HUD INDEMNITY AGREEMENT
AGREEMENT dated as of December 9, 1997, among Xxxxxx
Acquisition, Inc., a New York corporation ("Acquisition"), the parties listed
on SCHEDULE I (the "Xxxxxxxx Shareholders"), the parties listed on SCHEDULE II
(the "Benach Shareholders"), the parties listed on SCHEDULE III (the "Aboodi
Shareholders") and the party listed on SCHEDULE IV (the "Xxxxxxx Shareholder").
Each party listed on SCHEDULES I, II, III AND IV shall be referred to
individually as a "Shareholder" and collectively as the "Shareholders" and each
of the Xxxxxxxx Shareholders, collectively as a group, the Benach Shareholders,
collectively as a group, the Aboodi Shareholders, collectively as a group, and
the Xxxxxxx Shareholder shall be referred to as a "Group of Shareholders"or
"Shareholder Group."
RECITALS
WHEREAS, the Shareholders are the beneficial owners of shares
of Common Stock, par value $1.00 per share (the "Common Stock"), of Xxxxxxxx
Corporation, a New York corporation (the "Company");
WHEREAS, the Company and Acquisition have entered into that
certain Agreement and Plan of Merger dated October 16, 1997 (the "Merger
Agreement"), pursuant to which, among other things, subject to the terms and
conditions of the Merger Agreement, Acquisition has made a tender offer (the
"Offer") to purchase all of the issued and outstanding shares of Common Stock
of the Company and, following consummation of the Offer, Acquisition will merge
with and into the Company (the "Merger"), which will be the surviving
corporation ("Surviving Corporation") of the Merger (capitalized terms herein
not otherwise defined herein shall have the meanings ascribed thereto in the
Merger Agreement);
WHEREAS, a condition to the consummation of the Offer under
the Merger Agreement is the obtaining of certain United States Department of
Housing and Urban Development ("HUD") consents in connection with the
transactions contemplated by the Merger Agreement;
WHEREAS, Acquisition desires that HUD provide certain
assurances that the Acquisition Parties (as such term is defined below) will
not be responsible to HUD for any HUD Liabilities (as such term is defined
below) (should any be determined to exist) for periods prior to consummation of
the Offer;
WHEREAS, because of the complexity of the corporate
transactions contemplated by the Merger Agreement, the large number of projects
managed by the Company or its subsidiaries or as to which the Company or such
subsidiaries act as general partner, and the relatively brief period of time
contemplated under the Merger Agreement prior to consummation of the Offer, the
parties are concerned that obtaining assurances from HUD as aforesaid will
significantly delay the consummation of the Offer;
WHEREAS, in order to benefit the Company and its public
shareholders and to avoid delay in consummation of the Offer, the Shareholders
have agreed to provide the Acquisition Parties with assurances similar to those
which would otherwise be requested from HUD; and
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WHEREAS, this Agreement is conditioned and shall become
effective only upon the consummation of the Offer under the Merger Agreement
and the date upon which the Offer is consummated is herein referred to as the
"Effective Date";
NOW, THEREFORE, the parties hereby agree as follows,
effective upon consummation of the Offer:
1. Certain Definitions.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them below:
(a) "HUD Liabilities" shall mean any penalties or fines paid to HUD or
DHCR or other Governmental Authority (as such term is defined below) (or, as
compelled by HUD or any other Governmental Authority, paid to the applicable
Project Owner (as such term is defined below) or other third party) by any
Acquisition Party on or after the Effective Date insofar as such penalties or
fines arise out of acts of the Company or any of its subsidiaries (including
without limitation acts on behalf of the Company or such subsidiary by the
Company's or such subsidiary's present or former officers, directors or
employees) in its capacity as general partner or managing agent, as the case
may be, during periods prior to the Effective Date in respect of projects
managed by the Company or such respective subsidiaries (which projects are set
forth on SCHEDULE V hereto) or as to which the Company or any such subsidiary
has acted as general partner (which projects are set forth on SCHEDULE VI
hereto), and which acts are determined to be in violation of statutes, laws,
rules, regulations or orders relating to matters
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under the jurisdiction of HUD and/or DHCR (and regardless of whether such
statutes, laws, rules, regulations or orders are enforced by HUD, DHCR or any
other federal, state or local agency, instrumentality, commission or any other
governmental authority (collectively, a "Governmental Authority")); provided,
however, that no penalties or fines shall be deemed to constitute HUD
Liabilities if such penalties or fines are properly payable or reimbursable by
the partnership, housing company or other entity owning the applicable project
(the "Project Owner") out of the project's revenues. Any amount actually
reimbursed to the Acquisition Parties by insurance, bonding, indemnification or
subrogation rights or other rights or coverage in respect of amounts which
would otherwise be HUD Liabilities or Permitted Expenses (as such term is
defined below) ("Applicable Coverage") shall not be a HUD Liability or a
Permitted Expense, as the case may be. The Acquisition Parties shall use
reasonable efforts to collect any available proceeds of Applicable Coverage but
shall have no obligation to use litigation or other extraordinary measures to
collect such Applicable Coverage. The Shareholders shall have the right to
undertake, at their expense, the collection of any Applicable Coverage
including maintaining litigation therefor on behalf of the Acquisition Parties.
