SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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[MERITAGE CORPORTATION LOGO]
NOTICE AND PROXY STATEMENT
FOROF ANNUAL MEETING OF STOCKHOLDERS
DATE: WEDNESDAY, MAY 10, 20009, 2001
TIME: 9:00 A.M.
LOCATION: THE UNIVERSITY CLUB
13350 DALLAS PARKWAY
DALLAS, TEXAS 75240HILTON SCOTTSDALE RESORT
6333 NORTH SCOTTSDALE ROAD
SCOTTSDALE, ARIZONA 85254
To Our Stockholders:
The Management ofYou are invited to attend the Meritage Corporation cordially invites you to attend our
20002001 Annual Meeting of
Stockholders for the following purposes:
1. To elect threefour Class I directorsII Directors, each to hold office for a two-year
term;
2. To approve an amendment to our 1997 Stock Optionthe Meritage Corporation 2001 Executive Management
Incentive Plan so that the compensation paid thereunder will increasebe fully
deductible by the total number of shares authorized for issuance from
475,000 to 775,000, and the number of shares that may be issued to any
one person under the plan from 50,000 to 100,000. This amendment will
also authorize the full Board of non-employee Directors to administer
the plan;Company;
3. To transact any other business that may properly come before the
meeting.
Only stockholders of record at the close of business on March 31, 200030, 2001 are
entitled to notice of and to vote at the annual meeting. A copy of our 19992000
Annual Report to Stockholders, which includes audited financial statements, is
enclosed.
By Order of the Board of Directors
/s/ Larry W. Seay
Scottsdale, Arizona Larry W. Seay
March 31, 200030, 2001 Secretary
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY. A POSTAGE PAID
ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED STATES.
MERITAGE CORPORATION
6613 NORTH SCOTTSDALE ROAD
SUITE 200
SCOTTSDALE, ARIZONA 85250
-----------------------------------------
PROXY STATEMENT
-----------------------------------------
This Proxy Statement is furnished to you in connection with the
solicitation of proxies to be used in voting at our Annual Meeting of
Stockholders on May 10, 2000.9, 2001. THE MERITAGE BOARD OF DIRECTORS IS SOLICITING
THIS
PROXY.PROXIES. The proxy materials relating to the annual meeting were mailed on or
about April 5, 20002001 to stockholders of record at the close of business on March
31, 200030, 2001 (the "record date"). You may revoke your proxy at any time before it is
exercised by attending the annual meeting and voting in person, duly executing
and delivering a proxy bearing a later date, or sending written notice of
revocation to the Corporate Secretary at the above address.
We will bear the entire cost of proxy solicitation, including charges and
expenses of brokerage firms and others for forwarding solicitation material to
beneficial owners of our outstanding common stock. We may solicit proxies
through the mail, by personal interview or telephone.
VOTING SECURITIES OUTSTANDING
As of the record date, there were 5,326,1295,143,019 shares of Meritage common stock
outstanding. Each share is entitled to one vote on each proposal at the annual
meeting. Only holders of record of common stock at the close of business on the
record date will be permitted to vote at the meeting, either in person or by
valid proxy. Abstentions and broker non-votes will be treated as shares that are
present and entitled to vote for purposes of determining a quorum, but as
unvoted for purposes of determining the approval of any matter.
The following information should be reviewed along with the audited
consolidated financial statements, notes to consolidated financial statements,
independent auditors' reports and other information included in our 19992000 Annual
Report that was mailed to you along with this Proxy Statement.
12
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
Our Board of Directors has seven members. The directors are divided into
two classes serving staggered two-year terms. This year our Class III directors
are up for election. The Board has nominated Steven J. Hilton, William W.
CleverlyJohn R. Landon, Robert G. Sarver,
C. Timothy White and Raymond Oppel,Peter L. Ax, who are incumbent Class III Directors, for
re-election. Alan Hamberlin,Mr. Ax was appointed as a current Class I Director will not stand for
re-election.in September 2000.
All nominees have consented to serve as directors. The Board of Directors
has no reason to believe that any of the nominees should be unable to act as a
director. However, if a nominee becomes unable to serve or if a vacancy should
occur before election, the Board may either reduce its size or designate a
substitute nominee. If a substitute nominee is named, the proxies will vote for
the election of the substitute.
The affirmative vote of a majority of the shares of common stock present at
the annual meeting,Annual Meeting, in person or by proxy, and entitled to vote is required to
elect directors. Unless you tell us on the proxy card to vote differently, we
will vote your signed retunedand returned proxies FOR the Board's nominees.
THE BOARD OF DIRECTORS RECOMMENDS
THAT YOUA VOTE FOR THESE NOMINEES.
2"FOR" APPROVAL OF PROPOSAL 1.
3
DIRECTOR AND OFFICER INFORMATION
STEVEN J. HILTON has served as co-chairman and co-chief executive officer
(or co-managing director) since April 1998 and served as our president and
co-chief executive officer from December 31, 1996 to April 1998. In 1985, Mr.
Hilton co-founded Monterey Homes, which merged with Homeplex Mortgage Investment
Co., the Company's predecessor, and was its treasurer, secretary and director
until December 31, 1996. Mr. Hilton is a member of the Central Arizona
Homebuilders' Association and the National Homebuilders' Association.
JOHN R. LANDON has served as co-chairman and co-chief executive officer (or
co-managing director) since April 1998 and served as our chief operating officer
and co-chief executive officer from the combination of Legacy Homes and Meritage
in July 1997 to April 1998. Mr. Landon founded Legacy Homes in 1987 and, as its
president, managed all aspects of the company's business. Mr. Landon is a member
of the National Association of Homebuilders and the Dallas Home and Apartment
Builders' Association.
STEVEN J. HILTON has served as co-chairman and co-chief executive officer
(or co-managing director) since April 1998 and served as our president and
co-chief executive officer from December 31, 1996 to April 1998. In 1985, Mr.
Hilton co-founded Monterey Homes, which merged with Homeplex Mortgage Investment
Co., the Company's predecessor, and was its treasurer, secretary and director
until December 31, 1996. Mr. Hilton is a member of the Central Arizona
Homebuilders' Association, the National Homebuilders' Association, the National
Board of Realtors and the Scottsdale Board of Realtors.
WILLIAM W. CLEVERLY has served as a director since December 31, 1996. He
served as co-chairman and co-chief executive officer (or co-managing director)
from April 1998 to March 1999, and as chairman of the board and co-chief
executive officer from December 31, 1996 to April 1998. Mr. Cleverly co-founded
Monterey Homes in 1985, and was its president and director until December 31,
1996. Mr. Cleverly is the chief executive officer of Inca Capital, a real estate
finance and investment company and is a member of the Central Arizona
Homebuilders' Association and the National Homebuilders' Association.
ALAN D. HAMBERLIN has served as a director since the Company's inception in
1988, as chief executive officer of the Company from 1988 until December 31,
1996 and as chairman of the board of directors from 1990 to December 31, 1996.
He was also the Company's president from 1988 until 1995. Mr. Hamberlin has been
president of Courtland Homes, Inc., a Phoenix, Arizona residential homebuilder,
since 1983. Mr. Hamberlin is also a director of American Southwest Financial
Corporation, American Southwest Finance Co., American Southwest Affiliated
Companies and of American Southwest Holdings, Inc.
RAYMOND OPPEL has served as a director since December 1997. In 1982, he
co-founded and became chairman and chief executive officer of the Oppel Jenkins
Group, a regional homebuilder in Texas and New Mexico, which was sold to the
public homebuilder Kaufman & Broad, Inc.KB Home, in 1995. Mr. Oppel has served as president of the
Texas Panhandle Builder's Association and is a licensed real estate broker. Mr.
Oppel currently is active as a private investor in real estate development,
banking and a new automobile dealership.
ROBERT G. SARVER has served as a director since December 1996, and has been
the chairman and chief executive officer of California Bank and Trust since
1998. From 1995 to 1998, he served as chairman of Grossmont Bank. Mr. Sarver is
currently a director of Skywest Airlines and Zion's Bancorporation, a publicly
held bank holding company. In 1990, Mr. Sarver co-founded and currently serves
as the executive director of Southwest Value Partners and Affiliates, a real
estate investment company. In 1984, Mr. Sarver founded National Bank of Arizona,
Inc. and was its President until its acquisition by Zion's Bancorporation in
1994.
C. TIMOTHY WHITE has served as a director since December 1996, and served
as a director of Monterey Homes from February 1995 until December 1996. Since
1989, Mr. White has been an attorney with the law firm of Tiffany & Bosco, P.A.
in Phoenix, Arizona, which provides legal services to Meritage.
PETER L. AX has served as a director since September 2000 and is the
managing partner of Phoenix Capital Management, a Scottsdale-based financial
consulting firm. Mr. Ax is the former chairman and chief executive officer of
SpinCycle, Inc., the nation's largest consolidator and developer of
coin-operated laundromats. Mr. Ax is the exclusive financial advisor to
Cleanwave, LLC, an internet-based provider of laundry services owned by Shell
Chemical, a division of Royal Dutch Shell and SpinCycle, Inc. Mr. Ax is also on
the Board of Directors of CashX and of Takos.com. Prior to his involvement in
these companies Mr. Ax served as head of the private equity division and senior
vice president of Lehman Brothers in New York. Mr. Ax is a certified public
accountant and holds an M.B.A. from the Wharton School at the University of
Pennsylvania.
LARRY W. SEAY has served as chief financial officer and vice
president-finance since December 31, 1996, and has also served as our secretary
and treasurer since 1997. Mr. Seay was chief financial officer and vice
president-finance of Monterey Homes from April 1996 to December 31, 1996. From
1990 to 1996, Mr. Seay served as vice president/treasurer of UDC Homes, Inc. In
May 1995, UDC filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code and emerged from reorganization proceedings in November 1995.
Mr.
Seay is a certified public accountant and a member of the American Institute of
Certified Public Accountants.
