Document:

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                                                                   EXHIBIT 10.5B

                          FORM OF DEFERRED COMPENSATION
                            CAPITAL ACCUMULATION PLAN

Wallace Computer Services, Inc. (the "Company") and its subsidiaries hereby
establish a non-qualified deferred compensation program for certain of their
employees as described herein. The following shall constitute the terms and
conditions of the Wallace Computer Services, Inc. [year] Deferred
Compensation/Capital Accumulation Plan (the "Plan"), effective _________ ___,
_____ (the "Effective Date"). The Company and its subsidiaries are referred to
below collectively as "Employers" and individually as "Employer."

1.       Administration. Full power and authority to construe, interpret and
         administer the Plan shall be vested in the Compensation Committee of
         the Board of Directors of the Company (the "Committee"). The Committee
         shall have the authority to make determinations provided for or
         permitted to be made under the Plan, to interpret the Plan, and to
         promulgate such rules and regulations, if any, as the Committee
         considers necessary and appropriate for the implementation of the Plan.

2.       Eligibility and Participation. The Committee, at its sole discretion,
         shall establish eligibility qualifications for participation in the
         Plan. Participation shall be limited to key executives and a select
         group of highly compensated employees of the Employers.

3.       Deferred Compensation.

         A. Each Participant may make an irrevocable election in writing to
            defer up to 20% of Compensation, as defined in Subsection 3(B), paid
            during the period ________ ____, _____ through __________ ___,
            ______ (the "Deferral Amount"). Such amount shall not be less than
            $1,000. Deferred compensation at the deferral percentage will be
            deducted from Compensation payable to the Participant during the
            deferral period.

         B. "Compensation" means salary, bonuses, and commission of the
            Participant before reduction pursuant to this or any other employee
            benefit plan.

         C. The Employer shall establish and maintain a bookkeeping account in
            the name of each Participant, which shall be known as the "Deferral
            Account." It shall be credited with the Deferral Amount and interest
            compounded quarterly at the rate equivalent to the average Moody's
            Long-Term Corporate Bond Yield for the preceding calendar quarter as
            determined from the Moody's Invester Service, Inc. (or any successor
            thereto) (the "Moody's Corporate Bond Rate"). As provided in
            Sections 5, 6 and 7 of the Plan, the interest rate on lump sum
            payments as a result of certain events will differ from the rate set
            forth in the preceding sentence. Amounts paid to the Participant or
            his/her Beneficiary pursuant to this Plan shall be deducted from the
            account balance as of the first day of the month in which such
            payment is made.

         D. The Participant's Deferral Account shall at all times be reflected
            on the Employer's books in accordance with generally accepted
            accounting practices as a general, unsecured and unfunded obligation
            of the Employer. The Plan shall not give any person any right or
            security interest in any asset of the Employer nor shall it imply
            any trust or segregation of assets by the Employer. Payments from
            the Participant's Deferral Account shall be made from the general
            assets of the Employer.

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4.       Time and Manner of Payment. The Participant's Deferral Account shall be
         distributed as follows:

         A. Installment Payments.

            (1) A Participant shall be entitled to fifteen (15) equal annual
                installment payments commencing at age sixty-five (65) if one of
                the following conditions is met:

                a. the Participant remains in the continuous employ of the
                   Employers during the period from _________ ___, _____ until
                   the Participant reaches age sixty-five (65); or

                b. after a period of continuous employment with the Employers
                   beginning on or before ___________ ____, _____ the
                   Participant retires as defined in Subsection 4(D).

            (2) A Participant who attained age fifty-five (55) as of
                ____________ ____, _______ may elect, at the time of making the
                deferral election pursuant to Subsection 3(A), to receive ten
                (10) equal annual installments commencing at age seventy (70) in
                lieu of installment payments under Subsection 4(A)(1) if he/she
                becomes eligible for such payments.

                Installment payments shall be calculated to amortize fully the
                accumulated value of the Deferral Amount over the payment
                period. For purposes of this Subsection A, the interest rate to
                be credited in this calculation of the accumulated value of the
                Deferral Amount shall be the Moody's Corporate Bond Rate.

