARTIES" means the actual knowledge of any officer of
Selling Parties.
"LAND USE ENTITLEMENTS" will have the meaning set forth in SECTION 4.26B.
"LIABILITY RESERVES" will have the meaning set forth in SECTION 4C of the
Indemnification Agreement.
"LIEN" means, with respect to any asset, any mortgage, deed of trust, lien
(statutory or otherwise), pledge, lease, easement, restriction, covenant,
charge, security interest or other encumbrance, of any kind or nature in respect
of such asset, whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title retention
agreement, and any lease in the nature thereof, any option or other agreement to
sell, and any filing of, or agreement to give, any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"MATERIAL ADVERSE EFFECT" will have the meaning set forth in SECTION 4.4.
"MATERIAL DISCLOSED CONTINGENCIES" means those liabilities and obligations
disclosed (or which were known to any officer of a Selling Party and should have
been disclosed) on the Schedules hereto, including those relating to
environmental matters, that the parties, after reviewing the Schedules, have
identified as material by so indicating on the Schedules with an asterisk (*)
(or in the case of liabilities and obligations that should have been disclosed,
are identified by Buyer as material after they became known).
"MATERIAL CONTRACTS" means the following contracts and agreements to which
Seller is a party or by which Seller or any of the Acquired Assets are bound:
(a) The contracts referenced in the Real Property Agreement at
SECTIONS 1.2A(3), B(4) and C(5);
(b) All agreements or indentures relating to the borrowing by Seller
of money in excess of $25,000 or to mortgaging, pledging, or otherwise placing a
Lien over $25,000 on any of Seller's assets, or the guaranty by Seller of any
obligation of another person for borrowed money or any other obligation of
another person, other than endorsements made for collection;
(c) The Property Leases involving more than $25,000 in payments due
after the Effective Date;
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(d) All other contracts or groups of related contracts with the same
party continuing over a period of more than six months from the date or dates
thereof or involving more than $25,000 per annum;
(e) All employment, consulting or similar agreements to which Seller
is a party;
(f) All agreements providing for any guarantee, bond or
indemnification by Seller; and
(g) All other agreements material to the Business or not entered into
in the ordinary course of business.
Notwithstanding the foregoing, the term "MATERIAL CONTRACTS" will not
include home sales contracts or contracts with subcontractors, engineers,
signage suppliers or other consultants, in each case, in the ordinary course.
"NRS" will have the meaning set forth in SECTION 4.16B.
"OPENING CASH BALANCE" will have the meaning set forth in SECTION 2.5A(1).
"OWNED REAL PROPERTY" will have the meaning set forth in SECTION 1.2A of
the Real Property Agreement.
"PERMITS" will have the meaning set forth in SECTION 4.26A.
"PERMITTED LIENS" will have the meaning set forth in SECTION 4.11.
"PERSON" will mean any natural person, corporation, general or limited
partnership, limited liability company, trust, sole proprietorship, or other
entity, organization or association of any kind.
"POLICIES" will have the meaning set forth in SECTION 4.23.
"PRE-CLOSING TAX OBLIGATIONS" will have the meaning set forth in SECTION
2.4B(5).
"PRE-TAX NET INCOME" will have the meaning set forth in SECTION 2.5A(2)(A).
"PRELIMINARY CLOSING BALANCE SHEET" will have the meaning set forth in
SECTION 2.5B(2).
"PREMIUM" will have the meaning set forth in SECTION 2.5A(2)(A)(IV).
"PROPERTY LEASES" means all personal and real property leases pursuant to
which Seller is the lessor or the lessee of any real or personal property, or
holds or operates any equipment, machinery, vehicle, or other tangible personal
property owned by a third party and used in connection with the Business.
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"PURCHASE PRICE" will have the meaning set forth in SECTION 2.5A.
"PURCHASE PRICE ALLOCATION SCHEDULE" will have the meaning set forth in
SECTION 2.6A.
"REAL PROPERTY" will have the meaning set forth in SECTION 1.2A of the Real
Property Agreement.
"REAL PROPERTY ACQUIRED CONTRACTS" will have the meaning set forth in
SECTION 1.2B of the Real Property Agreement.
"REAL PROPERTY ASSETS" will have the meaning set forth in SECTION 1.2 of
the Real Property Agreement.
"REAL PROPERTY INTELLECTUAL PROPERTY" will have the meaning set forth in
SECTION 1.2 of the Real Property Agreement.
"REPORT" will have the meaning set forth in SECTION 4.2A of the Real
Property Agreement.
"SCHWARTZ EMPLOYMENT AGREEMENT" will have the meaning set forth in SECTION
6.1A.
"SEC" will mean the Securities and Exchange Commission.
"SELLER DEBT" will have the meaning set forth in SECTION 2.4A.
"SERVICES FEE" will have the meaning set forth in SECTION 2.5A(2)(A)(II).
"SURVEY" will have the meaning set forth in SECTION 4.2A of the Real
Property Agreement.
"TAXES" will mean any and all federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, payroll, employment, recapture,
disability, real property, personal property, sales, use, transfer,
registration, value-added, alternative or add-on minimum, estimated, "roll-back"
any other taxes, assessments, or government charges of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURNS" will mean any return, declaration, report, claim to refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TITLE COMPANY" will have the meaning set forth in SECTION 4.1 of the Real
Property Agreement.
"TITLE POLICY" will have the meaning set forth in SECTION 4.2D of the Real
Property Agreement.
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"TRANSACTION AGREEMENTS" means this Agreement, the Asset Agreement, the
Real Property Agreement, the Indemnification Agreement, the Non-Disclosure and
Non-Compete Agreement, the Schwartz Employment Agreement, the Assignment and
Assumption Agreement and the Bill of Sale and Assignment Agreement.
"UNDISCLOSED CONTINGENCIES" means claims, losses, costs, expenses, damages,
fines, penalties or liabilities (including, without limitation, interest which
may be imposed in connection therewith, court costs, litigation expenses, and
reasonable attorneys' and accounting fees) (collectively, "Claims") relating to
periods prior to the Effective Date or arising out of occurrences or omissions
on or prior to the Effective Date, but not reflected on the Final Closing
Balance Sheet or disclosed on any of the Schedules hereto. "Undisclosed
Contingencies" also shall include Claims arising out of activities carried on
prior to the Effective Date that Buyer may continue to carry on after the
Effective Date until known or discovered (but not including any such claims to
the extent resulting from the action or omission of Buyer after known or
discovered and an appropriate curative period), which Claims or activities were
not reflected on the Final Closing Balance Sheet or disclosed on any of the
Schedules hereto.
"UNDISCLOSED ENVIRONMENTAL CONTINGENCIES" means Undisclosed Contingencies
relating to the subject matter of SECTION 4.16, without regard to knowledge,
materiality or Material Adverse Effect qualifications.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 CLOSING. The closing of the purchase and sale of the Business (the
"CLOSING") will take place at 10:00 A.M. local time on the 7th day of October,
2002 at the offices of Snell & Wilmer L.L.P., 3800 Howard Hughes Parkway, Suite
1000, Las Vegas, NV 89109 or such other time and place as agreed to between
Parent and Seller no less than three business days prior to an anticipated
Closing. The day on which the Closing actually occurs is herein sometimes
referred to as the "CLOSING DATE."
2.2 ASSETS TO BE PURCHASED. Upon the terms and subject to the conditions
set forth herein, and in reliance on the respective representations and
warranties of the parties contained herein, at the Closing, Seller agrees to
sell, convey, grant, assign, and transfer to Buyer and Buyer agrees to purchase
and acquire from Seller all of the Real Property Assets, all of the Assets and
all of Seller's right, title and interest in and to all other assets,
properties, or rights of every nature, kind, description, tangible and
intangible, whether real, personal or mixed, whether accrued, contingent or
otherwise and whether now existing or hereinafter acquired relating in any way
to or used or held for use in connection with the Business, other than the
Excluded Assets (the "ACQUIRED ASSETS").
2.3 ASSETS NOT BEING TRANSFERRED. Seller will retain and Buyer will not
purchase the following ("EXCLUDED ASSETS"):
A. All of Seller's right, title and interest under or related to this
Agreement and the other Transaction Agreements, including, without
limitation, the consideration delivered pursuant to this Agreement;
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B. Minute books, stock transfer ledgers and original accounting
records of Seller;
C. Cash and cash equivalents (including cash set aside as
self-insurance for Construction Claims or other liabilities, provided that
such cash will not then be treated as part of Liability Reserves);
PROVIDED, HOWEVER, that (i) to the extent that following the Closing
Selling Parties receive any cash that constitutes an Acquired Asset or
relates to an Assumed Liability, Selling Parties shall, as soon as
practicable after receipt thereof, turn over such cash to Buyer, and (ii)
to the extent that following the Closing Parent or Buyer receives any cash
that constitutes an Excluded Asset or relates to an Excluded Liability,
Parent and Buyer shall, as soon as practicable after receipt thereof, turn
such cash over to Selling Parties;
D. Deferred tax assets, if any, and any other assets that, as a result
of the acquisition, will be written off by Buyer, as identified on SCHEDULE
2.3, which will be prepared by Buyer;
E. Insurance policies relating to any Excluded Contracts or Excluded
Construction Claims;
F. Employee benefit plans maintained by Selling Parties;
G. Excluded Contracts; and
H. Any books, instruments, papers and records that relate exclusively
to Excluded Assets or Excluded Liabilities (for so long as they are
Seller's sole responsibility) or to any employees of Seller not hired by
Buyer.
2.4 LIABILITIES.
A. ASSUMED LIABILITIES; LOAN PAYMENTS. Upon the terms and subject to
the conditions of this Agreement, at the Closing, Buyer will assume and
perform and pay when due, all liabilities, obligations and expenses,
whether fixed or contingent, known or unknown, matured or unmatured,
executory or non-executory, whether arising out of occurrences prior to, on
or after the Effective Date, even if they do not become known until after
such date, whether now existing or hereafter arising, relating in any way
to the Business, other than the Excluded Liabilities (the "ASSUMED
LIABILITIES"). At the Closing, (i) Buyer shall either assume or pay off
Seller's third party bank debt outstanding as of the Closing, and (ii)
Buyer shall pay off all loans and related accrued interest due to Zenith as
of the Closing, each as set forth on SCHEDULE 2.4A (such bank debt and such
loans and interest due Zenith, the "SELLER DEBT").
B. EXCLUDED LIABILITIES. Notwithstanding any other provision of this
Agreement, neither Parent nor Buyer will assume, acquire, or be responsible
for any liabilities, obligations or expenses, whether fixed or contingent,
known or unknown, matured or unmatured, executory or non-executory,
relating to or consisting of (collectively, the "EXCLUDED LIABILITIES"):
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(1) Excluded Contracts and Excluded Construction Claims;
(2) Material Disclosed Contingencies;
(3) Undisclosed Contingencies, including Undisclosed
Environmental Contingencies;
(4) Employee benefit plans and employment agreements maintained
by Selling Parties (including without limitation any obligations under
Daniel Schwartz's existing employment agreement), except for those
benefits described in SECTION 6.1C, accrued on the Final Closing
Balance Sheet or accrued thereafter absent the willful misconduct or
gross negligence of Selling Parties; and
(5) (i) Subject to SECTION 8.3D, Taxes incurred prior to the
Effective Date and (ii) income or franchise Taxes of Seller arising
out of the consummation of the transactions contemplated by this
Agreement (collectively, "PRE-CLOSING TAX OBLIGATIONS").
C. Notwithstanding the above, Seller's obligation to discharge the
Excluded Liabilities is subject to the following:
(1) Seller's obligation to discharge the Excluded Liabilities
will survive the Closing until [*] with respect to the substantive
matter at issue except that Seller's obligation to discharge Material
Disclosed Contingences and Pre-Closing Tax Obligations will survive
the Closing [*];
(2) [*];
(3) [*]; and
(4) [*].
Anything contained in this Agreement to the contrary notwithstanding,
except as provided in SECTIONS 2.4C(2), (3) and (4) above, Buyer will not
assume the Excluded Liabilities, which Excluded Liabilities will at and
after the Effective Date remain the exclusive responsibility of Seller.
Except as provided in SECTIONS 2.4C(2), (3) and (4) above, Seller will, and
each of Selling Parties agrees to cause Seller to, discharge all Excluded
Liabilities in accordance with their terms (subject to Seller's right to
contest obligations believed in good faith not to be then due) and
Applicable Laws.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
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D. Notwithstanding anything in this Agreement or the other Transaction
Agreements to the contrary, upon the expiration of the survival period set
forth in SECTION 9.1 with respect to claims based upon or arising out of
contingencies disclosed on SCHEDULE 2.4D, Buyer shall refund to Seller any
and all remaining Liability Reserves related to such contingencies
disclosed on SCHEDULE 2.4D; PROVIDED, HOWEVER, (i) Buyer or Parent may
setoff or reduce any refund of the remaining Liability Reserves for
Determined Indemnification Claims of the Parent or Buyer that Selling
Parties fail to satisfy within 15 days of determination and (2) Parent and
Buyer shall have no obligation to refund to Seller any remaining Liability
Reserves if Selling Parties are in breach of any of the Transaction
Agreements to the extent of any Losses actually or reasonably expected to
be incurred by Parent and Buyer as a result of such breach or attributable
to indemnity claims against Selling Parties that remain unresolved.
2.5 PURCHASE PRICE; EARN-OUT; ADJUSTMENT; AND WARRANTY AND RESERVES
ADMINISTRATION.
A. PURCHASE PRICE. At Closing, in addition to assuming the Assumed
Liabilities, Parent will cause Buyer to pay to Seller, in immediately
available funds, the following for the Acquired Assets ("PURCHASE PRICE"):
(1) (a) Buyer will pay to Seller an amount equal to $36,400,000,
less Seller's opening cash balances on the Closing Date (the "OPENING
CASH BALANCE") (which will be paid to Seller at Closing), SUBJECT,
HOWEVER, to adjustment as set forth in this SECTION 2.5A; PROVIDED,
HOWEVER, that at the Closing, Seller will have an Adjusted Book Value
of at least $17,500,000, less the Opening Cash Balance (the "BOOK
VALUE TARGET"). In the event of any shortfall or excess from the Book
Value Target as set forth on the Preliminary Closing Balance Sheet
then (i) in the case of a shortfall in Adjusted Book Value, Selling
Parties will pay to Buyer cash in an amount equal to the shortfall and
(ii) in the case of excess Adjusted Book Value, Buyer will pay to
Seller cash in an amount equal to the excess. Such payments will be
made at Closing. In the event of any shortfall or excess from the Book
Value Target as set forth on the Final Closing Balance Sheet (taking
into account any payment made by Selling Parties or Buyer at the
Closing as described in the immediately preceding sentence), then (i)
in the case of a shortfall in Adjusted Book Value, Selling Parties
will pay to Buyer cash in an amount equal to the shortfall and (ii) in
the case of excess Adjusted Book Value, Buyer will pay to Seller cash
in an amount equal to the excess. The parties expressly agree that any
obligation of Selling Parties to pay cash to Buyer under this SECTION
2.5A will not count against the Indemnification Cap or be subject to
the Basket Threshold set forth in SECTION 4 of the Indemnification
Agreement.
(b) In the event the Effective Date is September 30, 2002, the
Purchase Price will be increased or decreased, as the case may be, by
the amount by which the Opening Cash Balance is less than or exceeds,
respectively, $6,601,291. At Closing, Buyer shall reimburse Seller for
the prepayment penalty associated with the note identified in item 2
of SCHEDULE 2.4A.
-11-
(2) In addition to the foregoing, Zenith will receive from Parent
deferred payments, to the extent earned, of 10% of the Pre-Tax Net
Income of Buyer as determined in accordance with GAAP (the "EARN-OUT
PAYMENTS"), subject to the provisions set forth below:
(a) "PRE-TAX NET INCOME" will mean the net income of the
Buyer before interest and income taxes determined in accordance
with GAAP and as reported in the Buyer's financial statements
after giving effect to the following (to the extent not already
reflected in the calculation of such net income of Buyer before
income taxes):
(i) subtraction of salary and incentive bonus
compensation paid to Daniel Schwartz, but not the pre-tax
bonus arrangements pursuant to the Schwartz Employment
Agreement;
(ii) subtraction of a "SERVICES FEE," which shall equal
any direct third-party costs paid by Parent in connection
with providing services to the Buyer; PROVIDED, HOWEVER,
that the Services Fee will not include overhead costs;
(iii) subtraction of a "CAPITAL CHARGE," which shall be
a charge equal to 10.5% on the Capital (i.e., equity,
intercompany borrowings and interest bearing liabilities due
third parties) provided to Buyer by Parent. "Capital" shall
mean (x) the aggregate book value of Buyer's assets
(excluding any assets not required to be reflected on the
balance sheet) beginning on the Effective Date and at the
beginning of each period thereafter that the charge is being
computed, less (y) all non-interest bearing liabilities due
third parties. The Capital Charge will be calculated on a
monthly basis. To the extent that the Business' assets
include land greater than $50 million, the excess over $50
million will not be subject to a Capital Charge. Other than
the Capital Charge, no interest (whether direct or indirect,
whether paid, actually incurred or allocated, and whether
expensed, amortized to cost of sales, capitalized or
otherwise), will be deducted or amortized in computing the
Pre-Tax Net Income for any period. EXHIBIT J hereto sets
forth a sample calculation. In the event of a conflict
between the description of the calculation set forth in this
SECTION 2.5A(2)(a) and EXHIBIT J, EXHIBIT J shall control;
(iv) an amount equal to the excess of the Purchase
Price over the Adjusted Book Value set forth on the Final
Closing Balance Sheet (i.e., the purchase price premium over
the book value of the assets and liabilities acquired)
("PREMIUM") shall (x) be excluded for purposes of computing
the Capital Charge from the "aggregate book value of the
Buyer's assets at the beginning of each period;" and (y)
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neither deducted nor amortized in computing the Pre-Tax Net
Income for any period;
(v) exclusion of all transaction costs of Parent and
Buyer with respect to or arising out of the consummation of
the transactions contemplated by the Agreements (including,
without limitation, all costs and expenses of arbitrators
(as to the calculation of the Purchase Price), accountants,
legal counsel and financial advisors of Parent or Buyer and,
if required to be paid by Parent or Buyer pursuant to the
Agreements, of any other parties hereto);
(vi) exclusion of all losses subject to indemnification
by Selling Parties pursuant to the Indemnification Agreement
that are paid by Selling Parties or are deducted from the
Liability Reserves, and exclusion of all payments made by
Selling Parties to Buyer pursuant to the Indemnification
Agreement; and
(vii) exclusion of all other charges against net income
or resulting from significant changes in accounting
principles that are not (y) consistent with Parent's or the
Business' practices, or (z) required by GAAP.
(b) There will be three Earn-Out Payments, one for each of
the three consecutive Earn-Out Periods following the Effective
Date;
(c) Buyer will pay to Zenith 90% of each estimated Earn-Out
Payment for the previous (i.e., just ended) Earn-Out Period in
cash on or before the 30th day following the end of the last
relevant Earn-Out Period. Together with that payment, Buyer will
deliver to Zenith a calculation notice, setting forth the
calculation in reasonable detail, of the estimated Pre-Tax Net
Income for such Earn-Out Period. Thereafter, within 90 days after
completion of each Earn-Out Period, Parent will deliver to Zenith
a calculation notice, setting forth the calculation in reasonable
detail, of the actual Pre-Tax Net Income for such Earn-Out Period
and the remaining amount, if any, of any Earn-Out Payment due,
together with a check in the amount of the balance due;
(d) During each Earn-Out Period, unless otherwise agreed to
by Zenith, Parent and Buyer agree to:
(i) operate the Business consistent with the past
practices of Business or Parent and with Buyer's proposed
post-Closing operations, provided that Buyer will have no
obligation to execute such proposed post-Closing operations;
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(ii) maintain separate books and records for the
Business;
(iii) use reasonable commercial efforts, subject to the
fiduciary duty of the Parent's Board of Directors, to
provide sufficient capital to the Business to enable it to
make capital expenditures and otherwise operate in the
ordinary course; and
(iv) maintain the Business as a separate entity and not
combine, merge or consolidate it (except together or with
Parent or another subsidiary of Parent; provided that with
respect to any such combination, merger or consolidation,
Parent will continue to maintain separate books and records
for the Business) or liquidate it or, except in the ordinary
course of business, sell or otherwise dispose of its assets
(except to the Parent or another subsidiary of Parent;
provided that with respect to any such sale, transfer or
disposition, Parent will continue to maintain separate books
and records for the Business);
(e) If Zenith disputes the calculation of the Earn-Out
Payment and Parent and Zenith are unable to resolve that dispute,
the parties will arbitrate the dispute in the manner provided in
Section C of EXHIBIT D, except as modified herein. There will be
a single arbitrator (the "EARN-OUT ACCOUNTING ARBITRATOR")
appointed by agreement of Parent and Zenith within 30 days of
receipt by Parent of a notice from Zenith that the Earn-Out
Payment calculation is disputed, or if no timely agreement is
reached, appointed by the American Arbitration Association
("AAA"). Such Earn-Out Accounting Arbitrator will be entitled to
rely on an accounting firm of national repute (other than the
firms then currently serving as auditors for Parent or Buyer or
Zenith or Seller) as may be mutually agreed upon by Parent and
Zenith. If Parent and Zenith are unable to agree on such
accounting firm within 10 days of the appointment of the Earn-Out
Accounting Arbitrator, on the request of Parent or Zenith such
accounting firm will be appointed by the AAA. The arbitration
award rendered by the Earn-Out Accounting Arbitrator will be
final and binding on all parties, and judgment on the arbitration
award may be enforced in any court having jurisdiction. If the
Earn-Out Payment as determined by the Earn-Out Accounting
Arbitrator is within 5% of the amount calculated by Parent,
Selling Parties will pay all of the cost of the parties'
accounting and other professionals and will bear the fees and
expenses of the Earn-Out Accounting Arbitrator. Conversely, if
the Earn-Out Payment as determined by the Earn-Out Accounting
Arbitrator is greater than the amount calculated by Parent by
more than 5%, or if it is conclusively determined by the Earn-Out
Accounting Arbitrator that the disputed difference is the result
of willful misconduct on the part of Parent, Parent will pay all
of the cost of the parties' accounting and other professionals
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and will bear the fees and expenses of the Earn-Out Accounting
Arbitrator; and
(f) The Earn-Out Payments may be setoff or reduced to
satisfy Determined Indemnification Claims of the Parent or Buyer.
Buyer agrees to provide Zenith written notice of any such setoff
when the aggregate amount of setoffs exceeds [*] in any Earn-Out
Period, and updates thereafter of any additional setoff whenever
the incremental aggregate amount of additional setoffs exceeds
[*] in that Earn-Out Period, which notices shall specify each
Determined Indemnification Claim and the amount thereof.
B. ADJUSTMENT.
(1) SCHEDULE 2.5B(1) sets forth a balance sheet of the Business
as of August 31, 2002, which to the Knowledge of Selling Parties is
prepared in accordance with Adjusted GAAP (the "AUGUST BALANCE
SHEET"), and reflects the Adjusted Book Value as of such date. The
parties hereby accept and agree to the August Balance Sheet, absent
fraud, mistake or concealment and subject to their respective rights
under the Indemnification Agreement.
(2) For the purpose of making an initial determination of
Adjusted Book Value, Seller will deliver to Parent, at least five days
prior to the Closing, a balance sheet, prepared on a basis consistent
with the August Balance Sheet and in accordance with Adjusted GAAP,
reflecting the estimated closing balances for the Business as of the
Effective Date and subject to tentative approval of Parent and Buyer
(the "PRELIMINARY CLOSING BALANCE SHEET"). At Closing, Buyer shall
make any payment to Seller required by SECTION 2.5A(1) or Selling
Parties shall make any payment to Parent required by SECTION 2.5A(1).
The Preliminary Closing Balance Sheet is attached as SCHEDULE 2.5B(2).
(3) No later than one month after the Closing Date, Parent will
deliver to Seller the Final Closing Balance Sheet reflecting its
determination of actual closing balances for the Business, prepared on
a basis consistent with the August Balance Sheet.
(4) The Final Closing Balance Sheet will become final and binding
on the parties, absent fraud, mistake or concealment and subject to
their respective rights under the Indemnification Agreement, unless
within 15 business days following delivery thereof to Seller, Seller
notifies Parent in writing that Seller objects thereto. If Seller
objects to the Final Closing Balance Sheet, and after good faith
consultation with respect to the objection, the parties are unable to
reach an agreement within 15 days, then the parties will resolve the
dispute in the manner provided in EXHIBIT D; PROVIDED, HOWEVER, that
the arbitrator will be Deloitte & Touche or another accounting firm of
national repute (other than the firms currently serving as auditor for
Parent, Buyer, Zenith or Seller) as may be mutually agreed upon by
Parent and Seller (the "ACCOUNTING ARBITRATOR"). The determination of
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
-15-
the Accounting Arbitrator will be final and binding on all parties,
and judgment on the arbitration award may be enforced in any court
having jurisdiction. Parent and Seller will each pay the cost of their
own accounting and other professionals and will bear equally the fees
and expenses of the Accounting Arbitrator. Upon determination of the
Final Closing Balance Sheet pursuant to this SECTION 2.5B, Buyer shall
make any payment to Parent required by SECTION 2.5A(1) or Selling
Parties shall make any payment to Parent required by SECTION 2.5A(1).
