MERITAGE CORPORATION
STOCK OPTION PLAN (1)
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS.
a. The Stock Option Plan (the "Option Plan") of Meritage Homes (the
"Company") is hereby adopted. The Option Plan shall provide for the
issuance of incentive stock options ("ISOs") and nonqualified stock
options ("NSOs").
b. The purpose of this Option Plan is to promote the long-term success of
the Company by attracting, motivating and retaining key executives,
consultants and directors (the "Participants") through the use of
competitive long-term incentives which are tied to stockholder
interests by providing incentives to the Participants in the form of
stock options which offer rewards for achieving the long-term
strategic and financial objectives of the Company.
c. The Option Plan is intended to provide a means whereby Participants
may be given an opportunity to purchase shares of Stock (as defined
herein) of the Company pursuant to (i) options which may qualify as
ISOs under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), or (ii) NSOs which may not so
qualify.
d. The term "Affiliates" as used in this Option Plan means parent or
subsidiary corporations, as defined in Section 424(e) and (f) of the
Code (but substituting "the Company" for "employer corporation"),
including parents or subsidiaries which become such after adoption of
the Option Plan.
2. ADMINISTRATION OF THE PLAN
a. The Option Plan shall be administered by members of the Board of
Directors of the Company (the "Board") qualifying as "non-employee
directors" as such term is defined in Rule 16b-3 promulgated by the
Securities and Exchange Commission (the "Commission").
b. The Board may from time to time determine which employees of the
Company or its Affiliates or other individuals or entities (each an
"option holder") shall be granted options under the Option Plan, the
terms thereof (including without limitation determining whether the
option is an incentive stock option and the times at which the options
shall become exercisable), and the number of shares of Stock for which
an option or options may be granted.
c. If rights of the Company to repurchase Stock are imposed, the Board
may, in its sole discretion, accelerate, in whole or in part, the time
for lapsing of any rights of the Company to repurchase shares of such
Stock or forfeiture restrictions.
d. If rights of the Company to repurchase Stock are imposed, the
certificates evidencing such shares of Stock awarded hereunder,
although issued in the name of the option holder concerned, shall be
held by the Company or a third party designated by the Board in escrow
subject to delivery to the option holder or to the Company at such
times and in such amounts as shall be directed by the Board under the
terms of this Option Plan. Share certificates representing Stock that
is subject to repurchase rights shall have imprinted or typed thereon
a legend or legends summarizing or referring to the repurchase rights.
e. The Board shall have the sole authority, in its absolute discretion,
to adopt, amend and rescind such rules and regulations, consistent
with the provisions of the Option Plan, as, in its opinion, may be
advisable in the administration of the Option Plan, to construe and
interpret the Option Plan, the rules and regulations, and the
instruments evidencing options granted under the Option Plan and to
make all other determinations deemed necessary or advisable for the
administration of the Option Plan. All decisions, determinations and
interpretations of the Board shall be binding on all option holders
under the Option Plan.
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(1) Reflects amendments approved at the May 10, 2000 annual meeting.
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3. STOCK SUBJECT TO THE PLAN
a. "Stock" shall mean Common Stock of the Company or such stock as may be
changed as contemplated by Section 3(c) below. Stock shall include
shares drawn from either the Company's authorized but unissued shares
of Common Stock or from reacquired shares of Common Stock, including
without limitation shares repurchased by the Company in the open
market. The maximum number of shares of Common Stock that can be
issued under this Option Plan is 775,000 shares, and the maximum
number of shares of Common Stock that can be issued to any one person
under this Option Plan is 100,000 shares.
b. Options may be granted under the Option Plan from time to time to
eligible persons. Stock options awarded pursuant to the Option Plan
which are forfeited, terminated, surrendered or canceled for any
reason prior to exercise shall again become available for grants under
the Option Plan (including any option canceled in accordance with the
cancellation regrant provisions of Section 6(f) herein).
c. If there shall be any changes in the Stock subject to the Option Plan,
including Stock subject to any option granted hereunder, through
merger, consolidation, recapitalization, reorganization,
reincorporation, stock split, reverse stock split, stock dividend,
combination or reclassification of the Company's Stock or other
similar events, an appropriate adjustment shall be made by the Board
in the number of shares of Stock. Consistent with the foregoing, in
the event that the outstanding Stock is changed into another class or
series of capital stock of the Company, outstanding options to
purchase Stock granted under the Option Plan shall become options to
purchase such other class or series and the provisions of this Section
3(c) shall apply to such new class or series.
d. The aggregate number of shares of Stock approved by the Option Plan
may not be exceeded without amending the Option Plan and obtaining
stockholder approval within twelve months of such amendment.