3
RICHARD T. MORGAN has served as vice president since April 1998 and also
served as chief financial officer of our Texas division since July 1997. Mr.
Morgan joined Legacy Homes in 1989 as controller, and was appointed Legacy's
chief financial officer in 1997.
4
STOCK OWNED BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table summarizes, as of March 31, 2000,30, 2001, the number and
percentage of outstanding shares of our common stock beneficially owned by the
following:
* each person or group management knows to beneficially own more than 5%
of such stock;
* all Meritage directors and nominees for director;
* all executive officers named in the compensation summary under
"Executive Compensation";
* all Meritage directors and executive officers as a group.
The address for our directors and executive officers is c/o Meritage
Corporation, 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85250.
The number of shares includes shares of common stock owned of record by such
person's minor children and spouse and by other related individuals and entities
over whose shares of common stock such person has custody, voting control or the
power of disposition.
RIGHT TO
NUMBER ACQUIRE TOTAL PERCENT OF
NAME OF OF SHARES BY MAY 31, BENEFICIAL OUTSTANDING
BENEFICIAL OWNER AGE POSITION WITH COMPANY OWNED 2000 SHARES SHARES(1)
-Number Right To Total Percent of
Name of of Shares Acquire by Beneficial Outstanding
Beneficial Owner Age Position with Company Owned May 30, 2001 Shares Shares (1)
---------------- --- --------------------- ----- ---------------- ------ -------------------
Steven J. Hilton 39 Class I Director, Co-Chairman and Co-CEO 662,341 180,907 843,248 15.9%
John R. Landon 4243 Class II Director, Co-Chairman and Co-CEO 666,667(2) 102,111 768,778 14.2%
Steven J. Hilton 38647,267(2) 180,907 828,174 15.6%
William W. Cleverly 44 Class I Director Co-Chairman and Co-CEO 705,601 172,667 878,268 16.0%
William W. Cleverly 43 Class I Director 708,934 166,667 875,601 15.9%
Alan D. Hamberlin 51 Class I Director 53,009(3) 320,226 373,235 6.6%298,341 136,667 435,008 8.3%
Robert G. Sarver 3839 Class II Director, Audit and 286,300(3) 10,000 296,300 5.8%
Compensation Committee 170,700(4) 7,500 178,200 3.3%
C. Timothy White 3940 Class II Director 3,316 7,500 10,81610,000 13,316 *
Ray Oppel 4344 Class I Director, Audit and 15,000 10,000 25,000 *
Compensation Committee
15,000 7,500 22,500 *Peter L. Ax 42 Class II Director, Audit and -- -- --
Compensation Committee
Larry W. Seay 4445 Chief Financial Officer, Vice President- 3,700 7,000 10,7007,400 7,500 14,900 *
Finance,President-Finance, Secretary and
Treasurer
Richard T. Morgan 4445 Vice President 3,500 7,000 10,50012,000 15,500 *
All directors and executive officers as a group (9 persons) 2,330,427 798,171 3,128,598 51.1%
Wellington1,923,465 547,981 2,471,446 46.8%
Alan D. Hamberlin 5333 N. 7th St., Phoenix AZ 85014 320,226(4) -- 320,226 6.2%
Fidelity Management &
Research Co., LLP 75 State 82 Devonshire Street, Boston MA, 02109 304,000(5)270,000(5) -- 304,000 5.7%270,000 5.3%
- ----------
* Represents less than 1%.
(1) The percentages shown include the shares of common stock actually owned as
of March 31, 2000,30, 2001, and the shares which the person or group had the right
to acquire within 60 days of that date. In calculating the percentage of
ownership, all shares of common stock which the identified person had the
right to acquire within 60 days of March 31, 200030, 2001 upon exercise of options,
are considered as outstanding for computing the percentage of the shares
owned by that person or group, but are not considered as outstanding for
computing the percentage of the shares of stock owned by any other person.
(2) All 666,667647,267 shares are owned with Eleanor Landon, spouse, as
tenants-in-common.
(3) Mr. Hamberlin indirectly beneficially owns 12,633 shares through a
partnership.
(4) Mr. Sarver beneficially owns 1,500 shares through his spouse and 500 shares
through a minor child.
(4) Based on Schedule 13G, filed with the SEC on October 31, 2000. Alan D.
Hamberlin has sole voting power with respect to 320,226 shares and sole
dispositive power with respect to those shares. Mr. Hamberlin is a former
director of the Company.
(5) Based on Schedule 13G, filed with the SEC on February 9, 2000. Wellington14, 2001. Fidelity
Management Company, LLP& Research Co. ("WMC"Fidelity") has shared voting powerbeneficial ownership with
respect to 268,000270,000 shares and sharedsole dispositive power with respect to 304,000those
270,000 shares. The shares as to which the Schedule 13G is filed by WMC,FMR
Corporation, in its capacity as the parent holding company of Fidelity, an
investment advisor to various investment companies, are owned by clients of WMC who have the right to
receive or the power to direct the dividends from or proceeds of such
shares.one
investment company, Fidelity Low Priced Stock Funds. The Schedule 13G also
states that noneFidelity carries out the voting of WMC's clients are known
to have such right or power with respect to more than 5%the shares under written
guidelines established by the Funds' Boards of our common
stock.
4Trustees.
5
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
THE BOARD OF DIRECTORS met six times in 1999.fiscal 2000. Each director attended at
least 75% of his Board and committee meetings.
THE COMPENSATION COMMITTEE reviews the performance of management and will, at
the appropriate times, review the structure of management and plans for
management succession. The Committee also reviews and approves the Company's
compensation policies and administers Meritage's Stock Option Plan. If approved
by the Stockholders, the Committee will administer the Meritage 2001 Executive
Management Incentive Plan. The Compensation Committee, consisting of Mr. Oppel,
Mr. Sarver and Mr. Ax, all non-employee directors, was formed in the fourth
quarter of 2000, and began meeting in 2001. Prior to the formation of the
Committee, the entire Board decided upon compensation matters.
THE AUDIT COMMITTEE recommends appointment of our independent auditors, reviews
our financial statements and considers other matters in relation to the external
audit of financial affairs to promote accurate and timely reporting. The audit
committee consists of Mr. Oppel, Mr. Sarver and Mr. Sarver, bothAx, all non-employee
directors, and met four times during 1999fiscal 2000.
OTHER COMMITTEES. We do not maintain a compensation committee, a standing nominating committee or other
committee performing similar functions. The entire Board performs those duties.
DIRECTOR COMPENSATION
Non-employee directors received an annual retainer of $12,000$13,000 in 1999,2000,
except Mr. Cleverly.Ax. Mr. CleverlyAx was a Meritage employee duringappointed to the first partBoard of 1999,Directors in September of
2000, and therefore received a retainer only for the period he was not
employed by us,served in that
position, which amounted to $8,000.$4,400. Non-employee directors receive no additional
compensation for attending Board or committee meetings. In 1997 and 1999, each
non-employee director was granted options to acquire 5,000 shares of our common
stock as additional consideration for their services. TheMr. Ax was granted options
in January 2,000 to acquire 2000 shares of our common stock as additional
consideration for his services. All non-employee director stock options vest in
equal 2,500 share increments on each of the first two anniversary dates of the date of
grant and have an exercise price equal to the closing price of the stock on the
grant date.
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid in 1999, 1998, and
1997 to our co-chief executive officers and other most highly compensated
executive officers
1999 SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ---------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
--------------------------- ---- -------- -------- ---------- ------------
John R. Landon - Co-Chairman and Co- 1999 $375,000 $200,000 30,000 $26,004
Chief Executive Officer 1998 210,000 200,000 -- 22,183
1997 200,000 200,000 166,667 11,700
Steven J. Hilton - Co-Chairman and Co- 1999 375,000 200,000 30,000 33,212
Chief Executive Officer 1998 210,000 200,000 -- 30,438
1997 200,000 200,000 -- 31,905
William W. Cleverly - Director* 1999 55,125 200,000 -- 8,764
1998 210,000 200,000 -- 35,108
1997 200,000 200,000 -- 31,905
Larry W. Seay - Chief Financial Officer, 1999 150,000 95,937 20,000 12,611
Vice President-Finance, Secretary and 1998 120,726 90,000 -- 9,884
Treasurer 1997 113,750 85,000 12,500 6,575
Richard T. Morgan - Vice President 1999 110,833 60,000 10,000 1,237
1998 97,167 54,000 -- 1,272
1997 89,500 35,000 10,000 1,200
* For the fiscal years ended December 31, 1997 and 1998 Mr. Cleverly served as a
co-chief executive officer or co-managing director. He resigned as an officer in
March 1999 and his separation agreement is described herein under the "Board of
Director's Report on Executive Compensation."
5
1999 OPTION GRANTS
The following table lists stock options granted in 1999 to the officers
named in the Summary Compensation Table. The amounts shown as potential
realizable values rely on arbitrarily assumed share price appreciation rates
prescribed by the SEC over the seven-year term of the options. In assessing
those values, please note that the ultimate value of the options depends on
actual future share values and do not necessarily reflect management's
assessment of our future stock price performance. The potential realizable
values are not intended to indicate the value of the options.
INDIVIDUAL GRANTS
------------------------------------------------
PERCENTAGE POTENTIAL REALIZABLE VALUE AT
OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#) IN 1999 ($/SHARE) DATE 0% 5% 10%
---- ---------- ------- --------- ---- ------- -------- --------
John R. Landon 30,000 11% $15.68 1/12/06 -- $131,135 $362,677
Steven J. Hilton 30,000 11% $15.68 1/12/06 -- 131,135 362,677
Larry W. Seay 20,000 8% $14.25 1/12/06 -- 116,024 270,384
Richard T. Morgan 15,000 6% $14.25 1/12/06 -- 87,018 202,788
This table excludes options granted to Mr. Cleverly in 1999, which were
forfeited upon his resignation effective March 18, 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION VALUES AT END OF FISCAL YEAR 1999
The following table lists the number of shares acquired and the value
realized as a result of options exercised during 1999 for the listed officers.