C. WARRANTY AND RESERVE ADMINISTRATION.
(1) Subject to the following, Buyer will administer all Excluded
Construction Claims, provided that Buyer will delegate such right to
Daniel Schwartz so long as he is an employee of Buyer. In
administering Excluded Construction Claims, Buyer will use reasonable
commercial efforts, generally consistent with the manner in which
Parent and Buyer have administered their own claims in the past
(except that Parent and Buyer shall continue Seller's warranty
administration policies and methodology in effect at the Closing for a
period of not less than 6 months following the Closing, and the
overhead cost of administration shall be allocated ratably each month
between Seller and Buyer based on the number of houses subject to
warranty at the end of the immediately preceding month), PROVIDED,
however, Buyer will have no exposure to Seller for the manner in which
Buyer administers the Excluded Construction Claims except for willful
misconduct or action in material breach of this paragraph, and,
PROVIDED FURTHER, that Buyer shall give periodic written notice to
Selling Parties of Excluded Construction Claims, which notice shall
specify (to the extent known) in reasonable detail the amount of such
claim and the relevant facts and circumstances relating thereto.
Selling Parties will have the right to participate, with counsel of
their choice and at their expense, in the administration of any
Excluded Construction Claim. Notwithstanding the foregoing, neither
Parent nor Buyer will settle any Excluded Construction Claim, or
series of related Excluded Construction Claims, in excess of [*]
without the prior written consent of Seller, except as provided in
PARAGRAPH (2) below. With respect to any Excluded Construction Claim,
or any series of related Excluded Construction Claims, of [*] or less
and with respect to Excluded Construction Claims, or any series of
related Excluded Construction Claims, for which Seller consents in
writing to settlement, Seller will be deemed to have agreed to the
amount of such claim as resolved by Buyer. If Seller's consent to
settlement is required for an Excluded Construction Claim and Seller
does not approve of a settlement proposal, within 15 days of Buyer
giving written notice to Seller of such proposal, which notice shall
set forth in reasonable detail the terms of such proposal and the
amount thereof, Seller shall assume all responsibility for handling
the claim; PROVIDED, HOWEVER, that if Seller does not assume the
handling of such claim within such period, then Buyer may retain the
defense of such claim, with fees of Buyer's counsel and all
settlements or judgments in respect thereof to be paid by Seller.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
-16-
(2) For any Excluded Construction Claim (or any series of related
Excluded Construction Claims) that is a class action claim involving
the project known as "Southern Terrace," in which Buyer has potential
liability exposure for at least 20% of the total claim, Buyer may
settle such a claim, even if it is in excess of [*], without the prior
written consent of Seller; PROVIDED, HOWEVER, that Buyer and Seller
shall agree to a prorated division of liability based on the
respective percentages of homes subject to the claims sold by each
party that is subject to the claim.
(3) In the event that the costs attributable to any Excluded
Construction Claims exceed Liability Reserves attributable to those
claims, Selling Parties will indemnify Parent or Buyer for such
shortfall in accordance with the Indemnification Agreement.
2.6 ALLOCATION OF PURCHASE PRICE.
A. Within 60 days after the Closing Date, Buyer will provide to Seller
copies of IRS Form 8594 and any required exhibits thereto (the "PURCHASE
PRICE ALLOCATION SCHEDULE") with Buyer's proposed allocation of the
Purchase Price (together with any assumed liabilities). Within 30 days
after the receipt of such Purchase Price Allocation Schedule, Seller will
propose to Buyer any changes to such Purchase Price Allocation Schedule
(and in the event no such changes are proposed in writing to Buyer within
such time period, the Seller will be deemed to have agreed to, and
accepted, the Purchase Price Allocation Schedule). Buyer and Seller will
endeavor in good faith to resolve any differences with respect to the
Purchase Price Allocation Schedule within 15 days after Buyer's receipt of
written notice of objection from Seller.
B. The parties agree that the book value of the Acquired Assets
approximates their fair value and that the Purchase Price Allocation will
allocate Premium to goodwill. The parties further agree that for purposes
of the Declaration of Value and the Title Policies and Title Commitments to
be delivered at the Closing, the parties shall allocate the portion of the
Purchase Price allocable to the Real Property based on the book value of
the Real Property as of the Closing Date.
C. Buyer and Seller each hereby agree to file their respective Tax
Returns, reports, and forms, including Internal Revenue Service Form 8594,
in a manner consistent with the Purchase Price Allocation Schedule.
D. Buyer and Seller shall not (i) take any position in any Tax Return,
report, or form, including any amendments thereto, or (ii) reach any
settlement or agreement in respect of any audit which, in either case, is
inconsistent with the Purchase Price Allocation Schedule, unless such
inconsistency is mandated by applicable law. If such inconsistency is
mandated by applicable law, the party taking such position shall provide
timely and reasonable notice to the other party of such inconsistency and
its effect on the Purchase Price Allocation Schedule.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
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2.7 RISK OF LOSS. All risk of loss with respect to the Acquired Assets on
or before the Closing Date will remain the sole risk of Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Parent and Buyer hereby represent and warrant to Selling Parties, the
following:
3.1 ORGANIZATION AND QUALIFICATION. Each of Parent and Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of incorporation and has the requisite corporate power
and authority to own and operate its properties and to carry on its business as
now conducted in every jurisdiction where the failure to do so would have a
material adverse effect on its business, properties, or ability to conduct the
business currently conducted by it.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and Buyer has the
requisite power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by each of
Parent and Buyer and the consummation by each of Parent and Buyer of the
transactions to which it is a party that are contemplated hereby (including
execution of the other Transaction Agreements to which it is a party) have been
duly authorized by each of them, and no other actions or proceedings, corporate
or otherwise, on the part of Parent or Buyer are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by each of Parent and Buyer and (assuming this Agreement constitutes a
valid and binding obligation of the other parties hereto) constitutes a valid
and binding obligation of each of Parent and Buyer enforceable against each of
Parent and Buyer in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, or other
similar laws relating to the enforcement of creditors' rights generally and by
general principles of equity.
3.3 NO CONFLICTS. Neither Parent nor Buyer is subject to nor obligated
under (i) any provision of its articles of incorporation or bylaws; (ii) any
agreement, arrangement, or understanding; (iii) any license, franchise, or
permit; or (iv) any law, regulation, order, judgment, or decree, which would be
breached or violated by its execution, delivery, and performance of this
Agreement and the consummation by it of the transactions contemplated hereby,
except, in the case of clauses (ii), (iii) and (iv), for any such breaches,
violations, rights of termination or acceleration or encumbrances which are not
reasonably likely, individually or in the aggregate, to have a material adverse
effect on its business, properties, condition (financial or otherwise) or
results of operations or ability to conduct the business currently conducted by
it.
3.4 SUFFICIENT FUNDS. Parent has available, and will furnish to Buyer prior
to the Closing, sufficient funds in cash to pay the Purchase Price and the
Seller Debt, to pay all fees and expenses related to the transactions
contemplated hereby and to consummate the transactions contemplated hereby.
3.5 NO CONSENTS. No authorization, consent, or approval of, or filing with,
any Governmental Authority is necessary on the part of Parent or Buyer for the
consummation by Parent or Buyer of the transactions to which it is a party that
are contemplated by this Agreement, except for any such authorizations,
-18-
consents, approvals or filings, the failure of which to obtain or make is not
reasonably likely, individually or in the aggregate, to have a material adverse
effect on its business, properties, condition (financial or otherwise) or
results of operations or ability to conduct the business currently conducted by
it.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SELLING PARTIES
Zenith hereby represents and warrants as to itself and Seller, and Seller
hereby represents and warrants as to itself, as follows:
4.1 ORGANIZATION AND QUALIFICATION. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of Nevada and has the
requisite corporate power and authority to own and operate its properties and to
carry on the Business as it is now being conducted, except as is not reasonably
likely to have a Material Adverse Effect. Zenith is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Such Selling Party has the
requisite power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by such
Selling Party and the consummation by such Selling Party of the transactions to
which it is a party that are contemplated hereby (including execution of the
other Transaction Agreements to which such Selling Party is a party) have been
duly authorized by such Selling Party, and no other actions or proceedings,
corporate or otherwise, on the part of such Selling Party are necessary to
authorize this Agreement and such transactions. This Agreement has been duly
executed and delivered by such Selling Party and (assuming this Agreement
constitutes a valid and binding obligation of the other parties hereto)
constitutes a valid and binding obligation of such Selling Party enforceable
against such Selling Party in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
or other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
4.3 [INTENTIONALLY OMITTED].
4.4 NO CONFLICTS. Except as set forth in SCHEDULE 4.4 and subject to the
authorizations, consents, approvals and filings referred to in SECTION 4.5 and
on SCHEDULE 4.5, such Selling Party is not subject to nor obligated under (i)
any provision of its articles of incorporation or bylaws; (ii) any agreement,
arrangement, or understanding; (iii) any license, franchise, or permit; or (iv)
any law, regulation, order, judgment, or decree, which would be breached or
violated, or in respect of which a right of termination or acceleration would
arise, or pursuant to which any encumbrance on any of its assets would be
created, by its execution, delivery, and performance of this Agreement and the
consummation by it of the transactions contemplated hereby, except, in the case
of clauses (ii), (iii) and (iv), for any such breaches, violations, rights of
termination or acceleration or encumbrances which are not reasonably likely,
individually or in the aggregate, to have a material adverse effect on either
the Business or the Acquired Assets (taken as a whole) (a "MATERIAL ADVERSE
EFFECT").
-19-
4.5 NO CONSENTS. Except as set forth in SCHEDULE 4.5, no authorization,
consent, or approval of, or filing with, any Governmental Authority or pursuant
to any Acquired Contract is necessary on the part of such Selling Party for the
consummation by such Selling Party of the transactions to which it is a party
that are contemplated by this Agreement, except for any such authorizations,
consents, approvals or filings the failure of which to obtain or make is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect.
4.6 OWNERSHIP INTERESTS. Except as disclosed in SCHEDULE 4.6, Seller does
not own any stock, partnership interest, joint venture interest, or any other
security issued by or equity interest in any other corporation, organization,
association, or entity.
4.7 FINANCIAL STATEMENTS.
A. SCHEDULE 4.7A sets forth: (a) the audited financial statements of
Seller as of, and for the fiscal years ended, December 31, 2001, 2000, and
1999; and (b) the unaudited financial statements of Seller as of, and for
the eight month period ended, August 31, 2002 (the "BALANCE SHEET DATE"
and, the financial statements described in the immediately preceding
clauses (a) and (b), collectively, the "FINANCIAL STATEMENTS"). Except as
set forth on SCHEDULE 4.7A, the Financial Statements have been prepared in
accordance generally accepted accounting principles, consistently applied
in accordance with past practices of Seller in effect at the time of such
preparation applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to the Financial Statements) and
fairly present in all material respects the financial position of Seller as
of the dates thereof and the results of Seller's operations and cash flows
for the periods then ended, except for the absence of footnotes to the
unaudited financial statements.
There are no obligations or liabilities relating to or affecting the
Business or the Acquired Assets (whether accrued, absolute, contingent,
liquidated, unliquidated or otherwise, whether due or to become due and
regardless of when asserted), except (i) liabilities reflected in the
Financial Statements or disclosed in the notes thereto, (ii) liabilities
which have arisen in the ordinary course of business after the Balance
Sheet Date, (iii) liabilities specifically disclosed in SCHEDULE 4.7B, (iv)
Excluded Liabilities, and (v) liabilities which are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect.
4.8 [INTENTIONALLY OMITTED].
4.9 NO MATERIAL ADVERSE CHANGES. Except as set forth in SCHEDULE 4.9, since
the Balance Sheet Date, there has not been any change in the assets, financial
condition, or operating results, customer, employee, or supplier relations,
business condition, or financing arrangements of Seller, which has had, or is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.
4.10 ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in SCHEDULE 4.10
or except as contemplated in and consistent with the terms of this Agreement,
-20-
the Asset Agreement or the Real Property Agreement, since the Balance Sheet
Date, Seller has not, in respect of the Business:
A. Changed its accounting methods or practices (including any change
in depreciation or amortization policies or rates) or revalued any of its
assets;
B. Declared or paid any dividend or distributions (other than
dividends or distributions of cash and cash equivalents (including to make
quarterly tax payments)) from Seller to Zenith;
C. Borrowed any amount under existing lines of credit, or otherwise
incurred or become subject to any indebtedness, except in the ordinary
course of business and in a manner and in amounts that are in keeping with
past practices;
D. Discharged or satisfied any material Lien (other than Liens arising
as a matter of law for property taxes and assessments and business and
personal property taxes, mechanic's liens and similar items discharged in
the ordinary course of business consistent with past practices);
E. Except as is reasonably necessary for the ordinary operation of the
Business and in a manner and in amounts that are in keeping with past
practices, mortgaged, pledged, or subjected to any Lien any of its assets
with a fair market value in excess of $25,000, except Liens for current
property taxes not yet delinquent;
F. Sold, assigned, or transferred (including, without limitation,
transfers to any employees, shareholders, or affiliates) any material
assets or canceled any material debts or claims, except, in each case, in
the ordinary course of business consistent with past practices;
G. Sold, assigned, or transferred any patents, trademarks, trade
names, copyrights, trade secrets, or other intangible assets or disclosed
any proprietary or confidential information to any person other than Parent
or Buyer;
H. Suffered any extraordinary loss or waived any material right or
claim, including any write-off or compromise of any contract or account
receivable, except to the extent reserved in the Preliminary Closing
Balance Sheet;
I. Taken any other action or entered into any other material
transaction other than in the ordinary course of business consistent with
past practices, or entered into any transaction with an employee,
shareholder, partner, member or officer of either of Selling Parties or
their affiliates;
J. Suffered any theft, damage, destruction, or loss of or to any
property or properties owned or used by it, whether or not covered by
insurance, except for any such theft, damage, destruction or loss that is
not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect;
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K. Increased the annualized level of compensation of or granted any
extraordinary bonuses, benefits, or other forms of direct or indirect
compensation to any employee, officer, director, or consultant that
aggregate in excess of $25,000, or adopted, amended or modified any
employee benefit plans;
L. Except as is reasonably necessary for the ordinary operation of the
Business and in a manner and in amounts that are in keeping with past
practices, made any capital expenditures or commitments for property, plant
and equipment that aggregate in excess of $25,000;
M. Engaged or agreed to engage in any extraordinary transactions or
distributions, or, except as is reasonably necessary for the ordinary
operation of the Business and in keeping with past practices, entered into
any contract, written or oral, that involves consideration or performance
by it of a value exceeding $25,000 or a term exceeding one year;
N. Made any loans or advances to, or guarantees for the benefit of,
any persons; or
O. Made charitable contributions or pledges which in the aggregate
exceed $10,000.
4.11 PERMITTED LIENS; GOOD TITLE TO AND CONDITION OF ACQUIRED ASSETS. To
the Knowledge of Selling Parties, Seller's title to the Acquired Assets is free
and clear of all Liens other than those listed on SCHEDULE 4.11 and Approved
Title Exceptions (collectively, the "PERMITTED LIENS"). To the Knowledge of
Selling Parties, except as is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect, all of the Acquired Assets are in
good condition and repair, ordinary wear and tear excepted, and are usable in
the ordinary course of business. The Acquired Assets represent all of the assets
of the Business and all of the assets necessary or required by Buyer to continue
to operate the Business as conducted prior to the Closing Date. Seller owns, or
leases under valid leases, all property, machinery, equipment, and other
tangible and intangible assets necessary for the conduct of the Business. None
of the assets attributable to, or necessary to the operation of, the Business,
as conducted immediately prior to the Closing Date, are held or owned by an
entity other than Seller. There are no parents, shareholders or affiliates of
Seller that directly own any assets, licenses, permits or other authorizations
relating to the Acquired Assets or the Business.
4.12 LEGAL DESCRIPTIONS OF REAL PROPERTY. SCHEDULE 4.12 sets forth Reports
that to the Knowledge of the Selling Parties contain an accurate legal
description for each parcel of Owned Real Property.
4.13 REAL PROPERTY. Except as set forth on SCHEDULE 4.13:
A. To the Knowledge of Selling Parties, with respect to any
agreements, arrangements, contracts, leases, licenses, covenants,
conditions, deeds, deeds of trust, rights-of-way, easements, mortgages,
restrictions, surveys, title insurance policies, and other documents
granting to Seller title to or an interest in or right with respect to the
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Owned Real Property, no breach or default by Seller exists, and no event
has occurred that, with the giving of notice, the lapse of time, or both,
would constitute a breach or event of default by Seller or any other
person.
B. Selling Parties are not subject to any pending or, to the Knowledge
of Selling Parties, threatened proceeding or other fact or condition that
is reasonably likely to limit or result in the termination of necessary
access to the Owned Real Property from public highways, streets, or roads.
C. [INTENTIONALLY OMITTED].
D. Selling Parties have not received any written notice from any
Governmental Authority of any pending or threatened condemnation, eminent
domain, or similar proceeding with respect to the Owned Real Property, and
none is pending or, to the Knowledge of Selling Parties, is threatened with
respect to any material portion of the Owned Real Property.
E. Any buildings or improvements on the Owned Real Property to the
extent installed or constructed by Seller are in material compliance with
all Applicable Laws and do not violate, in any material respect, (i) any
set-back, (ii) zoning law, ordinance, regulation, or statute, or other
governmental restriction in the nature thereof, or (iii) any restrictive
covenant affecting any such Owned Real Property.
F. To the Knowledge of Selling Parties, there are no parties in
possession of any portion of the Owned Real Property as lessees, tenants at
sufferance, or trespassers.
G. Except as incurred in the ordinary course of business after the
Balance Sheet Date, at Closing there will be no unpaid charges, debts,
liabilities, claims, or obligations arising from the construction,
occupancy, ownership, use, or operation of the Owned Real Property by
Seller.
H. No Owned Real Property is subject to any condition or obligation to
any Governmental Authority or other person requiring the owner or any
transferee thereof to donate land, money or other property or to make
off-site public improvements, other than as disclosed in the Reports or
contained in the Land Use Entitlements or conditions for approval for such
projects.
I. To the Knowledge of Selling Parties, except as set forth on
SCHEDULE 4.7 or SCHEDULE 4.12, no developer-related fees, charges,
community development district assessments, or other assessments for public
improvements or otherwise made against the Owned Real Property or any lots
included therein are due and unpaid, or will become due in the future,
including without limitation those for construction of sewer lines, water
lines, storm drainage systems, electric lines, natural gas lines, streets
(including perimeter streets), roads and curbs, other than as may be
required in the ordinary course of completing such project from its current
(incomplete) status or as otherwise disclosed in the Reports or set forth
in the conditions of approval or contained in the Land Use Entitlements for
such projects provided to Buyer.
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J. There is no moratorium applicable to the Owned Real Property on (1)
the issuance of building permits for the construction of houses, or
certificates of occupancy therefor, or (2) the purchase of sewer or water
taps.
K. Seller has delivered to Buyer copies of all soils reports in
Seller's possession relating to the Owned Real Property, and to the
Knowledge of Selling Parties, the soils reports delivered to Buyer are
materially accurate.
L. To the Knowledge of Selling Parties, except as set forth in the
Reports, Surveys or plats, the Owned Real Property: (i) does not contain
"wetlands," as defined, or subject to regulation by, the Army Corps of
Engineers or the Environmental Protection Agency; (ii) does not have a
level of radon above action levels of the U.S. Environmental Protection
Agency; (iii) is not located within a "critical," "preservation,"
"conservation," "habitat conservation area," or similar type of area
subject to regulation under any Environmental Laws; and (iv) is not
"critical habitat" as defined in the Federal Endangered Species Act, 16
U.S.C. ss.ss.1531 ET SEQ. as amended, or in the regulations promulgated
thereunder, and does not contain any "endangered species" or "threatened
species" as defined therein, or under any similar state or local
Environmental Laws.
M. To the Knowledge of Selling Parties, the Owned Real Property has
not been used as a gravesite, landfill, or waste disposal area. To the
Knowledge of Selling Parties, there are no archeological artifacts of any
kind or any Indian ruins of any kind located on the Owned Real Property.
N. [INTENTIONALLY OMITTED].
O. Except as disclosed in the Reports or any Title Policy, Seller has
not granted to any person any contract or other right to the use of any
portion of the Owned Real Property or to the furnishing or use of any
facility or amenity on or relating to the Owned Real Property.
P. Seller is not a "foreign person" within the meaning of Sections
1445 and 7701 of the Code.
Q. Subject to the Liability Reserves, to the extent installed or
constructed by Seller or its agents or affiliates, all of the Housing
Units, improvements and buildings on the Owned Real Property were
constructed in a good and workmanlike manner, substantially comply with
Applicable Laws, are structurally sound, are in good and proper working
condition and repair, normal wear and tear, normal maintenance and normal
warranty and customer services matters excepted, and are useful for their
intended purposes.
R. To the Knowledge of Selling Parties: (i) any improvements and
buildings included within the Owned Real Property are located within the
boundary lines of the Owned Real Property and do not encroach upon the land
of any adjacent owner; (ii) no improvements of any third Person encroach
upon the Owned Real Property; and (iii) no Person has any unrecorded right,
title or interest in the real property constituting the Owned Real
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Property, whether by right of adverse possession, prescriptive easement or
otherwise.
S. Selling Parties have not received any written notice to the effect
that the Owned Real Property is being developed or used in violation of
covenants, easements, or restrictions affecting the Owned Real Property,
and except as is not likely, individually, or in the aggregate, to have
Material Adverse Effect, all obligations of Seller on the Owned Real
Property with regard to such covenants, easements, and restrictions have
been and are being performed in a proper and timely manner.
T. Except as disclosed in the Reports or any Title Policy, Seller does
not have any liability for any Taxes or for any Liens caused by Seller, in
each case against the Owned Real Property, other than Liens or real
property taxes, special taxes, and assessments paid with taxes, in each
case, not yet delinquent.
U. To the Knowledge of Selling Parties, the Owned Real Property shown
in the Federal Emergency Management Agency maps attached to SCHEDULE 4.13U
as being in Zone "A" is within a 100 year flood plain of the Federal
Emergency Management Agency.
V. All work performed on or about the Owned Real Property or to any
improvements located thereon within six months prior to the date of this
Agreement has been paid for or will be accrued in good faith in accordance
with Seller's past practices on the Preliminary Closing Balance Sheet.
W. To the Knowledge of Selling Parties, except as shown on the map
attached to SCHEDULE 4.13W, no portion of the Owned Real Property is
situated within a "noise cone" such that the Federal Housing Administration
will not approve mortgages due to the noise level classification of such
real property.
4.14 ACQUIRED CONTRACTS.
A. SCHEDULE 4.14 lists as of the date hereof all Acquired Contracts
that are Material Contracts. Prior to the date of this Agreement, Seller
has provided to Buyer a true and correct copy of each Material Contract
together with all amendments, waivers, or other changes thereto.
B. Each of the Material Contracts is valid, binding, and in full force
and effect on Seller in all material respects and, to the Knowledge of
Selling Parties, is valid, binding, and in full force and effect in all
material respects on each of the other parties thereto. Except as set forth
on SCHEDULE 4.14, no Material Contract has been amended or supplemented and
Seller has not, and to the Knowledge of Selling Parties no other party
thereto has, assigned any of its rights or delegated any of its duties
thereunder.
C. Except as set forth on SCHEDULE 4.14, no breach or default by
Seller exists under any Material Contract and, to the Knowledge of Selling
Parties, no event has occurred with respect to Seller that with the lapse
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of time or action or inaction by Seller would result in a breach thereof or
a default thereunder.
D. Except as specifically disclosed in SCHEDULE 4.14, (1) since the
Balance Sheet Date, no supplier or materialman has indicated in writing
that it will stop or decrease the rate of business done with Seller, except
for changes in the ordinary course of business; (2) Seller has performed in
all material respects the obligations which have been required to be
performed by Seller under the Material Contracts and Seller has not been
advised of or received any claim of default under any Material Contract;
and (3) there has been no material breach by Seller of any Material
Contract and, to the Knowledge of Selling Parties, there has been no breach
of any Material Contract by any other party thereto.