         B. Interim Payments. Participants may elect, at the time of making the
            deferral election pursuant to Subsection 3(A), to receive one (1)
            interim distribution, the amount of which may equal up to the
            Participant's Deferral Amount. The election shall specify the year
            in which the interim distribution is to be made, which year shall be
            not earlier than [year]. This distribution payment shall be made to
            the Participant within a reasonable time after January 1 of the year
            in which the interim distribution is to be made pursuant to the
            election. These payments shall be charged to the Participant's
            Deferral Account as of the first day of the month in which the
            payment is made. This Subsection does not apply to Participants
            whose employment is terminated as described in Subsection C of this
            Section 4 or in Sections 5, 6, or 7(B).

         C. Payment Upon Termination. A Participant whose employment with the
            Employers is voluntarily or involuntarily terminated prior to the
            Participant's Retirement for reasons other than those described in
            Sections 5 and 6 below shall receive, as soon as practicable after
            such termination, a lump sum payment in the amount of the
            accumulated value of the Deferral Amount. For purposes of this
            Subsection C, the rate to be credited in the calculation of the
            accumulated value of the Deferral Amount shall be the Moody's
            Corporate Bond Rate.

         D. Retirement. Retirement shall mean leaving the active employ of the
            Employer at or after age sixty (60) or age fifty-five (55) with at
            least twenty (20) years of service.

5.       Dishonest Conduct. Notwithstanding any other provision of this Plan, if
         Participant's employment with an Employer is terminated at any time for
         reason of dishonest or fraudulent conduct injurious to

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                the Employer, the sole amount payable to or on behalf of
                Participant hereunder shall be a lump sum payment of the
                accumulated value of the Participant's Deferral Amount, payable
                as soon as practicable after such termination of employment. For
                purposes of this Section 6, the simple rate of interest to be
                credited in the calculation of the accumulated value of the
                Deferral Amount shall be zero percent (0%).

6.       Payment Upon Death of Participant.

            A.  If a Participant dies subsequent to the commencement of
                Installment Payments, the Company shall pay any unpaid annual
                Installment Payments due the Participant under Subsection 4(A)
                to the Participant's Beneficiary, commencing with the next such
                payment due following the date of Participant's death.

            B.  If a Participant dies prior to the commencement of Installment
                Payments, the Participant's Beneficiary shall receive
                Installment Payments described in Subsection 4(A)(1) commencing
                at the time of the Participant's death. Interim Payments
                described in Subsection 4(B) will not be made.

7.       Beneficiary Designation. A Participant may from time to time designate
         any legal or natural person or persons (who may be designated
         continently or successively) as his/her Beneficiary, to whom payments
         are to be made if the Participant dies before receiving payment of all
         amounts due hereunder, by signing a form approved by the Committee. A
         beneficiary designation form shall be effective only after the signed
         form is filed with the Committee while the Participant is alive. A
         properly filed designation shall cancel all beneficiary designation
         forms filed earlier. If a Participant fails to designate a Beneficiary
         as provided above, or if all designated Beneficiaries of a Participant
         die before the Participant, or before complete payment of all amounts
         due hereunder, the Committee, in its discretion, may direct the
         Employers to pay the unpaid amounts to one or more of such
         Participant's relatives by blood, adoption or marriage in any manner
         permitted by law which the Committee considers to be appropriate,
         including but not limited to payment to the legal representative or
         representatives of the estate of the last to die of Participant and
         Participant's designated Beneficiaries.

8.       Disability. If Participant's employment with the Employers is
         terminated prior to Participant's Retirement by reason of Participant's
         Disability, Participant's employment with the Employers, for purposes
         of the Plan, shall be deemed to continue until the earliest of his/her
         death, the date his/her Disability ceases, or the date the Participant
         would have first been eligible for Retirement and the provisions of the
         Plan shall be applicable to such Participant to the same extent as if
         Participant were, in fact, employed by the Employers during that
         period. However, if such termination of employment occurs prior
         to_________ ___, ______, the Participant's benefit will be determined
         taking into account only the amount actually deferred by the
         Participant during the Deferral Period.

         A Participant shall be deemed to incur a Disability if, in the opinion
         of a physician selected by the Committee, the Participant is no longer
         capable of performing a substantial portion of the duties of his/her
         employment because of a physical or mental disability which is likely
         to be permanent and continuous during the remainder of the
         Participant's lifetime.