The table contains values for "in the money" options, which are those with a
positive spread between the exercise price and the December 31, 1999 share price
of $10.875. The values are the difference between the year-end price per share
and the exercise price per share, multiplied by the number of applicable shares
in the money. These values have not been and may never be realized. The options
may never be exercised, and the value, if any, will depend on the share price on
the exercise date.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES YEAR END(#) YEAR END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
John R. Landon -- -- 102,111 94,556 $540,624 $396,878
Steven J. Hilton -- -- 172,667 24,000 937,502 --
William W. Cleverly -- -- 166,667 -- 937,502 --
Larry W. Seay 3,700 $ 24,994 7,000 21,500 10,510 21,020
Richard T. Morgan -- -- 7,000 18,000 9,500 14,250
6
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY. Our compensation program for executive officers
primarily consists of base salary, annual bonus and long-term incentives in the
form of stock option grants. Executives also participate in various other
benefit plans generally available to all company employees, including a medical
and 401(k) plan.
Our philosophy is to pay base salaries that enable us to attract, motivate
and retain highly qualified executives. The annual bonus program is designed to
reward performance based on financial results. Stock option grants are intended
to provide substantial rewards to executives if stockholders benefit from stock
price appreciation, and no reward if the stock price does not appreciate.
CONTRACTUAL COMPENSATION ARRANGEMENTS. Our two co-chairmen, Steven J.
Hilton and John R. Landon, both serve as chief executive officers. Mr. Hilton
and Mr. Landon have employment agreements with us, which provide for a base
salary, stock options and bonuses based on company performance.
Our prior Board of Directors negotiated an employment agreement and a
related stock option agreement with Mr. Hilton effective December 31, 1996, in
connection with the merger of Monterey Homes, an Arizona-based homebuilding
business, into the Company. Mr. Hilton was a shareholder of Monterey Homes
before the merger. The employment agreement and stock option agreement were
integral factors in Mr. Hilton's decision to proceed with the merger and assume
management of Meritage. Mr. Hilton's compensation package is more fully
described under "Employment Agreements."
In July 1997, we combined with Legacy Homes, a Texas based homebuilding
business owned by John and Eleanor Landon. In connection with the combination,
we negotiated an employment agreement and related stock option agreement with
Mr. Landon, under which Mr. Landon was appointed chief operating officer and
co-chief executive officer and was granted stock options. Mr. Landon's agreement
also included provisions for us to pay him additional consideration not to
exceed $15 million, based on our earnings. Additional consideration was
approximately $2.8 million in 1997 and $7.0 million in 1998, and was paid
subsequent to each year-end. Our Board of Directors removed the contingent
nature of the remaining $5.2 million in 1999, which was paid to Mr. Landon in
January 2000. The successful negotiation of the employment agreement and other
related agreements was an integral part of Mr. Landon's decision to combine
Legacy Homes with the Company and become part of our management team. Mr.
Landon's compensation package is more fully described under "Employment
Agreements."
William Cleverly, a shareholderstockholder of Monterey Homes before the merger,
resigned as a managing director effective March 18, 1999. Mr. Cleverly continues
to serve on our Board of Directors and as a consultant to us. In connection with
Mr. Cleverly's resignation, Meritage and Mr. Cleverly entered into a separation
and consulting agreement. Under this agreement, we purchased Mr. Cleverly's
employment agreement (which is described below under "Employment Agreements")
for $656,375, an amount equal to his salary through the end of his employment
term and his pro-rated bonus through March 31, 1999. Mr. Cleverly remained
entitled to the contingent stock he was granted in connection with the merger of
Monterey Homes with the Company in 1996 and to the stock options he was granted
under his 1996 stock option agreement, which contains terms identical to Mr.
Hilton's stock option agreement. The separation iswas deemed a termination without
cause under Mr. Cleverly's employment agreement.
For three years from the effective date of the separation agreement, Mr.
Cleverly willagreed to consult on our new product development and other areas agreed
upon by the parties. Mr. Cleverly willis not be required to spend more than 25 hours
per month in his capacity as our consultant. The separation agreement contains a
non-compete provision that prohibits Mr. Cleverly from competing with us for
three years following the effective date, subject to various exceptions. In
consideration for Mr. Cleverly's agreement not to compete, he will be paid a
total of $285,000 in quarterly installments of $23,750. As of December 31, 1999,2000,
we have paid Mr. Cleverly $71,250$166,250 of this amount.
For five years from the effective date of the separation agreement, Mr.
Cleverly will be nominated for election to our Board of Directors, so long as he
owns at least 275,000 shares of our stock or unless he has committed any act
that constitutes "cause" as defined in his previous employment agreement.
7
In connection with the separation agreement, both Mr. Cleverly and Meritage
released the other party from any liabilities or obligations either party had or
may have against such party in the future, subject to certain exceptions.
STOCK6
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid in 2000, 1999 and
1998 to our Co-Chief Executive Officers and other most highly compensated
executive officers
2000 SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
-------------------- Other Annual ----------- All Other
Name and Principal Position Year Salary Bonus Compensation Options (#) Compensation(1)
--------------------------- ---- -------- -------- ------------ ----------- ---------------
Steven J. Hilton - Co-Chairman and Co- 2000 $400,000 $975,597 -- 11,200 $35,005
Chief Executive Officer 1999 375,000 475,000 -- 30,000 33,212
1998 210,000 200,000 -- -- 33,438
John R. Landon - Co-Chairman and Co- 2000 400,000 975,597 -- 11,200 63,257
Chief Executive Officer 1999 375,000 475,000 -- 30,000 26,004
1998 210,000 200,000 -- -- 22,183
Larry W. Seay - Chief Financial Officer, 2000 161,428 175,000 -- 7,500 14,654
Vice President-Finance, Secretary and 1999 150,000 125,000 -- 20,000 12,611
Treasurer 1998 120,726 95,937 -- -- 9,884
Richard T. Morgan - Vice President 2000 122,500 80,000 -- -- 5,334
1999 110,833 60,000 -- 15,000 1,237
1998 97,167 54,000 -- -- 1,272
- ----------
(1) These amounts represent matching contributions by the Company to the
officers' accounts under the 401(k) plan, group health and life plan
premiums and Company automobile allowances.
2000 OPTION PLAN.GRANTS
The following table lists stock options granted in 2000 to the officers
named in the Summary Compensation Table. The amounts shown as potential
realizable values rely on arbitrarily assumed share price appreciation rates
prescribed by the SEC over the five or seven-year term of the options. In
assessing those values, please note that the ultimate value of the options
depends on actual future share values and do not necessarily reflect
management's assessment of our future stock price performance. The potential
realizable values are not intended to indicate the value of the options.
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
--------------------------------------------------- --------------------------
Percentage
of Total
Shares Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted (#) in 2000 ($/Share) Date 0% 5% 10%
---- ----------- ------- --------- ------- ---- ------- -------
Steven J. Hilton 11,200 12% $11.00 1/11/05 -- $19,744 $57,177
John R. Landon 11,200 12% 11.00 1/11/05 -- 19,744 57,177
Larry W. Seay 7,500 8% 10.00 1/11/07 -- 30,533 71,154
Richard T. Morgan -- -- -- -- -- -- --
No stock appreciation rights have been granted under the Meritage Stock
Option Plan.
7
AGGREGATED OPTION EXERCISES IN 2000
AND OPTION VALUES AT END OF FISCAL YEAR 2000
The following table lists the number of shares acquired and the value
realized as a result of options exercised during 2000 for the listed officers.
The table contains values for "in the money" options, which are those with a
positive spread between the exercise price and the December 31, 2000 share price
of $37.25. The values are the difference between the year-end price per share
and the exercise price per share, multiplied by the number of applicable shares
in the money. These values have not been and may never be realized. The options
may never be exercised, and the value, if any, will depend on the share price on
the exercise date.
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Year End (#) Fiscal Year End ($)
Shares --------------------------- ---------------------------
Acquired On Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------- ----------- ------------- ----------- -------------
Steven J. Hilton -- -- 172,667 35,200 $5,462,793 $ 811,794
John R. Landon -- -- 172,667 35,200 5,462,793 811,794
Larry W. Seay -- -- 7,500 28,500 193,885 717,145
Richard T. Morgan -- -- 9,000 16,000 241,500 391,000
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE DOES NOT CONSTITUTE
SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE
INTO ANY OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES
THIS REPORT.
It is the duty of the Compensation Committee to review and determine the
salaries and bonuses of executive officers of the Company, including the
Company's Co-Chief Executive Officers, and to establish the general compensation
policies for such individuals. The Compensation Committee believes that the
compensation programs for the executive officers should reflect the Company's
performance and the value created for our stockholders. In addition, our
compensation programs should support the goals and values of the Company and
should reward individual contributions to the Company's success.
GENERAL COMPENSATION POLICY AND PHILOSOPHY. Our philosophy is to provide
the Company's executive officers with compensation that is based on their
individual performance and the financial performance of the Company, and that is
competitive enough to attract and retain highly skilled individuals. Each
officer's compensation is comprised of:
* a base salary;
* performance bonuses designed to reward performance based on financial
results; and
* stock-based incentives designed to tie the executive officers' overall
compensation to the interests of the Company's stockholders by
providing substantial rewards to executives if stockholders benefit
from stock price appreciation, and no reward if the stock price does
not appreciate.
Executives also participate in various other benefit plans generally
available to all company employees, including a medical and 401(k) plan.
The Company attempts to set executive compensation at levels that are
competitive within the industry. Each year the Company reviews executive
compensation against publicly available information for other homebuilders.
Periodically, the Company engages outside consultants to evaluate its
compensation programs.
A substantial portion of each executive's compensation is in the form of a
bonus program. For most executives, the program is tied to an annual budget. The
Company believes that tying compensation to financial performance aligns the
interests of executives with those of stockholders.