E. Upon the assignment of each Material Contract to Buyer pursuant
hereto, and subject to any consent requirements contained therein, all
rights of Seller with respect to each Material Contract will inure to Buyer
and each Material Contract will be enforceable by Buyer in accordance with
its terms.
F. [INTENTIONALLY OMITTED].
G. Seller has paid all rental and other payments due under the
Property Leases under which Seller is the lessee in accordance with its
terms. With respect to each such Property Lease, Seller has been in
peaceable possession of the buildings, equipment, machinery, real property,
vehicles, or other tangible property covered thereby since the commencement
of the original term of such Property Lease. No indulgence, postponement,
or waiver of Seller's obligations under any such Property Lease has been
granted by the lessor. Subject to the terms of the Property Leases, Seller
possesses full right and power to occupy or possess, as the case may be,
all of the buildings, equipment, machinery, real property, vehicles, and
other tangible property covered by such Property Leases.
H. To the Knowledge of Selling Parties, the representations and
warranties set forth in SECTIONS 4.14B through G also are true with respect
to Acquired Contracts that are not Material Contracts.
4.15 WARRANTIES. Except as set forth on SCHEDULE 4.15, Seller has not given
or made any express warranties to third parties with respect to any property or
products sold or services performed by Seller and, to the Knowledge of Selling
Parties, there are no facts or the occurrence of any event forming the basis of
any present claim against Seller for liabilities due to any express or implied
warranty. SCHEDULE 4.15 includes forms of Seller's residential sales contracts
containing applicable guaranty, warranty, and indemnity provisions.
4.16 ENVIRONMENTAL MATTERS.
A. Except as is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect, or as disclosed on SCHEDULE
4.16, (a) Seller, its properties, and the Acquired Assets are in compliance
with all federal, state, and local laws governing pollution or the
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protection of human health or the environment including but not limited to,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of
1986, 42 U.S.C. Section 9601, ET SEQ. (collectively "CERCLA"); the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. Sections 6901, ET SEQ. (collectively "RCRA"); the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. Sections 1801, ET SEQ.;
the Clean Water Act, as amended, 33 U.S.C. Section 1311, ET SEQ.; the Clean
Air Act, as amended, 42 U.S.C. Section 7401-7642; the Toxic Substances
Control Act, as amended, 15 U.S.C. Sections 2601, ET SEQ.; the Federal
Insecticide, Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section
136-136y ("FIFRA"); and the Emergency Planning and Community Right-to-Know
Act of 1986 as amended, 42 U.S.C. Sections 11001, ET SEQ. (Title III of
SARA) ("EPCRA") (collectively, "ENVIRONMENTAL LAWS"), (b) Seller has not
received any written notice not subsequently resolved with respect to the
business of, or any property owned or leased by, Seller from any
Governmental Authority or third party alleging that Seller is not in
compliance with any Environmental Laws, and (c) Seller has not caused a
release of a Hazardous Substance, as that term is defined in CERCLA, in
excess of a reportable quantity on any real property owned or leased by
Seller.
B. Seller has not filed any application pursuant to Nevada Revised
Statutes ("NRS")ss. 459.634 to participate in a voluntary cleanup and
relief program ("program," as defined in NRSss. 459.624).
C. Except as is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect, to the Knowledge of Selling
Parties, Seller has never applied for and been denied environmental
impairment liability insurance coverage relating to the Owned Real Property
or property subject to Property Leases.
D. The representations and warranties contained in this SECTION 4.16
constitute the sole and exclusive representations and warranties made by
Seller concerning environmental matters.
4.17 TAX MATTERS.
A. Except as set forth in SCHEDULE 4.17, and except for non-delinquent
real property taxes and assessments, all material Taxes due and payable by
Seller with respect to periods ending on or as of the Effective Date
(whether or not a Tax Return is due on such date) have been paid or are
accrued on the applicable Financial Statements or will be accrued on the
books and records of Seller as of the Effective Date and all material Tax
Returns relating thereto have been filed.
B. Except as set forth on SCHEDULE 4.17, with respect to each taxable
period for Seller ending prior to the Closing Date, (1) (x) such taxable
period has been audited by the relevant taxing authority or (y) the time
for assessing or collecting Taxes with respect to each such taxable period
has closed and each taxable period is not subject to review by any relevant
taxing authority; (2) there is no outstanding deficiency or proposed
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adjustment for any material Taxes asserted or assessed in writing by any
taxing authority against Seller; (3) Seller has not consented to extend the
time in which any material Taxes may be assessed or collected by any taxing
authority; (4) there is no action, suit, taxing authority proceeding, or
audit now in progress or pending with respect to Seller regarding any
material Taxes; and (5) there are no Liens on the assets of Seller relating
or attributable to Taxes (other than Liens for sales and payroll Taxes not
yet due and payable and liens for non-delinquent real property taxes and
assessments), and, to the Knowledge of Selling Parties there is no
reasonable basis for the assertion of any claim relating or attributable to
Taxes which, if adversely determined, would result in any such Lien on the
assets of Seller.
C. None of the Assumed Liabilities is an obligation to make a payment
that will not be deductible under section 280G of the Code.
4.18 RESTRICTIONS ON BUSINESS ACTIVITIES. With respect to the Acquired
Assets, there are no agreements (non-compete or otherwise), arrangements,
commitments, judgments, injunctions, orders, or decrees to which Seller is party
or which are otherwise binding on the Business or the Acquired Assets that has
prohibited or impaired, or is reasonably likely to prohibit or impair, the
operation of the Business as it is now being conducted.
4.19 INTELLECTUAL PROPERTY. SCHEDULE 4.19 sets forth a description of the
material Intellectual Property which Seller has rights to use in the conduct of
the Business. To the Knowledge of Selling Parties, the conduct of the Business
as it is now being conducted and the conduct and the use and exploitation of the
Intellectual Property do not infringe or misappropriate any rights held or
asserted by any person, and, to the Knowledge of Selling Parties, no person is
infringing on the Intellectual Property. Except as set forth in the Acquired
Contracts, no payments are required for the continued use of the Intellectual
Property. None of the Intellectual Property has been declared invalid or
unenforceable by any Governmental Authority, or is the subject of any pending or
threatened action for opposition, cancellation, declaration, infringement,
invalidity, unenforceability, or misappropriation or like claim, action, or
proceeding. Except as set forth in SCHEDULE 4.19 all house plans used by the
Business are owned outright by Seller or are licensed to Seller without further
payment of any fee and may be assigned to Buyer without further costs due
thereafter.
4.20 LITIGATION. Except as set forth on SCHEDULE 4.20, there are no suits,
claims, actions, arbitrations, investigations, or proceedings entered against,
now pending, or, to the Knowledge of Selling Parties, threatened against Seller,
the Business, or the Acquired Assets before any Governmental Authority which are
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. Except as set forth on SCHEDULE 4.20 and except as is not reasonably
likely to have a Material Adverse Effect, Seller is not subject to any
continuing court or administrative order, writ, injunction, or decree applicable
to the Business, the Acquired Assets or to its property or employees, and Seller
is not in default under any order, writ, injunction, or decree of any
Governmental Authority applicable to the Business.
4.21 EMPLOYEES. Attached as SCHEDULE 4.21 is a list of names, current
annual rates of salary, bonus, employee benefits, accrued vacation and sick
time, sick pay, and other compensation and benefits and perquisites, including
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the provision of company owned automobiles, of all the employees and agents of
Seller whose work relates, directly or indirectly, to the Business. To the
Knowledge of Selling Parties, no key employee of Seller, and no group of
Seller's employees, has any plans to terminate his, her, or their employment.
Seller is not a party to any collective bargaining agreement with any labor
union or association. There are no discussions, negotiations, demands, or
proposals that are pending or that have been conducted or made with or by any
labor union or association, and there are no pending or, to the Knowledge of
Selling Parties, threatened labor disputes, strikes, or work stoppages that may
effect Seller, the Acquired Assets, or the Business. Seller is in compliance in
all material respects with all federal and state laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
and are not engaged in any unfair labor practices. Except as accrued on the
Preliminary Closing Balance Sheet or as set forth in SCHEDULE 4.21, Seller may
terminate any employee, with or without cause, without liability or obligation,
other than for salary, bonuses, vacation, sick time and similar obligations
accrued through the date of any such termination and for the obligations of
Selling Parties under employee benefit plans of Selling Parties referred to in
SECTION 4.22 below.
4.22 EMPLOYEE BENEFIT PLANS.
A. With respect to all employees and former employees of Seller,
except as set forth in SCHEDULE 4.22, Seller does not presently maintain,
contribute to, or have any liability (including current or potential
multi-employer plan withdrawal liability under Title IV of ERISA) under
any: (1) retirement plan or arrangement that is an "employee pension
benefit plan" as such term is defined in Section 3(2) of ERISA; (2)
"multi-employer plan" as such term is defined in Section 3(37) of ERISA;
(3) medical, health, or life insurance plan or arrangement maintained for
the benefit of employees or retirees that is an "employee welfare benefit
plan" as such term is defined in Section 3(1) of ERISA, except as required
by Section 4980B of the Code or Sections 601 through 609 of ERISA; or (4)
any other material employee welfare benefit plan. With respect to each of
the employee benefit plans listed in SCHEDULE 4.22, Seller has furnished to
Buyer, as applicable, true and complete copies of the plan documents.
B. With respect to each plan listed in SCHEDULE 4.22, except as set
forth on SCHEDULE 4.22, Seller has performed all material obligations
required to be performed by it under each such plan and each such plan has
been established and maintained in accordance with its terms and in
material compliance with all applicable laws, statutes, rules, and
regulations, including but not limited to the Code and ERISA.
4.23 INSURANCE. SCHEDULE 4.23 lists and briefly describes each material
insurance policy (collectively, the "POLICIES") and fidelity bond, including
performance improvement bonds, maintenance bonds, labor and material bonds and
other bonds related to the Owned Real Property (collectively, the "BONDS"),
maintained by Seller with respect to its properties or the Business, and sets
forth the date of expiration of each such Policy. All of such Policies and Bonds
are in full force and effect and Seller is not in default with respect to its
obligations under any of such Policies or Bonds. Except as set forth on SCHEDULE
4.23, there is no claim of Seller pending under any of such Policies or Bonds as
to which coverage has been questioned, denied, or disputed by the underwriters
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of such Policies or Bonds and, to the Knowledge of Selling Parties, there has
been no threatened termination of, or material premium increase with respect to,
any of such Policies. To the Knowledge of Selling Parties, the insurance
coverage of Seller is customary for entities of similar size engaged in similar
lines of business.
4.24 AFFILIATE TRANSACTIONS. Except as set forth on SCHEDULE 4.24 and
except for the transactions contemplated by this Agreement, neither Seller nor
any employee, officer, director, shareholder or affiliate of Seller, or any
member of their immediate family, or any entity in which any of such persons
owns any beneficial interest (other than a publicly held corporation whose stock
is traded on a national securities exchange or in the over-the-counter market
and less than 1% of the stock of which is beneficially owned by any of such
persons) has any agreement with Seller or (other than Zenith) any interest in
any property (real, personal, or mixed, tangible or intangible) used in or
pertaining to the Business. For purposes of the preceding sentence, the members
of the immediate family of a person will consist of the spouse, parents,
children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and
brothers- and sisters-in-law of such person.
4.25 COMPLIANCE WITH LAWS. Seller is not conducting the Business in
violation of any Applicable Laws which affect the Business or the Acquired
Assets, except for any such violations that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. Seller has
received no notice of any claims against Seller alleging a violation of any
Applicable Laws, except as set forth in SCHEDULE 4.25 or except for such claims
that are not reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect. Without limiting the generality of the foregoing,
Seller is not in violation of, and has not received a notice or charge asserting
any violation of, OSHA, or any other state or federal acts (including rules and
regulations thereunder) regulating or otherwise affecting employee health and
safety, except for such violations that are not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect. Seller has not given or
agreed to give any money, gift, or similar benefit (other than incidental gifts
of articles of nominal value) to any actual or potential customer, supplier,
governmental employee, or any other person in a position to assist or hinder
Seller in connection with any actual or proposed transaction.
4.26 PERMITS.
A. Seller possesses all approvals, authorizations, certificates,
consents, franchises, licenses, and permits of Governmental Authorities
necessary for the lawful conduct of the Business, as it is now being
conducted, except for such approvals, authorizations, certificates,
consents, franchises, licenses, and permits the absence of which is not
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect (collectively, the "PERMITS"). Such Permits are in full
force and effect in all material respects, Seller is in compliance with the
terms thereof, except for such failures to comply which are not reasonably
likely, individually or in the aggregate, to have a Material Adverse
Effect, and to the Knowledge of Selling Parties, no basis exists for any
limitation, revocation or withdrawal of any Permit.
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B. Seller also possesses (or there have been granted by the applicable
Governmental Authorities with respect to the Owned Real Property) the
subdivision, development, construction and sale permits, and other
authorizations, approvals, and entitlements set forth in SCHEDULE 4.26
(collectively "LAND USE ENTITLEMENTS"). To the Knowledge of Selling
Parties, except as set forth on SCHEDULE 4.26B, with respect to the Owned
Real Property, (i) no approvals are required as of the Closing from any
Governmental Authority to complete the development and construction of
homes and the sale thereof in the respective Owned Real Property, and (ii)
there are in full force and effect validly issued building permits for each
home under construction or completed on the Owned Real Property. No
decision-making body has denied or withheld any Land Use Entitlements
except for such denials as are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect.
4.27 DISCLOSURE. Neither this Agreement nor any of the Schedules or
Exhibits hereto contains any untrue statement of a material fact or, to the
Knowledge of Selling Parties, omits to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading, and there is no fact which has not been
disclosed to Parent or Buyer which is reasonably likely to have a Material
Adverse Effect.
ARTICLE V
CONDUCT OF SELLER PENDING THE CLOSING
Seller hereby covenants and agrees that from the date hereof to the Closing
Date:
5.1 CONDUCT OF BUSINESS PENDING THE CLOSING. Except as set forth on
SCHEDULE 5.1 or as contemplated by this Agreement, (a) Seller will carry on the
Business in the ordinary course, in accordance with all Applicable Laws and in
substantially the same manner as previously conducted, and (b) without the prior
written consent of Parent (which consent shall not be unreasonably withheld),
Seller will not, directly or indirectly, and Zenith will not permit Seller to,
directly or indirectly:
A. Cancel or terminate or permit to be canceled or terminated Seller's
current insurance (or reinsurance) policies or permit any of the coverage
thereunder to lapse, unless simultaneous with such termination,
cancellation, or lapse, replacement policies providing coverage equal to or
greater than the coverage under the canceled, terminated, or lapsed
policies for substantially similar premiums are in full force and effect;
B. Sell, lease, encumber, or otherwise dispose of any of the Acquired
Assets other than, in the case of lots and homes held for sale in the
ordinary course, the sale of such lots or homes in the ordinary course of
business as previously conducted;
C. Acquire or enter into any option or other agreement to acquire any
real property or other material assets;
D. Intentionally default under any Material Contract;
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E. Intentionally violate or fail to comply in any material respect
with any Applicable Laws;
F. Fail to maintain and repair the Acquired Assets in accordance with
the ordinary course of business;
G. Except as contemplated by this Agreement or in the ordinary course
of business, enter into any employment, severance, or similar agreements or
arrangements with, or adopt, modify or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
employment, severance or other benefit plan, trust, fund, or group
arrangement resulting in a material increase in benefits to employees,
officers, directors or consultants of Seller;
H. Except in the ordinary course of business, consistent with past
practices, modify or terminate any of the Acquired Contracts or enter into
any new contracts;
I. Acquire (by merger, exchange, consolidation, acquisition of stock
or assets, or otherwise) any corporation, partnership, joint venture, or
other business organization or division or material assets thereof;
J. Issue or create any additional shares of Seller;
K. Except as contemplated by this Agreement, enter into any
obligations, subscriptions, options, or other commitments under which any
additional shares of Seller might be directly or indirectly authorized,
issued, or transferred, or incur any indebtedness for borrowed money or
issue any debt securities except the borrowing of working capital in the
ordinary course of business and consistent with past practice;
L. Except in the ordinary course of business, consistent with past
practices, pay any material obligation or liability, fixed or contingent,
other than current liabilities;
M. Waive or compromise any right or claim (other than as required to
resolve any pending or threatened litigation disclosed in the Schedules
attached hereto) or warranty claims;
N. Pay any dividends or make any distributions (other than dividends
or distributions of cash and cash equivalents (including to make quarterly
tax payments)) from Seller to Zenith;
O. Start more spec homes than is consistent with past practices;
P. Commit any act described in SECTION 4.10; or
Q. Agree to do any of the actions described in the preceding clauses A
through P.
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5.2 BUSINESS RELATIONSHIPS. Selling Parties will exercise their
commercially reasonable efforts to:
A. Preserve intact the Acquired Assets;
B. Maintain all facilities and equipment in good condition, ordinary
wear and tear excepted;
C. Keep available the services of Seller's officers and employees as a
group; and
D. Maintain satisfactory relationships with material suppliers,
distributors, customers, and others having material business relationships
with Seller.
5.3 NOTIFICATION OF CERTAIN MATTERS. Selling Parties will:
A. Confer on a regular basis with representatives of Parent and Buyer
and report operational matters and the general status of ongoing
operations;
B. Notify Parent of any material adverse change in the normal course
of its business or in the operation of its properties and of any
Governmental Authority or third party complaints, investigations, or
hearings (or communications indicating that the same may be contemplated);
C. Not take any action which would render, or which reasonably may be
expected to render, any representation or warranty made by it in this
Agreement untrue at, or at any time prior to, the Closing; and
D. Promptly notify Parent if Selling Parties discover that any
representation or warranty made by such party in this Agreement was when
made, or has subsequently become, untrue.
5.4 REQUIRED APPROVALS. As promptly as practicable after the date of this
Agreement, Parent, Buyer, and Seller will cooperate in making all filings
required by Applicable Laws in order to consummate the transactions contemplated
by this Agreement. The parties also will cooperate with each other in obtaining
all consents required by SECTION 7.2B.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 EMPLOYMENT. Seller shall pay at the Closing all compensation, benefits,
perquisites and other payments earned by Seller's employees for periods prior to
the Closing Date (other than payments accrued on the Preliminary Closing Balance
Sheet) and remaining unpaid as of the Closing Date, in accordance with the terms
of the agreements, plans or policies governing such payments, as applicable. To
the extent Seller makes any such payments after the Closing, Buyer shall
promptly reimburse Seller for such payments.
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A. Immediately after the Closing, Buyer will offer to employ all
employees of Seller on an "at will" basis and Seller will cooperate with
Buyer to that end; PROVIDED, HOWEVER, that Buyer hereby agrees to engage
Daniel Schwartz as an employee of Buyer and as President of Buyer pursuant
to the terms of that certain employment agreement, to be entered into, by
and between Parent, Buyer and Daniel Schwartz, in the form attached hereto
as EXHIBIT I (the "SCHWARTZ EMPLOYMENT AGREEMENT"). Notwithstanding
anything in this Agreement, all employees of Seller shall remain employees
of Seller through the Closing for all purposes (including COBRA).
B. Buyer shall use reasonable commercial efforts, without incurring
any material incremental monetary obligation, to credit all employees hired
pursuant to this SECTION 6.1 with service with Seller for purposes of
seniority, eligibility and vesting under all employee benefit plans,
programs or arrangements of Buyer under which such employees may be
eligible to participate.
C. Buyer shall use reasonable commercial efforts, without incurring
any material incremental monetary obligation, to waive all limitations as
to preexisting condition exclusions and waiting periods with respect to
participation and coverage requirements applicable to the employees of
Buyer under any welfare benefit plans that such employees are eligible to
participate in after the Closing, other than to the extent that exclusions
or waiting periods already in effect with respect to such employees have
not been satisfied as of the Closing under any welfare benefit plan
maintained for such employees immediately prior to the Closing.
6.2 NO NEGOTIATIONS. Selling Parties will not, directly or indirectly,
through any officer, director, agent, member, shareholder, affiliate or
otherwise, solicit, initiate, or encourage submission of any proposal or offer
from any person or entity (including any of its officers, directors, partners,
employees, or agents) relating to any liquidation, dissolution,
recapitalization, merger, consolidation, or acquisition or purchase of all or
part of the Acquired Assets, or any equity interest in Seller, or other similar
transaction or business combination involving Seller or the Acquired Assets or
the Business, or participate in any negotiations regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist, participate in, facilitate, or encourage, any effort or attempt
by any other person or entity to do or seek any of the foregoing. Selling
Parties will promptly notify Parent if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made and will
promptly provide Parent with such information regarding such proposal, offer,
inquiry, or contact as Parent may request.
6.3 PUBLIC ANNOUNCEMENTS. Up to and including Closing, Parent and Selling
Parties will agree on the form and content of the initial press release
regarding the transactions contemplated hereby and the parties hereto will not
issue any press release or public announcement, including announcements by any
party for general reception by or dissemination to employees, agents, or
customers, with respect to this Agreement and the other transactions
contemplated by this Agreement without the prior written consent of the other
parties hereto (which consent will not be withheld unreasonably); PROVIDED,
HOWEVER, that each of Parent and Zenith may make any disclosure or announcement
that, in the opinion of its counsel, it is obligated to make pursuant to
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Applicable Laws (including federal securities laws) or pursuant to applicable
regulation of the New York Stock Exchange or any national securities exchange,
as applicable. In the event that Parent or Zenith is requested pursuant to, or
required by, applicable regulation of the New York Stock Exchange or any
national securities exchange or Applicable Laws (including federal securities
laws) to make any disclosure or announcement concerning Parent, Buyer, Selling
Parties or the transactions contemplated hereby, each of Parent and Zenith,
respectively, agrees that it shall provide the other parties hereto with prompt
notice of such request and shall use its reasonable best efforts to disclose or
announce only the information which it is advised by counsel is legally
required.
6.4 CONFIDENTIALITY. Except as otherwise required by Applicable Laws or the
rules of any exchange on which any securities of a party are or will be listed,
all non-public, proprietary and confidential information (oral, written or
otherwise) concerning a party provided to the other party in connection with
this Agreement and the transactions contemplated hereby, including all documents
and copies of documents or papers containing proprietary information, all notes,
analyses, compilations, studies, interpretations and other documents and
materials prepared by any of the parties hereto containing or based upon, in
whole or in part, any such furnished information or reflecting any party's
review or evaluation of the transactions contemplated hereby ("EVALUATION
INFORMATION") will be kept in confidence by the receiving party and will not be
disclosed to any other person other than its representatives who are actively
and directly assisting in the consummation of the transactions contemplated
hereby or who otherwise need to know such information for the purpose of
consummating the transactions contemplated hereby. The party receiving such
Evaluation Information will take reasonable steps necessary to ensure the
confidentiality and nondisclosure of the Evaluation Information by itself, its
employees, agents, consultants, advisors, members, shareholders and affiliates.
Evaluation Information does not include information that (i) is or becomes
generally available to the public other than as a result of an unauthorized
disclosure by the receiving party or its affiliates or representatives; (ii) was
within or comes into the receiving party's possession prior to its being
furnished to the receiving party by the disclosing party, provided that the
source of such information was not, to the best of the receiving party's
knowledge after reasonable inquiry, bound by a confidentiality agreement with,
or other contractual, legal, or fiduciary obligation of confidentiality to the
party providing the information; (iii) is disclosed by the receiving party to
others with the consent of the disclosing party; or (iv) is independently
developed by the receiving party based on non-Evaluation Information. All
Evaluation Information will be returned to the applicable disclosing party or
destroyed by the receiving party if the Closing does not occur. Nothing in this
SECTION 6.4 will preclude either party from competing with the other party. In
the event that a receiving party is requested pursuant to, or required by,
Applicable Laws, regulation or rules of any securities exchange or by legal
process to disclose any Evaluation Information or any other information
concerning any of the other parties hereto or the transactions contemplated
hereby, the receiving party agrees that it shall provide the disclosing party
with prompt notice of such request or requirement in order to enable the
disclosing party to seek an appropriate protective order or other remedy, to
consult with the receiving party with respect to the disclosing party taking
steps to resist or narrow the scope of such request or legal process, or to
waive compliance, in whole or in part, with the terms of this SECTION 6.4. In
the event that no such protective order or other remedy is obtained, or that the
disclosing party waives compliance with the terms of this SECTION 6.4, the
receiving party shall use its reasonable best efforts to disclose only that
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portion of any Evaluation Information which the receiving party is advised by
counsel is legally required and shall exercise all reasonable efforts to ensure
that all Evaluation Information so disclosed shall be accorded confidential
treatment in accordance with this SECTION 6.4.