9.       Payment Upon a Material Change.

         A. For purposes of this Plan, a "Material Change" shall be deemed to
            have occurred if any of the following should occur:

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            (1) the acquisition by any individual, entity or group (a "Person"),
                including any "person" within the meaning of Rule 13(d)(3) or
                14(d)(2) of the Securities Exchange Act of 1934, as amended (the
                "Exchange Act"), of beneficial ownership within the meaning of
                Rule 13d-3 promulgated under the Exchange Act, of 35% or more of
                either (i) the then outstanding shares of common stock of the
                Company (the "Outstanding Common Stock") or (ii) the combined
                voting power of the then outstanding securities of the Company
                entitled to vote generally in the election of directors (the
                "Outstanding Voting Securities"); excluding, however, the
                following: (A) any acquisition directly from the Company
                (excluding any acquisition resulting from the exercise of an
                exercise, conversion or exchange privilege unless the security
                being so exercised, converted or exchanged was acquired directly
                from the Company), (B) any acquisition by the Company, (C) any
                acquisition by an employee benefit plan (or related trust)
                sponsored or maintained by the Company or any corporation
                controlled by the Company or (D) any acquisition by any
                corporation pursuant to a transaction which complies with
                clauses (i), (ii) and (iii) of subsection (3) of this Section 10
                (A); provided further, that for purposes of clause (B), if any
                Person (other than the Company or any employee benefit plan (or
                related trust) sponsored or maintained by the Company or any
                corporation controlled by the Company) shall become the
                beneficial owner of 35% or more of the Outstanding Common Stock
                or 35% or more of the Outstanding Voting Securities by reason of
                an acquisition by the Company, and such Person shall, after such
                acquisition by the Company, become the beneficial owner of any
                additional shares of the Outstanding Common Stock or any
                additional Outstanding Voting Securities and such beneficial
                ownership is publicly announced, such additional beneficial
                ownership shall constitute a Material Change;

            (2) individuals who, as of the date hereof, constitute the Board
                (the "Incumbent Board") cease for any reason to constitute at
                least a majority of such Board; provided that any individual who
                becomes a director of the Company subsequent to the date hereof
                whose election, or nomination for election by the Company's
                stockholders, was approved by the vote of at least a majority of
                the directors then comprising the Incumbent Board shall be
                deemed a member of the Incumbent Board; and provided further,
                that any individual who was initially elected as a director of
                the Company as a result of an actual or threatened solicitation
                by a Person other than the Board for the purpose of opposing a
                solicitation by any other Person with respect to the election or
                removal of directors, or any other actual or threatened
                solicitation of proxies or consents by or on behalf of any
                Person other than the Board shall not be deemed a member of the
                Incumbent Board;

            (3) the consummation of a reorganization, merger or consolidation or
                sale or other disposition of all or substantially all of the
                assets of the Company (a "Corporate Transaction"); excluding,
                however, a Corporate Transaction pursuant to which (i) all or
                substantially all of the individuals or entities who are the
                beneficial owners, respectively, of the Outstanding Common Stock
                and the Outstanding Voting Securities immediately prior to such
                Corporate Transaction will beneficially own, directly or
                indirectly, more than 65% of, respectively, the outstanding
                shares of common stock, and the combined voting power of the
                outstanding securities entitled to vote generally in the
                election of directors, as the case may be, of the corporation
                resulting from such Corporate Transaction (including, without
                limitation, a corporation which as a result of such transaction
                owns the Company or all or substantially all of the Company's
                assets either directly or indirectly) in substantially the same
                proportions relative to each other as their ownership,
                immediately prior to

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                such Corporate Transaction, of the Outstanding Common Stock and
                the Outstanding Voting Securities, as the case may be, (ii) no
                Person (other than: the Company; any employee benefit plan (or
                related trust) sponsored or maintained by the Company or any
                corporation controlled by the Company; the corporation resulting
                from such Corporate Transaction; and any Person which
                beneficially owned, immediately prior to such Corporate
                Transaction, directly or indirectly, 35% or more of the
                Outstanding Common Stock or the Outstanding Voting Securities,
                as the case may be) will beneficially own, directly or
                indirectly, 35% or more of, respectively, the outstanding shares
                of common stock of the corporation resulting from such Corporate
                Transaction or the combined voting power of the outstanding
                securities of such corporation entitled to vote generally in the
                election of directors and (iii) individuals who were members of
                the Incumbent Board will constitute at least a majority of the
                members of the board of directors of the corporation resulting
                from such Corporate Transactions; or

            (4) the consummation of a plan of complete liquidation or
                dissolution of the Company.