8
In 1997, the Board of Directors and our stockholders approved the adoption
of the Meritage Corporation Stock Option Plan. The plan authorizes grants of
incentive stock options and non-qualified stock options to executives, directors
and consultants as selected by the Board. Subject to
stockholder approval of Proposal No. 2, theThe total number of shares of common
stock available for awards under the plan is 775,000, and the maximum number of
shares of common stock that can be issued to any one person under the plan is
100,000 shares. A summary of the plan is included under Proposal No. 2.
The Board believes the plan promotes success and enhances our value, as it
ties the personal interests of the participants to those of our stockholders,
and provides the participants with an incentive for outstanding performance. The
Board of Directors has the exclusive authority to administer the plan, including
the power to determine the eligibility, the types of awards to be granted, the
timing of the awards and the exercise price of awards.
OTHER OPTIONS.CEO COMPENSATION. Our two Co-Chief Executive Officers, Steven J. Hilton and
John R. Landon, have employment agreements with us, which provide for a base
salary, stock options and bonuses based on company performance.
Our prior Board of Directors negotiated an employment agreement and a
related stock option agreement with Mr. Hilton effective December 31, 1996, in
connection with the merger of Monterey Homes, an Arizona-based homebuilding
business, into the Company. Mr. Hilton was a stockholder of Monterey Homes
before the merger. The employment agreement and stock option agreement were
integral factors in Mr. Hilton's decision to proceed with the merger and assume
management of Meritage. Mr. Hilton's compensation package is more fully
described under "Employment Agreements."
In July 1997, we combined with Legacy Homes, a Texas based homebuilding
business owned by John and Eleanor Landon. In connection with the combination,
we negotiated an employment agreement and related stock option agreement with
Mr. Landon, under which Mr. Landon was appointed chief operating officer and
co-chief executive officer and was granted stock options. The employment
agreement and other related agreements were integral factors in Mr. Landon's
decision to combine Legacy Homes with the Company and become part of our
management team. Mr. Landon's agreement also included provisions for us to pay
him additional consideration based on our earnings. Portions of this additional
consideration were paid in 1998 and 1999. Our Board of Directors removed the
contingent nature of the remaining $5.2 million in 1999, which was paid to Mr.
Landon in January 2000. Mr. Landon's compensation package is more fully
described under "Employment Agreements."
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code (the Code) limits the deductibility of executive
compensation paid by publicly held corporations to $1 million for each executive
officer named in this proxy statement. The $1 million limitation generally does
not apply to compensation that is pursuant to a performance-based plan approved
by stockholders. In connection with their employment agreements, Messrs. Hilton
and Landon were each granted options to purchase 166,667 shares of ourthe Company's
common stock. These options vestvested over three-years. In 1994, the Internal Revenue
Code was amended to add a limitation on the tax deduction a publicly held
company may take on compensation aggregating more than $1 million for selected
executives in any given year. The law and related regulation are subject to many
qualifications and exceptions. Gains realized on non-qualified stock options, or
incentive stock options that are subject to a "disqualifying disposition," are
subject to new tax limitations unless they meet certain requirements. To date,
we have not been subject to the deductibility limitation and have generally
structured our equity-based compensation to comply with the performance-based
compensation exception to the limitation.
Mr. Hilton's stock options granted in connection with the merger were an
integral part of his employment agreement and as an inducement for him to
consummate the merger. Mr. Landon's stock options were granted in connection
with the combination as an integral part of Mr. Landon's employment agreement
and as an inducement for him to proceed with the transaction.
None of the stock options granted to Messrs. Hilton or Landon satisfy the
exceptions to the non-deductibility of tax or $1 million threshold described
above. Accordingly,
ifIn 2001 and 2002, 166,667 options each held by Messrs. Hilton and Landon
with an exercise price of $5.25, will terminate and will need to be exercised.
If as a result of substantial appreciation in our common stock and the exercise
of substantial option holdings, Messrs. Hilton or Landon's compensation were to
exceed $1 million in a given year, the excess may not be deductible. The
compensation element of an option doesthese options do not result in a charge to earnings on
our financial statements.
In 2000, Messrs. Hilton and Landon were each paid in excess of $1 million.
This excess did not qualify for deduction under Section 162(m) of the Code. This
year, the Company's bonus plan is being submitted to stockholders to facilitate
deductibility. See "Proposal No. 2 - Approval of Meritage Corporation 2001
Executive Management Incentive Plan."
Robert G. Sarver
Raymond Oppel
Peter L. Ax
9
REPORT OF THE AUDIT COMMITTEE
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE DOES NOT CONSTITUTE SOLICITING
MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE INTO ANY
OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS
REPORT.
It is the duty of the Audit Committee to provide independent, objective
oversight of the Company's accounting functions and internal controls. The Audit
Committee is composed of independent directors, and acts under a written charter
that sets forth the audit related functions the committee is to perform. You can
find a copy of that charter attached to this proxy statement as Exhibit A. The
audit functions of the Audit Committee are to:
* serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system;
* review and appraise the audit efforts of the Company's independent
accountants; and
* provide an open avenue of communication among the independent
accountants, financial and senior management, and the Board of
Directors.
The Audit Committee meets with management periodically to consider the
adequacy of the Company's internal controls and the objectivity of its financial
reporting. We discuss these matters with the Company's independent auditors and
with appropriate Company financial personnel. We regularly meet privately with
the independent auditors, who have unrestricted access to the Committee. We also
recommend to the Board the appointment of the independent auditors and review
periodically their performance and independence from management. We have
considered the provision of additional services by our independent auditors and
believe that the provision of such additional services does not adversely impact
their independence.
Although the Committee reviews the Company's financing plans and reports
recommendation to the full Board for approval, management has primary
responsibility for the Company's financial statements and the overall reporting
process, including the Company's system of internal controls. The independent
auditors audit the annual financial statements prepared by management, express
an opinion as to whether those financial statements fairly present the financial
position, results of operations and cash flows of the Company in conformity with
generally accepted accounting principles and discuss with us any issues they
believe should be raised with us.
This year, we reviewed the Company's audited financial statements and met
with both management and KPMG LLP, the Company's independent auditors, to
discuss those financial statements. Management has represented to us that the
financial statements were prepared in accordance with generally accepted
accounting principles. We have received from and discussed with KPMG LLP the
written disclosure and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). These items
relate to that firm's independence from the Company. We also discussed with KPMG
LLP any matters required to be discussed by Statement on Auditing Standards No.
61 (Communication with Audit Committees).
Based on these reviews and discussions, we recommended to the Board that
the Company's audited financial statements be included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
Robert G. Sarver
Raymond Oppel
Peter L. Ax
10
EMPLOYMENT AGREEMENTS
We have employment agreements with Steven J. Hilton and John R. Landon that
provide for terms through December 31, 2001 and June 30, 2001, respectively.
Both agreements provide for an initialannual base salary of $200,000 per year
(increasing by 5% of the prior year's base salary per year) and an annual bonus based on a
percentage of consolidated net income, as determined by the Board of Directors.
Mr. Hilton and Mr. Landon serve as our co-chairmen and co-chief executive
officers.
Under both agreements, if employment is terminated:
* voluntarily or for cause, or with respect to Mr. Landon, voluntarily
without good reason, we have no further obligation to pay the
officers' salary or bonus;
* without cause, or with respect to Mr. Landon, voluntarily for good
reason, we are obligated to pay the officer his then current base
salary through the term of his agreement;
* due to death or permanent disability, we are obligated to pay the
officer his then current salary for six months after termination, plus
a pro rated bonus.
"Cause" under both the Hilton and Landon agreements is defined to mean an
act or acts of dishonesty constituting a felony and resulting or intended to
result directly or indirectly in substantial personal gain or enrichment at our
expense. "Cause" under the Landon agreement also includes willful disregard of
8
the employee's primary duties to the Company. "Good Reason" under the Landon
agreement is defined to include:
* assignment of duties inconsistent with the scope of the duties
associated with Mr. Landon's titles or positions or which would
require Mr. Landon to relocate his principal residence outside the
Dallas/Fort Worth, Texas metropolitan area;
* termination of Mr. Landon for cause and it is determined that cause
did not exist; or
* our failure to make certain working capital arrangements available to
the Texas division.
Both agreements contain non-compete provisions over their terms that
restrict Mr. Hilton and Mr. Landon from:
* engaging in the homebuilding business and, with respect to Mr. Landon,
the mortgage brokerage or banking business;
* recruiting, hiring or discussing employment with any person who is, or
within the past six months was, a Meritage employee;
* soliciting any customer or supplier of Meritage for a competing
business or otherwise attempting to induce any customer or supplier to
discontinue its relationship with us; or
* except solely as a limited partner with no management or operating
responsibilities, engaging in the land banking or lot development
business.
The foregoing provisions shalldo not restrict:
* the ownership of less than 5% of a publicly-traded company; or
* if the employment of either Mr. Hilton or Mr. Landon is terminated
under his respective employment agreement, engaging in the custom
homebuilding business, or the production homebuilding business outside
a 100 mile radius of any Meritage project or outside Northern
California, or engaging in the land banking or lot development
business. The non-compete provisions survive the termination of the
Hilton agreement unless Mr. Hilton is terminated without cause. The
non-compete provisions under the Landon agreement survive termination
of that agreement unless Mr. Landon is terminated without cause or
resigns for good reason.
11
We also have an employment agreement with Larry W. Seay, our chief
financial officer, that provides for a term through January 1, 2001.2002. Mr. Seay's
agreement is designed to provide for a base salary and an annual bonus based on
the achievement of specific performance objectives. Compensation is subject to
continuing employment and standard employment policies. During the terms of the
agreement, Mr. Seay agrees that he will not:
* engage in the business of providing any homebuilding products or
services where we do or propose to do business;
* solicit for employment anyone who works for or contracts with Meritage
for one year after the last date the employee is with the Company;
* solicit or take away any of our customers or disclose potential
customers to our competitors.