Acquisition shall cause to be maintained in effect the insurance or bonding
coverage set forth on SCHEDULE VII (which the parties agree constitutes
Applicable Coverage) to the extent that coverage thereunder is dependent on
maintaining such insurance or bonding in effect. The Shareholders and the
Acquisition Parties shall reasonably cooperate with each other in the
collection of Applicable Coverage, shall consult together at reasonable
intervals as to matters pertaining to Applicable Coverage, shall keep the other
Parties fully informed as to such matters, shall make available to the other
Parties all books and records of such Shareholders and Acquisition Parties,
respectively, relating to Applicable Coverage, and shall render to the other
Parties such assistance as may be
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reasonably required by the other Parties in order to ensure proper and adequate
efforts to collect Applicable Coverage.
(b) "HUD Claim" shall mean any claim, demand, action, investigation or
proceeding (including any claim in arbitration) (any of the foregoing a
"Claim") brought or threatened against any Acquisition Party by HUD or any
other Governmental Authority to the extent such Claim relates to or involves
the assertion of any possible HUD Liability.
(c) "Permitted Expenses" shall mean all reasonable attorneys' fees and
expenses and other reasonable expenses incurred by any Party from and after the
Effective Date in the defense, investigation, prosecution or settlement of a
HUD Claim or in collecting Applicable Coverage; provided, however, that no
expenses incurred in the ordinary course of business by any Acquisition Party
(including without limitation expenses incurred in connection with reporting or
provision of information to or the conduct of an audit by HUD or any other
Governmental Authority) shall be deemed to be Permitted Expenses; and,
provided, further, that no expenses incurred by any Acquisition Party prior to
the actual assertion by HUD or any other Governmental Authority that there are
HUD Liabilities shall be deemed to be Permitted Expenses unless such expenses
are incurred in the defense, investigation, prosecution or settlement of a HUD
Claim which (i) is limited to a Claim which if determined adversely to an
Acquisition Party would be a HUD Liability and (ii) is ultimately determined by
an appropriate adjudicatory procedure to be a HUD Liability.
(d) The "Acquisition Parties" shall mean Acquisition, Xxxxxx Acquisition
LLC, a Delaware limited liability company ("Parent"), the Company and the
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Surviving Corporation, the subsidiaries of the Company and the Surviving
Corporation, and the respective shareholders, members, directors, officers and
employees of Acquisition, Parent and the Surviving Corporation, but excluding
any such directors, officers or employees who were directors, officers or
employees of the Company or any subsidiary thereof prior to the Effective Date.
In no event shall any Project Owner be deemed an Acquisition Party. The
Shareholders and the Acquisition Parties are collectively referred to as the
"Parties."
(e) "DHCR" shall mean the New York State Division of Housing and
Community Renewal.