         B. At the time of a Material Change, the Company shall remit to an
            independent trustee (the "Trustee") of a grantor trust established
            by the Company (the "Trust"), an amount equal to the lump sum
            payment, payable upon the termination of a Participant, determined
            in accordance with Section 10(E).

            At all times after the Material Change occurs, the exercise of
            authority and responsibility in the administration of the Plan with
            respect to each individual who was a Participant in the Plan
            immediately prior to the date that the Material Change occurs (a
            "Protected Participant"), or with respect to the Beneficiary of a
            Protected Participant, shall be subject to a de novo standard of
            review by a court in any action brought under Title I of ERISA. At
            all times after the Material Change occurs, a bank that is organized
            under the laws of the United States of America or one of its States,
            that has a combined capital and surplus in excess of $250,000,000,
            and that is otherwise independent of and has no material business
            relationships with the Company or Related Company (as defined in
            Section 10(C)) shall be the Trustee of the Trust and the authority
            to manage, acquire, and dispose of all assets of the Trust shall be
            vested in that Trustee to the extent not vested in one or more
            investment managers (as defined in Section 3(38) of ERISA) who are
            selected by that Trustee and otherwise independent of, and have no
            material business relationships with, the Company or a Related
            Company.

         C. The term "Related Company" means any corporation, trade, or business
            during any period that it is, along with the Company, a member of a
            controlled group of corporations, a controlled group of trades or
            businesses, or an affiliated service group, as described in Section
            414(b), 414(c), or 414(m), respectively, of the Internal Revenue
            Code.

         D. Any Protected Participant (or a Beneficiary of a Protected
            Participant) who brings any legal action after a Material Change to
            enforce the provisions of this Section 10 or any other provisions of
            the Plan or the Trust shall be entitled to recover from the Company
            any and all attorneys' fees and other costs and expenses incurred in
            enforcing such provisions for his or her benefit or for the benefit
            of any or all Protected Participants (or Beneficiaries of Protected
            Participants) unless the resolution of such legal action includes a
            finding denying, in total, the claims of such Protected Participant
            (or Beneficiary of such Protected Participant).

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         E. If a Participant's employment with an Employer terminates for any
            reason following the occurrence of a Material Change, the
            Participant or the Beneficiary of such Participant shall receive
            payment of the accumulated value of the Deferral Amount as such
            time, in such manner and in such amount as prescribed by Section 4,
            5, 6, 7 or 9, as applicable, except to the extent the Participant or
            Beneficiary has elected an earlier payment pursuant to Section 10
            (F) or 11.

         F. Lump sum Settlement Option. If a Material Change occurs, a
            Participant or Beneficiary may, at any time following such Material
            Change, elect to receive an immediate lump-sum payment equal to the
            accumulated value of his or her Deferral Amount, with the rate
            credited in the calculation of such accumulated value of the
            Deferral Amount being the Moody's Corporate Bond Rate, reduced by a
            penalty equal to ten percent (10%) of such accumulated value of the
            Deferral Amount. The ten percent (10%) penalty amount shall be
            permanently forfeited and shall not be paid to, or in respect of,
            the Participant or his or her Beneficiary. Distribution shall be
            made as soon as practicable and in any event within ninety (90) days
            following the election by the Participant or Beneficiary. For
            purposes of this Section 10(F), a Participant's Deferral Account
            shall be valued as of the last day of the month immediately
            preceding the date on which the Participant's or Beneficiary's
            election is received by the Company. Any Participant who elects to
            receive an immediate lump-sum payment pursuant to this Section
            10(F), shall have no further right to participate in the Plan or any
            subsequent Deferred Compensation/Capital Accumulation Plan.

         G. Notwithstanding any other provision of the Plan, except as may
            otherwise be provided in a resolution of the Board of Directors of
            the Company adopted prior to the occurrence of a Material Change,
            the provisions of this Section 10 may not be amended and shall
            continue to apply, without amendment, in any successor plan.