If Mr. Seay is terminated without cause, he will be entitled to receive:
* an amount equal to 50% of his base salary;
* 50% of his average bonus for the previous three fiscal years; and
* acceleration of his stock options as if he held them through the end
of the following fiscal year.
If Mr. Seay voluntarily terminates his employment within twelve months
following a change of control of the Company due to a demotion in position, he
will be entitled to receive:
* an amount equal to 100% of his base salary;
* 100% of his average bonus for the previous three fiscal years; and
* vesting in full of all his stock options.
9
CHANGE OF CONTROL ARRANGEMENTS
If Meritage undergoes a change of control that is required to be reported
on Form 8-K under securities laws before the third anniversary of the effective
date of his stock option agreement, the options granted to Mr. Landon under his
stock option agreement will vest in full and be immediately exercisable.
We also have senior executive severance agreements under which, upon termination
of employment within two years of a change of control, certain executive
officers, including Messrs. Hilton, Landon, Seay and Morgan, will receive a cash
payment equal to one or two times the highest annual compensation paid during
the two years prior to termination, and accelerated vesting under our benefit
and stock option plans.
1012
PERFORMANCE GRAPH
In connection with the Company's merger with Monterey Homes on December 31,
1996, we terminated our REIT status and entered into the homebuilding business.
We have not included a performance graphdata for 1995 and 1996, as the information for those yearsthat year
is no longer relevant to our business.
The chart below graphs our performance in the form of cumulative total
return to stockholders since we began homebuilding as our primary business. Our
total return is compared to that of the Standard and Poor's 500 Composite Stock
Index and of a cumulative return on the common stock of seven publicly trade
peer issuers, which includes Beazer Homes USA, Inc., Crossman Communities, Inc.
Engle Homes, Inc,,
Hovnanian Enterprises, Inc, MDC Holdings, Inc. NVR, Inc., and Washington Homes,
Inc. (the "Peer Group"). Engle Homes, Inc., which was previously included in the
Peer Group, was the subject of a tender offer and merger transaction in 2000,
and as a result, its common stock is no longer publicly traded. Therefore, Engle
Homes, Inc. has been removed from the Peer Group.
The comparison assumes $100 was invested on December 31, 1996 in Meritage
common stock and in each of the other indices and assumes reinvestment of
dividends.
AS OF DECEMBER 31,
------------------------------------------------------------------------
1996 1997 1998 1999 ----- ----- ----- -----2000
---- ---- ---- ---- ----
Meritage Corporation 100 167.2 168.1 150.0 513.8
S&P 500 100 133.6 171.5 207.6 188.7
Peer Group 100 137.8 186.5 152.5
11153.4 197.3 238.8 217.1
[PERFORMANCE CHART]
13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, directors and "beneficial owners" of more than ten
percent of our common stock must file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission under
Section 16(a). Based upon a review of the copies of the forms furnished to us,
or written representations that all required forms were filed, management
believes all filing requirements were met during 1999.2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND RELATIONSHIPS
Since 1994, weWe have leased approximately 11,00012,000 square feet of office space in a
Scottsdale, Arizona office building from a limited liability company owned by
Messrs. Hilton and Cleverly.Cleverly since 1994. The five-year lease expires August 30, 2004, and
we have an optionbuilding was sold to expand our spacethird parties
in the building and renew the lease for
additional terms at rates that are competitive with those in the market at such
time.2000. Rents paid to the limited liability company totaled $43,852 in 2000,
$238,240 in 1999, and $210,816 in 1998 and $192,487 in 1997. Management believes that the lease terms
are no less favorable than those that could be negotiated in an arm's length
transaction.1998.
Since 1997, we have leased office space in Plano, Texas from Home Financial
Services, a Texas partnership owned by John and Eleanor Landon. The lease
expires May 15, 2002. Rents paid to the partnership were $185,613 in 2000,
$176,773 in 1999 and $169,294 in 1998 and $81,588 in 1997. Management believes that the lease terms
are no less favorable than those that could be negotiated in an arm's length
transaction.1998.
We paid legal fees to Tiffany & Bosco, P.A. of approximately $ 334,000311,000 in
19992000 and $321,000$334,000 in 1998.1999. C. Timothy White, one of our directors,Directors, is a shareholderpartner
of Tiffany and Bosco, P.A.
In 1999 we purchased 92 lots for development in Arizona from a business
controlled by the spouse of one of our directors. The total amount paid for the
lots was approximately $3,517,000, a price management believes is no less
favorable than we could have negotiated in an arm's length transaction.
In 1999 Mr. Landon personally purchased 27.25 acres of undeveloped land in
Allen, Texas, on our behalf. Mr. Landon sold the land to Meritage later in the
year at no gain. Our acquisition price of the property was $994,705.
In 1999 we entered into a $70 million borrowing agreement with NorwestWells Fargo
Bank and California Bank and Trust ("CBT"). that was increased to $100 million in
2000. This line of credit is duebegins to term out over a 24-month period beginning in
December 31, 2001, has interest payable monthly approximating prime or LIBOR plus
1.75%, and is secured by first deeds of trust on real estate. Mr. Sarver, one of
our directors, is the chairman and chief executive officer of CBT.
In 2000 we purchased 42 lots for development in Arizona from a business
controlled by William Cleverly, one of our Directors. The total amount paid for
the lots was approximately $2,435,000.
Management believes that the terms of the loan to beand fees nogotiated for all transactions
listed above are no less favorable than wethose that could havebe negotiated in an armsarm's
length transaction.
PROPOSAL TO APPROVE AMENDMENT TO THEtransactions.
APPROVAL OF MERITAGE CORPORATION STOCK OPTION2001
EXECUTIVE MANAGEMENT INCENTIVE PLAN
(PROPOSAL NO. 2)
On January 12, 2000, ourThe Board of Directors has adopted subject to shareholder
approval, an amendment to the Meritage Corporation 1997 Stock Option2001 Executive
Management Incentive Plan that
would increase the number(the "Plan"). The Plan will become effective as of
shares of common stock reserved for issuance under
the plan from 475,000 shares to 775,000 shares. The amendment would also
increase the maximum amount of shares that could be issued to one person from
50,000 to 100,000, and allow the plan to be administered by all non-employee
members of the Board of Directors. Certain material features of the plan are
discussed below, however, the description isJanuary 1, 2001, subject to and qualifiedfurther approval by the
full text of the plan, attached as Exhibit A, which includes the proposed
amendment highlighted in bold. The closing price for our common stock on January
12, 2000, as reported on the New York Stock Exchange, was $10.00 per share. The affirmative vote of athe
holders of the majority of the shares of common stockCompany Common Stock present, at the
annual meeting, in person or by proxy,represented, and
entitled to vote, is requiredat the Annual Meeting of Stockholders. No award may be made
under the Plan after its expiration date, but awards made prior thereto may
extend beyond that date.
The Plan will provide for annual incentive awards to approve the proposal.
12
The Board believes the plan promotes success and enhances our value, as it
ties the personal interestscertain of the
participantsCompany's key executives and is being submitted to those of stockholders and
providesshareholders in an effort to
assure that awards under the participants with an incentivePlan will be tax deductible for outstanding performance. The
Board of Directors administers the plan, and has the exclusive authority over
it, including the power to determine a participant's eligibility, the types of
awards to be granted, the timing of the awards and the exercise price of awards.
The Board believes that increasing the number of shares reserved for issuance
and the maximum number of shares a person may be granted will enhance the plan's
success and its impact on our value.
GENERAL - DESCRIPTION OF AVAILABLE AWARDS
INCENTIVE STOCK OPTIONS. An ISO is a stock option that satisfies the
requirements specified inCompany.
Section 422162(m) of the Internal Revenue Code of 1986, as amended from time to
time (the "Code"). Under the Code, ISOs may only be granted to employees. In
order for an option to qualify as an ISO, the price payable to exercise the
option must be equal or greater than the fair market value of the stock at the
date of the grant, the option must expire no later than 10 years from the date
of the grant, and the stock subject to ISOs that are first exercisable by an
employee in any calendar year must not have places a value of more than $100,000 as of
the grant date. Certain other requirements must also be met. The Board
determines$1 million annual limit on the amount of consideration to becompensation
paid to us upon exercisethe named executive officers that may be deducted by the Company for
federal income tax purposes, unless such compensation is based on the
achievement of any
options. Paymentpre-established performance goal(s) set by the Compensation
Committee pursuant to an incentive plan that has been approved by the Company's
shareholders. Shareholder approval of the Plan is necessary for maintaining the
tax-deductible status of incentive payments made to the participants.
14
We have summarized below the key provisions of the Plan. Because it is a
summary, it may not contain all of the information that is important to you. The
summary is qualified in its entirety by reference to the full text of the 2001
Executive Management Incentive Plan, which is attached as Appendix B to this
Proxy Statement.
PURPOSE OF THE PLAN
The Plan is designed to recognize and reward select Company executives for
their contributions to the overall success of the Company.
ELIGIBILITY
Awards may be made in cash, common stock or other property.
An optioneeunder the Plan to any employee of the Company who is not treated as receiving taxable income upon eithera
"covered employee" within the grant ormeaning of Section 162(m) of the exercise of an ISO. However, the difference between the exercise
priceCode. A covered
employee may include Meritage's Co-Chief Executive Officers and the fair market valuefour other
most highly compensated executive officers of the stock atCompany. Non-employee
directors are not eligible to receive an award under the Plan.
ADMINISTRATION
The Plan will be administered by the Compensation Committee or any other
committee appointed by the Board of Directors (the "Committee"), which consists
of not less than two non-employee directors who are "outside directors" within
the meaning of Section 162(m). The Committee has full authority to interpret the
Plan and to establish rules for its administration. The Committee has the
authority to determine eligibility for participation in the Plan, to decide all
questions concerning eligibility for and the amount of awards, and to establish
and administer the performance goals (defined below) and certify whether, and to
what extent, they are attained.