6.5 FURTHER ASSURANCES. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by the
Transaction Agreements, including using its commercially reasonable efforts in
obtaining all necessary waivers, consents, and approvals and effecting all
necessary registrations and filings and submissions of information requested by
Governmental Authorities. Selling Parties, Parent and Buyer agree that they, at
any time before or after the Closing, at the requesting parties' expense, will
execute, acknowledge, and deliver any further consents, deeds, assignments,
assumptions, conveyances, other assurances, documents, and instruments of
transfer or receipt either necessary to consummate the sale, transfer,
assignment, assumption, grant, or conveyance of the Acquired Assets and
assumption of the Assumed Liabilities as contemplated in the Transaction
Agreements and at the requesting parties' expense, will take any other action
consistent with the terms of the Transaction Agreements that may reasonably be
requested for the purpose of assigning, assuming, transferring, granting,
conveying, and confirming to Buyer or Seller, or reducing to possession, any or
all property to be conveyed and transferred by and all liabilities to be assumed
pursuant to the Transaction Agreements, PROVIDED, HOWEVER, that if Selling
Parties were required pursuant to SECTION 8.1 to make a proper delivery at the
Closing and failed to do so, Selling Parties agree that they will, after the
Closing, and at their expense, deliver such document to Parent and Buyer,
PROVIDED, FURTHER, that (i) Selling Parties shall use their commercially
reasonable efforts to obtain (but Selling Parties shall not be obligated to
obtain), at their expense after the Closing, the consents set forth on SCHEDULE
4.5 that are not marked with an "X", and (ii) Parent and Buyer shall use their
commercially reasonable efforts to replace, at their expense as soon as
practicable after the Closing, all Bonds that may not be assigned or transferred
to Buyer by Seller at the Closing. After the Closing, the parties will cooperate
in good faith and use commercially reasonable efforts to resolve any issues
which may arise in the transition of the Business.
6.6 RIGHT TO ENTER AND INSPECT. From time to time prior to the Closing,
upon reasonable notice, subject to applicable law, Parent and Buyer will have
reasonable access, during normal business hours, to enter the Owned Real
Property with Parent's or Buyer's representatives and agents to examine the
Owned Real Property and the Acquired Assets, conduct environmental studies (not
including soil or groundwater or other testing unless agreed to in writing by
Seller), engineering feasibility studies, and other tests and studies reasonable
and customary for a transaction of the type contemplated hereby, and otherwise
to evaluate, inspect and examine the Acquired Assets and the Business and
affairs of Seller. Parent and Buyer, jointly and severally, shall indemnify and
defend Selling Parties, their officers, directors, employees, representatives
and agents, from all losses, costs, damages, harm, claims and liabilities, and
mechanics' and materialmens' liens which may be asserted against Selling
Parties, or any of the foregoing indemnified parties, as a result of any
negligent or willful misconduct in connection with the access, examination,
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evaluation, inspection, investigation and tests and studies made by Parent,
Buyer or their representatives or agents.
6.7 TAX ON PRIOR SALES. To the extent such certificates are prepared by the
applicable state taxing authority, if applicable, Selling Parties agree to
furnish to Buyer when available certificates from the state taxing authorities
and any related certificates that Buyer may reasonably request as evidence that
all sales and use tax liabilities of Seller accruing before the Closing Date
have been fully satisfied or provided for.
6.8 TRANSFER OF PERMITS. Selling Parties will use their commercially
reasonable efforts to assist Buyer to effect the assignment or other transfer of
Permits and Bonds, to the extent such Permits and Bonds are transferable, from
Seller to Buyer as of or as soon as practicable after the Closing Date.
6.9 LANDBANKING. Seller will cooperate with Parent and Buyer with respect
to arrangements to, and immediately prior to Closing will enter into
arrangements to, sell at or immediately prior to Closing to such landbankers or
property investors, approved by Parent, any real property or model homes
designated by Parent on terms and conditions acceptable to Parent and reasonably
approved by Seller. Buyer and Parent agree to pay for any costs incurred by
Seller in connection with such activities.
6.10 INDEPENDENT AUDITORS. Seller agrees to use commercially reasonable
efforts to cause its independent auditors to (i) assist Buyer in preparing
financial statements in compliance with GAAP and Regulation S-X promulgated by
the Securities and Exchange Commission ("SEC"), (ii) include consents to their
reports in Parent's filings with the SEC, and (iii) provide any necessary
comfort letters in respect of financings by Parent. Notwithstanding the
foregoing, nothing shall require Selling Parties or their independent auditors
to violate the Sarbanes-Oxley Act of 2002.
6.11 CHARTER AMENDMENT. Selling Parties agree to amend their respective
charters within 30 days after the Closing, deleting all references to
"Perma-Bilt," and any variations thereof.
ARTICLE VII
CONDITIONS
7.1 CONDITIONS TO OBLIGATION OF SELLING PARTIES. The obligations of Selling
Parties to close this transaction are subject to their reasonable satisfaction
(or waiver by them in writing) of the following conditions on and as of the
Closing:
A. ABSENCE OF CERTAIN ACTIONS AND EVENTS.
(1) There will not be threatened, instituted, or pending any
action or proceeding, before any Governmental Authority: (a)
challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly to restrain or prohibit, the consummation of
the transactions contemplated hereby, or seeking to obtain damages in
connection therewith; (b) seeking to impose or confirm limitations on
the ability of Parent or Buyer effectively to exercise directly or
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indirectly full rights of ownership of any of the Acquired Assets; or
(c) invalidating or rendering unenforceable any material provision of
this Agreement (including, without limitation, the Exhibits or
Schedules hereto); and
(2) There will not be any action taken, or any statute, rule,
regulation, judgment, order, or injunction proposed, enacted, entered,
enforced, promulgated, issued, or deemed applicable to the
transactions contemplated hereby by any Governmental Authority, which
may, directly or indirectly, prohibit consummation of the transactions
contemplated hereby.
B. TRUTHFULNESS OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Parent and Buyer set forth in ARTICLE III of this
Agreement will be true and correct in all material respects as of the
Closing Date as if made at and as of the Closing Date (it being understood
that with respect to determining satisfaction of this condition,
representations and warranties containing "material adverse effect"
qualifications and other qualifications based on the word "material" or
similar phrases shall be true and correct in all respects, taking into
account such "material adverse effect" qualifications and other
qualifications based on the word "material" or similar phrases, as of the
Closing Date as if made at and as of the Closing Date).
C. COMPLIANCE. Parent and Buyer will in all material respects have
performed each obligation and agreement and complied with each covenant to
be performed and complied with by it hereunder at or prior to the Closing.
D. CONSENTS AND APPROVALS. Seller will have obtained all consents and
approvals set forth in SCHEDULE 4.5 hereto, except such consents and
approvals as to which the failure to obtain, individually or in the
aggregate, would not reasonably be expected to impair or delay the
consummation of Closing or have a Material Adverse Effect.
7.2 CONDITIONS TO OBLIGATIONS OF PARENT AND BUYER. Parent's and Buyer's
obligations to close this transaction are subject to their reasonable
satisfaction (or waiver by Parent in writing) of the following conditions on and
as of the Closing:
A. SCHEDULES. Seller will have delivered updated Schedules to Parent
immediately prior to Closing.
B. CONSENTS AND APPROVALS. Seller will have obtained all consents and
approvals marked with an "X" on SCHEDULE 4.5 hereto.
C. ABSENCE OF MATERIAL ADVERSE DEVELOPMENTS. After the date hereof,
neither Parent nor Buyer will have discovered any fact or circumstance not
disclosed herein regarding the Business, the Acquired Assets, or the
properties, condition (financial or otherwise), results of operations, or
prospects of Seller which is or could be, individually or in the aggregate
with other such facts and circumstances, materially adverse to the Business
or the Acquired Assets.
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D. NO DAMAGE OR DESTRUCTION. After the date hereof, there will have
been no damage, destruction, or loss of or to any of the Acquired Assets,
whether or not covered by insurance, which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. This
SECTION 7.2D is intended as an express provision with respect to
destruction and eminent domain which supersedes the provisions of the
Nevada Uniform Vendor and Purchaser Risk Act.
E. ENVIRONMENTAL ASSESSMENTS. Parent will be satisfied with the
results of all environmental assessments.
F. TITLE INSURANCE. The Title Company will be prepared to issue each
Title Policy (and endorsement thereto as Parent may reasonably require) as
required by SECTION 4.2 of the Real Property Agreement, subject to no
exceptions other than Approved Title Exceptions.
G. PRELIMINARY CLOSING BALANCE SHEET. Parent will have received, at
least five days prior to the Closing, the Preliminary Closing Balance
Sheet, which will comply with SECTION 2.5B(2).
H. ABSENCE OF CERTAIN ACTIONS AND EVENTS.
(1) There will not be threatened, instituted, or pending any
action or proceeding, before any Governmental Authority: (a)
challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly to restrain or prohibit, the consummation of
the transactions contemplated hereby, or seeking to obtain damages in
connection therewith; (b) seeking to prohibit direct or indirect
ownership or operation by Buyer of all or a material portion of the
Business or the Acquired Assets or the Assumed Liabilities, or to
compel Parent or Buyer or any of their subsidiaries to divest of or to
hold separately all or a material portion of the business or the
Acquired Assets as a result of the transactions contemplated hereby;
(c) seeking to impose or confirm limitations on the ability of Parent
or Buyer effectively to exercise directly or indirectly full rights of
ownership of any of the Acquired Assets; or (d) invalidating or
rendering unenforceable any material provision of this Agreement
(including, without limitation, the Exhibits or Schedules hereto);
(2) There will not be any action taken, or any statute, rule,
regulation, judgment, order, or injunction proposed, enacted, entered,
enforced, promulgated, issued, or deemed applicable to the
transactions contemplated hereby by any Governmental Authority, which
may, directly or indirectly, prohibit consummation of the transactions
contemplated hereby; and
(3) There will not have occurred any of the following events
having a material adverse effect on Parent or Buyer: (a) a declaration
of a banking moratorium or any suspension of payments in respect of
banks in the United States or any limitation by United States
authorities on the extension of credit by lending institutions; or (b)
a commencement of war, armed hostilities, terrorist attack, or other
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international or national calamity directly or indirectly involving
the United States.
I. TRUTHFULNESS OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Selling Parties in this Agreement will be true and
correct in all material respects as of the Closing Date as if made at and
as of the Closing Date (it being understood that with respect to
determining satisfaction of this condition, representations and warranties
containing "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases shall be
true and correct in all respects, taking into account such Material Adverse
Effect qualifications and other qualifications based on the word "material"
or similar phrases, as of the Closing Date as if made at and as of the
Closing Date).
J. COMPLIANCE. Selling Parties will in all material respects have
performed each obligation and agreement and complied with each covenant to
be performed and complied with them hereunder at or prior to the Closing.
K. NON-COMPETE AGREEMENT. Parent will have received a Non-Disclosure
and a Non-Compete Agreement executed by Zenith in the form of EXHIBIT E
attached hereto (the "NON-DISCLOSURE AND NON-COMPETE AGREEMENT").
L. RELEASES. Parent or Title Company will have received, or be
irrevocably entitled to receive, releases of all Seller Debt paid off by
Buyer at Closing in form and substance reasonably acceptable to Parent or
Title Company and recordable reconveyance instruments for any deeds of
trust, UCC Amendments terminating any UCC Financing Statements and other
instruments of release that Parent or Title Company may reasonably require
to reconvey, terminate and otherwise release any and all security
interests, liens and other encumbrances that secure any of such paid-off
loans.
ARTICLE VIII
CLOSING
8.1 SELLING PARTIES' OBLIGATIONS. In addition to any other documents
required to be delivered by Selling Parties at Closing pursuant to this
Agreement, Selling Parties will deliver to Escrow Agent or Parent, as
appropriate, at Closing the following:
A. DEED. A Grant, Bargain, Sale Deed ("DEED") for each parcel
comprising the Owned Real Property owned by Seller in fee, in form
substantially similar to EXHIBIT F hereto, and an Assignment and Assumption
Agreement ("ASSIGNMENT AND ASSUMPTION AGREEMENT") for each parcel
comprising the Contracted Real Property in which Seller has an interest, in
form substantially similar to EXHIBIT G hereto.
B. DECLARATION OF VALUE. A Declaration of Value for the Owned Real
Property as required by law, consistent with the allocation of the Purchase
Price to the Owned Real Property in accordance with SECTION 2.6.
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C. FIRPTA AFFIDAVIT. An Affidavit, signed and acknowledged by Seller
under penalties of perjury, certifying that Seller is not a foreign
corporation within the meaning of Sections 1445 and 7701 of the Code.
D. BILL OF SALE. An executed Bill of Sale and Assignment Agreement
("BILL OF SALE AND ASSIGNMENT AGREEMENT") dated as of the Closing Date,
signed by Seller in the form attached hereto as EXHIBIT H.
E. ACQUIRED CONTRACTS. Executed assignments and assumptions of all
Acquired Contracts with consents required pursuant to SECTION 7.2B.
F. LEASE ASSIGNMENTS. Lease assignments with respect to each parcel of
real estate or any item of personal property which is leased by Seller and
which is to be assumed by Buyer hereunder, properly executed (and, if
appropriate, acknowledged) by Seller, and accompanied with any consents and
estoppels of lessors obtained prior to the Closing with respect thereto.
G. PERMITS. Executed assignments of all assignable Permits issued to
Seller by any Governmental Authority or vendor, to the extent assignable.
H. BOOKS AND RECORDS. All books, records, and other data relating to
the Business and/or Acquired Assets (other than minutes books and stock
transfer books of Seller except as set forth in SECTIONS 2.3 and 2.4B of
this Agreement).
I. RESOLUTIONS. Copies of the texts of the resolutions by which the
corporate action on the part of Seller and its shareholders necessary to
approve this Agreement and the transactions contemplated hereby were taken
and certificates executed on behalf of Seller by its corporate secretary
certifying to Parent and Buyer that such copies are true, correct and
complete copies of such corporate action or resolutions and that such
corporate action and resolutions were duly adopted and have not been
amended or rescinded.
J. CONSENTS. The consents contemplated by SECTION 7.2B.
K. LEGAL OPINION. Parent and Buyer will have received opinions from
Lionel Sawyer & Collins with respect to Seller and, for certain matters,
Zenith, and Skadden, Arps, Slate, Meagher & Flom LLP with respect to
Zenith, addressed to Parent and Buyer, in a form reasonably acceptable to
Parent and its counsel.
L. TITLE POLICIES. The Title Policies contemplated by SECTION 4.2 of
the Real Property Agreement, or an irrevocable commitment on the part of
the Title Company to deliver the same post-Closing.
M. TRANSACTION AGREEMENTS. Executed copies of each of the Transaction
Agreements.
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N. OTHER DOCUMENTS. Such other documents as Parent or Buyer or its
counsel or any lender of Parent or Buyer may reasonably request prior to
the Closing in order to effectuate the transactions contemplated under this
Agreement.
8.2 PARENT'S OR BUYER'S OBLIGATIONS. In addition to any other documents
required to be delivered by Parent and Buyer at Closing pursuant to this
Agreement, Parent or Buyer will deliver to Escrow Agent or Seller, as
appropriate, at Closing the following:
A. PURCHASE PRICE. The Purchase Price contemplated by SECTION 2.5, to
the extent payable at Closing.
B. DECLARATION OF VALUE. A Declaration of Value for the Owned Real
Property as required by law, consistent with the allocation of the Purchase
Price to the Owned Real Property in accordance with SECTION 2.6.
C. ACQUIRED CONTACTS. Executed assignments and assumptions of all
Acquired Contracts.
D. LEASE ASSUMPTIONS. Lease assumptions with respect to each parcel of
real estate or any item of personal property which is leased by Seller and
which is to be assumed by Buyer hereunder, properly executed (and, if
appropriate, acknowledged) by Buyer.
E. RESOLUTIONS. Copies of the text of the resolutions by which the
corporate action on the part of Buyer and its shareholders necessary to
approve this Agreement and the transactions contemplated hereby were taken
and certificates executed on behalf of Buyer by its corporate secretary
certifying to Selling Parties that such copies are true, correct and
complete copies of such corporate action or resolutions and that such
corporate action or resolutions are duly adopted and have not been amended
or rescinded.
F. TRANSACTION AGREEMENTS. Executed copies of each of the Transaction
Agreements.
G. OTHER DOCUMENTS. Such other documents as Seller or Seller's counsel
may reasonably request prior to the Closing in order to effectuate the
transactions contemplated under this Agreement.
8.3 TRANSFER FEES, TITLE COSTS, AND CLOSING COSTS AND OTHER FEES;
PRORATIONS.
A. TITLE POLICY FEES. Selling Parties will pay the premium for
standard coverage under each Title Policy and Parent and Buyer will pay the
costs of extended coverage and endorsements as set forth in SECTION 4.2 of
the Real Property Agreement.
B. TRANSFER TAXES. Buyer will pay any documentary transfer tax, stamp
tax, real estate conveyance tax or similar tax or fee due and payable in
connection with this transaction.
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C. RECORDING AND OTHER FEES. Selling Parties will pay all recording
fees for each Deed. Selling Parties will also pay all fees and expenses,
including assumption and transfer fees actually incurred by Selling Parties
in obtaining any consents and approvals required to be obtained by Selling
Parties under this Agreement or otherwise in consummating the transactions
contemplated by this Agreement (provided nothing herein shall require
Selling Parties to pay any costs or incur any expense with respect to (1)
either Parent's or Buyer's HSR Act requirements (which expenses will be
borne by Parent or Buyer), or (2) Buyer's organizational approvals or
consents; PROVIDED FURTHER, that wherever this Agreement may require
exercise of "reasonable best efforts" or "commercially reasonable efforts"
to obtain a consent it shall not be deemed to impose upon Selling Parties a
duty to pay any consideration, fee or other sum of such nature as an
inducement to such party beyond that set forth in any agreement between the
parties).
D. TAXES AND ASSESSMENTS; PRORATIONS. Seller shall pay, prior to
delinquency, all due and payable real estate taxes, personal property taxes
and assessments by any Governmental Authority in respect of the Owned Real
Property and other Assets. At the Closing, the Escrow Agent shall prorate
taxes and assessments as of the Effective Date. Seller shall receive a
credit for all real property taxes and assessments levied against the Owned
Real Property and personal property taxes levied against the other Assets,
in each case, in the amount that has been prepaid as of the Effective Date,
and Buyer shall assume the obligation to thereafter pay all such taxes and
assessments affecting the Acquired Assets. Escrow Agent shall prorate on
the basis of the most current information available to Escrow Agent. In the
event that the amounts of such taxes and assessments are not liquidated at
the Closing, or in the event that after the Closing taxes are retroactively
assessed (to a date prior to the Effective Date) against the Owned Real
Property and/or other Assets by a Governmental Authority with jurisdiction
and authority to do so, then at such time as the actual or retroactively
assessed real estate taxes, personal property taxes and assessments by any
Governmental Authority in respect of the Owned Real Property and other
Assets are known, a cash settlement will be made between Buyer and Seller
based on such actual amounts within 30 days of such determination. If the
Owned Real Property is not separately assessed or taxed, then (i) taxes and
assessments shall be allocated between the Owned Real Property and any
other property with which it is assessed or taxed based upon the relative
taxable assessed values of the respective properties, as reasonably agreed
upon by the parties, and (ii) Seller shall receive a Purchase Price credit
in an amount equal to Seller's allocable share of such taxes and
assessments that have been prepaid, and (iii) Buyer shall timely pay the
full amount of taxes and assessments to the appropriate Governmental
Authority. All prorations and/or adjustments called for in this Agreement
will be made on the basis of a 30-day month unless otherwise specifically
instructed in writing by Seller and Parent.
E. TAXES. Selling Parties and Buyer will each pay 50% of any sales or
similar taxes or assessments relating to the sale of the Acquired Assets by
Seller to Buyer.
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F. OTHER FEES. Except as otherwise specifically provided in this
Agreement, each party will bear its own legal and accounting fees and other
expenses relating to the transactions contemplated by this Agreement.
ARTICLE IX
SURVIVAL AND INDEMNITIES
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to the provisions
of SECTION 4.28, but otherwise regardless of any investigation at any time made
by or on behalf of any party hereto, or of any information any party may have in
respect thereof, all representations, and warranties made hereunder or pursuant
hereto or in connection with the transactions contemplated hereby will survive
the Closing and, execution, delivery, and recordation of any applicable deeds
for a period of two years. Notwithstanding the foregoing, (i) any claims based
upon or arising out of fraud or intentional misstatement will survive the
Closing Date until [*], (ii) all claims based upon or arising out of Excluded
Liabilities will survive the Closing Date to the extent set forth in SECTIONS
2.4B and C, and (ii) the representations and warranties contained in:
A. SECTION 4.7 (Financial Statements) will survive the Closing Date
[*]; and
B. SECTION 4.2 (Authority) and SECTION 4.17 (Tax Matters) will survive
[*] and SECTION 4.16 (Environmental Matters) will survive the Closing Date
until [*].
9.2 NATURE OF STATEMENTS. No representations or warranties are made by
Parent or Buyer or by Selling Parties in connection with this Agreement or the
other Transaction Agreements or the transactions contemplated hereby or thereby
except as expressly set forth in ARTICLES III and IV of this Agreement or in
certificates executed by such party and delivered to the other parties hereto
pursuant to the Transaction Agreements.
9.3 DISPUTE RESOLUTION. Except as provided in SECTION 2.5 herein, all
claims, disputes and other matters in controversy (except for matters related to
fraud, the Schwartz Employment Agreement or breach of any covenant not to
compete contained in the Non-Disclosure and Non-Compete Agreement) arising
directly or indirectly out of or relating to the Transaction Agreements, or the
breach, termination or validity of the Transaction Agreements, whether
contractual or non-contractual, and whether during the term or after the
termination of this Agreement (each a "DISPUTE"), shall be resolved exclusively
in accordance with the Dispute Resolution Procedures attached as EXHIBIT D.
Notwithstanding the foregoing, nothing herein will prohibit the parties from
pursuing equitable remedies.
9.4 INDEMNIFICATION AGREEMENT. Except as provided in ARTICLE X, the sole
remedies for breach of the Transaction Agreements are specified in the
Indemnification Agreement.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
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ARTICLE X
TERMINATION/REMEDIES
10.1 TERMINATION. This Agreement will be considered terminated at any time:
A. By mutual written consent of duly authorized officers of Parent and
Buyer and Seller;
B. By either Parent and Buyer, on the one hand, or Seller, on the
other hand, if the other party breaches any of its material
representations, warranties, or covenants contained herein.
C. After December 31, 2002, if not closed by then.
10.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in SECTION 10.1, this Agreement will become void and there will be
no liability or further obligation hereunder on the part of Parent, Buyer or
Selling Parties or their respective shareholders, members, officers, or
directors, except each party will remain obligated for its obligations under
SECTION 6.4.
10.3 SPECIFIC PERFORMANCE. The parties to this Agreement will have the
right to obtain specific performance of the other parties' obligations to close
in the event that such parties fail to close this Agreement in accordance with
the provisions hereof and this Agreement has not been terminated pursuant to
SECTION 10.1; PROVIDED, HOWEVER, that the party seeking specific performance
cannot be in material breach of this Agreement. The party who is entitled to
specific performance must file and serve an action within 10 business days of
the Closing Date or waive any right to seek specific performance.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. All notices, consents, and other communications hereunder
will be in writing and deemed to have been duly given when (a) delivered by
hand, (b) sent by telecopier (with receipt confirmed), or (c) when received by
the addressee, if sent by Express Mail, Federal Express, or other express
delivery service (with delivery confirmation), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the
other):
If to Buyer: Meritage Corporation
6613 North Scottsdale Road,
Suite 200
Scottsdale, Arizona 85250
Phone: (480) 998-8700
Fax: (480) 998-9162
Attn: Chief Financial Officer
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With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
Fax: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Selling Parties Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367
Phone: (818) 713-1000
Fax: (818) 710-1860
Attn: Stanley R. Zax
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Phone: (213) 687-5000
Fax: (213) 687-5600
Attn: Joseph J. Giunta, Esq.
11.2 COUNTERPARTS. The Agreements, as defined in SECTION 11.16, may be
executed in any number of counterparts, and each counterpart will constitute an
original instrument, but all such separate counterparts will constitute one and
the same agreement.
11.3 GOVERNING LAW. The validity, construction, and enforceability of this
Agreement will be governed in all respects by the laws of the State of Nevada,
without regard to its conflict of laws rules.
11.4 ASSIGNMENT. This Agreement will not be assigned by operation of law or
otherwise, (a) except that Buyer may assign all or any portion of its rights
under this Agreement to any wholly owned subsidiary, but no such assignment will
relieve Buyer or its successor or Parent of its primary liability for all
obligations of Buyer and Parent, respectively, hereunder, and (b) except that
this Agreement may be assigned by operation of law to any corporation or entity
with or into which Buyer may be merged or consolidated or to which Buyer
transfer all or substantially all of its assets, and such corporation or entity
assumes this Agreement and all obligations and undertakings of Buyer hereunder,
but no such assignment will relieve Buyer or its successor or Parent of their
liability for the respective obligations of Buyer and Parent, hereunder. Any
assignment in violation of the provisions of this Agreement will be null and
void.