10.      Hardship Distributions-Waiver of Deferrals. In the event that the
         Committee, upon written petition of the Participant or Beneficiary,
         determines in its sole discretion that the Participant or Beneficiary
         has suffered an unforeseeable financial emergency, the Company if so
         directed by the Committee, shall distribute to the Participant or
         Beneficiary as soon as reasonably practicable following such
         determination, an amount not in excess of the value of the
         Participant's Deferral Amount necessary to satisfy the emergency. An
         unforeseeable financial emergency is an unanticipated emergency that is
         caused by an event beyond the reasonable control of the Participant or
         Beneficiary, such as the financial hardship which may result from an
         accident, sudden illness or death of an immediate family member or
         casualty loss. Financial need arising from foreseeable events, such as
         the purchase of a residence or educational expenses, shall not be
         considered an emergency. A Participant who receives a hardship
         distribution pursuant to this Section 11, shall also cease making
         deferrals pursuant to this Plan or any subsequent Deferred
         Compensation/Capital Accumulation Plan.

11.      Facility of Payment. If, in the Committee's opinion, a Participant or
         other person entitled to benefits under the Plan is under a legal
         disability or is in any way incapacitated so as to be unable to manage
         his/her financial affairs, then the Committee may, until claim is made
         by a conservator or other person legally charged with the care of
         his/her person or of his/ her estate, direct the Employer to make
         payment to a relative or friend of such person for his/her benefit.
         Thereafter, any benefits under the Plan to which such Participant or
         other person is entitled shall be paid to such conservator or other
         person legally charged with the care of his/her person or his/her
         estate.

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12.      Insurance. An Employer may, in its sole discretion, purchase a policy
         or policies of insurance on the life of any Participant or disability
         insurance with respect to any Participant, the cash value, if any, and
         proceeds of which may, but need not, be used by the Employer to satisfy
         part or all of its obligations, hereunder. The Employer will be the
         owner of any such policies and neither the Participant nor any other
         person or entity claiming through the Participant shall have any
         ownership rights in such policies or any proceeds thereof. The
         Participant, as a condition of receiving any benefits hereunder, on
         behalf of him/herself of any person or entity claiming through him/her,
         shall cooperate with the Employer in obtaining any such insurance that
         the Employer desires to purchase by submitting to such physical
         examinations, completing such forms, and making such records available
         as may be required by the Employer from time to time.

13.      Effect on Other Benefits. The Deferral Amount of a Participant shall be
         included in the Participant's [year] compensation for purposes of
         calculating the Participant's bonuses and awards under any incentive or
         similar compensation plan or program of the Employer, insurance, and
         other employee benefits, except that to the extent required by the
         terms of any plan qualified under Section 401 or Section 423(b) of the
         Internal Revenue Code maintained by an Employer, the amount deferred
         under Section 3 shall not be included as [year] calendar year
         compensation in calculating the Participant's benefits or contributions
         by or on behalf of the Participant under such plan or plans. Payment
         under the Plan shall be excluded from compensation in years paid for
         purposes of calculating a Participant's bonuses and awards under any
         incentive or similar compensation plan or program of an Employer,
         insurance, and other employee benefits, except that to the extent
         required by the terms of any plan qualified under Section 401 or
         Section 423(b) of the Internal Revenue Code maintained by an Employer,
         payments made while the Participant is an employee of an Employer shall
         be included as compensation in the year paid.

14.      Non-Alienation. Neither a Participant nor anyone claiming through
         him/her shall have any right to commute, sell, assign, transfer or
         otherwise convey the right to receive any payments hereunder, which
         payments and the rights thereto hereby are expressly declared to be
         non-assignable and non-transferable, nor shall any such right to
         receive payments hereunder be subject to the claims of creditors of a
         Participant or anyone claiming through him/her to any legal, equitable,
         or other proceeding or process for the enforcement of such claims.

15.      Tax Withholding. Notwithstanding the provisions of Section 13, an
         Employer may withhold from any payment made by it under the Plan or
         from a Participant's other compensation such amount or amounts as may
         be required for purposes of complying with the tax withholding or other
         provisions of the Internal Revenue Code or the Social Security Act or
         any state or local income tax act or for purposes of paying any estate,
         inheritance or other tax attributable to any amounts payable hereunder.

16.      Non-Secured Promise. The rights under this Plan of a Participant and
         any person or entity claiming through him/her shall be solely those of
         an unsecured, general creditor of the Employer. Any insurance policy or
         other asset acquired or held by an Employer shall not be deemed to be
         held by the Employer for or on behalf of a Participant, or any other
         person, or to be security for the performance of any obligations
         hereunder of the Employer, but shall, with respect to this Plan, be and
         remain a general, unpledged, unrestricted asset of the Employer.