DETERMINATION OF AWARDS
In determining awards to be made under the Plan, the Committee may approve
a formula that is based on one or more objective criteria to measure corporate
performance as set forth in the Plan ("Performance Criteria"). The Committee may
establish Performance Criteria and as selected by the Committee, the Committee
may set annual performance objectives ("Performance Goals") with respect to such
Performance Criteria for the Company. Performance Criteria must include one or
more of the following: the Company's pre- or after-tax net earnings, revenue
growth, operating income, operating cash flow, return on net assets, return on
shareholders' equity, return on assets, return on capital, share price growth,
shareholder returns, gross or net profit margin, earnings per share, price per
share and market share, any of which may be measured either in absolute terms,
or as compared to any incremental increase, or as compared to results of a peer
group. The Committee will also determine the amount and form of compensation
payable to the participant upon attainment of a Performance Goal before the
beginning of each Performance Period or within the time permitted under Section
162(m) of exercisethe Code.
Payment of awards will be made in cash. The Committee will make all
determinations regarding the achievement of Performance Goals and the
determination of actual awards. The Committee may in its discretion decrease,
but not increase, the amount of any award that otherwise would be payable under
the Plan.
AMOUNT AVAILABLE AND MAXIMUM INDIVIDUAL AWARDS
The Committee shall determine the amount available for awards in any year.
The maximum award payable to any employee for a performance period is
an item$3,000,000.
AMENDMENT AND TERMINATION
The Committee may suspend or terminate the Plan at any time with or without
prior notice. In addition, the Committee may from time to time and with or
without prior notice, amend or modify the Plan in any manner, but may not
without shareholder approval adopt any amendment that would require the vote of
tax preference atshareholders of the timeCompany pursuant to Section 162(m) of exercisethe Code.
15
FEDERAL INCOME TAX CONSEQUENCES
The amount of cash received by a participant is required to be recognized
by such participant as ordinary income subject to withholding and will generally
be allowed as a deduction to the Company.
Section 162(m) limits the deduction of compensation in determining liability forexcess of $1 million
per year paid to certain of the alternative minimum tax, assumingCompany's employees unless, among other
exceptions, the compensation is performance-based compensation within the
meaning of that provision. The Company believes that Section 162(m) will not
limit the common stockdeduction of compensation payable pursuant to the Plan if the Plan is
either transferable
orapproved by the stockholders.
The Plan is not subject to a substantial riskany provision of forfeiturethe Employee Retirement Income
Security Act of 1974 and is not qualified under Section 83 of the
Code. If at the time of exercise, the common stock is both nontransferable and
is subject to a substantial risk of forfeiture, the difference between the
exercise price and the fair market value of the common stock (determined at the
time the stock becomes either transferable or not subject to a substantial risk
of forfeiture) will be a tax preference item in the year in which the stock
becomes either transferable or not subject to a substantial risk of forfeiture.
If common stock acquired by the exercise of an ISO is not sold or otherwise
disposed of within two years from the date of its grant and is held for at least
one year after the date the stock is transferred to the optionee upon exercise,
any gain or loss resulting from its disposition is treated as long-term capital
gain or loss. If such common stock is disposed of before the expiration of the
above-mentioned holding periods, a "disqualifying disposition" occurs. If a
disqualifying disposition occurs, the optionee realizes ordinary income in the
year of the disposition in an amount equal to the difference between the fair
market value of the common stock on the date of exercise and the exercise price,
or the selling price of the common stock and the exercise price, whichever is
less. The balance of the optionee's gain on a disqualifying disposition, if any,
is taxed as a capital gain.
We are not entitled to any tax deduction as a result of the grant or
exercise of an ISO, or on a later disposition of the common stock received,
except in the event of a disqualifying disposition. In such case, we are
entitled to a deduction equal to the amount of ordinary income realized by the
optionee.
NON-QUALIFIED STOCK OPTIONS. An NQSO is any stock option other than an
Incentive Stock Option. These options are referred to as "non-qualified" because
they do not meet the requirements of, and are not eligible for, the favorable
tax treatment provided by Section 422401(a) of the Code.
The optionee realizes no taxablepreceding discussion of federal income upon the grant of an NQSO, nor are
we entitled to a tax deduction by reason of such grant. Upon the exercise of an
NQSO, the optionee realizes ordinary income in an amount equal to the excess of
the fair market value of the common stock on the exercise date over the exercise
price, and we are entitled to a corresponding tax deduction.
Upon subsequent sale or other disposition of common stock acquired through
exercise of an NQSO, the optionee realizes a short-term or long-term capital
gain or loss to the extent of any intervening appreciation or depreciation. Such
a resale by the optionee has no tax consequence to us.
13
CHANGE OF CONTROL
Upon the occurrence of a Corporate Transaction (as defined in the plan), if
the surviving corporation or the purchaserconsequences does not
assume Meritage's obligation
under the plan, all outstanding options shall become immediately exercisable in
full and each option holder shallpurport to be given the opportunity to exercise their
options before the consummationa complete analysis of the Corporate Transaction so that the option
holder can participate in the Corporate Transaction. The Plan defines a
"Corporate Transaction" to include:
* a merger or consolidation in which Meritage is not the surviving
entity;
* the sale, transfer or other disposition of all or substantially all of the assets of Meritage in a liquidation or dissolutionpotential tax effects of the
company;Plan. It is based upon laws, regulations, rulings and decisions now in effect,
all of which are subject to change. No information is provided with respect to
foreign, state or * any reverse merger in which Meritage is the surviving entity but in
which the beneficial ownership of securities possessing more than 50%local tax laws, or estate and gift tax considerations.
VOTE REQUIRED
Adoption of the total combined voting powerPlan requires approval by holders of Meritage's outstanding
securities are transferred to holders different from those who held
such securities immediately prior to such merger.
To the extent that the plan is unaffected and assumed by the successor
corporation or its parent company, a Corporate Transaction will have no effect
onmajority of the
outstanding optionsshares of Company Common Stock who are present, or represented, and
the options shall continue in effect accordingentitled to their terms. Options which continue in effect shall be appropriately adjusted to
account for the number and class of securities which would have been issued to
the option holder in connection with the consummation of the Corporate
Transaction had the option holder exercised the option immediately prior to the
Corporate Transaction. Appropriate adjustments also shall be made to the
exercise price of such options, provided that the aggregate exercise price shall
remain the same.
PLAN BENEFITS
The following table provides information about the options that were
outstanding under the 1997 Plan on March 31, 2000. The options granted have
seven or ten-year terms, vest equally over five years beginning on the first
anniversary of the date of grant and have exercise prices ranging from $5.62 to
$19.06 per share. The options granted to directors have seven of ten-year terms,
vest equally over two years beginning on the first anniversary of the date of
grant and have exercise prices ranging from $5.62 to $14.25 per share. Grants
under the plan are madevote thereon, at the discretionAnnual Meeting of the Board. Future grants are not
yet determinable.
INDIVIDUAL OF GROUP NAME NUMBER OF SHARES
- ------------------------ ----------------
Executive Officers
Mr. Hilton 30,000
Mr. Landon 30,000
Mr. Seay 32,500
Mr. Morgan 25,000
-------
All executive officers (4 persons) 117,500
All directors who are not executive officers (5 persons) 40,000
All employees other than executive officers (27 persons) 239,000
SECURITIES ACT REGISTRATION
We intend to register the additional shares of common stock available for
issuance under a Registration Statement on Form S-8 to be filed with the
Securities and Exchange Commission.Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS
THAT YOUA VOTE FOR"FOR" APPROVAL OF THIS PROPOSAL TO
AMEND THE MERITAGE CORPORATION STOCK OPTION PLAN.
2.
INDEPENDENT ACCOUNTANTS
The firm ofAUDITORS
KPMG LLP served as ourthe Company's principal independent public accounting
firm and performed the audit of our financial statementsauditors for the fiscal
year ended December 31, 1999. A representative2000. The firm has been appointed as our independent
auditors for the fiscal year ending December 31, 2001. We expect representatives
of KPMG will attend the annual meetingLLP to be present at our Annual Meeting to answer questions, and they
will be given an opportunity to make a statement if he
wishesthey wish to.
AUDIT FEES
The aggregate fees billed by KPMG LLP for professional services rendered
for the annual audit of the Company's financial statements and the reviews of
the financial statements included in the Company's Forms 10-Q for the fiscal
year ended December 31, 2000 were $107,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
For the fiscal year ended December 31, 2000, KPMG LLP did not provide,
directly or indirectly, any services relating to do so.the design or implementation of
Meritage's information system, local area network, or any hardware or software
system.
ALL OTHER FEES
The aggregate fees paid to KPMG LLP for professional services rendered for
preparation of Meritage's state and federal income taxes during the fiscal year
ended December 31, 2000 were $81,525.
16
STOCKHOLDER PROPOSALS
The Board of Directors will consider nominations from stockholders for the
class of directors whose terms expire at the year 20012002 Annual Meeting.
Nominations must be made in writing to our Corporate Secretary, received at
least 90 days prior to the 20012002 Annual Meeting, and contain sufficient
background information concerning the nominee's qualifications. Our Corporate
Secretary must receive any other stockholder proposals for the 20012002 Annual
Meeting by December 19, 20002001 to be considered for inclusion in our 20012002 Proxy
Statement.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other business should properly come before the meeting, the
proxy holders will vote according to their best judgment.
Meritage Corporation
/s/ Larry W. Seay
----------------------------------------
Larry W. Seay
Chief Financial Officer, Vice
President-Finance, Secretary and Treasurer
March 31, 2000
152001
17
EXHIBIT A
MERITAGE CORPORATION
STOCK OPTIONAUDIT COMMITTEE OF THE BOARD OF DIRECTORS CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the
Corporation to any governmental body or the public; the Corporation's
systems of internal controls regarding finance, accounting, legal
compliance and ethics that management and the Board have established; and
the Corporation's auditing, accounting and financial reporting processes
generally. Consistent with this function, the Audit Committee should
encourage continuous improvement of, and should foster adherence to the
Corporation's policies, procedures and practices at all levels. The Audit
Committee's primary duties and responsibilities are to:
* Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system.