4. ELIGIBILITY
Persons who shall be eligible to receive stock options granted under the
Option Plan shall be those individuals and entities as the Board in its
discretion determines should be awarded such incentives given the best
interests of the Company; provided, however, that (i) ISOs may only be
granted to employees of the Company and its Affiliates and (ii) any person
holding capital stock possessing more than 10% of the total combined voting
power of all classes of Stock of the Company or any Affiliate shall not be
eligible to receive ISOs unless the exercise price per share of Stock is at
least 110% of the fair market value of the Stock on the date the option is
granted.
5. EXERCISE PRICE FOR OPTIONS GRANTED UNDER THE PLAN
a. All ISOs and the majority of NSOs will have option exercise prices per
option share not less than the fair market value of a share of the
Stock on the date the option is granted, except that in the case of
ISOs granted to any person possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any
Affiliate the price shall be not less than 110% of such fair market
value. The price of ISOs or NSOs granted under the Option Plan shall
be subject to adjustment to the extent provided in Section 3(c) above.
b. The fair market value on the date of grant shall be determined based
upon the closing price on an exchange on that day or, if the Stock is
not listed on an exchange, on the average of the closing bid and asked
prices in the Over the Counter Market on that day.
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6. TERMS AND CONDITIONS OF OPTIONS
a. Each option granted pursuant to the Option Plan shall be evidenced by
a written stock option agreement (the "Option Agreement") executed by
the Company and the person to whom such option is granted. The Option
Agreement shall designate whether the option is an ISO or an NSO.
b. The term of each ISO and NSO shall be no more than 10 years, except
that the term of each ISO issued to any person possessing more than
10% of the voting power of all classes of stock of the Company or any
Affiliate shall be no more than 5 years. Subsequently issued options,
if Stock becomes available because of further allocations or the lapse
of previously outstanding options, will extend for terms determined by
the Board or the Committee but in no event shall an ISO be exercised
after the expiration of 10 years from the date of its grant.
c. In the case of ISOs, the aggregate fair market value (determined as of
the time such option is granted) of the Stock to which ISOs are
exercisable for the first time by such individual during any calendar
year (under this Option Plan and any other plans of the Company or its
Affiliates if any) shall not exceed the amount specified in Section
422(d) of the Internal Revenue Code, or any successor provision in
effect at the time an ISO becomes exercisable.
d. The Option Agreement may contain such other terms, provisions and
conditions regarding vesting, repurchase or other provisions as may be
determined by the Board. To the extent such terms, provisions and
conditions are inconsistent with this Option Plan, the specific
provisions of the Option Plan shall prevail. If an option, or any part
thereof, is intended to qualify as an ISO, the Option Agreement shall
contain those terms and conditions, which the Board determines, are
necessary to so qualify under Section 422 of the Internal Revenue
Code.
e. The Board shall have full power and authority to extend the period of
time for which any option granted under the Option Plan is to remain
exercisable following the option holder's cessation of service as an
employee, director or consultant, including without limitation
cessation as a result of death or disability; provided, however, that
in no event shall such option be exercisable after the specified
expiration date of the option term.
f. As a condition to option grants under the Option Plan, the option
holder agrees to grant the Company the repurchase rights as the
Company may at its option require and as may be set forth in a
separate repurchase agreement. Any option granted under the Option
Plan may be subject to a vesting schedule as provided in the Option
Agreement and, except as provided in this Section 6 herein, only the
vested portion of such option may be exercised at any time during the
Option Period. All rights to exercise any option shall lapse and be of
no further effect whatsoever immediately if the option holder's
service as an employee is terminated for "Cause" (as hereinafter
defined) or if the option holder voluntarily terminates the option
holder's service as an employee. The unvested portion of the option
will lapse and be of no further effect immediately upon any
termination of employment of the option holder for any reason. In the
remaining cases where the option holder's service as an employee is
terminated due to death, permanent disability, or is terminated by the
Company (or its affiliates) without Cause at any time, unless
otherwise provided by the Board, the vested portion of the option will
extend for a period of three (3) months following the termination of
employment and shall lapse and be of no further force or effect
whatsoever only if it is not exercised before the end of such three
(3) month period. "Cause" shall be defined in an Employment Agreement
between Company and option holder and if none there shall be "Cause"
for termination if (i) the option holder is convicted of a felony,
(ii) the option holder engages in any fraudulent or other dishonest
act to the detriment of the Company, (iii) the option holder fails to
report for work on a regular basis, except for periods of authorized
absence or bona fide illness, (iv) the option holder misappropriates
trade secrets, customer lists or other proprietary information
belonging to the Company for the option holder's own benefit or for
the benefit of a competitor, (v) the option holder engages in any
willful misconduct designed to harm the Company or its stockholders,
or (vi) the option holder fails to perform properly assigned duties.