17.      Independence of Plan. Except as otherwise expressly provided herein,
         this Plan shall be independent of, and in addition to, any other
         employment agreement or employment benefit agreement or plan or rights
         that may exist from time to time between the parties hereto. This Plan
         shall not be deemed to

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         constitute a contract of employment between an Employer and a
         Participant, nor shall any provision hereof restrict the right of an
         Employer to discharge a Participant, or restrict the right of a
         Participant to terminate his/ her employment with an Employer.

18.      Paragraph Headings. The Paragraph headings used in this Plan are for
         convenience of reference only and shall not be considered in construing
         this Plan.

19.      Responsibility for Legal Effect. Neither the Committee nor any Employer
         makes any representation or warranties, express or implied, or assumes
         any responsibility concerning the legal, tax, or other implications or
         effects of this Plan.

20.      Committee Determinations Final. Each determination provided for in this
         Plan shall be made in the absolute discretion of the Committee. Any
         such determination shall be binding on all persons.

21.      Amendment. The Company may in its sole discretion amend the Plan from
         time to time. No such amendment shall reduce a Participant's or
         Beneficiary's benefits under the Plan to an amount less than an amount
         that he/she would have been entitled to under the Plan on the later of
         the date the amendment is adopted or made effective if the Plan had
         been terminated on that date.

22.      Termination at the Employer's Option. Notwithstanding any other
         provision of this Plan, the Company may terminate this Plan at any time
         if the Committee, in its sole and absolute discretion, determines that
         any change in federal or state law, or judicial or administrative
         interpretation thereof, has materially affected the Employer's cost of
         providing the benefits otherwise payable under this Plan, or for any
         other reason whatsoever. Upon such termination, the sole amount payable
         to Participant shall be a lump sum payment, as soon as practicable
         after such termination, of the accumulated value of the Deferral
         Amount. For purposes of this Section, the rate to be credited in the
         calculation of the accumulated value of the Deferral Amount shall be
         the Moody's Corporate Bond Rate.

23.      Binding on Successors. The provisions of this Plan shall be binding
         upon and shall inure to the benefit of the Company, any Related Company
         that adopts the Plan, the Participants, and their respective successors
         in interest and assigns, including, without limitation, the surviving
         corporation in any merger or consolidation with the Company or such
         Related Company and, to the extent provided in the Plan, the
         Beneficiaries of the Participants. After a Material Change, except as
         may otherwise be determined by a resolution of the Board of Directors
         of the Company adopted prior to the occurrence of the Material Change,
         a successor in interest to the Company or a Related Company that adopts
         the Plan shall be deemed to have adopted the Plan and shall have all of
         the liabilities and obligations of the Company or that Related Company
         under the Plan. Except as may otherwise be determined by a resolution
         of the Board of Directors of the Company adopted prior to the
         occurrence of a Material Change, the Company shall require any person
         or entity that becomes a successor in interest to the Company or a
         Related Company that adopts the plan to expressly assume the Plan and
         agree to perform all of the obligations of the Company or that Related
         Company, as the case may be, under the Plan. For purposes of this
         Section 24, following a Material Change, a successor in interest to the
         Company or a Related Company that adopts the Plan shall include,
         without limitation, any person or entity (or group of related or
         affiliated persons or entities) that acquires (in a single transaction
         or a series of related transactions) any businesses or assets of the
         Company or such Related Company representing twenty-five percent (25%)
         or more of the Company's or such Related Company's sales, operating
         profits, or operating assets.

24.      Controlling Law. The Plan shall be construed in accordance with the
         laws of the state of Illinois to the extent not pre-empted by laws of
         the United States of America.

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IN WITNESS WHEREOF, the Company has adopted this Wallace Computer Services, Inc.
[year] Deferred Compensation/Capital Accumulation Plan as of _______________
___, ______.

WALLACE COMPUTER SERVICES, INC.

By:
   ----------------------------------------

Chairman and Chief Executive Officer

                                                                               9Exhibit 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
<PAGE>
                                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

                                      -i-
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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

                                      -ii-
<PAGE>
                                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

                                     -iii-
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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

                                      -iv-
<PAGE>
                                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

                                      -v-
<PAGE>
                                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

                                      -vi-
<PAGE>
                          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.
<PAGE>
     "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.

                                      -2-
<PAGE>
     "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.

                                      -3-
<PAGE>
     "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.

                                      -4-
<PAGE>
     "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;

                                      -5-
<PAGE>
          (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.

                                      -6-
<PAGE>
     "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.