* Review and appraise the audit efforts of the Corporation's independent
accountants and internal auditing department.
* Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and
free from any relationship that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment as a member
of the Committee.
The following Independence criteria (which is consistent with SEC and NYSE
rules) shall apply to each Audit Committee member:
* Employees. A director who is an employee (including non-employee
executive officers) of the company or any of its affiliates may not
serve on the Audit Committee until three years following the
termination of his or her employment. In the event the employment
relationship is with a former parent or predecessor of the company,
the director could serve on the audit committee after three years
following the termination of the relationship between the company and
the former parent or predecessor.
* Business Relationship. A director (i) who is a partner, controlling
shareholder, or executive officer of the organization that has a
business relationship with the company, or (ii) who has a direct
business relationship with the company (e.g., a consultant) may serve
on the Audit Committee only if the company's Board of Directors
determines in its business judgment that the relationship does not
interfere with the director's exercise of independent judgment. In
making a determination regarding the independence of a director
pursuant to this paragraph, the Board of Directors should consider,
among other things, the materiality of the relationship to the
company, to the director, and if applicable, to the organization with
which the director is affiliated.
"Business relationships" can include commercial, industrial, banking,
consulting, legal, accounting and other relationships. A director can
have this relationship directly with the company, or the director can
be a partner, officer or employee or an organization that has such a
relationship. The director may serve on the Audit Committee without
the above-referenced Board of Directors' determination after three
18
years following the termination of, as applicable, either (1) the
relationship between the organization with which the director is
affiliated and the company, (2) the relationship between the director
and his or her partnership status, shareholder interest or executive
officer position, or (3) the direct business relationship between the
director and the company.
* Cross Compensation Committee Link. A director who is employed as an
executive of another corporation where any of the company's executives
serves on that corporation's Compensation Committee may not serve on
the Audit Committee.
* Immediate Family. A director who is an Immediate Family member of an
individual who is an executive officer of the company or any of its
affiliates cannot serve on the Audit Committee until after three years
following the termination of such employment relationship.
All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise. Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by the Corporation or an
outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until there successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication,
the Committee should meet at least annually with management and the
independent accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups believe should be
discussed privately. In addition, the Committee or at least its Chair
should meet with the independent accountants and management quarterly to
review the Company's financial statements consistent with IV.3. below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
DOCUMENTS/REPORTS REVIEW
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
2. Review the organization's annual financial statements and any reports
or other financial information submitted to any governmental body, or
the public, including any certification, report, opinion or review
rendered by the independent accountants.
3. Review the 10-Q with financial management and the independent
accountants, if necessary, prior to its filing or prior to the release
of earnings. The Chair of the Committee may represent the entire
Committee for purposes of this review.
INDEPENDENT ACCOUNTANTS
4. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve
the fees and other compensation to be paid to the independent
accountants. On an annual basis, the Committee should review and
19
discuss with the accountants all significant relationships the
accountants have with the Corporation to determine the accountants'
independence.
5. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
6. Periodically consult with the independent accountants out of the
presence of management about internal controls and the fullness and
accuracy of the organization's financial statements.
FINANCIAL REPORTING PROCESSES
7. In consultation with the independent accountants, review the integrity
of the organization's financial reporting processes, both internal and
external.
8. Consider the independent accountant's judgments about the quality and
appropriateness of the Corporation's accounting principles as applied
in its financial reporting.
9. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices as
suggested by the independent accountants or management.
PROCESS IMPROVEMENT
10. Establish regular and separate systems of reporting to the Audit
Committee by each of management and the independent accountants any
significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of
such judgments.
11. Following completion of the annual audit, review separately with each
of management and the independent accountants any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
12. Review any significant disagreements among management and the
independent accountants in connection with the preparation of the
financial statements.
13. Review with the independent accountants and management the extent to
which changes or improvements in financial or accounting practices, as
approved by the Audit Committee, have been implemented. (This review
should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the
Committee.)
ETHICAL AND LEGAL COMPLIANCE
14. Review and update periodically the company's employee handbook as it
pertains to ethical conduct and ensure that management has established
a system to enforce these policies.
15. Review management's monitoring of the Corporation's compliance with
the organization's conduct policies, and ensure that management has
the proper review system in place to ensure that Corporation's
financial statements, reports and other financial information
disseminated to governmental organizations, and the public, satisfy
legal requirements.
16. Review, with the organization's counsel, legal compliance matters
including corporate securities trading policies.
17. Review, with the organization's counsel, any legal matter that could
have a significant impact on the Company's financial statements.
18. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
20
EXHIBIT B
MERITAGE CORPORATION
2001 ANNUAL INCENTIVE PLAN
ARTICLE 1.
ESTABLISHMENT, AND PURPOSE AND DEFINITIONS.
a. The Stock Option Plan (the "Option Plan") ofDURATION
1.1 ESTABLISHMENT OF THE PLAN. Meritage HomesCorporation (the "Company") is hereby
adopted. The Option Plan shall provide forestablishes an annual incentive plan to be known as the issuance of incentive stock options ("ISOs") and nonqualified stock
options ("NSOs""Meritage Corporation
2001 Executive Management Incentive Plan" (the "Plan").
b.1.2 PURPOSE OF THE PLAN. The purpose of this Option Plan is designed to promote(i) recognize and reward
on an annual basis select Company executives for their contributions to the
long-termoverall success of the Company, and (ii) qualify compensation paid under the
Plan as "performance-based compensation" as that term is defined in Section
162(m) of the Internal Revenue Code of 1986 (the "Code") and the regulations
thereunder.
1.3 DURATION OF THE PLAN. Subject to approval by attracting, motivatingthe Company's
stockholders, the Plan will commence as of January 1, 2001. If the Plan is not
approved by the Company's stockholders, the Plan will not be effective and retaining key executives,
consultants and directors (the "Participants") throughany
grants made under the use of
competitive long-term incentives which are tiedPlan prior to stockholder
interests by providing incentivesthat date will be void. The Plan shall
terminate on December 31, 2005. No award may be made under the Plan after the
date the Plan terminates, but awards made prior to the Participantsthat date may extend beyond
that date.
ARTICLE 2.
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Whenever used in the form of
stock options which offer rewards for achievingPlan, the long-term
strategicfollowing terms shall have
the meanings set forth below and, financial objectiveswhen the meaning is intended, the initial
letter of the Company.
c. The Option Planword is intended to provide acapitalized:
a. "Award" means whereby Participants
may be given an opportunity to purchase shares of Stock (as defined
herein)the agreement of the Company pursuant to (i) options which may qualify as
ISOs under Section 422pay compensation to a
Participant upon the attainment of specified Performance Goals.
b. "Award Agreement" means the written agreement evidencing the terms and
conditions of an Award.
c. "Board" or "Board or Directors" means the Board of Directors of
Meritage Corporation.
d. "Code" means the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),from time
to time.
e. "Committee" means the Compensation Committee of the Board or (ii) NSOsthe
committee appointed by the Board pursuant to Article 3 to administer
the Plan.
f. "Company" means Meritage Corporation, or any successor thereto.
g. "Covered Employee" means an Employee who is a "covered employee"
within the meaning of Section 162(m) of the Code.
h. "Director" means any individual who is a member of the Board of
Directors of the Company.
i. "Employee" means any full-time, nonunion employee of the Company.
Directors who are not otherwise employed by the Company shall not be
considered Employees under this Plan.
j. "Participant" means a Covered Employee who is designated by the
Committee to participate in the Plan for a Performance Period pursuant
to Article 4.
k. "Performance Criteria" means the criteria that the Committee selects
for purposes of establishing the Performance Goal or Performance Goals
for a Participant for a Performance Period. The Performance Criteria
that will be used to establish Performance Goals are limited to the
following: pre- or after-tax net earnings, revenue growth, operating
21
income, operating cash flow, return on net assets, return on
shareholders' equity, return on assets, return on capital, Share price
growth, shareholder returns, gross or net profit margin, earnings per
Share, price per Share, and market share, any of which may not so
qualify.
d.be measured
either in absolute terms, or as compared to any incremental increase,
or as compared to results of a peer group. The term "Affiliates" as used in this Option Plan means parent or
subsidiary corporations, as defined inCommittee shall, within
the time prescribed by Section 424(e) and (f)162(m) of the Code, (but substituting "the Company"define in an
objective fashion the manner of calculating the Performance Criteria
it selects to use for "employer corporation"),
including parentssuch Performance Period for such Participant.
l. "Performance Goals" means, for a Performance Period, the goals
established in writing by the Committee for the Performance Period
based upon the Performance Criteria. Depending on the Performance
Criteria used to establish such Goal, the Goal may be expressed in
terms of overall Company performance or subsidiaries which become such after adoptionthe performance of an
operating unit, division, or community. The Committee, in its
discretion, may, within the time prescribed by Section 162(m) of the
OptionCode, adjust or modify the calculation of Performance Goals for such
Performance Period in order to prevent the dilution or enlargement of
the rights of Participants, (i) in the event of, or in anticipation
of, any unusual or extraordinary corporate item, transaction, event,
or development; and (ii) in recognition of, or in anticipation of, any
other unusual or nonrecurring events affecting the Company, or the
financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations, accounting
principles, or business conditions.
m. "Performance Period" means the one or more periods of time, which may
be of varying and overlapping durations, as the Committee may select,
over which the attainment of one or more Performance Goals will be
measured for the purpose of determining a Participant's right to, and
the payment of, compensation under the Plan.
2.n. "Shares" means the shares of common stock of Meritage Corporation.
2.2 SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Plan is in violation of any statute, common
law, or public policy, then only the portions of this Plan that violate such
statute, common law, or public policy shall be stricken. All portions of this
Plan that do not violate any statute or public policy shall continue in full
force and effect. Further, any court order striking any portion of this Plan
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Plan.
ARTICLE 3.