11.5 GENDER AND NUMBER. The masculine, feminine, or neuter pronouns used
herein will be interpreted without regard to gender, and the use of the singular
or plural will be deemed to include the other whenever the context so requires.
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11.6 SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to in this
Agreement and attached to this Agreement are incorporated in this Agreement by
such reference as if fully set forth in the text of this Agreement.
11.7 WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or waiver of the breach of any other
provision, term, covenant, representation, or warranty of this Agreement.
11.8 COSTS. Except as otherwise provided in this Agreement, if any legal
action or any arbitration or other proceeding is brought for the enforcement of
this Agreement, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties will be entitled to recover
reasonable attorneys' fees, accounting fees, and other costs incurred in that
action or proceeding, in addition to any other relief to which it or they may be
entitled.
11.9 AMENDMENT. This Agreement may not be amended except by an instrument
in writing approved by the parties to this Agreement and signed on behalf of
each of the parties hereto.
11.10 SEVERABILITY. If any term, provision, covenant, or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.
11.11 BINDING EFFECT. Subject to the provisions and restrictions of SECTION
11.4, the provisions of this Agreement are binding upon and will inure to the
benefit of the parties and their respective heirs, personal representatives,
successors and assigns.
11.12 CONSTRUCTION. References in this Agreement to "Sections," "Articles,"
"Exhibits," and "Schedules" are to the Sections and Articles in, and the
Exhibits and Schedules to, this Agreement, unless otherwise noted.
11.13 TIME PERIODS. Except as expressly provided for in this Agreement, the
time for performance of any obligation or taking any action under this Agreement
will be deemed to expire at 5:00 o'clock p.m. (Las Vegas, Nevada time) on the
last day of the applicable time period provided for in this Agreement. If the
time for the performance of any obligation or taking any action under this
Agreement expires on a Saturday, Sunday or legal holiday, the time for
performance or taking such action will be extended to the next succeeding day
which is not a Saturday, Sunday or legal holiday.
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11.14 HEADINGS. The headings of this Agreement are for purposes of
reference only and will not limit or define the meaning of any provision of this
Agreement.
11.15 ACCESS TO RECORDS. Buyer will provide Seller with reasonable access
to books, records, and documents transferred to Buyer pursuant to SECTION 1.2 of
the Asset Purchase Agreement for period of four years from the Closing or such
longer time as Seller notifies Buyer that Seller may require for tax purposes.
11.16 ENTIRE AGREEMENT. This Agreement, the other Transaction Agreements
and all certificates, schedules and other documents attached to or deliverable
under such agreements (collectively, the "AGREEMENTS") constitute the entire
agreement, including with respect to representations and warranties, between the
parties pertaining to the subject matter contained in the Agreements. All prior
and contemporaneous agreements, representations and understandings of the
parties, oral or written, are superseded by and merged in the Agreements. No
supplement, modification or amendment of the Agreements will be binding unless
in writing and executed by the parties thereto.
11.17 ENFORCEMENT OF RIGHTS. Parent's and Buyer's rights under, and the
remedies to enforce, this Agreement are joint and several as to Selling Parties.
Parent and Buyer are completely free to enforce any or all of their rights under
this Agreement against any of Selling Parties with or without the concurrence or
joinder of any other Selling Party. Selling Parties' rights under, and the
remedies to enforce, this Agreement are joint and several as to Parent and
Buyer. Selling Parties are completely free to enforce any or all of their rights
under this Agreement against any of Parent or Buyer with or without the
concurrence or joinder of Parent or Buyer, as applicable.
11.18 NO THIRD BENEFICIARIES. Except as otherwise set forth in SECTIONS 1
and 2 of the Indemnification Agreement and except as specifically provided in
SECTION 11.4 of this Agreement and similar provisions in the other Transaction
Agreements, neither this Agreement nor any other Transaction Agreement is
intended to, and none of them shall, create any rights in any other Person other
than the parties to such agreements. Without limiting the generality of the
foregoing, nothing herein or in any other Transaction Agreement is intended to
create, nor shall it create, in the Title Company or any title insurer any right
of subrogation to any rights of Parent or Buyer arising from any representation
or warranty of any Selling Party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first written above by their respective officers thereunder duly
authorized.
MERITAGE CORPORATION,
a Maryland corporation
By: /s/ Steven J. Hilton
----------------------------------------
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
MTH-HOMES NEVADA, INC.,
an Arizona corporation
By: /s/ Steven J. Hilton
----------------------------------------
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
PERMA-BILT, A NEVADA CORPORATION
By: /s/ Daniel Schwartz
----------------------------------------
Name: Daniel Schwartz
Title: President and Chief Executive Officer
ZENITH NATIONAL INSURANCE CORP.,
a Delaware corporation
By: /s/ Stanley R. Zax
----------------------------------------
Name: Stanley R. Zax
Title: President
[SIGNATURE PAGE TO MASTER TRANSACTION AGREEMENT]
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EXHIBIT A
AGREEMENT OF PURCHASE AND SALE OF ASSETS
BY AND AMONG
MERITAGE CORPORATION,
MTH-HOMES NEVADA, INC.,
PERMA-BILT, A NEVADA CORPORATION
AND
ZENITH NATIONAL INSURANCE CORP.
Dated October 7, 2002
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AGREEMENT OF PURCHASE AND SALE OF ASSETS
This AGREEMENT OF PURCHASE AND SALE OF ASSETS (this "AGREEMENT") is made as
of October 7, 2002, by and among MERITAGE CORPORATION, a Maryland corporation
("MERITAGE or PARENT"); MTH-HOMES NEVADA, INC., an Arizona corporation
("BUYER"); PERMA-BILT, A NEVADA CORPORATION ("SELLER"); and ZENITH NATIONAL
INSURANCE CORP., a Delaware corporation ("ZENITH"). Collectively, Seller and
Zenith are referred to herein as "SELLING PARTIES."
RECITALS
1. Pursuant to this Agreement and the Master Agreement (as defined below),
Buyer will acquire the Business.
2. The parties to this Agreement have concurrently entered into a Master
Transaction Agreement ("MASTER AGREEMENT"), Agreement of Purchase and Sale of
Real Property ("REAL PROPERTY AGREEMENT"), and Indemnification Agreement, all
described in the Master Agreement. All capitalized terms contained herein but
not otherwise defined will have the meaning ascribed to it in the Master
Agreement.
In consideration of the covenants and mutual agreements set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in reliance upon the representations and warranties
contained herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 AGREEMENT. This Agreement, together with the Master Agreement and
Indemnification Agreement, each incorporated herein by reference, will
constitute a binding contract on the part of Seller to sell and Buyer to
purchase the assets of the Business, unrelated to real property.
1.2 ASSETS TO BE PURCHASED. Upon the terms and subject to the conditions
set forth herein and in the Master Agreement, and in reliance on the respective
representations and warranties of the parties contained in the Master Agreement,
at the Closing, Seller agrees to sell, convey, grant, assign, and transfer to
Buyer and Buyer agrees to purchase, assume and acquire from Seller all of the
Assets, held by Seller. The "ASSETS" are the following, PROVIDED, HOWEVER, that
the Assets shall not include any Excluded Assets:
A. All assets disclosed on the Final Closing Balance Sheet, except for
the Real Property Assets (as defined in and to be conveyed pursuant to the
Real Property Agreement);
B. Any current assets, accounts receivable and notes receivable, and
bank accounts, but excluding cash and cash equivalents; PROVIDED, HOWEVER,
that (i) to the extent that following the Closing Selling Parties receive
any cash that constitutes an Acquired Asset or relates to an Assumed
Liability, Selling Parties shall, as soon as practicable after receipt
A-2
thereof, turn over such cash to Buyer, and (ii) to the extent that
following the Closing Parent or Buyer receives any cash that constitutes an
Excluded Asset or relates to an Excluded Liability, Parent and Buyer shall,
as soon as practicable after receipt thereof, turn such cash over to
Selling Parties.
C. All prepaid expenses, the right to refunds, buyins or deposits
relating to utilities and infrastructure improvements, deposits or assets
relating to performance bonds;
D. All equipment, furniture, furnishings, inventory, machinery,
software, supplies, tools, vehicles, and other personal property owned or
leased by Seller;
E. All rights and benefits in all (1) processes, know-how, technical
data, and other trade secrets; (2) sales forms and promotional and
advertising materials; (3) copyrights, whether registered or not, patents,
trademarks, whether registered or not, and applications, registrations, and
renewals with respect thereto; (4) customer, supplier and contractor lists;
(5) software licensing and equipment rental agreements associated with
computers or data processing; and (6) goodwill associated therewith.
Additionally, Seller hereby grants to Buyer an exclusive perpetual license
in Seller's right to use the names "Perma-Bilt Homes" and "Perma-Bilt," and
all variations of or derivations from such names and any and all logos used
in connection therewith; PROVIDED, HOWEVER, Selling Parties' shall have the
right to use the name "Perma-Bilt" for corporate purposes for a period of
up to 30 days after the Closing. The foregoing is hereinafter referred to
as the "ASSET INTELLECTUAL PROPERTY";
F. All of the books, instruments, papers, and records of whatever
nature and wherever located, whether in written form or another storage
medium, including without limitation (1) copies of accounting and financial
records; (2) property records and reports; (3) environmental records and
reports; (4) personnel and labor relations records; and (5) property,
sales, or transfer tax records and returns; PROVIDED, HOWEVER, that (x)
Seller shall retain the original accounting and financial records and (y)
such books, instruments, papers, and records will exclude any documents
relating exclusively to the Excluded Assets or the Excluded Liabilities
(for so long as they are Seller's sole responsibility) or to any employees
of Seller not hired by Buyer;
G. To the extent transferable, all the right, title, and interest in
all approvals, authorizations, certificates, consents, franchises,
licenses, permits, rights, variances, subdivision maps, plans,
entitlements, and waivers acquired, being acquired, applied for, or used,
and all agreements with, and any waivers, licenses, permits, and approvals
from or to any Governmental Authority, department, board, commission,
bureau or any other entity or instrumentality, and other authorities in the
nature thereof, all as related to the Assets;
H. All rights and benefits in, to and under all vendor, supplier and
equipment lessor agreements concerning any supplies, services, equipment
and furniture utilized for office purposes;
A-3
I. All contracts, agreements or understandings to which Seller is a
party or by which Seller or any of its assets are bound, excluding those
contracts included in Real Property Assets pursuant to SECTION 1.2B of the
Real Property Agreement and excluding Excluded Contracts (the "ASSET
ACQUIRED CONTRACTS"); and
J. The interests in any projects (and related joint venture,
partnership, or other interests) to the extent any exist.
1.3 PURCHASE PRICE. The Purchase Price to be paid by Buyer for the Assets
will be as provided in SECTION 2.5 of the Master Agreement.
1.4 CLOSING. ARTICLES VII and VIII of the Master Agreement are incorporated
herein by reference as applicable.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
2.1 INCORPORATION BY REFERENCE. The representations and warranties
contained in ARTICLE III of the Master Agreement are incorporated herein by
reference.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES
3.1 INCORPORATION BY REFERENCE. The representations and warranties
contained in ARTICLE IV of the Master Agreement are incorporated herein by
reference.
ARTICLE IV
FURTHER ASSURANCES
4.1 INCORPORATION BY REFERENCE. SECTION 6.5 of the Master Agreement is
incorporated herein by reference.
ARTICLE V
GENERAL PROVISIONS
5.1 NOTICES. All notices, consents, and other communications hereunder will
be in writing and deemed to have been duly given when (a) delivered by hand, (b)
sent by telecopier (with receipt confirmed, or (c) when received by the
addressee, if sent by Express Mail, Federal Express, or other express delivery
service (with delivery confirmation), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the
other):
A-4
If to Buyer: Meritage Corporation
6613 North Scottsdale Road,
Suite 200
Scottsdale, Arizona 85250
Phone: (480) 998-8700
Fax: (480) 998-9162
Attn: Chief Financial Officer
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
Fax: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Selling Parties Zenith National Insurance Corp.,
21255 Califa Street
Woodland Hills, California 91367
Phone: (818) 713-1000
Fax: (818) 710-1860
Attn: Stanley R. Zax
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Phone: (213) 687-5000
Fax: (213) 687-5600
Attn: Joseph J. Giunta, Esq.
5.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each counterpart will constitute an original instrument, but
all such separate counterparts will constitute one and the same agreement.
5.3 GOVERNING LAW. The validity, construction, and enforceability of this
Agreement will be governed in all respects by the laws of the State of Nevada,
without regard to its conflict of laws rules.
5.4 ASSIGNMENT. This Agreement will not be assigned by operation of law or
otherwise, (a) except that Buyer may assign all or any portion of its rights
under this Agreement to any wholly owned subsidiary, but no such assignment will
relieve Buyer or its successor or Parent of its primary liability for all
obligations of Buyer and Parent, respectively, hereunder, and (b) except that
this Agreement may be assigned by operation of law to any corporation or entity
with or into which Buyer may be merged or consolidated or to which Buyer
transfers all or substantially all of its assets, and such corporation or entity
assumes this Agreement and all obligations and undertakings of Buyer hereunder,
but no such assignment will relieve Buyer or its successor or Parent of their
liability for the respective obligations of Buyer and Parent, respectively,
A-5
hereunder. Any assignment in violation of the provisions of this Agreement will
be null and void.
5.5 GENDER AND NUMBER. The masculine, feminine, or neuter pronouns used
herein will be interpreted without regard to gender, and the use of the singular
or plural will be deemed to include the other whenever the context so requires.
5.6 SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to in this
Agreement and attached to this Agreement are incorporated in this Agreement by
such reference as if fully set forth in the text of this Agreement.
5.7 WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties, and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof will, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation, or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, will be deemed to be or construed as a further or
continuing waiver of any such condition or waiver of the breach of any other
provision, term, covenant, representation, or warranty of this Agreement.
5.8 COSTS. Except as otherwise provided in the Master Agreement, if any
legal action or any arbitration or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties will be entitled to
recover reasonable attorneys' fees, accounting fees, and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
5.9 AMENDMENT. This Agreement may not be amended except by an instrument in
writing approved by the parties to this Agreement and signed on behalf of each
of the parties hereto.
5.10 SEVERABILITY. If any term, provision, covenant, or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.
5.11 BINDING EFFECT. Subject to the provisions and restrictions of SECTION
5.4, the provisions of this Agreement are binding upon and will inure to the
benefit of the parties and their respective heirs, personal representatives,
successors and assigns.
5.12 CONSTRUCTION. References in this Agreement to "Sections," "Articles,"
"Exhibits," and "Schedules" are to the Sections and Articles in, and the
Exhibits and Schedules to, this Agreement, unless otherwise noted.
A-6
5.13 TIME PERIODS. Except as expressly provided for in this Agreement, the
time for performance of any obligation or taking any action under this Agreement
will be deemed to expire at 5:00 o'clock p.m. (Las Vegas, Nevada time) on the
last day of the applicable time period provided for in this Agreement. If the
time for the performance of any obligation or taking any action under this
Agreement expires on a Saturday, Sunday or legal holiday, the time for
performance or taking such action will be extended to the next succeeding day
which is not a Saturday, Sunday or legal holiday.
5.14 HEADINGS. The headings of this Agreement are for purposes of reference
only and will not limit or define the meaning of any provision of this
Agreement.
5.15 ENTIRE AGREEMENT. This Agreement, the other Transaction Agreements and
all certificates, schedules and other documents attached to or deliverable under
such agreements (collectively, the "AGREEMENTS") constitute the entire
agreement, including with respect to representations and warranties, between the
parties pertaining to the subject matter contained in the Agreements. All prior
and contemporaneous agreements, representations and understandings of the
parties, oral or written, are superseded by and merged in the Agreements. No
supplement, modification or amendment of the Agreements will be binding unless
in writing and executed by the parties to the Agreements.
5.16 DISPUTE RESOLUTION. All Disputes shall be resolved exclusively in
accordance with the Dispute Resolution Procedures attached as EXHIBIT D to the
Master Agreement. Notwithstanding the foregoing, nothing herein will prohibit
the parties from pursuing equitable remedies.
5.17 NO THIRD BENEFICIARIES. Except as otherwise set forth in SECTIONS 1
and 2 of the Indemnification Agreement and except as specifically provided in
SECTION 5.4 of this Agreement and similar provisions in the other Transaction
Agreements, neither this Agreement nor any other Transaction Agreement is
intended to, and none of them shall, create any rights in any other Person other
than the parties to such agreements. Without limiting the generality of the
foregoing, nothing herein or in any other Transaction Agreement is intended to
create, nor shall it create, in the Title Company or any title insurer any right
of subrogation to any rights of Parent or Buyer arising from any representation
or warranty of any Selling Party.
A-7
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first written above by their respective officers thereunder duly
authorized.
MERITAGE CORPORATION,
a Maryland corporation
By: ________________________________________
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
MTH-HOMES NEVADA, INC.,
an Arizona corporation
By: ________________________________________
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
PERMA-BILT, A NEVADA CORPORATION
By: ________________________________________
Name: Daniel Schwartz
Title: President and Chief Executive Officer
ZENITH NATIONAL INSURANCE CORP.,
a Delaware corporation
By: ________________________________________
Name: Stanley R. Zax
Title: President
[SIGNATURE PAGE TO ASSET AGREEMENT]
A-8
EXHIBIT B
AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY
BY AND AMONG
MERITAGE CORPORATION,
MTH-HOMES NEVADA, INC.,
PERMA-BILT, A NEVADA CORPORATION
AND
ZENITH NATIONAL INSURANCE CORP.
Dated October 7, 2002
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AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY
This AGREEMENT OF PURCHASE AND SALE OF REAL PROPERTY (the "AGREEMENT") is
made as of October 7, 2002, by and among MERITAGE CORPORATION, a Maryland
corporation ("MERITAGE or PARENT"); MTH-HOMES NEVADA, INC., an Arizona
corporation ("BUYER"); PERMA-BILT, A NEVADA CORPORATION ("SELLER") and ZENITH
NATIONAL INSURANCE CORP., a Delaware corporation ("ZENITH"). Collectively,
Seller and Zenith are referred to herein as "SELLING PARTIES."
RECITALS
1. Pursuant to this Agreement, the Asset Agreement (as defined below) and
the Master Agreement (as defined below), Buyer will acquire the Business.
2. The parties to this Agreement have concurrently entered into a Master
Transaction Agreement ("MASTER AGREEMENT"), Agreement of Purchase and Sale of
Assets ("ASSET AGREEMENT"), and Indemnification Agreement, all described in the
Master Agreement. All capitalized terms contained herein but not otherwise
defined will have the meaning ascribed to them in the Master Agreement.
In consideration of the covenants and mutual agreements set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in reliance upon the representations and warranties
contained herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF REAL PROPERTY
1.1 AGREEMENT. This Agreement, together with the Master Agreement and
Indemnification Agreement, each incorporated herein by reference, will
constitute a binding contract on the part of Seller to sell and Buyer to
purchase the real property assets of the Business.
1.2 REAL PROPERTY ASSETS TO BE PURCHASED. Upon the terms and subject to the
conditions set forth herein and in the Master Agreement, and in reliance on the
respective representations and warranties of the parties contained in the Master
Agreement, at the Closing, Seller agrees to sell, convey, grant, assign, and
transfer to Buyer and Buyer agrees to purchase, assume, and acquire from Seller
all of the Real Property Assets. The "REAL PROPERTY ASSETS" are the following,
PROVIDED, HOWEVER, that the Real Property Assets shall not include any Excluded
Assets:
A. All of Seller's right, title, and interest in and to all real
property assets, whether or not disclosed on the Final Closing Balance
Sheet, including all of Seller's right, title, and interest in and to all
(1) land, and buildings, fixtures, and improvements located thereon or
attached thereto; (2) lots under development and finished lots, and all
B-2
houses under development, completed homes, and model homes (collectively,
those assets under Clauses (1) and (2) are the "OWNED REAL PROPERTY"); (3)
purchase contracts, and option agreements for the purchase of lots or land
for development and related escrow instructions and deposits (the
"CONTRACTED REAL PROPERTY"); and (4) to the extent transferable, easements,
franchises, licenses, permits, and rights-of-way appurtenant to or
otherwise benefiting, and all development rights, mineral rights, water
rights, utility capacity reservations, and other rights and appurtenances
affecting or pertaining to, the items described in Clauses (1), (2) and (3)
(collectively, with the Owned Real Property and the Contracted Real
Property, the "REAL PROPERTY"). SCHEDULE 4.2 as referenced in SECTION 4.2
sets forth the Reports or a listing of the Reports in respect of the Real
Property;
B. To the extent transferable, all of Seller's rights, title, and
interest in and to all rights and benefits in, to and under all (1) the
contracts referred to in SECTION 1.2A(3) above; (2) sale agreements or
other contracts and related escrow instructions and escrow deposits
relating to the sale of lots, homes or other aspects of the Real Property;
(3) contracts with suppliers, materialmen, contractors, subcontractors and
others furnishing any work or materials to or for any of the Real Property;
(4) reimbursement and indemnity agreements pertaining to or of any
improvement, performance, payment, maintenance, fidelity, lien release, or
other bonds, undertakings or similar sureties; (5) contracts with
architects, designers, engineers, planners, environmental consultants,
surveyors, and other consultants; (6) commission, listing and brokerage
agreements; (7) office and storage leases; (8) management service and
construction supervisor contracts or agreements; (9) model home furniture,
fixtures and equipment leases and any model home lease or sale agreements;
and (10) all rights under all contracts, agreements or understandings to
which Seller is a party or by which Seller or any of its assets are bound
that relate to Real Property Assets, excluding Excluded Contracts
(collectively, the "REAL PROPERTY ACQUIRED CONTRACTS");
C. To the extent transferable, all of Seller's rights, title, and
interest in and to all (1) architectural, building, and engineering
designs, drawings, specifications, and plans; (2) all proprietary
information or rights including any and all plans, and other project
related information of prior and currently active real estate projects; (3)
copyrights, whether registered or not, patents, trademarks, whether
registered or not, and applications, registrations, and renewals with
respect thereto; (4) goodwill associated therewith; and (5) all agreements
or licenses relating thereto. The foregoing is hereinafter referred to as
the "REAL PROPERTY INTELLECTUAL PROPERTY;"
D. To the extent transferable, all of Seller's right, title, and
interest in and to all approvals, authorizations, certificates, consents,
franchises, licenses, permits, rights, variances, subdivision maps, plans,
entitlements, and waivers acquired, being acquired, applied for, or used,
and all agreements with all environmental, feasibility, archeological,
engineering, soils, and other reports of tests or inspections in respect of
the Real Property, and any waivers, and approvals from or to any
Governmental Authority, department, board, commission, bureau or any other
entity or instrumentality, and other authorities in the nature thereof, all
as related to the Real Property; and
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E. To the extent transferable, all of Seller's rights, title and
interest in and to any manufacturer's, subcontractor's, supplier's,
merchant's, repairmen's, or other third-party warranties, guarantees, and
service or replacement programs relating to Assumed Construction Claims.
1.3 PURCHASE PRICE. The purchase price to be paid by Buyer for the Real
Property Assets will be as provided in SECTION 2.5 of the Master Agreement.
1.4 CLOSING. ARTICLES VII and VIII of the Master Agreement are incorporated
herein by reference as applicable.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
2.1 INCORPORATION BY REFERENCE. The representations and warranties
contained in ARTICLE III of the Master Agreement are incorporated herein by
reference.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLING PARTIES
3.1 INCORPORATION BY REFERENCE. The representations and warranties
contained in ARTICLE IV of the Master Agreement are incorporated herein by
reference.
ARTICLE IV
TITLE MATTERS ON EXISTING PROPERTY
4.1 ESCROW. An escrow for the Real Property portion of transactions
described in the Master Agreement (the "ESCROW") will be established with
Stewart Title Company in Las Vegas (the "ESCROW AGENT" or "TITLE COMPANY"), and
Buyer and Seller shall share equally the cost thereof. The date that the
executed copies of this Agreement and the Master Agreement are delivered to
Escrow Agent is referred to in this Agreement as the "OPENING DATE." This
Agreement and the provisions of the Master Agreement referenced herein
constitute escrow instructions to Escrow Agent. If Escrow Agent, Seller or Buyer
requires the execution of additional escrow instructions, Seller and Buyer agree
to execute reasonable additional escrow instructions; PROVIDED, HOWEVER, those
instructions will be construed as applying only to Escrow Agent's engagement. If
there are any conflicts between the terms of this Agreement or the Master
Agreement, respectively, and the terms of the printed escrow instructions, the
terms of this Agreement or the Master Agreement will control. If there are any
conflicts between the terms of the Master Agreement, on the one hand, and the
terms of this Agreement or any of the other Transaction Agreements, on the other
hand, the terms of the Master Agreement will control.