                                      -7-
<PAGE>
     "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;

                                      -8-
<PAGE>
          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"):

                                      -9-
<PAGE>
               (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.

                                      -10-
<PAGE>
          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-
<PAGE>
               (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)

                                      -12-
<PAGE>
                    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;

                                      -13-
<PAGE>
                         (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

                                      -14-
<PAGE>
               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-
<PAGE>
          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-
<PAGE>
               (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.

                                      -17-
<PAGE>
     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-
<PAGE>
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-
<PAGE>
     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-
<PAGE>
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;

                                      -21-
<PAGE>
          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

                                      -22-
<PAGE>
     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.

                                      -23-
<PAGE>
          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

                                      -24-
<PAGE>
     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

                                      -25-
<PAGE>
     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

                                      -26-
<PAGE>
     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

                                      -27-
<PAGE>
     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

                                      -28-
<PAGE>
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

                                      -29-
<PAGE>
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.

                                      -30-
<PAGE>
          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;

                                      -31-
<PAGE>
          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.

                                      -32-
<PAGE>
     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.

                                      -33-
<PAGE>
          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

                                      -34-
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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

                                      -35-
<PAGE>
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,

                                      -36-
<PAGE>
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

                                      -37-
<PAGE>
          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.

                                      -38-
<PAGE>
          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

                                      -39-
<PAGE>
          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.

                                      -40-
<PAGE>
          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.

                                      -41-
<PAGE>
          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.

                                      -42-
<PAGE>
          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.

                                      -43-
<PAGE>
          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.

                                      -44-
<PAGE>
                                    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

                                      -45-
<PAGE>
          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.

                                      -46-
<PAGE>
     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.

                                      -47-
<PAGE>
     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.

                                      -48-
<PAGE>
     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]

                                      -49-
<PAGE>
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

                                      A-1
<PAGE>
                    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
<PAGE>
     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
<PAGE>
          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
<PAGE>
          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
<PAGE>
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
<PAGE>
     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
<PAGE>
     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
<PAGE>
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

                                      B-1
<PAGE>
                 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
<PAGE>
     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

                                      B-3
<PAGE>
          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

                                      B-4
<PAGE>
     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
<PAGE>
          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
<PAGE>
          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
<PAGE>
     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

                                      B-8
<PAGE>
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
<PAGE>
     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
<PAGE>
EXHIBIT C

                            INDEMNIFICATION AGREEMENT

                                      C-1
<PAGE>
                            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

                                      C-2
<PAGE>
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
<PAGE>
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
<PAGE>
          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
<PAGE>
          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
<PAGE>
          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
<PAGE>
     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
<PAGE>
     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
<PAGE>
EXHIBIT D

                          DISPUTE RESOLUTION PROCEDURES

                                      D-1
<PAGE>
                          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
<PAGE>
     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
<PAGE>
EXHIBIT E

                    NON-DISCLOSURE AND NON-COMPETE AGREEMENT

                                      E-1
<PAGE>
                    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
<PAGE>
          (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
<PAGE>
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
<PAGE>
     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
<PAGE>
          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
<PAGE>
     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
<PAGE>
EXHIBIT F

                        FORM OF GRANT, BARGAIN, SALE DEED

                                      F-1
<PAGE>
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
<PAGE>
     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
<PAGE>
                                   EXHIBIT "A"

                                LEGAL DESCRIPTION

                                      F-4
<PAGE>
                                   EXHIBIT "B"

                              PERMITTED EXCEPTIONS

                                      F-5
<PAGE>
EXHIBIT G

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

                                      G-1
<PAGE>
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
<PAGE>
EXHIBIT I

                          SCHWARTZ EMPLOYMENT AGREEMENT

                                      I-1
<PAGE>
                              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

                                      I-2
<PAGE>
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.

                                      I-3
<PAGE>
               (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
<PAGE>
               (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
<PAGE>
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.

                                      I-6
<PAGE>
     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
<PAGE>
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.

                                      I-8
<PAGE>
     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
                                           _______________________________

                                           _______________________________

                                      I-9
<PAGE>
          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.

                                      I-10
<PAGE>
          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.

                                      I-11
<PAGE>
     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

                                  ----------------------------------------------
                                  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]

                                      I-12
<PAGE>
                                    EXHIBIT J

                        CAPITAL CHARGE SAMPLE CALCULATION

                                      J-1

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