2. Indemnification and Expense Reimbursement.
(a) The Shareholders shall indemnify and save harmless the Acquisition
Parties from and against and pay or reimburse the Acquisition Parties promptly
as incurred or imposed for any HUD Liabilities and Permitted Expenses;
provided, however, that the Shareholders (i) shall bear in the aggregate only
50% of the first $1,000,000 of HUD Liabilities and Permitted Expenses incurred
by or imposed upon the Acquisition Parties; (ii) shall bear in the aggregate
only 80% of the next $3,125,000 of HUD Liabilities and Permitted Expenses
incurred by or imposed upon the Acquisition Parties in excess of such first
$1,000,000; and (iii) shall bear no other HUD Liabilities or Permitted
Expenses; and provided, further, that in no event shall the aggregate of all
HUD Liabilities and Permitted Expenses borne by all Shareholders exceed a total
amount of $3,000,000. In order to appropriately allocate among the respective
Acquisition Parties any payments provided under this Section 2(a) to be made to
the Acquisition Parties, Acquisition (or, after consummation of the Merger, the
Surviving
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Corporation) shall designate the proportions or dollar amounts of the payments
provided under this Section 2(a) to be made by the Shareholder Groups to the
respective Acquisition Parties. Such designations by Acquisition or the
Surviving Corporation may be conclusively relied upon by the Shareholders.
(b) All liabilities and obligations of the Shareholder Groups under this
Agreement shall, notwithstanding anything to the contrary contained in this
Agreement but subject to the last sentence of this Section 2(b), be borne
severally and not jointly among the Shareholder Groups pro rata in accordance
with the percentage amounts set forth on SCHEDULE VIII hereto. Within each
Shareholder Group, the Shareholders of such Shareholder Group shall be jointly
and severally liable for such Shareholder Group's proportionate share of the
liabilities and obligations of such Shareholder Group under this Agreement. No
member of a Shareholder Group shall have any liability for any liability or
obligation under this Agreement of any member of another Shareholder Group,
except that Xxxx and Xxxxxxx Xxxxxxxx shall, notwithstanding anything to the
contrary contained in this Agreement, be jointly and severally liable for all
liabilities under this Agreement of all Shareholders (whether Xxxxxxxx
Shareholders or otherwise).
(c) Notwithstanding anything to the contrary contained herein, the
liabilities and obligations of the Shareholders under this Agreement shall
apply only with respect to and to the extent of HUD Liabilities asserted by HUD
or any other Governmental Authority within three years from the date hereof;
provided, however, that the parties have agreed that a HUD Liability need not
be adjudicated nor the amount of a HUD Liability finally determined in
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order for such HUD Liability to be deemed to have been asserted for purposes of
this Section 2(c).
(d) The provisions of this Agreement shall constitute the sole remedy of
the Acquisition Parties against the Shareholders in respect of any HUD
Liabilities or Permitted Expenses, and Acquisition shall cause each Acquisition
Party to assert no claim against any Shareholder in connection with any HUD
Liability or Permitted Expense other than pursuant to this Agreement.
Acquisition hereby waives any rights it may have under or in connection with
the Merger Agreement with respect to any matter relating to any possible HUD
Liability including without limitation the right to assert that any condition
to consummation of the Offer has not been satisfied.
3. Indemnification Procedures.
(a) The rights and obligations of each Acquisition Party claiming a right
to indemnification hereunder ("Indemnitee") from Shareholders ("Indemnitor")
shall be governed by the following rules.
(b) The Indemnitee shall give prompt written notice to the Indemnitor
upon any receipt of any HUD Claim, providing a copy thereof or, if the HUD
Claim is oral, a reasonable description thereof. No failure to give such notice
shall affect the indemnification obligations of Indemnitor hereunder, except to
the extent such failure prejudices such Indemnitor's ability successfully to
defend the HUD Claim.