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board
consisting of not less than two Directors who qualify as "outside directors"
under Section 162(m) of the Code and the regulations issued thereunder. The
members of the Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
3.2 AUTHORITY OF THE PLANCOMMITTEE. The Committee shall have all the authority
that is necessary or helpful to enable it to discharge its responsibilities
under the Plan. Without limiting the generality of the preceding sentence, the
Committee shall have the exclusive right to interpret the Plan, to determine
eligibility for participation in the Plan, to decide all questions concerning
eligibility for and the amount of Awards payable under the Plan, to establish
and administer the Performance Goals and certify whether, and to what extent,
they are attained, to cancel and reissue any Awards granted hereunder in the
event the Award lapses for any reason (provided that the Committee shall not
have the authority to re-price previously issued and currently outstanding
Awards without shareholder approval), to construe any ambiguous provisions of
the Plan, to correct any default, to supply any omission, to reconcile any
inconsistency, to issue administrative guidelines as an aide to the
administration of the Plan, to make regulations for carrying out the Plan, and
to decide any and all questions arising in the administration, interpretation,
and application of the Plan.
22
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its stockholders, Employees, Participants,
and their estates and beneficiaries.
3.4 SECTION 162(m) COMPLIANCE. This Plan shall be administered to comply
with Section 162(m) of the Code and, if any provisions of the Plan cause any
Award to not qualify as performance-based compensation under Section 162(m) of
the Code, that provision shall be stricken from this Plan, but the other
provisions of this Plan shall remain in effect. Any action striking any portion
of this Plan shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Plan.
Furthermore, if any portion of the Plan or any Award Agreement conflicts with
Section 162(m) or the regulations issued thereunder, the provisions of Section
162(m) and such regulations shall control.
ARTICLE 4.
ELIGIBILITY AND PARTICIPATION
4.1 ELIGIBILITY. Participation is limited in any fiscal year to Employees
who the Committee concludes will be Covered Employees for such year.
4.2 ACTUAL PARTICIPATION. From among the Covered Employees eligible to
participate each year, the Committee may select those to receive Awards in any
one or more Performance Periods under the Plan.
ARTICLE 5.
FORM OF AWARDS
Awards shall be paid in cash. The Committee may, in its sole discretion,
subject any Award to such terms, conditions, restrictions, or limitations
(including but not limited to restrictions on transferability, vesting,
termination of employment for cause or otherwise, or change of control) that the
Committee deems to be appropriate, provided that such terms are not inconsistent
with the terms of the Plan or Section 162(m) of the Code. All Awards will be
evidenced by an Award Agreement.
ARTICLE 6.
DETERMINATION AND LIMITATION OF AWARDS
6.1 DETERMINATION OF AWARDS. Within the time prescribed by Section 162(m)
of the Code for each Performance Period, the Committee shall, in its sole
discretion, determine and establish:
a. THE OPTION PLAN SHALL BE ADMINISTERED BY MEMBERSthe Performance Goals applicable to the Performance Period for each
Participant;
b. the total dollar amount payable to each Participant under the Award
based upon attaining the Performance Goals; and
c. such other terms and conditions of such Award as the Committee
determines to be appropriate under the circumstances.
Such determinations shall be reflected in the minutes of a Committee meeting, or
in a written action adopted without the necessity of a meeting, and also shall
be documented in the Award Agreement.
6.2 LIMITATIONS OF THE BOARDAWARDS. If only one Performance Goal is established for
a Performance Period, the Performance Goal for such Performance Period must be
achieved in order for a Participant to receive payment for an Award for such
Performance Period. If more than one Performance Goal is established for a
Performance Period, one or more of the Performance Goals for such Performance
Period must be achieved in order for a Participant to receive payment for an
Award for such Performance Period, all as set forth in accordance with the terms
of the Award Agreement. Furthermore, the Committee is authorized at any time
during or after a Performance Period to reduce or eliminate (but not to
increase) the amount of an Award payable to any Covered Employee for a
Performance Period for any reason.
23
6.3 MAXIMUM AWARDS. Notwithstanding any provision in the Plan to the
contrary, the maximum Award payable to any Covered Employee under the Plan for a
Performance Period shall be $3,000,000.00.
6.4 EMPLOYMENT CONTINUATION. Unless otherwise determined by the Committee,
provided in the Award Agreement, or required by applicable law, no payment
pursuant to this Plan shall be made to a Participant unless the Participant is
employed by the Company on the last day of the Performance Period.
6.5 DEFERRAL OF DIRECTORSPAYMENTS. In the exercise of its discretion, the Committee
may allow a Participant to elect to defer the receipt of all or any portion of
an Award. Such deferral shall be made pursuant to the terms and conditions set
forth in any deferred compensation plan or arrangement adopted by the Company.
ARTICLE 7.
RIGHTS OF THE COMPANY (THE "BOARD") QUALIFYING AS "NON-EMPLOYEE
DIRECTORS" AS SUCH TERM IS DEFINED IN RULE 16B-3 PROMULGATED BY THE
SECURITIESEMPLOYEES
7.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
7.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 8.
AMENDMENT, MODIFICATION AND EXCHANGE COMMISSION (THE "COMMISSION").
b. THE COMMITTEE SHALL CONSIST ENTIRELY OF DIRECTORS QUALIFYING AS
"NON-EMPLOYEE DIRECTORS" AS SUCH TERM IS DEFINED IN RULE 16B-3
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"). MEMBERS OF THE COMMITTEE SHALL SERVE AT THE PLEASURE OF
THE BOARD.
c.TERMINATION
The BOARDCommittee may suspend or terminate the Plan at any time with or without
prior notice. In addition, the Committee may from time to time determine which employeesand with or
without prior notice, amend or modify the Plan in any manner, but may not
without shareholder approval adopt any amendment that would require the vote of
shareholders of the Company or its Affiliates or other individuals or entities (each an
"option holder")pursuant to Section 162(m) of the Code.
ARTICLE 9.
WITHHOLDING
The Company shall be granted options underhave the Option Plan, the
terms thereof (including without limitation determining whether the
option is an incentive stock optionpower and the times at whichright to deduct or withhold, or
require a Participant to remit to the options
shall become exercisable),Company, an amount sufficient to satisfy
Federal, state, and local taxes (including the numberParticipant's FICA obligation)
required by law to be withheld with respect to any grant, exercise, or payment
made under or as a result of shares of Stock for which
an option or options may be granted.
d. If rightsthis Plan.
ARTICLE 10.
SUCCESSORS
All obligations of the Company to repurchase Stock are imposed, the Board OR
THE COMMITTEE 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.
e. 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 subjectPlan, with respect to repurchase rights shall have imprinted or typed thereon
a legend or legends summarizing or referring to the repurchase rights.
16
f. The Board OR THE COMMITTEE 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 optionsAwards
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 BOARDhereunder, shall be binding on all option holders under the Option Plan.
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.
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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.
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 Committee. 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 Committee 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 Committee, 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
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belonging to the Company, forwhether the
option holder's own benefit or forexistence of such successor is the benefitresult of a competitor, (v) the option holder engages in any
willful misconduct designed to harm the Companydirect or its stockholders,indirect purchase,
merger, consolidation, 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.
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 Committee 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
19
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.
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 business
and/or assets of the Company in liquidation or dissolutionCompany.
ARTICLE 11.
REQUIREMENTS OF LAW
11.1 REQUIREMENTS OF LAW. The granting 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
20
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.
14. REGULATORY APPROVALS
The obligation of the Company with respect to Stock issuedAwards under the Plan shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or stock exchanges as may be required.
11.2 GOVERNING LAW. 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 or the Committeeand all agreements 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.
21
PROXY PROXY
MERITAGE CORPORATION
FOR THE ANNUAL MEETING OF STOCKHOLDERS - MAY 10, 2000
The undersigned hereby appoints John R. Landon and Steven J. Hilton, or either
one of them acting in the absence of the other with full powers of substitution,
the true and lawful attorneys and proxies for the undersigned and to vote, as
designated below, all shares of Common Stock of Meritage Corporation that the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
an Wednesday, May 10, 2000, at 9:00 a.m., Central Daylight Time, at the
University Club, Dallas, Texas 75240 and at any and all adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote, if then and there personally present, an the matters set forth below.
Unless otherwise marked, this proxy will be voted FOR the election of director
nominees and FOR Proposal No. 2.
YOUR VOTE IS IMPORTANT: PLEASE SIGN AND DATE THE OTHER SIDE OF THIS
PROXY CARD AND RETURN IT PROMPTLY USING THE ENCLOSED ENVELOPE.
FOLD AND DETACH HERE
Please mark
your vote as [X]
indicated in
this example
WITHHELD
FOR FOR ALL FOR AGAINST ABSTAIN
1. ELECTION OF CLASS I DIRECTORS: [ ] [ ] 2. TO APPROVE AMENDMENT TO COMPANY'S [ ] [ ] [ ]
VOTE FOR nominees listed below 1997 STOCK OPTION PLAN
William W. Cleverly THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
Steven J. Hilton YOU SPECIFY ABOVE. IF NO SPECIFIC VOTING DIRECTIONS ARE
Raymond Oppel GIVEN YOU, THIS PROXY WILL BE VOTED FOR THE LISTED
PROPOSAL AND, BY WITH RESPECT TO SUCH OTHER BUSINESS AS
WITHHELD FOR: (Write that nominees' name MAY PROPERLY COME BEFORE THE MEETING, IN ACCORDANCE
in the space provided below) WITH THE DISCRETION OF THE APPOINTED PROXY. PLEASE
SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
______________________________________________
Signature _____________________ Signature _____________________ Date _________
Please sign exactly as name(s) appear herein. If acting as an executor,
administrator, trustee, custodian, guardian, etc., you should so indicate in
signing. If the stockholder is a corporation, please sign the fall corporate
name, by a duly authorized officer. If shares are held jointly, each stockholder
named should sign.
FOLD AND DETACH HEREMaryland.
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