4.2 TITLE MATTERS.
A. TITLE REPORT. SCHEDULE 4.2 sets forth a copy of the current
preliminary title reports or a list thereof (individually, a "REPORT," or
collectively, the "REPORTS") for each parcel or parcels of Owned Real
Property. SCHEDULE 4.2 also lists each survey (the "SURVEY") in Seller's
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possession for the Real Property, a copy of which has been provided to
Buyer.
B. TITLE SUPPLEMENTS. If, prior to Closing, Escrow Agent issues a
supplemental Report showing additional exceptions to title, other than
exceptions arising in the ordinary course of the passage of time or the
conduct of business, or arising due to acts or omissions of Parent or
Buyer, or as set forth on any prior Report (a "TITLE REPORT SUPPLEMENT"),
Parent will have 10 days (a "SUPPLEMENTAL TITLE REVIEW Period") from the
date of receipt of the Title Report Supplement and a copy of each document
referred to in the Title Report Supplement in which to give notice of
dissatisfaction as to any additional exceptions to Seller. If Parent has
not notified Seller of its dissatisfaction prior to the close of business
on the 10th day following Parent's receipt of the Title Report Supplement,
Parent and Buyer will be deemed to have accepted title subject to such
additional exceptions.
C. APPROVED TITLE EXCEPTIONS. Except for the list of title or survey
objections shown by Parent or Buyer on SCHEDULE 4.2C (the "DISAPPROVED
TITLE EXCEPTIONS"), the exceptions to title disclosed in each Report, and
in any Title Report Supplement accepted by Parent pursuant to SECTION 4.2B,
are referred to in this Agreement as the "APPROVED TITLE EXCEPTIONS."
Nothing contained herein or in any other Transaction Agreement shall
require any Selling Party to cure any Disapproved Title Exceptions.
D. TITLE POLICIES. On the Closing Date, Seller will cause the Title
Company or its title insurer to provide Buyer with (or to be irrevocably
committed to provide to Buyer post-Closing) (i) a standard coverage owner's
title policy (a "TITLE POLICY") for the Owned Real Property, and (ii) a
standard coverage owner's title commitment (a "TITLE COMMITMENT") for the
Contracted Real Property, in each case, issued by the Title Company or its
title insurer, effective as of the Closing, naming Buyer as insured, in the
amount of that portion of the Purchase Price allocated to such portion of
the Real Property in accordance with the Master Agreement, insuring that
the estate or interest described as the insured estate in each Report is
vested in Buyer (in the case of the Owned Real Property) or is vested in
the optionor or seller (in the case of the Contracted Real Property).
Selling Parties will pay the premium of a standard coverage title policy
for each Title Policy, and any nominal cost for obtaining each Title
Commitment. Parent and Buyer will be responsible for the difference in
premium between the standard coverage policy and any extended coverage that
Buyer requires, as well as for the premium relating to any endorsements
that Buyer or Parent is able to obtain. The Title Policy will include such
endorsements issued by the Title Company as Parent may reasonably require,
and Buyer shall obtain such endorsements as may be available from the Title
Company without ALTA surveys at a commercially reasonable price to insure
over the matters described in SECTION 4.13R of the Master Agreement, the
cost of all of which endorsements will be borne by Buyer. Seller will use
reasonable good faith efforts to satisfy all of the Title Company's
customary requirements for the issuance of the Title Policies (at Seller's
expense) and extended coverage and endorsements (at Buyer's expense), other
than those, if any, within Buyer's or Parent's control.
B-5
E. TITLE INSURANCE INDEMNITY. Seller agrees to deliver or cause Title
Company to deliver to Buyer, prior to Closing, copies of all indemnities,
affidavits or other agreements or documents executed and/or delivered or to
be delivered by Selling Parties to the Title Company to induce the Title
Company (i) to delete any exception to title shown in Schedule B to any
Report, (ii) to remove any policy conditions or stipulations or exclusions
from coverage as any may appear or be shown on the policy jacket or
Schedule B of any Title Policy, or (iii) to issue any other endorsement or
affirmative coverage of any nature with respect to any such exception to
title, conditions or stipulations to coverage or any exclusions from
coverage.
ARTICLE V
TITLE MATTERS AND OTHER MATTERS ON NEWLY ACQUIRED PROPERTIES
SECTION 5.1 of the Master Agreement is incorporated herein by reference as
applicable.
5.1 ADDITIONAL REAL PROPERTY. Selling Parties hereby covenant and agree
with Buyer and Parent that from the date hereof to the earlier of (i) Closing
Date or (ii) termination of this Agreement Seller will not acquire or enter into
any option or other agreement to acquire any real property.
ARTICLE VI
GENERAL PROVISIONS
6.1 NOTICES. All notices, consents, and other communications hereunder will
be in writing and deemed to have been duly given when (a) delivered by hand, (b)
sent by telecopier (with receipt confirmed), or (c) when received by the
addressee, if sent by Express Mail, Federal Express, or other express delivery
service (with delivery confirmation), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the
other):
If to Buyer: Meritage Corporation
6613 North Scottsdale Road,
Suite 200
Scottsdale, Arizona 85250
Phone: (480) 998-8700
Fax: (480) 998-9162
Attn: Chief Financial Officer
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
Fax: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
B-6
If to Selling Parties: Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367
Phone: (818) 713-1000
Fax: (818) 710-1860
Attn: Stanley R. Zax
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Phone: (213) 687-5000
Fax: (213) 687-5600
Attn: Joseph J. Giunta, Esq.
6.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each counterpart will constitute an original instrument, but
all such separate counterparts will constitute one and the same agreement.
6.3 GOVERNING LAW. The validity, construction, and enforceability of this
Agreement will be governed in all respects by the laws of the State of Nevada,
without regard to its conflict of laws rules.
6.4 ASSIGNMENT. This Agreement will not be assigned by operation of law or
otherwise, (a) except that Buyer may assign all or any portion of its rights
under this Agreement to any wholly owned subsidiary, but no such assignment will
relieve Buyer or its successor or Parent of its primary liability for all
obligations of Buyer and Parent, respectively, hereunder, and (b) except that
this Agreement may be assigned by operation of law to any corporation or entity
with or into which Buyer may be merged or consolidated or to which Buyer
transfers all or substantially all of its assets, and such corporation or entity
assumes this Agreement and all obligations and undertakings of Buyer hereunder,
but no such assignment will relieve Buyer or its successor or Parent of their
liability for the respective obligations of Buyer and Parent, respectively,
hereunder. Any assignment in violation of the provisions of this Agreement will
be null and void.
6.5 GENDER AND NUMBER. The masculine, feminine, or neuter pronouns used
herein will be interpreted without regard to gender, and the use of the singular
or plural will be deemed to include the other whenever the context so requires.
6.6 WAIVER OF PROVISIONS. The terms, covenants and conditions of this
Agreement may be waived only by a written instrument executed by the party
waiving compliance. The failure of any party at any time to require performance
of any provisions hereof will, in no manner, affect the right at a later date to
enforce the same. No waiver by any party of any condition, or breach of any
provision, term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, will be deemed to be or construed as a
further or continuing waiver of any such condition or waiver of the breach of
any other provision, term or covenant of this Agreement.
B-7
6.7 COSTS. Except as otherwise provided in the Master Agreement, if any
legal action or any arbitration or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties will be entitled to
recover reasonable attorneys' fees, accounting fees, and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
6.8 AMENDMENT. This Agreement may not be amended except by an instrument in
writing approved by the parties to this Agreement and signed on behalf of each
of the parties hereto.
6.9 SEVERABILITY. If any term, provision, covenant, or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.
6.10 BINDING EFFECT. Subject to the provisions and restrictions of SECTION
6.4, the provisions of this Agreement are binding upon and will inure to the
benefit of the parties and their respective heirs, personal representatives,
successors and assigns.
6.11 CONSTRUCTION. References in this Agreement to "Sections" and
"Articles" are to the Sections and Articles in this Agreement, unless otherwise
noted.
6.12 TIME PERIODS. Except as expressly provided for in this Agreement, the
time for performance of any obligation or taking any action under this Agreement
will be deemed to expire at 5:00 o'clock p.m. (Las Vegas, Nevada time) on the
last day of the applicable time period provided for in this Agreement. If the
time for the performance of any obligation or taking any action under this
Agreement expires on a Saturday, Sunday or legal holiday, the time for
performance or taking such action will be extended to the next succeeding day
which is not a Saturday, Sunday or legal holiday.
6.13 HEADINGS. The headings of this Agreement are for purposes of reference
only and will not limit or define the meaning of any provision of this
Agreement.
6.14 ENTIRE AGREEMENT. This Agreement, the other Transaction Agreements and
all certificates, schedules and other documents attached to or deliverable under
such agreements (collectively, the "AGREEMENTS") constitute the entire
agreement, including with respect to representations and warranties, between the
parties pertaining to the subject matter contained in the Agreements. All prior
and contemporaneous agreements, representations and understandings of the
parties, oral or written, are superseded by and merged in the Agreements. No
supplement, modification or amendment of the Agreements will be binding unless
in writing and executed by the parties to the Agreements.
6.15 DISPUTE RESOLUTION. All Disputes shall be resolved exclusively in
accordance with the Dispute Resolution Procedures attached as EXHIBIT D to the
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Master Transaction Agreement. Notwithstanding the foregoing, nothing herein will
prohibit the parties from pursuing equitable remedies.
6.16 NO THIRD BENEFICIARIES. Except as otherwise set forth in SECTIONS 1
and 2 of the Indemnification Agreement and except as specifically provided in
SECTION 6.4 of this Agreement and similar provisions in the other Transaction
Agreements, neither this Agreement nor any other Transaction Agreement is
intended to, and none of them shall, create any rights in any other Person other
than the parties to such agreements. Without limiting the generality of the
foregoing, nothing herein or in any other Transaction Agreement is intended to
create, nor shall it create, in the Title Company or any title insurer any right
of subrogation to any rights of Parent or Buyer arising from any representation
or warranty of any Selling Party.
B-9
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first written above by their respective officers thereunder duly
authorized.
MERITAGE CORPORATION,
a Maryland corporation
By: ________________________________________
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
MTH-HOMES NEVADA, INC.,
an Arizona corporation
By: ________________________________________
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
PERMA-BILT, A NEVADA CORPORATION
By: ________________________________________
Name: Daniel Schwartz
Title: President and Chief Executive Officer
ZENITH NATIONAL INSURANCE CORP.,
a Delaware corporation
By: ________________________________________
Name: Stanley R. Zax
Title: President
[SIGNATURE PAGE TO REAL PROPERTY AGREEMENT]
B-10
EXHIBIT C
INDEMNIFICATION AGREEMENT
C-1
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "AGREEMENT") is effective as of
October 7, 2002, by and among MERITAGE CORPORATION, a Maryland corporation
("MERITAGE or PARENT"); MTH-HOMES NEVADA, INC., an Arizona corporation
("BUYER"); PERMA-BILT, A NEVADA CORPORATION ("SELLER"); and ZENITH NATIONAL
INSURANCE CORP., a Delaware corporation ("ZENITH"). Collectively, Seller and
Zenith are referred to herein as "SELLING PARTIES."
RECITALS
A. As of the date hereof, Parent, Buyer and Selling Parties entered into a
Master Transaction Agreement (the "MASTER AGREEMENT"), pursuant to which Buyer
has agreed to purchase from Seller and Seller has agreed to sell to Buyer the
Business. Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Master Agreement.
B. As a material condition to the consummation of the Master Agreement,
Selling Parties, Buyer and Parent are willing to enter into this Indemnification
Agreement.
AGREEMENT
NOW THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Selling Parties and Parent and Buyer agree as
follows:
1. INDEMNIFICATION OF PARENT AND BUYER BY SELLING PARTIES. Subject to the
limitations set forth in SECTION 4 of this Agreement, Selling Parties will
indemnify and defend Parent and Buyer and their direct and indirect parent
companies, subsidiaries, and affiliates, and their respective officers,
directors, shareholders, successors and assigns, from and against any and all
costs, expenses, losses, damages, fines, penalties, or liabilities (including,
without limitation, interest which may be imposed in connection therewith, court
costs, litigation expenses, and reasonable attorneys' and accounting fees)
(collectively, "LOSSES") incurred by them, directly or indirectly, with respect
to, in connection with, or arising from, the following:
A. A breach by any Selling Party of any representation, warranty,
covenant, restriction or agreement made by any Selling Party in the Master
Agreement or in any of the Transaction Agreements or in any certificate or other
closing document delivered by such parties to Parent or Buyer thereunder;
B. Any Excluded Liabilities (except to the extent provided in SECTIONS
2.4C(2), (3) and (4) of the Master Agreement); and
C. Any gross negligence or willful misconduct by Selling Parties in
their operation of the Business between the Effective Date and the Closing.
2. INDEMNIFICATION OF SELLING PARTIES BY BUYER AND PARENT. Buyer and Parent
each, jointly and severally, will indemnify and defend Selling Parties and their
direct and indirect parent companies, subsidiaries and affiliates, and their
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respective officers, directors, shareholders, successors and assigns from and
against any Losses incurred by them, directly or indirectly, with respect to, in
connection with, or arising from, the following:
A. A breach by Buyer or Parent of any representation, warranty,
covenant, restriction or agreement made by Buyer or Parent in the Master
Agreement or in any of the Transaction Agreements or in any certificate or other
closing document delivered by Buyer or Parent to the Selling Parties thereunder;
B. Any Assumed Liabilities;
C. Any Excluded Liabilities (solely to the extent provided in SECTIONS
2.4C(2), (3) and (4) of the Master Agreement); and
D. The operation of the Business by Buyer or Parent, or Buyers' or
Parent's ownership, operation or use of the assets and liabilities of the
Business, following the Effective Date (except for matters that constitute
Excluded Liabilities retained by Selling Parties or for which Selling Parties
have agreed to indemnify Buyer and Parent hereunder).
3. PROCEDURE FOR INDEMNIFICATION.
A. Subject to the following provisions of this SECTION 3, the party
which is entitled to be indemnified hereunder (the "INDEMNIFIED PARTY") shall
give notice (the "NOTICE") hereunder to the party required to indemnify (the
"INDEMNIFYING PARTY") promptly, but in no event later than 15 days following
such Indemnified Party's receipt of written notice of any claim as to which
recovery may be sought against the Indemnifying Party because of the indemnity
in SECTION 1 or SECTION 2 hereof, as applicable, which Notice shall specify (to
the extent known) in reasonable detail the amount of such claim and the relevant
facts and circumstances relating thereto. Notwithstanding the foregoing, the
right to indemnification hereunder shall not be affected by any failure of an
Indemnified Party to give such notice, or delay by an Indemnified Party in
giving such notice, unless, and then only to the extent that, the rights and
remedies of the Indemnifying Party shall have been prejudiced as a result of the
failure to give, or delay in giving, such notice. If the Indemnifying Party
wishes to assume the defense of any claim or litigation by a third party, it
shall promptly, but in no event later than 15 days following receipt of Notice
from the Indemnified Party of such claim or litigation, notify the Indemnified
Party of its election. Failure by an Indemnifying Party to notify an Indemnified
Party of its election to defend any such claim or action by a third party within
15 days after receipt of the Indemnified Party's Notice of such claim shall be
deemed a waiver by the Indemnifying Party of its right to defend such claim or
action. If the Indemnifying Party assumes the defense of any claim or litigation
by a third party, the Indemnified Party shall cooperate in the defense thereof,
which cooperation shall include, to the extent reasonably requested by the
Indemnifying Party, the retention of and provision to the Indemnifying Party of
records and information reasonably relevant to such claim or litigation, and
making employees of Buyer available on a mutually convenient basis to provide
additional information and explanation of any materials provided hereunder.
B. If the Indemnifying Party assumes the defense of a claim or
litigation by a third party, the Indemnifying Party will take all steps
necessary in the defense or settlement of such claim or litigation, and will
C-3
hold the Indemnified Party harmless from and against any and all damages caused
by or arising out of any settlement approved by the Indemnifying Party or any
judgment in connection with such claim or litigation. If the Indemnifying Party
assumes the defense of any claim or litigation by a third party, the Indemnified
Party shall agree to any settlement, compromise or discharge of such claim or
litigation that the Indemnifying Party may recommend and that, by its terms,
discharges the Indemnified Party from the full amount of liability in connection
with such claim or litigation; PROVIDED, HOWEVER, that the Indemnifying Party
shall not consent to, and the Indemnified Party shall not be required to agree
to, the entry of any judgment or any settlement that (i) provides for injunctive
or other non-monetary relief affecting the Indemnified Party or (ii) does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in respect of
such claim or litigation.
C. Except for Excluded Construction Claims and [*] Non-Construction
Claims, which are addressed in PARAGRAPHS D and E below, if the Indemnifying
Party does not assume the defense of any such claim or litigation by a third
party within 15 days after receipt of notice from the Indemnified Party to do so
pursuant to this Agreement, the Indemnified Party may defend against such claim
or litigation in such manner as it deems appropriate, and the Indemnified Party
may settle such claim or litigation on such terms as it may deem appropriate and
the Indemnifying Party shall promptly reimburse the Indemnified Party for the
amount of such settlement and for all damages incurred by the Indemnified Party
in connection with the defense against or settlement of such claim or
litigation.
D. Notwithstanding the general right of an Indemnifying Party to
defend third party claims subject to indemnification, Parent or Buyer may (other
than in the case of any claim in respect of Pre-Closing Tax Obligations or, to
the extent provided in SECTION 2.5C of the Master Agreement, Excluded
Construction Claims), in its discretion, upon written notice to Selling Parties,
which notice shall specify (to the extent known) in reasonable detail the amount
of such claim and the relevant facts and circumstances relating thereto,
undertake at Selling Parties' cost and expense, the defense of any claim seeking
damages of less than [*] for which Selling Parties are responsible hereunder
with respect to any lots, land, rights to purchase lots or land, project, or
subdivision purchased by Buyer from Seller (the "[*] NON-CONSTRUCTION CLAIMS").
In the case of any [*] Non-Construction Claims, Selling Parties will have the
right to participate, with counsel of their choice and at their expense, in the
administration of any [*] Non-Construction Claims by Parent or Buyer. Neither
Parent nor Buyer shall settle any [*] Non-Construction Claim without the prior
written consent of Seller which consent shall not be unreasonably withheld. If
Seller does not approve of a settlement proposal of a [*] Non-Construction
Claim, within 15 days of Buyer giving written notice of such proposal, which
notice shall set forth in reasonable detail the terms of such proposal and the
amount thereof, Seller shall assume all responsibility for handling the claim,
PROVIDED, HOWEVER, that if Seller does not assume the responsibility for
handling such claim within such period, then Buyer may retain the defense of
such claim with fees of Buyer's counsel and all settlements or judgments in
respect thereof to be paid by Selling Parties.
E. Notwithstanding the foregoing, the parties will handle Excluded
Construction Claims in accordance with SECTION 2.5C of the Master Agreement.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
C-4
F. The Indemnifying Party shall promptly reimburse the Indemnified
Party for the amount of any Losses (for which the Indemnifying Party is required
to indemnify the Indemnified Party pursuant to SECTION 1 or 2 of this Agreement,
as the case may be) incurred by the Indemnified Party in respect to any claim or
litigation, whether or not resulting from, arising out of, or incurred with
respect to, the act of a third party.
G. Anything in this SECTION 3 to the contrary notwithstanding, the
party not primarily responsible for the defense of a third party claim or
litigation may, with counsel of its choice and at its expense, participate in
the defense of any such claim or litigation.
4. LIMITS ON INDEMNITY; CERTAIN PROCEDURES AND PROVISIONS.
A. For purposes of determining any amounts that are subject to
indemnification pursuant to SECTION 1, any qualifications relating to
materiality, Material Adverse Effect, or the like will be disregarded.
B. The parties agree that the indemnification obligation of the
Selling Parties under SECTION 1 will be capped at a total amount of [*] (the
"INDEMNIFICATION CAP"); PROVIDED, HOWEVER, notwithstanding anything in this
paragraph to the contrary, the Indemnification Cap will not apply (i) in the
event of fraud or intentional misstatement or omission, (ii) [*], or (iii) to a
breach by a Selling Party of the Non-Disclosure and Non-Compete Agreement.
C. Notwithstanding anything to the contrary set forth in this
Agreement (but subject to the terms of this SECTION 4C), the Selling Parties
shall have no obligation to Parent or Buyer under SECTION 1:
(i) for any Losses until Buyer has exhausted all reserves accrued
on the Final Closing Balance Sheet with respect to such Losses (the "LIABILITY
RESERVES" and; the difference between the amount of such Losses and the
Liability Reserve applicable to such Losses, hereinafter referred to as the
"UNRESERVED LOSSES"); and
(ii) for any Unreserved Losses unless and until, and only to the
extent that, the aggregate amount of Unreserved Losses exceeds [*] in the
aggregate (the "BASKET THRESHOLD"); [*].
D. Any Determined Indemnification Claims hereunder may be satisfied at
Parent and Buyers' option from the Earn-Out Payments set forth in SECTION
2.5A(2) of the Master Agreement. Buyer agrees to provide Zenith written notice
of any such setoff when the aggregate amount of setoffs exceeds [*] in any
Earn-Out Period, and updates thereafter of any additional setoff whenever the
aggregate incremental amount of additional setoffs exceeds [*] in that Earn-Out
Period, which notices shall specify each Determined Indemnification Claim and
the amount thereof.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
C-5
E. Buyer shall give the Selling Parties quarterly notice of any Losses
to be satisfied out of the Liability Reserves and of any Losses to be counted
against the Basket Threshold, which notice, in each case, shall specify each
Loss and the amount thereof.
F. Any Losses relating to Real Property will be measured after Buyer
and Parent have used commercially reasonable efforts to obtain relief for their
claims, rights and remedies under all Title Policies and other title insurance
related to the Real Property Assets.
G. Upon the expiration of the survival period set forth in SECTION 9.1
of the Master Agreement with respect to claims based upon or arising out of
contingencies disclosed on SCHEDULE 2.4D to the Master Agreement, Buyer shall
refund to Seller any and all remaining Liability Reserves related to such
contingencies PROVIDED, HOWEVER, (i) Buyer or Parent may setoff or reduce any
refund of the remaining Liability Reserves for Determined Indemnification Claims
of the Parent or Buyer that Selling Parties fail to satisfy within 15 days of
determination and (2) Parent and Buyer shall have no obligation to refund to
Seller any remaining Liability Reserves if Selling Parties are in breach of any
of the Transaction Agreements to the extent of any Losses actually or reasonably
expected to be incurred by Parent and Buyer as a result of such breach or
attributable to indemnity claims against Selling Parties that remain unresolved.
5. DISPUTE RESOLUTION. All Disputes shall be resolved exclusively in
accordance with the Dispute Resolution Procedures attached as EXHIBIT D to the
Master Agreement. Notwithstanding the foregoing, nothing herein will prohibit
the parties from pursuing equitable remedies.
6. NOTICES. All notices, consents, and other communications hereunder will
be in writing and deemed to have been duly given when (a) delivered by hand, (b)
sent by telecopier (with receipt confirmed), or (c) when received by the
addressee, if sent by Express Mail, Federal Express, or other express delivery
service (with delivery confirmation), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the
other):
If to Parent or Buyer: Meritage Corporation
6613 North Scottsdale Road,
Suite 200
Scottsdale, Arizona 85250
Phone: (480) 998-8700
Fax: (480) 998-9162
Attn: Chief Financial Officer
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
Fax: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
C-6
If to Selling Parties Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367
Phone: (818) 713-1000
Fax: (818) 710-1860
Attn: Stanley R. Zax
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Phone: (213) 687-5000
Fax: (213) 687-5600
Attn: Joseph J. Giunta, Esq.
7. ASSIGNMENT. This Agreement will not be assigned by operation of law or
otherwise, (a) except that Buyer may assign all or any portion of its rights
under this Agreement to any wholly owned subsidiary, but no such assignment will
relieve Buyer or its successor or Parent of its primary liability for all
obligations of Buyer and Parent, respectively, hereunder, and (b) except that
this Agreement may be assigned by operation of law to any corporation or entity
with or into which Buyer may be merged or consolidated or to which Buyer
transfer all or substantially all of its assets, and such corporation or entity
assumes this Agreement and all obligations and undertakings of Buyer hereunder,
but no such assignment will relieve Buyer or its successor or Parent of their
liability for the respective obligations of Buyer and Parent, hereunder. Any
assignment in violation of the provisions of this Agreement will be null and
void.
8. CONSTRUCTION. Captions and References in this Agreement to "Sections,"
"Exhibits," and "Schedules" are to the Sections and Articles in, and the
Exhibits and Schedules to, this Agreement, unless otherwise noted.
