Exhibit 10.4
This Exhibit contains confidential information which has been omitted and
filed separately with the Securities and Exchange Commission pursuant to a
Confidential Treatment Request under Rule 24b-2 of the Securities Exchange
Act of 1934, as amended. The confidential information on pages 3 and 4 has
been replaced with an asterisk.
EXECUTION COPY
INDEMNIFICATION AGREEMENT
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 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
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.
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.
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
0000 Xxxxx Xxxxxxxxxx Xxxx,
Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Chief Financial Officer
With a copy to: Xxxxx & Xxxxxx L.L.P.
Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
If to Selling Parties Zenith National Insurance Corp.
00000 Xxxxxx Xxxxxx
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxxx X. Xxx
With a copy to: Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxx, 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.
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.
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/ Xxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Co-Chief Executive Officer
MTH-HOMES NEVADA, INC.,
an Arizona corporation
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Co-Chief Executive Officer
PERMA-BILT, a Nevada Corporation
By: /s/ Xxxxxx Xxxxxxxx
---------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: President and Chief Executive Officer
ZENITH NATIONAL INSURANCE CORP.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxx
---------------------------------------
Name: Xxxxxxx X. Xxx
Title: President
[Signature page to Indemnification Agreement]