(c) A single law firm shall undertake the defense of all Acquisition
Parties in respect of any HUD Claim or group of related HUD Claims, such firm
to be selected
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upon the joint approval of the Shareholders on the one hand and Acquisition
(or, after consummation of the Merger, the Surviving Corporation) on the other
hand. Each Acquisition Party shall have the right to employ his, her or its own
counsel in addition to the counsel provided for in the immediately preceding
sentence in any such case, but (i) the fees and expenses of such counsel shall
be at such Party's own expense (and shall in no event be deemed a Permitted
Expense) except during any period when there has been a failure of the counsel
provided for in the immediately preceding sentence to undertake the defense of
such case against such Party, and (ii) in no event shall the fees and expenses
of more than one law firm retained by all Acquisition Parties in connection
with any single HUD Claim or group of related HUD Claims be deemed a Permitted
Expense.
(d) All decisions with respect to the defense of any HUD claim shall be
made jointly by the Shareholders on the one hand and Acquisition (or, after
consummation of the Merger, the Surviving Corporation) on the other hand. No
settlement of any HUD Claim may be made by any Party without the joint written
approval of the Shareholders and Acquisition (or, after consummation of the
Merger, the Surviving Corporation) which consent shall not be unreasonably
withheld; provided, however, that notwithstanding the foregoing Acquisition
(or, after consummation of the Merger, the Surviving Corporation) shall have
sole control over any obligation (in addition to any obligation imposed by law)
imposed by a settlement upon an Acquisition Party's operations.
(e) The Shareholders on the one hand and the Acquisition Parties on the
other hand shall reasonably cooperate with the other in the defense and
settlement of any such HUD Claim, shall consult together at reasonable
intervals as to matters pertaining to any HUD
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Claim, shall keep each other fully informed as to any such HUD Claim, shall
make available to the other all books and records of such Party relating to any
such HUD Claim, and shall render to each other such assistance as may be
reasonably required by the other in order to ensure the proper and adequate
defense of any such HUD Claim. Acquisition (and, after consummation of the
Merger, the Surviving Corporation) shall cause the other Acquisition Parties to
comply with all obligations thereof under this Section 3 (or otherwise under
this Agreement).
(f) Either of Xxxx or Xxxxxxx Xxxxxxxx (each a "Shareholder
Representative") may, but need not, give all notices, make all determinations
and give all approvals on behalf of all Shareholders, which notices,
designations, determinations and approvals, so made or given by a Shareholder
Representative (all of which notices, designations, determinations or approvals
are hereby ratified and approved by all Shareholders) shall be conclusive and
binding upon all Shareholders and may be conclusively relied upon by
Acquisition (and, after consummation of the Merger, the Surviving Corporation).
Neither Shareholder Representative shall have any liability to any Shareholder
Party for any act or omission in connection with the immediately preceding
sentence.
4. Miscellaneous.
(a) No Waiver. The failure of any Party to exercise any right, power or
remedy under this Agreement or otherwise available in respect of this Agreement
at law or in equity, or to insist upon compliance by any other Party with that
Party's obligations under this Agreement, shall not constitute a waiver of any
right to exercise any such or other right, power or remedy or to demand such
compliance.
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(b) Notices. All notices and other communications hereunder shall be in
writing and shall be delivered personally or by next-day courier, to the
Parties at the addresses specified below (or at such other address for
Acquisition Party as shall be specified by like notice; provided that notices
of a change of address shall be effective only upon receipt thereof). Any such
notice shall be effective upon receipt, if personally delivered or one day
after delivery to a courier for next-day delivery.
(i) If to any or all of the Xxxxxxxx Shareholders, to:
Xxxxxxxx Properties Corp.
1271 Avenue of the Americas, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx, Esq.
(ii) If to any or all of the Benach Shareholders, to:
Xx. Xxxxx Xxxxxx
0000 Xxxx Xxxxx Xxxxx
Xxxx Xxxxx Xxxxxxx,
Xxxxxxx 00000
(iii) If to any or all of the Aboodi Shareholders, to:
Alpine Capital Group
1285 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxx Xxxxxx
(iv) If to the Xxxxxxx Shareholder, to:
Xxxxxx X. Xxxxxxx
000 Xxxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxx Xxxx 00000
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in each case, with a copy to:
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
(v) if to Acquisition or the Surviving Corporation, to:
c/o Xxxxxxxx Xxxxx Company
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxxxxx X. Xxxxxxx
with a copy to:
Squadron, Ellenoff, Plesent & Xxxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxx, Esq.