9. GENDER AND NUMBER. The masculine, feminine, or neuter pronouns used
herein will be interpreted without regard to gender, and the use of the singular
or plural will be deemed to include the other whenever the context so requires.
10. ENTIRE AGREEMENT. This Agreement, the other Transaction Agreements and
all certificates, schedules and other documents attached to or deliverable under
such agreements (collectively, the "AGREEMENTS" constitute the entire agreement,
including with respect to representations and warranties, between the parties
pertaining to the subject matter contained in the Agreements. All prior and
contemporaneous agreements, representations and understandings of the parties,
oral or written, are superseded by and merged in the Agreements. No supplement,
modification or amendment of the Agreements will be binding unless in writing
and executed by the parties thereto.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by facsimile and each counterpart or facsimile will constitute
an original instrument, but all such separate counterparts and facsimiles will
constitute one and the same agreement.
C-7
12. GOVERNING LAW. The validity, construction, and enforceability of this
Agreement will be governed in all respects by the laws of the State of Nevada,
without regard to its conflict of laws rules.
13. WAIVER OF PROVISIONS. The terms, covenants and conditions of this
Agreement may be waived only by a written instrument executed by the party
waiving compliance. The failure of any party at any time to require performance
of any provisions hereof will, in no manner, affect the right at a later date to
enforce the same. No waiver by any party of any condition, or breach of any
provision, term, covenant, representation, or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, will
be deemed to be or construed as a further or continuing waiver of any such
condition or waiver of the breach of any other provision, term, covenant,
representation, or warranty of this Agreement.
14. COSTS. Except as otherwise provided in this Agreement or in the Master
Agreement, if any legal action or any arbitration or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties will be entitled to
recover reasonable attorneys' fees, accounting fees, and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
15. AMENDMENT. This Agreement may not be amended except by an instrument in
writing approved by the parties to this Agreement and signed on behalf of each
of the parties hereto.
16. SEVERABILITY. If any term, provision, covenant, or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions of this Agreement will remain in full force and effect and will in
no way be affected, impaired, or invalidated and the court will modify this
Agreement or, in the absence thereof, the parties will negotiate in good faith
to modify this Agreement to preserve each party's anticipated benefits under
this Agreement.
17. BINDING EFFECT. Subject to the provisions and restrictions of SECTION
7, the provisions of this Agreement are binding upon and will inure to the
benefit of the parties and their respective heirs, personal representatives,
successors and assigns.
18. HEADINGS. The headings of this Agreement are for purposes of reference
only and will not limit or define the meaning of any provision of this
Agreement.
19. NO THIRD BENEFICIARIES. Except as otherwise set forth in SECTIONS 1 and
2 of this Agreement and except as specifically provided in SECTION 7 of this
Agreement and similar provisions in the other Transaction Agreements, neither
this Agreement nor any other Transaction Agreement is intended to, and none of
them shall, create any rights in any other Person other than the parties to such
agreements. Without limiting the generality of the foregoing, nothing herein or
in any other Transaction Agreement is intended to create, nor shall it create,
in the Title Company or any title insurer any right of subrogation to any rights
of Parent or Buyer arising from any representation or warranty of any Selling
Party.
C-8
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first written above by their respective officers thereunder duly
authorized.
MERITAGE CORPORATION,
a Maryland corporation
By: ________________________________________
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
MTH-HOMES NEVADA, INC.,
an Arizona corporation
By: ________________________________________
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
PERMA-BILT, A NEVADA CORPORATION
By: ________________________________________
Name: Daniel L. Schwartz
Title: President and Chief Executive Officer
ZENITH NATIONAL INSURANCE CORP., a Delaware
corporation,
By: ________________________________________
Name: Stanley R. Zax
Title: President
[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]
C-9
EXHIBIT D
DISPUTE RESOLUTION PROCEDURES
D-1
DISPUTE RESOLUTION PROCEDURES
For the purpose of these Dispute Resolution Procedures, Parent and Buyer
will act and be treated as one party and Selling Parties will act and be treated
as one party.
A. NEGOTIATION. The parties will first attempt to settle a Dispute by a
meeting of two designated representatives of each party within five days after
receipt by a party of a request from the other party for such a meeting
("REQUEST").
B. MEDIATION. If such Dispute cannot be settled at such meeting either
party within five (5) days of such meeting (or within ten days of receipt of a
Request if no meeting takes place) may give a written notice (a "MEDIATION
NOTICE") to the other party requesting mediation and setting forth the nature of
the Dispute. The mediation will be held in Las Vegas, Nevada under the
Commercial Mediation Rules of the AAA in effect on the date of the Mediation
Notice ("MEDIATION RULES"). The parties will select a person who will act as the
mediator under this Paragraph B within 60 days of the date of the execution of
this Agreement. If a mediator has not been selected or if the mediator so
selected is unable or unwilling to serve, the parties shall have ten (10) days
from receipt by a party of a Mediation Notice to agree on a mediator. Failing
such timely agreement, the mediator shall be appointed by the AAA in accordance
with the Mediation Rules. If the Dispute has not been resolved by mediation as
provided above within thirty (30) days after the appointment of the mediator (or
within sixty (60) days of the receipt of a Mediation Notice, whichever comes
sooner), then, on the Request of any Party the Dispute will be determined by
arbitration in accordance with the provisions of Paragraph C hereof.
C. ARBITRATION. Any Dispute that is not timely settled through mediation as
provided in Paragraph B above will be finally and exclusively resolved by
arbitration in Las Vegas, Nevada. The arbitration shall be administered by the
AAA under its Commercial Arbitration Rules in effect on the date of the Dispute
Notice (the "RULES"), as modified by the provisions of this Section C. There
shall be three neutral and impartial arbitrators, of whom one shall be appointed
by Seller and one shall be appointed by Buyer within 30 days of receipt by
respondent of the demand for arbitration. The two arbitrators so appointed shall
select the chair of the arbitral tribunal within 30 days of the appointment of
the second arbitrator. If any arbitrator is not appointed within the time limits
provided herein, such arbitrator shall be appointed by the AAA in accordance
with the listing, striking and ranking procedure in the Rules. Any arbitrator
appointed by the AAA shall be a retired judge or a practicing attorney with no
less than fifteen years of experience with large commercial cases and an
experienced arbitrator. The arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. 1 ET SEQ. The arbitrators shall base the award on
applicable law and judicial precedent. The arbitrators are not empowered to
award damages in excess of compensatory damages, and each party hereby
irrevocably waives any right to recover punitive, exemplary or similar damages
with respect to any Dispute. The award shall be in writing and shall include the
findings of fact and conclusions of law upon which the award is based. Judgment
on the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
D-2
Notwithstanding the foregoing:
(a) Upon the application by either party to a court for an order
confirming, modifying or vacating the award within sixty (60) days of receipt
thereof, the court shall have the power to review whether, as a matter of law
based on the findings of fact determined by the arbitrators, the award should be
confirmed, modified or vacated in order to correct any errors of law made by the
arbitrators. In order to effectuate such judicial review limited to issues of
law, the parties agree (and will stipulate to the court) that the findings of
fact made by the arbitrators will be final and binding on the parties and will
serve as the facts to be submitted to and relied on by the court in determining
the extent to which the award should be confirmed, modified or vacated. For the
purpose of this section permitting judicial review of the award, the parties
submit to the exclusive jurisdiction of the Federal and State courts located in
Las Vegas, Nevada.
(b) By agreeing to arbitration, the parties do not intend to deprive
any court of its jurisdiction to issue a pre-arbitral injunction, pre-arbitral
attachment, or other provisional order in aid of arbitration proceedings and the
enforcement of any award (including but not limited to a preliminary injunction
enforcing the ownership or confidentiality provisions contained in this
Agreement and the other Transaction Agreements). Without prejudice to such
provisional remedies as may be available under the jurisdiction of a national
court, the arbitral tribunal shall have full authority to grant provisional
remedies and to direct the parties to request that any court modify or vacate
any temporary or preliminary relief issued by such court, and to award damages
for the failure of any party to respect the arbitrators' orders to that effect.
D. COSTS AND ATTORNEYS' FEES. If either party fails to proceed with
arbitration as provided herein or unsuccessfully seeks to stay such arbitration,
or if no appeal of an award is timely filed in accordance with SECTION C(A)
herein fails to comply with any arbitration award within thirty (30) days of
receipt thereof, or is unsuccessful in vacating or modifying the award pursuant
to a petition or application for judicial review, the other party will be
entitled to be awarded costs, including reasonable attorneys' fees, paid or
incurred by such other party in successfully compelling arbitration or defending
against an attempt to stay such arbitration defending against an attempt to
vacate or modify an arbitration award and/or successfully enforcing such award.
E. TOLLING OF STATUTE OF LIMITATIONS. All applicable statutes of
limitations and defenses based upon the passage of time will be tolled while the
procedures specified in SECTIONS A and B of this EXHIBIT D are pending. The
parties will take such action, if any, required to effectuate such tolling.
F. NO AMENDMENT OF AGREEMENT. In no event shall the arbitrators have
the power or jurisdiction to amend, modify or vary the terms of this Agreement
or any of the other Transaction Agreements.
D-3
EXHIBIT E
NON-DISCLOSURE AND NON-COMPETE AGREEMENT
E-1
NON-DISCLOSURE AND NON-COMPETE AGREEMENT
This AGREEMENT (this "AGREEMENT"), is made as of October 7, 2002 (the
"EFFECTIVE DATE"), by and between MERITAGE CORPORATION, a Maryland corporation
("MERITAGE"), MTH-HOMES NEVADA, INC., an Arizona corporation (the "COMPANY"),
ZENITH NATIONAL INSURANCE CORP., a Delaware corporation ("ZENITH"), and
PERMA-BILT, A NEVADA CORPORATION ("SELLER" and, together with Zenith, "SELLING
PARTIES").
R E C I T A L S
Seller is engaged in homebuilding and home sales operations.
Zenith indirectly owns all of the outstanding shares of capital stock of
Seller.
The Business will be acquired by the Company pursuant to a Master
Transaction Agreement, dated as of October 7, 2002 (the "MASTER AGREEMENT").
Capitalized terms not otherwise defined shall have the meanings ascribed to them
in the Master Agreement.
Selling Parties have intimate knowledge of the business practices of the
Business, which, if exploited by Selling Parties in contravention of this
Agreement, would seriously, adversely, and irreparably affect the ability of the
Company to continue the businesses previously conducted by Seller.
To induce the Company to enter into the Master Agreement, Selling Parties
have agreed to execute this Agreement.
In consideration of the premises, the mutual promises and covenants of the
parties set forth herein, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Selling Parties, intending to
be legally bound, agree as follows:
1. NONCOMPETITION.
(a) For the period beginning on the Effective Date and ending on the
[*] anniversary thereof (the "RESTRICTION PERIOD"), neither Selling Parties nor
any subsidiary, sister entity, or parent will, directly or indirectly, either as
a partner or owner or in any other capacity:
(i) engage in the homebuilding or home sales business within 100
miles of the Las Vegas metropolitan area (a "COMPETING BUSINESS");
(ii) recruit, hire or discuss employment for a Competing Business
with any person who is, or within the six month period preceding the date of
such activity was, an employee of the Company or Meritage (other than as a
result of a general solicitation for employment); or
(iii) solicit any customer or supplier of the Company for a
Competing Business or otherwise attempt to induce any such customer or supplier
to discontinue its relationship with the Company.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
E-2
(b) Selling Parties represent to the Company and Meritage, and Selling
Parties acknowledge, that:
(i) they are willing and able to engage in a business that is not
a Competing Business;
(ii) enforcement of the restrictions set forth in this SECTION 1
would not be unduly burdensome to Selling Parties;
(iii) the period of time provided for in this SECTION 1 and the
territorial restrictions and other provisions and restrictions set forth herein
are reasonable and necessary to protect the Company and its successors and
assigns in the use and employment of the goodwill of the business conducted by
Perma-Bilt Homes prior to the Effective Date; and
(iv) damages cannot compensate the Company in the event of a
violation of this SECTION 1, and that if such violation should occur, injunctive
relief shall be essential for the protection of the Company and its successors
and assigns.
Accordingly, Selling Parties hereby covenant and agree that, in the event
any of the provisions of this SECTION 1 shall be violated or breached, the
Company shall be entitled to obtain injunctive relief against the party or
parties violating such covenants, without bond but upon due notice, in addition
to such further or other relief as may be available at equity or law. Obtainment
of such an injunction by the Company shall not be considered an election of
remedies or a waiver of any right to assert any other remedies which the Company
has at law or in equity. No waiver of any breach or violation hereof shall be
implied from forbearance or failure by the Company to take action thereof.
Zenith agrees to pay any and all reasonable costs and expenses, including
attorneys' fees, incurred by the Company in enforcing this provision if it is
determined that Selling Parties breached this Agreement.
(c) Selling Parties hereby agree that upon becoming a partner, member,
owner or investor of another enterprise or any third-party during the period in
which the terms of this SECTION 1 are in effect, each shall promptly disclose to
such new enterprise or third-party the terms of this SECTION 1, and shall cause
such enterprise or third-party to maintain such information in confidence.
Selling Parties further agree and authorize the Company to notify others,
including customers of the Company and any such future enterprise or third-party
to which either Zenith or Seller may become a partner, member, owner or
investor, of the terms of this SECTION 1 and of their obligations hereunder.
(d) Selling Parties hereby agree that the period of time in which this
SECTION 1 is in effect shall be extended for a period equal to the duration of
any breach of this SECTION 1(A) by Selling Parties.
(e) Nothing contained in this Agreement shall prohibit Selling Parties
or their affiliates or associates, any of their directors, officers or
employees, or any of their representatives from investing in stocks, bonds, or
other securities of any entity that engages in a Competing Business, PROVIDED,
HOWEVER, that in the case of capital stock, such securities are listed on a
national securities exchange or traded in the over-the-counter market or
registered under Section 12(g) of the Securities Exchange Act of 1934, and such
investment does not exceed, in the case of any class of the capital stock of any
E-3
one issuer, three percent of the issued and outstanding voting power at the time
of such investment. In addition, nothing contained herein shall prevent any
officer or director of the Selling Parties or their affiliates or associates
from serving as a director or trustee of any Competing Business.
2. PROTECTION OF INFORMATION. Selling Parties recognize and acknowledge
that the Company's trade secrets and all other confidential and proprietary
information of a business, financial or other nature, including without
limitation, proprietary information of the Company, as it exists from time to
time (collectively, "CONFIDENTIAL INFORMATION"), are valuable and unique assets
of the Company and therefore agree that, during the Restriction Period, except
as otherwise required by Applicable Laws, or the rules of any exchange on which
any securities of Zenith are or will be listed, they will not, and will use
their best efforts to ensure that their directors, officers, employees,
advisers, agents and consultants do not, disclose any Confidential Information
concerning the Company and/or its subsidiaries or affiliates, to any person,
firm, corporation, association or other entity, for any reason whatsoever,
unless previously authorized in writing to do so by Meritage. It is understood
that Confidential Information shall not include any information that is or
becomes generally available to the public other than as a result of an
unauthorized disclosure by Selling Parties or that is disclosed by Selling
Parties in accordance with the terms of a prior written consent of Meritage. For
the purpose of enforcing this provision, the Company may resort to any remedy
available to it under the law. In the event that any Selling Party is requested
pursuant to, or required by, Applicable Laws, regulation or rules of any
securities exchange or by legal process to disclose any Confidential Information
or any other information concerning the Company, the Selling Parties agree that
they shall provide the Company with prompt notice of such request or requirement
in order to enable the Company to seek an appropriate protective order or other
remedy, to consult with the Selling Parties with respect to the Company taking
steps to resist or narrow the scope of such request or legal process, or to
waive compliance, in whole or in part, with the terms of this SECTION 2. In the
event that no such protective order or other remedy is obtained, or that the
Company waives compliance with the terms of this SECTION 2, Selling Parties
shall use their reasonable best efforts to disclose only that portion of any
Confidential Information which Selling Parties are advised by counsel is legally
required and shall exercise all reasonable efforts to ensure that all
Confidential Information so disclosed shall be accorded confidential treatment
in accordance with this SECTION 2.
3. SEVERABILITY. In the event that a court of competent jurisdiction
determines that the Restriction Period is unenforceable, the Restriction Period
shall mean [*]. Additionally, if any provision of this Agreement is held to be
illegal, invalid or unenforceable under any applicable law, then such provision
will be deemed to be modified to the minimum extent necessary to render it
legal, valid and enforceable, and if no such modification will render it legal,
valid and enforceable, then this Agreement will be construed as if not
containing the provision held to be invalid, and the rights and obligations of
the parties will be construed and enforced accordingly.
[*] Confidential information on this page has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a Confidentiality
Treatment Request.
E-4
4. WAIVER. The waiver by either party of a breach of any provision of this
Agreement by the other shall not operate or be construed as a waiver of any
subsequent breach.
5. INJUNCTIVE RELIEF. Selling Parties acknowledge and agree that Meritage
and the Company would be irreparably harmed by any violation of Selling Parties'
obligations under SECTIONS 1 and 2 hereof and that, in addition to all other
rights or remedies available at law or in equity, the Company will be entitled
to injunctive and other equitable relief to prevent or enjoin any such
violation.
6. ASSIGNMENT BY COMPANY. Nothing in this Agreement shall preclude Zenith,
Seller, Meritage or the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation or
entity that assumes this Agreement and all obligations and undertakings
hereunder. Upon such consolidation, merger or transfer of assets and assumption,
the terms "Zenith," "Seller," "Meritage" and "Company," respectively, as used
herein shall mean such other corporation or entity, as appropriate, and this
Agreement shall continue in full force and effect. For purposes of SECTIONS 1
and 2 hereof, the term "Company" shall mean all joint ventures (50% or more
owned by Company), subsidiaries and parent companies of Company (whether
corporate, partnership or other form), including the subsidiary that operates
the Business as a division of Meritage Corporation.
7. ENTIRE AGREEMENT. This Agreement embodies the complete agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior written, or prior or contemporaneous oral, understandings or agreements
between the parties that may have related in any way to the subject matter
hereof. This Agreement may be amended only in writing executed by Meritage and
Selling Parties.
8. GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the internal laws, and not the law of conflicts, of
the State of Nevada.
9. NOTICE. All notices, consents, and other communications hereunder will
be in writing and deemed to have been duly given when (a) delivered by hand, (b)
sent by telecopier (with receipt confirmed), or (c) when received by the
addressee, if sent by Express Mail, Federal Express, or other express delivery
service (with delivery confirmation), in each case to the appropriate addresses
and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate as to itself by notice to the
other):
If to the Company: Meritage Corporation
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
Phone: (480) 998-8700
Fax: (480) 998-9162
Attention: Chief Financial Officer
E-5
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
Fax: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Selling Parties: Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, California 91367
Phone: (818) 713-1000
Fax: (818) 710-1860
Attention: Stanley R. Zax
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Phone: (213) 687-5000
Fax: (213) 687-5600
Attn: Joseph J. Giunta, Esq.
E-6
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
MERITAGE CORPORATION, a Maryland corporation
By:
------------------------------------------
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
MTH-HOMES NEVADA, INC., an Arizona corporation
By:
------------------------------------------
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
ZENITH NATIONAL INSURANCE CORP.,
a Delaware corporation
By:
------------------------------------------
Name: Stanley R. Zax
Title: President
PERMA-BILT, A NEVADA CORPORATION
By:
------------------------------------------
Name: Daniel Schwartz
Title: President and Chief Executive Officer
[SIGNATURE PAGE TO NON-DISCLOSURE AND NON-COMPETE AGREEMENT]
E-7
EXHIBIT F
FORM OF GRANT, BARGAIN, SALE DEED
F-1
APN NOS. _____________
MAIL TAX STATEMENTS AND
WHEN RECORDED MAIL RETURN TO:
MTH-Homes Nevada, Inc.
7150 Pollock Drive
Las Vegas, NV 89114
Attention: Daniel L. Schwartz
GRANT, BARGAIN, SALE DEED
This GRANT, BARGAIN, SALE DEED is made the 7th day of October, 2002, by
Perma-Bilt, A Nevada Corporation, as GRANTOR, to MTH-Homes Nevada, Inc., an
Arizona corporation, whose address is 7150 Pollock Drive, Las Vegas, Nevada
89114, as GRANTEE.
Witness that Grantor, for good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, grants, bargains and sells to
Grantee all that real property located in the County of Clark, State of Nevada,
more particularly described as follows:
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF
Together with all tenements, hereditaments and appurtenances thereto; subject to
current real property taxes, zoning and other governmental restrictions, and all
other covenants, conditions, restrictions, easements, rights-of-way and other
matters of record.
SUBJECT TO: the permitted exceptions set forth on EXHIBIT "B" attached
hereto and by this reference made a part hereof.
To have and to hold, all and singular, the premises aforementioned unto
said Grantee, its successors and assigns forever.
F-2
IN WITNESS WHEREOF, Grantor has set its hand the day and year first above
written.
PERMA-BILT, A NEVADA CORPORATION
By:
-----------------------------------------
Name: Daniel L. Schwartz
Title: President and Chief Executive Officer
STATE OF NEVADA )
):ss
COUNTY OF CLARK )
This instrument was acknowledged before me on October ___, 2002, by
___________, as _______________ of ___________, a _________________.
----------------------------------------
Notary Public
My commission expires: _________________
F-3
EXHIBIT "A"
LEGAL DESCRIPTION
F-4
EXHIBIT "B"
PERMITTED EXCEPTIONS
F-5
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
G-1
EXHIBIT H
BILL OF SALE AND ASSIGNMENT AGREEMENT
KNOW ALL MEN BY THESE PRESENTS, that Perma-Bilt, A Nevada Corporation
("Seller"), does hereby sell, convey, transfer, assign and set over unto MTH
Homes Nevada, Inc., an Arizona corporation ("Buyer"), and its successors and
assigns the following (collectively, the "Conveyed Assets"): (i) all of Seller's
rights, title, and interest in and to the Assets (as that term is defined in
that certain Master Transaction Agreement by and among Meritage Corporation, a
Maryland corporation ("Parent"), Buyer, Seller and Zenith National Insurance
Corp., dated October 7, 2002 (the "Master Agreement")) OTHER THAN the
Non-Exclusive Assets (as hereinafter defined); and (ii) a non-exclusive
co-ownership interest with LM Las Vegas, LLC, a Delaware limited liability
company, in the following (collectively, the "Non-Exclusive Assets"): all of
Seller's right, title, and interest in and to the rights described in clause
(ii) of Section 2(a) of that certain Partial Assignment and Assumption Agreement
by and between LM Las Vegas, LLC and MTH-Homes Nevada, Inc., dated October 7,
2002. Capitalized terms used herein and not otherwise defined will have the same
meaning as set forth in the Master Agreement.
The representations and warranties contained in ARTICLE IV of the Master
Agreement that relate to the Conveyed Assets are incorporated herein by
reference for the time periods and subject to all the terms set forth therein,
and except for such representations and warranties, the conveyances made hereby
are made without any representation or warranty of Selling Parties, whether
implied, statutory, or otherwise.
This Bill of Sale and Assignment will inure to the benefit of, and will
bind Seller and its successors and assigns.
IN WITNESS WHEREOF, the undersigned parties have executed this Bill of Sale
and Assignment to be effective as of the 7th day of October, 2002.
SELLER:
PERMA-BILT, A NEVADA CORPORATION
By:
--------------------------------------------
Name: Daniel L. Schwartz
Title: President and Chief Executive Officer
H-1
EXHIBIT I
SCHWARTZ EMPLOYMENT AGREEMENT
I-1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "AGREEMENT") is effective as of October
1, 2002 by and among MTH-HOMES NEVADA, INC., an Arizona corporation (the
"COMPANY") and DANIEL SCHWARTZ ("EMPLOYEE"). All capitalized terms used herein
and not otherwise defined shall have the same meaning as set forth in the Master
Transaction Agreement between the Company, Meritage Corporation, a Maryland
corporation ("PARENT"), Perma-Bilt, A Nevada Corporation and Zenith National
Insurance Corp. a Delaware corporation ("ZENITH") dated October 7, 2002 ("MASTER
AGREEMENT").
RECITALS
1. Pursuant to the Master Agreement, the Company will acquire all or
substantially all assets of the Business.
2. The Company desires to obtain the consultation, coordination and
management services of Employee, and Employee desires to provide such services
to the Company, in accordance with the terms, conditions and provisions of this
Agreement.
3. The Company requires, as a condition to the Closing and payment of the
Purchase Price, that Employee provide to the Company the non-competition and
confidentiality protections set forth herein.