g. No fractional shares of Stock shall be issued under the Option Plan,
whether by initial grants or any adjustments to the Option Plan.
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7. USE OF PROCEEDS
Cash proceeds realized from the sale of Stock under the Option Plan shall
constitute general funds of the Company.
8. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
a. The Board may at any time suspend or terminate the Option Plan, and
may amend it from time to time in such respects as the Board may deem
advisable provided that (i) such amendment, suspension or termination
complies with all applicable state and federal requirements and
requirements of any stock exchange on which the Stock is then listed,
including any applicable requirement that the Option Plan or an
amendment to the Option Plan be approved by the stockholders, and (ii)
the Board shall not amend the Option Plan to increase the maximum
number of shares of Stock subject to ISOs under the Option Plan or to
change the description or class of persons eligible to receive ISOs
under the Option Plan without the consent of the stockholders of the
Company sufficient to approve the Option Plan in the first instance.
The Option Plan shall terminate on the earlier of (i) tenth
anniversary of the Plan's approval or (ii) the date on which no
additional shares of Stock are available for issuance under the Option
Plan.
b. No option may be granted during any suspension or after the
termination of the Option Plan, and no amendment, suspension or
termination of the Option Plan shall, without the option holder's
consent, alter or impair any rights or obligation under any option
granted under the Option Plan.
c. The Board, with the consent of affected option holders, shall have the
authority to cancel any or all outstanding options under the Option
Plan and grant new options having an exercise price which may be
higher or lower than the exercise price of canceled options.
d. Nothing contained herein shall be construed to permit a termination,
modification or amendment adversely affecting the rights of any option
holder under an existing option theretofore granted without the
consent of the option holder.
9. ASSIGNABILITY OF OPTIONS AND RIGHTS
Each ISO and NSO granted pursuant to this Option Plan shall, during the
option holder's lifetime, be exercisable only by the option holder, and
neither the option nor any right to purchase Stock shall be transferred,
assigned or pledged by the option holder, by operation of law or otherwise,
other than upon a beneficiary designation executed by the option holder and
delivered to the Company or the laws of descent and distribution.
10. PAYMENT UPON EXERCISE
Payment of the purchase price upon exercise of any option or right to
purchase Stock granted under this Option Plan shall be made by giving the
Company written notice of such exercise, specifying the number of such
shares of Stock as to which the option is exercised. Such notice shall be
accompanied by payment of an amount equal to the Option Price of such
shares of Stock. Such payment may be (i) cash, (ii) by check drawn against
sufficient funds, (iii) such other consideration as the Board, in its sole
discretion, determines and is consistent with the Option Plan's purpose and
applicable law, or (iv) any combination of the foregoing. Any Stock used to
exercise options to purchase Stock (including Stock withheld upon the
exercise of an option to pay the purchase price of the shares of Stock as
to which the option is exercised) shall be valued in accordance with
procedures established by the Board. If accepted by the Board in its
discretion, such consideration also may be paid through a broker-dealer
sale and remittance procedure pursuant to which the option holder (i) shall
provide irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased Stock and remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds
to cover the aggregate option price payable for the purchased Stock plus
all applicable Federal and State income and employment taxes required to be
withheld by the Company in connection with such purchase and (ii) shall
provide written directives to the Company to deliver the certificates for
the purchased Stock directly to such brokerage firm in order to complete
the sale transaction.