(c) Descriptive Headings; Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. References in this Agreement to
Sections or Schedules mean a Section or Schedule of this Agreement unless
otherwise indicated.
(d) Entire Agreement; Assignment. This Agreement (including the schedules
and other documents and instruments referred to herein), together with the
Merger Agreement, constitute the entire agreement and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them, with respect to the subject matter hereof. This Agreement is not
intended to confer upon any person not a party hereto (other than Shareholders
and Acquisition Parties) any rights or remedies hereunder. Except as otherwise
expressly provided herein, this Agreement shall not be assigned by operation
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of law or otherwise; provided that from and after consummation of the Merger
the obligations and liabilities of Acquisition hereunder shall be obligations
and liabilities of the Surviving Corporation; and, provided, further, that from
and after the Sale (as such term is defined below) of any subsidiary of the
Company whose acts created any HUD Liability (a "Subsidiary"), the obligations
and liabilities of the Shareholders under this Agreement with respect to such
HUD Liability shall terminate. A "Sale" shall mean any direct or indirect sale,
transfer or other disposition in one or more transactions of all or the
majority in value of the assets of such Subsidiary or of capital stock
constituting all or the majority of the voting power for the election of
directors of the capital stock of such Subsidiary (whether such transaction is
a sale of stock, sale of assets, merger, consolidation, reorganization or other
transaction and shall include, in the case of any Subsidiary which is an
indirect subsidiary of the Company, any such transaction involving a subsidiary
which is the direct or indirect parent of such indirect Subsidiary).
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
relating to conflicts of laws.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
(g) HUD Approvals. Acquisition hereby acknowledges that the HUD consents
and confirmations heretofore received by the Company, (i) satisfy the condition
to consummation of the Offer relating to HUD consents contemplated by paragraph
(g) of Exhibit A
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to the Merger Agreement and (ii) constitute satisfactory HUD confirmation of
the matters contemplated by paragraph (f) of Schedule 3.05 to the Disclosure
Schedules to the Merger Agreement.
(h) Subrogation. The Shareholders shall be subrograted to the extent of
any payments made by them under this Agreement to all rights of the Acquisition
Parties against any other party in respect of the HUD Liability giving rise to
the Shareholders' obligation to make payment hereunder.
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IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date first above written.
XXXXXX ACQUISITION, INC.
By: Xxxxxxxx X. Xxxxxxx
---------------------------------------
Name: Xxxxxxxx X. Xxxxxxx
Title: President
On behalf of themselves and each of the
XXXXXXXX SHAREHOLDERS
c/x Xxxxxxxx Properties Corp.
1271 Avenue of the Americas, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxx, Esq.
By: /s/ Xxxx Xxxxxxxx
---------------------------------------
Xxxx Xxxxxxxx
By: /s/ Xxxxxxx Xxxxxxxx
---------------------------------------
Xxxxxxx Xxxxxxxx
On behalf of each of the
BENACH SHAREHOLDERS c/o
Xxxxx Xxxxxx 0000 Xxxx
Xxxxx Xxxxx Xxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
By: /s/ Xxxxx Xxxxxx
---------------------------------------
Xxxxx Xxxxxx
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OEA PARTNERS
c/o Alpine Capital Group
1285 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxx Xxxxxx
By: /s/ Xxxx Xxxxxx
---------------------------------------
Name: Xxxx Xxxxxx
Title: Authorized Signatory
KADIMA PARTNERS
c/o Alpine Capital Group
1285 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxx Xxxxxx
By: /s/ Xxxx Xxxxxx
---------------------------------------
Name: Xxxx Xxxxxx
Title: Authorized Signatory
/s/ Xxxx Xxxxxx
-------------------------------------
XXXX XXXXXX
Alpine Capital Group
1285 Avenue of the Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
/s/ Xxxxxx X. Xxxxxxx
-------------------------------------
XXXXXX X. XXXXXXX
000 Xxxxxxxxx Xxxx
Xxxxxxx Xxxxx, Xxx Xxxx 00000
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