In consideration of the covenants and mutual agreements set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in reliance upon the representations, covenants and
mutual agreements contained herein, the Company and Employee agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions of this Agreement,
during the first two years of the term of this Agreement, the Company agrees to
employ Employee as President of the Company, and Employee agrees to diligently
perform the duties associated with such position, including, but not limited to
the duties and responsibilities listed on EXHIBIT A attached hereto. Employee
will devote substantially all of his business time, attention and energies to
the business of the Company and will comply with the non-discriminatory policies
and guidelines established by Parent from time to time applicable to its senior
management executives. During the third year of the term of this Agreement, the
Company agrees to employ Employee as President Emeritus of the Company during
which time Employee agrees to devote part of this business time, attention and
energies to the business of the Company.
2. TERM. Employee will be employed under this Agreement for a term
beginning on October 1, 2002 (the "EFFECTIVE DATE") and ending on the third
anniversary of the Effective Date unless Employee's employment is terminated
earlier pursuant to SECTION 7.
3. BASE SALARY AND BENEFITS. The Company will pay Employee the Base Salary
(as defined below). For purposes of this Agreement, the term "BASE SALARY" shall
mean an amount equal to $250,000 per year, pro rated as appropriate. Salary will
be payable bi-weekly in accordance with the payroll practices of the Company in
effect from time to time. All of Employee's compensation under this Agreement
will be subject to deduction and withholding authorized or required by
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applicable law. In addition, Employee will be eligible during the term of this
Agreement to participate in all ordinary and customary benefit plans and
programs afforded Parent's other division presidents; PROVIDED, HOWEVER, that
notwithstanding anything to the contrary herein, during the term hereof Employee
will in any event receive those benefits described in EXHIBIT B attached hereto.
4. INCENTIVE COMPENSATION. Employee will be entitled to incentive
compensation based on the achievement of certain performance targets specified
in EXHIBIT C hereto, pro rated as appropriate. The incentive compensation shall
be paid by the Company within thirty days following the end of each calendar
year.
5. PRE-TAX BONUS. Employee will be entitled to receive from the Company
bonus payments of 10% of the Pre-Tax Net Income of the Company as determined in
accordance with GAAP (the "PRE-TAX BONUS"), subject to the provisions set forth
below.
A. "PRE-TAX NET INCOME" will mean the net income of the Company before
interest and income taxes determined in accordance with GAAP and as reported in
the Company's financial statements after giving effect to the following (to the
extent not already reflected in the calculation of such net income of the
Company before income taxes):
(1) subtraction of compensation paid to Employee, but not the
Pre-Tax Bonus.
(2) subtraction of a "SERVICES FEE," which shall equal any direct
third-party costs paid by Parent in connection with providing services to the
Company; PROVIDED, HOWEVER, that the Services Fee will not include overhead
costs.
(3) subtraction of a "CAPITAL CHARGE," which shall be a charge
equal to 10.5% on the Capital (i.e., equity, intercompany borrowings and
interest bearing liabilities due third parties) provided to the Company by
Parent. "Capital" shall mean (x) the aggregate book value of the Company's
assets (excluding any assets not required to be reflected on the balance sheet)
at the beginning of each period that the charge is being computed, less (y) all
non-interest bearing liabilities due third parties. The Capital Charge will be
calculated on a monthly basis. To the extent that the Business' assets include
land greater than $50 million, the excess over $50 million will not be subject
to a Capital Charge. Other than the Capital Charge, no interest (whether direct
or indirect, whether paid, actually incurred or allocated, and whether expensed,
amortized to cost of sales, capitalized or otherwise), will be deducted or
amortized in computing the Pre-Tax Net Income for any period. EXHIBIT D hereto
sets forth a sample calculation. In the event of a conflict between the
description of the calculation set forth in this SECTION 5A and EXHIBIT D,
EXHIBIT D shall control.
(4) an amount equal to the excess of the Purchase Price over the
Adjusted Book Value set forth on the Final Closing Balance Sheet (i.e., the
purchase price premium over the book value of the assets and liabilities
acquired) ("PREMIUM") shall (A) be excluded for purposes of computing the
Capital Charge from the "aggregate book value of the Company's assets at the
beginning of each period;" and (B) neither deducted nor amortized in computing
the Pre-Tax Net Income for any period.
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(5) exclusion of all transaction costs of Parent and the Company
with respect to or arising out of the consummation of the transactions
contemplated by the Agreements (including, without limitation, all costs and
expenses of arbitrators (as to the calculation of the Purchase Price),
accountants, legal counsel and financial advisors of Parent or the Company and,
if required to be paid by Parent or the Company pursuant to the Agreements, of
any other parties hereto).
(6) exclusion of all losses subject to indemnification by Selling
Parties pursuant to the Indemnification Agreement that are paid by Selling
Parties or are deducted from Liability Reserves, and exclusion of all payments
made by Selling Parties to the Company pursuant to the Indemnification
Agreement.
(7) exclusion of all other charges against net income or
resulting from significant changes in accounting principles that are not (y)
consistent with Parent's or the Business' past practices, or (z) required by
GAAP.
B. There will be three Pre-Tax Bonus payments, one for each of the
three consecutive Bonus Periods following the Closing Date.
C. The Company will pay to Employee 90% of each estimated Pre-Tax
Bonus payment for the previous (i.e., just ended) Bonus Period in cash on or
before the 30th day following the end of the last relevant Bonus Period.
Together with that payment, the Company will deliver to Employee a calculation
notice, setting for the calculation in reasonable detail, of the estimated
Pre-Tax Net Income for such Bonus Period. Thereafter, within 90 days after
completion of each Bonus Period, Parent will deliver to Employee a calculation
notice, setting forth the calculation in reasonable detail, of the Pre-Tax Net
Income for such Bonus Period and the remaining amount, if any, of any Pre-Tax
Bonus Payment due, together with a check in the amount of the balance due.
D. "BONUS PERIOD" will mean for the first Bonus Period, the period
commencing on October 1, 2002 and ending on September 30, 2003; for the second
Bonus Period, the period commencing on October 1, 2003 and ending on September
30, 2004; for the final Bonus Period, the period commencing on October 1, 2004
and ending on September 30, 2005.
E. During each Bonus Period, unless otherwise agreed to by Employee,
the Parent and the Company agree to:
(1) operate the Business consistent with the past practices of
Business or Parent and with the Company's proposed post-Closing operations,
provided that the Company will have no obligation to execute such proposed
post-Closing operations;
(2) maintain separate books and records for the Business;
(3) use reasonable commercial efforts, subject to the fiduciary
duty of the Parent's Board of Directors, to provide sufficient capital to the
Business to enable it to make capital expenditures and otherwise operate in the
ordinary course; and
I-4
(4) maintain the Business as a separate entity and not combine,
merge or consolidate it (except together or with Parent or another subsidiary of
Parent; provided that with respect to any such combination, merger or
consolidation, Parent will continue to maintain separate books and records for
the Business) or liquidate it or, except in the ordinary course of business,
sell or otherwise dispose of its assets (except to Parent or another subsidiary
of Parent; provided that with respect to any such sale, transfer or disposition,
Parent will continue to maintain separate books and records for the Business).
F. If Employee's employment is terminated prior to the third
anniversary of this Agreement, payment of the Pre-Tax Bonus is subject to the
following:
(1) TERMINATED BY THE COMPANY WITHOUT CAUSE. Employee is entitled
to be paid the Pre-Tax Bonus for each of the three Bonus Periods if his
employment is terminated by the Company without Cause;
(2) DEATH OR DISABILITY. Employee is not be entitled to any
Pre-Tax Bonus payment if his employment is terminated by reason of death or
Disability (as defined in SECTION 7D of this Agreement) prior to the first
anniversary of this Agreement. If Employee's employment with the Company is
terminated by reason of death of Disability at any time after the first
anniversary, he is entitled to be paid (or his estate or personal representative
is entitled to be paid if Employee is deceased) the Pre-Tax Bonus for each of
the three Bonus Periods;
(3) TERMINATED BY THE COMPANY WITH CAUSE. Employee is not
entitled to any remaining Pre-Tax Bonus if his employment is terminated for
Cause (as defined in SECTION 7D of this Agreement); and
(4) TERMINATED VOLUNTARILY BY EMPLOYEE. Employee is not entitled
to any remaining Pre-Tax Bonus if he voluntarily terminates his employment
(other than as a result of a material breach of this Agreement by the Company
which is not cured within thirty days written notice thereof by Employee).
G. Any disputes regarding the Parent's computation of the Pre-Tax
Bonus will be resolved pursuant to the procedures set forth in SECTION 16B of
this Agreement.
6. OPTION GRANT. On the Closing Date of the Master Agreement and on the
following two anniversaries thereof (each a "GRANT DATE"), Parent will grant
Employee an option to purchase 10,000 shares of common stock of Parent at an
exercise price that is equal to the market price of the Parent's listed stock on
the respective Grant Date. The option will vest in accordance with terms
generally applied under the Parent's "division president stock option program."
Attached hereto as EXHIBIT E is the form of Stock Option Agreement that will be
entered into by Parent and Employee.
7. TERMINATION.
A. If Employee voluntarily terminates his employment with the Company
(other than as a result of a material breach of this Agreement by the Company
which is not cured within thirty days written notice thereof by Employee) or if
the Company discharges Employee for Cause (as defined below), then the Company's
obligations to pay the Base Salary and incentive compensation under this
Agreement will terminate immediately, except for the payment of the Base Salary
I-5
through the Date of Termination and the incentive compensation for the year in
which such voluntary termination or discharge for Cause occurs, prorated through
the Date of Termination. For purposes hereof, a termination of Employee's
employment hereunder because of Employee's death or Disability shall not be
considered a voluntary termination.
B. If Employee's employment with the Company is terminated by the
Company without Cause, then the Company will be obligated to pay Employee's then
current Base Salary pursuant to SECTION 3 for one year and incentive
compensation pursuant to SECTION 4 for that year.
C. If Employee's employment with the Company is terminated as a result
of Employee's death or Disability then the Company will be obligated to pay
Employee's then current Base Salary pursuant to SECTION 3 for one year and
Employee's incentive compensation pursuant to SECTION 4 for that year.
D. For purposes of this Agreement,
"CAUSE" is defined to mean (i) Employee's wrongful
misappropriation of any money or other assets or properties of the Business
(before or after the Closing Date), or any subsidiary or affiliate of the
Company, resulting, or intended to result, directly or indirectly, in
substantial personal gain or enrichment to Employee; (ii) the conviction of
Employee for any felony; (iii) engagement by Employee in conduct involving
fraud, moral turpitude, dishonest, gross misconduct, embezzlement, theft, or
similar matters that are detrimental to the Company or Business (before or after
the Closing Date); or (iv) Employee's willful disregard of his primary duties to
the Company (except for reasons beyond Employee's reasonable control) which
continues for more than thirty days after written notice by Company to Employee
describing in reasonable detail the primary duties which Employee allegedly has
willfully disregarded.
"DISABILITY" means a disability (as reasonably determined by a
physician mutually acceptable to both parties) that results in Employee being
unable to fulfill his duties under this Agreement for 90 consecutive days.
"DATE OF TERMINATION" shall mean (i) if the Agreement is
terminated as a result of Employee's death, the date of Employee's death, (ii)
if the Agreement is terminated by Employee, the date on which he delivers a
notice of termination to the Company, (iii) if this Agreement is terminated as a
result of Disability, the date a notice of termination is given, (iv) if
Employee's employment is terminated by the Company for any other reason, the
date on which a notice of termination is given to Employee; or (v) upon
Employee's voluntary resignation.
E. The Company shall have no obligation to pay Employee any amounts
after the Date of Termination, other than his Base Salary through the Date of
Termination, if Employee is in breach of any provision in SECTION 8 of this
Agreement which continues for more than thirty days after written notice by
Company to Employee to cure or cease the offending activities.
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8. RESTRICTIVE COVENANT. In consideration of Employee's employment and as
an inducement for Company to enter the Master Agreement, Employee hereby agrees
to the following:
A. For a period of three years from the date of this Agreement (the
"RESTRICTION PERIOD"), Employee will not, directly or indirectly, either as an
employee, partner, owner, director, adviser or consultant or in any other
capacity:
(1) engage in the homebuilding, home sales, land banking, or land
development businesses within 100 miles of the Las Vegas metropolitan area (a
"COMPETING BUSINESS");
(2) recruit, hire or solicit any person who is, or within the six
month period preceding the date of such activity was, an employee of the Company
or Parent (other than as a result of a general solicitation for employment); or
(3) solicit any customer or supplier of the Company or Parent for
a Competing Business or otherwise attempt to induce any such customer or
supplier to discontinue its relationship with the Company or Parent.
B. Employee represents to the Company that he is willing and able to
engage in businesses that are not Competing Businesses hereunder and that
enforcement of the restrictions set forth in this SECTION 8 would not be unduly
burdensome to Employee. Employee hereby agrees that the period of time provided
for in this SECTION 8 and other provisions and restrictions set forth herein are
reasonable and necessary to protect the Company and its successors and assigns
in the use and employment of the goodwill of the business conducted by Employee.
Employee further agrees that damages cannot compensate the Company in the event
of a violation of this SECTION 8 and that, if such violation should occur,
injunctive relief shall be essential for the protection of the Company and its
successors and assigns. Accordingly, Employee hereby covenants and agrees that,
in the event any of the provisions of this SECTION 8 shall be violated or
breached, the Company shall be entitled to obtain injunctive relief against the
party or parties violating such covenants, without bond but upon due notice, in
addition to such further or other relief as may be available at equity or law.
Obtainment of such an injunction by the Company shall not be considered an
election of remedies or a waiver of any right to assert any other remedies which
the Company has at law or in equity. No waiver of any breach or violation hereof
shall be implied from forbearance or failure by the Company to take action
thereof.
C. Employee hereby agrees that the period of time in which this
SECTION 8 is in effect shall be extended for a period equal to the duration of
any breach of this SECTION 8 by Employee.
9. CONFIDENTIAL INFORMATION AND NON-DISCLOSURE.
A. It is understood that in the course of Employee's employment with
Company, Employee will become acquainted with Company Confidential Information
(as defined in SUBSECTION 9(D) below). Employee recognizes that Company
Confidential Information has been developed or acquired at great expense, is
proprietary to the Company, and is and shall remain the exclusive property of
I-7
the Company. Accordingly, Employee agrees that, except as required by applicable
law or as otherwise provided herein, he will not, without the express written
consent of the Company, during Employee's employment with the Company and
thereafter until such time as Company Confidential Information becomes generally
known, or readily ascertainable by proper means, by persons unrelated to the
Company other than Employee, disclose to others, copy, make any use of, or
remove from Company's premises any Company Confidential Information, except as
Employee's duties may require. Notwithstanding anything to the contrary herein,
at any time after the third anniversary of the Effective Date, employee may use
Company Confidential Information (other than trade secrets) in connection with
his activities (whether as owner, principal, partner, employee, consultant or
otherwise) in any activities that are not a Competing Business.
B. Employee acknowledges and agrees that a breach by Employee of the
provisions of this SECTION 9 will cause Company irreparable injury and damage
that cannot be reasonably or adequately compensated by damages at law. Employee
expressly agrees that Company shall be entitled, without posting any bond, to
injunctive or other equitable relief to prevent a threatened breach, breach or
continued breach of this SECTION 9 in addition to any other remedies legally
available to it.
C. Upon termination, whether for Cause or not, Employee shall promptly
deliver to the Company the originals and all copies of any and all materials,
documents, notes, manuals, or lists containing or embodying Company Confidential
Information, or relating directly or indirectly to the business of the Company,
in the possession or control of Employee.
D. "Company Confidential Information" shall mean confidential,
proprietary information or trade secrets of Company and Parent and their
affiliates (collectively, the "Consolidated Group") including without limitation
the following: (1) customer lists and customer information as compiled by the
Consolidated Group; (2) the Consolidated Group's internal practices and
procedures; (3) the Consolidated Group's financial condition and financial
results of operation to the extent not generally available to the public; (4)
supply of materials information, including sources and costs; (5) information
relating to designs or other subject matter related to the Consolidated Group's
business, strategic planning, manufacturing, engineering, purchasing, finance,
marketing, promotion, distribution, and selling activities, whether now
existing, or acquired, developed, or made available anytime in the future to the
Consolidated Group; (6) all information which Employee has a reasonable basis to
consider confidential or which is treated by the Consolidated Group as
confidential; and (7) any and all information having independent economic value
to the Consolidated Group that is not generally known to, and not readily
ascertainable by proper means by, persons who can obtain economic value from its
disclosure or use. Employee acknowledges that such information is Company
Confidential Information.
10. SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any applicable law, then such provision will be
deemed to be modified to the minimum extent necessary to render it legal, valid
and enforceable, and if no such modification will render it legal, valid and
enforceable, then this Agreement will be construed as if not containing the
provision held to be invalid, and the rights and obligations of the parties will
be construed and enforced accordingly.
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11. INJUNCTIVE RELIEF. Employee acknowledges and agrees that the Company
would be irreparably harmed by any violation of Employee's obligations under
SECTIONS 7 and 8 hereof and that, in addition to all other rights or remedies
available at law or in equity, the Company will be entitled to injunctive and
other equitable relief to prevent or enjoin any such violation.
12. ASSIGNMENT BY COMPANY. Nothing in this Agreement shall preclude the
Company from consolidating or merging into or with, or transferring all or
substantially all of its assets to, another corporation or entity that assumes
this Agreement and all obligations and undertakings hereunder; PROVIDED,
HOWEVER, that no such consolidation, merger, transfer or assumption shall
relieve the Company from its primary liability hereunder. Upon such
consolidation, merger or transfer of assets and assumption, the term "Company"
as used herein shall mean such other corporation or entity, as appropriate, and
this Agreement shall continue in full force and effect.
13. ENTIRE AGREEMENT. This Agreement embodies the complete agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior written, or prior or contemporaneous oral, understandings or agreements
between the parties that may have related in any way to the subject matter
hereof. This Agreement may be amended only in writing executed by the Company
and Employee.
14. GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the internal laws, and not the law of conflicts, of
the State of Nevada.
15. NOTICE. Any notice required or permitted under this Agreement must be
in writing and will be deemed to have been given when delivered personally or by
overnight courier service or three days after being sent by U.S. certified or
registered mail, postage prepaid, at the address indicated below or to such
changed address as such person may subsequently give such notice of:
If to the Company or Parent: Meritage Corporation
6613 North Scottsdale Road, Suite 200
Scottsdale, Arizona 85250
Phone: (480) 998-8700
Fax: (480) 998-9162
Attention: Chief Financial Officer
With a copy to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Phone: (602) 382-6252
Fax: (602) 382-6070
Attn: Steven D. Pidgeon, Esq.
If to Employee: Daniel Schwartz
_______________________________
_______________________________
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With a copy to: Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067-4276
Phone: (310) 203-7575
Fax: (310) 203-7199
Attn: Ron Tischler, Esq.
16. ARBITRATION.
A. Except as set forth in PARAGRAPH B below, any dispute, controversy,
or claim, whether contractual or non-contractual, between the parties hereto
arising directly or indirectly out of or connected with this Agreement, relating
to the breach or alleged breach of any representation, warranty, agreement, or
covenant under this Agreement, unless mutually settled by the parties hereto,
shall be resolved by binding arbitration before a single arbitrator, in
accordance with this Section 16 and the then most applicable rules of the
American Arbitration Association (the "AAA"). The resolution of the dispute by
the arbitrator shall be final, binding, nonappealable, and fully enforceable by
a court of competent jurisdiction under the Federal Arbitration Act. Judgment
upon any award rendered by the arbitrator may be entered by any state or federal
court having jurisdiction thereof. Such arbitration shall be administered by the
AAA. Except as provided in SECTIONS 8 and 9, arbitration shall be the exclusive
remedy for determining any such dispute, regardless of its nature. The
arbitration award shall be in writing and shall include a statement of the
reasons for the award. Unless otherwise mutually agreed by the parties, the
arbitration shall be held in Las Vegas, Nevada.
In the event the parties are unable to agree upon an arbitrator, the
parties shall select a single arbitrator from a list of nine arbitrators drawn
by the parties at random from the "independent" (or "gold card") list of retired
judges or, at Employee's option, from a list of nine persons from the employment
panel provided by the AAA. If the parties are unable to agree upon an arbitrator
from the list of nine so drawn, then the parties shall each strike names
alternatively from the list, with the first to strike being determined by lot.
After each party has used four strikes, the remaining name on the list shall be
the arbitrator. If such person is unable to serve for any reason, the parties
shall repeat this process until an arbitrator is selected.
This agreement to resolve any disputes by binding arbitration shall
extend to claims against any parent, subsidiary or affiliate of each party, and,
when acting within such capacity, any officer, shareholder, employee or agent of
each party, or of any of the above, and shall apply as well to claims arising
out of state and federal statutes and local ordinances as well as to claims
arising under the common law. In the event of a dispute subject to this
paragraph the parties shall be entitled to reasonable discovery subject to the
discretion of the arbitrator. The remedial authority of the arbitrator shall be
the same as, but no greater than, would be the remedial power of a court having
jurisdiction over the parties and their dispute. The arbitrator shall, upon an
appropriate motion, dismiss any claim without an evidentiary hearing if the
party brining the motion establishes that he or it would be entitled to summary
judgment if the matter had been pursued in court litigation. In the event of a
conflict between the applicable rules of the AAA and these procedures, the
provisions of these procedures shall govern.
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B. If Zenith disputes Parent's computation of an Earn-Out Payment (as
defined in the Master Agreement) within 90 days after the end of the relevant
Earn-Out Period: (i) Employee may not dispute the computation of the
corresponding Pre-Tax Bonus payment, and (ii) any increase in the amount of the
disputed Earn-Out Payment, either by mutual agreement of Zenith and Parent or
otherwise pursuant to the provisions of SECTION 2.5A(2)(E) of the Master
Agreement, shall result in a dollar for dollar increase, as the case may be, in
the corresponding Pre-Tax Bonus payment. If Zenith does not dispute Parent's
computation of an Earn-Out Payment computation within such 90-day period, then
Employee may within the 90-day period thereafter dispute Parent's computation of
the corresponding Pre-Tax Bonus payment pursuant to the procedure set forth in
SECTION 2.5A(2)(E) of the Master Agreement, including the provision that would
require Employee to pay the cost of the parties accounting and other
professionals and fees and expenses of the Earn-Out Accounting Arbitrator if the
Pre-Tax Bonus Payment as determined by the Earn-Out Accounting Arbitrator is
within 5% of the amount calculated by Parent, except that (i) all references in
such paragraph to Zenith shall be deemed to refer to Employee, (ii) all
references in such paragraph to Earn-Out Payment shall refer to Pre-Tax Bonus
and (iii) the dispute will be arbitrated in the manner provided in this SECTION
16A (and not in the manner provided in Section C of EXHIBIT D to the Master
Agreement). Notwithstanding any other provision in this SECTION 16B, Employee
and Zenith may agree between themselves agree to arbitrate the dispute together
pursuant to the procedure set forth in SECTION 2.5A(2)(E) of the Master
Agreement; PROVIDED, HOWEVER, Employee and Zenith agree to be responsible any
costs of the parties accounting and other professionals and fees and expenses of
the Earn-Out Accounting Arbitrator that would otherwise be owed by Zenith if it
had arbitrated the dispute alone.
C. Any filing or administrative fees shall be borne initially by the
party requesting arbitration. The prevailing party in such arbitration, as
determined by the arbitrator, and in any enforcement or other court proceedings,
shall be entitled, to the extent permitted by law, to reimbursement from the
other party for all of the prevailing party's costs (including but not limited
to the arbitrator's compensation), expenses, and attorneys' fees.
17. WITHHOLDING; RELEASE. Employee acknowledges and agrees that the Company
may withhold against payments due Employee any such amounts required under the
withholding laws, as well as any other amounts payable by Employee to Company.
The Company's obligation to make any payments hereunder on or after the
Date of Termination, other than salary payments and expense reimbursements
through the Date of Termination, shall be subject to receipt by the Company from
Employee of an appropriate release applicable to matters and obligations arising
under this Agreement to which such payments relate in form and substance
reasonably acceptable to the Company and its affiliates, directors, officers and
employees.
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IN WITNESS WHEREOF, the Company and Employee have executed and delivered
this Agreement as of the date first above written.
MTH-HOMES NEVADA, INC., an Arizona corporation
By:
------------------------------------------
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
EMPLOYEE
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Daniel Schwartz
AGREED AND ACCEPTED:
Meritage Corporation agrees to be bound to the
provisions contained in SECTIONS 5 AND 6 as if
it was a party to this Agreement.
MERITAGE CORPORATION, a Maryland corporation
By:
------------------------------------------
Name: Steven J. Hilton
Title: Co-Chief Executive Officer
[SIGNATURE PAGE TO DANIEL SCHWARTZ EMPLOYMENT AGREEMENT]
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EXHIBIT J
CAPITAL CHARGE SAMPLE CALCULATION
J-1