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11. WITHHOLDING TAXES
a. Shares of Stock issued hereunder shall be delivered to an option
holder only upon payment by such person to the Company of the amount
of any withholding tax required by applicable federal, state, local or
foreign law. The Company shall not be required to issue any Stock to
an option holder until such obligations are satisfied.
b. The Board may, under such terms and conditions as it deems
appropriate, authorize an option holder to satisfy withholding tax
obligations under this Section 11 by surrendering a portion of any
Stock previously issued to the option holder or by electing to have
the Company withhold shares of Stock from the Stock to be issued to
the option holder, in each case having a fair market value equal to
the amount of the withholding tax required to be withheld.
12. RATIFICATION
This Option Plan and all options issued under this Option Plan shall be
void unless this Option Plan is or was approved or ratified by (i) the
Board; and (ii) a majority of the votes cast at a stockholder meeting at
which a quorum representing at least a majority of the outstanding shares
of Stock is (either in person or by proxy) present and voting on the Option
Plan within twelve months of the date this Option Plan is adopted by the
Board. No ISOs shall be exercisable prior to the date such stockholder
approval is obtained.
13. CORPORATE TRANSACTIONS
a. For the purpose of this Section 13, a "Corporate Transaction" shall
include any of the following stockholder-approved transactions to
which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose
of which is to change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of
the Company; or
(iii) any reverse merger in which the Company is the surviving entity
but in which beneficial ownership of securities possessing more
than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to holders
different from those who held such securities immediately prior
to such merger.
b. Upon the occurrence of a Corporate Transaction, if the surviving
corporation or the purchaser, as the case may be, does not assume the
obligations of the Company under the Option Plan, then irrespective of
the vesting provisions contained in individual option agreements, all
outstanding options shall become immediately exercisable in full and
each option holder will be afforded an opportunity to exercise their
options prior to the consummation of the merger or sale transaction so
that they can participate on a pro rata basis in the transaction based
upon the number of shares of Stock purchased by them on exercise of
options if they so desire. To the extent that the Option Plan is
unaffected and assumed by the successor corporation or its parent
company a Corporate Transaction will have no effect on outstanding
options and the options shall continue in effect according to their
terms.
c. Each outstanding option under this Option Plan which is assumed in
connection with the Corporate Transaction or is otherwise to continue
in effect shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply and pertain to the number and class of
securities which would have been issued to the option holder in
connection with the consummation of such Corporate Transaction had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option
price payable per share, provided the aggregate option price payable
for such securities shall remain the same. In addition, the class and
number of securities available for issuance under this Option Plan
following the consummation of the Corporate Transaction shall be
appropriately adjusted.
d. The grant of options under this Option Plan shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its
business or assets.
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14. REGULATORY APPROVALS
The obligation of the Company with respect to Stock issued under the Plan
shall be subject to all applicable laws, rules and regulations and such
approvals by any governmental agencies or stock exchanges as may be
required. The Company reserves the right to restrict, in whole or in part,
the delivery of Stock under the Plan until such time as any legal
requirements or regulations have been met relating to the issuance of
Stock, to their registration or qualification under the Securities Exchange
Act of 1934, if applicable, or any applicable state securities laws, or to
their listing on any stock exchange at which time such listing may be
applicable.
15. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Company in establishing this Option Plan, nor any
action taken by the Board hereunder, nor any provision of this Option Plan
shall be construed so as to grant any individual the right to remain in the
employ or service of the Company (or any parent, subsidiary or affiliated
corporation) for any period of specific duration, and the Company (or any
parent, subsidiary or affiliated corporation retaining the services of such
individual) may terminate or change the terms of such individual's
employment or service at any time and for any reason, with or without
cause.
16. MISCELLANEOUS PROVISIONS
a. The provisions of this Option Plan shall be governed by the laws of
the State of Arizona, as such laws are applied to contracts entered
into and performed in such State, without regard to its rules
concerning conflicts of law.
b. The provisions of this Option Plan shall insure to the benefit of, and
be binding upon, the Company and its successors or assigns, whether by
Corporate Transaction or otherwise, and the option holders, the legal
representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
c. The option holders shall have no dividend rights, voting rights or any
other rights as a stockholder with respect to any options under the
Option Plan prior to the issuance of a stock certificate for such
Stock.
d. If there is a conflict between the terms of any employment agreement
pursuant to which options under this Plan are to be granted and the
provisions of this Plan, the terms of the employment agreement shall
prevail.
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